MFA FINANCIAL, INC. NEW YORK, Feb. 12, 2015 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today announced financial results for the fourth quarter ended December 31, 2014.
Fourth Quarter 2014 and other highlights:
-- Generated fourth quarter net income available to common shareholders of
$76.0 million, or $0.20 per common share (based on 370.9 million
weighted average common shares). As of December 31, 2014, book value per
common share was $8.12.
-- On January 30, 2015, MFA paid its fourth quarter 2014 dividend of $0.20
per share of common stock to shareholders of record as of December 26,
2014.
-- In the fourth quarter we continued to selectively identify and acquire
attractive investments within our targeted residential mortgage credit
universe. Within the quarter our holdings of securities backed by
re-performing and non-performing loans ("RPL/NPL MBS") approximately
doubled to $2.008 billion while our holdings of re-performing and
non-performing whole loans increased by $238.5 million to $351.4
million.
In the fourth quarter, both net income and dividend per common share were $0.20. Net income of $76.0 million includes $12.2 million of gains realized on sales of MBS and a $1.0 million decrease in the fair value of the securities underlying "Linked Transactions."
William Gorin, MFA's CEO, said, "In the fourth quarter, we continued to identify attractive investment opportunities across the residential mortgage asset universe. We grew our holdings of securities backed by re-performing and non-performing loans to $2.008 billion (including $1.847 billion reported as a component of Linked Transactions) while moving forward with the acquisition of re-performing and non-performing whole loans, bringing our holdings of credit sensitive residential whole loans to $351.4 million. In addition, we acquired $70.4 million (of which $33.2 million was reported as a component of Linked Transactions) and opportunistically sold $20.3 million of Non-Agency MBS issued prior to 2008 ("Legacy Non-Agency MBS"), realizing a gain of $12.2 million. This is the tenth consecutive quarter we have realized gains through selected sales of Legacy Non-Agency MBS based on our projections of future cash flows relative to market pricing. We did not acquire any Agency MBS in this quarter.
"MFA remains positioned for a period when Federal Reserve monetary policy may become more variable based on measures of the labor markets, indicators of inflation, international developments and other incoming data. Through asset selection and hedging strategy, the estimated effective duration, a gauge of MFA's interest rate sensitivity, remains below 1.0 and measured 0.56 at quarter-end. Leverage, which reflects the ratio of our financing obligations to equity, was 2.8:1 on a GAAP basis and 3.3:1 on a non-GAAP basis (including $1.520 billion of borrowings that are reported as a component of Linked Transactions) at quarter-end."
Craig Knutson, MFA's President and COO, added, "Our credit sensitive assets continued to benefit from improved housing fundamentals. Home price appreciation and underlying mortgage loan amortization have decreased the loan-to-value ratio ("LTV") for many of the mortgages underlying MFA's Legacy Non-Agency portfolio. We estimate that the average LTV of mortgage loans underlying our Legacy Non-Agency MBS has declined from approximately 105% as of January 2012 to approximately 76% as of December 31, 2014. In addition, we estimate that the percentage of non-delinquent loans underlying our Legacy Non-Agency MBS that are underwater (with LTVs greater than 100%), has declined from approximately 52% as of January 2012 to 12% as of December 31, 2014. As a result, we have again reduced our estimate of future losses. In the fourth quarter, we transferred $14.4 million from credit reserve to accretable discount. This increase in accretable discount is expected to increase the interest income realized over the remaining life of MFA's Legacy Non-Agency MBS."
MFA's Legacy Non-Agency MBS had a face amount of $5.159 billion with an amortized cost of $3.859 billion and a net purchase discount of $1.300 billion at December 31, 2014. This discount consists of a $900.6 million credit reserve and other-than-temporary impairments and a $399.1 million net accretable discount. We believe this credit reserve appropriately factors in remaining uncertainties regarding underlying mortgage performance and the potential impact on future cash flows. Our Legacy Non-Agency MBS loss adjusted yield of 7.67% for the fourth quarter is based on projected defaults equal to 25% of underlying loan balances. On average, these loans are approximately nine years seasoned and approximately 15% are currently 60 or more days delinquent.
The Agency portfolio had an average amortized cost basis of 103.8% of par as of December 31, 2014, and generated a 2.17% yield in the fourth quarter. The Legacy Non-Agency portfolio had an average amortized cost of 74.8% of par as of December 31, 2014, and generated a loss-adjusted yield of 7.67% in the fourth quarter. At the end of the fourth quarter, MFA held approximately $2.008 billion of the senior most tranches of RPL/NPL MBS which were issued in 2013 and 2014. These securities had an amortized cost of 99.9% of par and generated a 3.44% yield for the quarter. For GAAP reporting, $1.847 billion of these RPL/NPL MBS are reported as a component of Linked Transactions. These securities generated a 3.45% yield for the quarter, while the remaining $161.0 million not reported as a component of Linked Transactions generated a 3.25% yield for the quarter.
In addition, at December 31, 2014, our investments in credit sensitive residential whole loans totaled $351.4 million. Of this amount, $207.9 million is recorded at carrying value, or 79.6% of the unpaid principal balance and generated a loss-adjusted yield of 6.75% (6.07% net of servicing costs) during the quarter and $143.5 million is recorded at fair value in our consolidated balance sheet. On this portion of the portfolio we recorded income for the quarter of approximately $447,000, primarily reflecting changes in market value of the underlying loans since acquisition.
For the three months ended December 31, 2014, MFA's costs for compensation and benefits and other general and administrative expenses were $10.9 million or an annualized 1.36% of stockholders' equity as of December 31, 2014.
The following table presents the weighted average prepayment speed on MFA's MBS portfolio.
Table 1
Fourth Quarter Third Quarter
2014 Average CPR
2014 Average CPR
----------------
Agency MBS 12.34% 15.11%
Non-Agency MBS 12.53% 12.71%
RPL/NPL MBS (1) 17.60% 19.66%
(1) All principal payments are
considered to be prepayments for
CPR purposes. Excludes RPL/NPL
MBS that have not had a principal
payment.
As of December 31, 2014, under its swap agreements, MFA had a weighted average fixed-pay rate of interest of 1.85% and a floating receive rate of 0.16% on notional balances totaling $3.760 billion, with an average maturity of 47 months.
The following table presents, on a non-GAAP basis, MFA's asset allocation as of December 31, 2014 and the fourth quarter 2014 yield on average interest earning assets, average cost of funds and net interest rate spread for the various asset types.
Table 2
ASSET ALLOCATION
At December 31, 2014 Agency MBS Legacy RPL/NPL MBS (1) Residential Residential Other, Total
Whole Whole
Non-Agency net (1)(2)
MBS (1) Loans, at Loans, at
Carrying Fair Value
Value
--- --- ---
($ in Thousands)
Fair Value/ Carrying Value $5,904,207 $4,660,789 $2,007,832 $207,923 $143,472 $340,657 $13,264,880
Less Repurchase Agreements (5,177,835) (2,283,842) (1,596,886) (47,129) (95,195) (78,980) (9,279,867)
Less Multi-year Collateralized - (512,105) - - - - (512,105)
Financing Arrangements
Less Securitized Debt - (110,574) - - - - (110,574)
Less Senior Notes - - - - - (100,000) (100,000)
--- --- --- --- --- -------- --------
Equity Allocated $726,372 $1,754,268 $410,946 $160,794 $48,277 $161,677 $3,262,334
Less Swaps at Market Value - - - - - (59,062) (59,062)
Net Equity Allocated $726,372 $1,754,268 $410,946 $160,794 $48,277 $102,615 $3,203,272
==================== ======== ========== ======== ======== ======= ======== ==========
Debt/Net Equity Ratio (3) 7.13x 1.66x 3.89x 0.29x 1.97x 3.28x
========================= ===== ===== ===== ===== ===== =====
For the Quarter Ended December 31, 2014
---------------------------------------
Yield on Average Interest Earning Assets (4)(5) 2.17% 7.63% 3.44% 6.07% N/A 0.81% 4.15%
Less Average Cost of Funds (6) (1.12) (2.92) (1.49) (2.19) (2.19) (1.68) (1.79)
Senior Notes (7) - - - N/A (8.03) (8.03)
--------------- --- ----- -----
Net Interest Rate Spread (5) 1.05% 4.71% 1.95% 3.88% N/A (5.19)% 2.36%
--------------------------- ---- ---- ---- ---- --- ------ ----
(1) Information with respect to Legacy Non-
Agency MBS and RPL/NPL MBS, related
repurchase agreement borrowings and
resulting totals is presented on a non-GAAP
basis, as it includes $66.4 million of
Legacy Non-Agency MBS, $1.847 billion of
RPL/NPL MBS and $1.520 billion of
repurchase agreements underlying Linked
Transactions. In addition, $107.6 million
of credit risk transfer securities issued by
Government Sponsored Entities ("CRT
securities") and $79.0 million of associated
repurchase agreement borrowings are included
in other, net (of which $4.5 million of CRT
securities and $3.0 million of associated
repurchase agreement borrowings are
components of Linked Transactions). The
purchase of a Non-Agency MBS or CRT
security and contemporaneous repurchase
borrowing of this security with the same
counterparty are accounted for under GAAP as
a Linked Transaction. The two components of
a Linked Transaction are evaluated on a
combined basis and are presented net as
Linked Transactions on our consolidated
balance sheet.
(2) Includes cash and cash equivalents and
restricted cash of $249.7 million, $107.6
million of CRT securities (including CRT
securities and associated repurchase
agreements reported as Linked Transactions),
securities obtained and pledged as
collateral, interest receivable, goodwill,
prepaid and other assets, borrowings under
repurchase agreements of $507.1 million for
which U.S. Treasury securities are pledged
as collateral, interest payable, dividends
payable and accrued expenses and other
liabilities.
(3) Information presented on a non-GAAP basis.
Represents the sum of borrowings under
repurchase agreements (including an
aggregate $1.520 billion of repurchase
agreements underlying Linked Transactions),
payable for unsettled MBS purchases, multi-
year collateralized financing arrangements
of $512.1 million and securitized debt as a
multiple of net equity allocated. The
numerator of our Total Debt/Net Equity
ratio also includes borrowings under
repurchase agreements of $507.1 million for
which U.S. Treasury securities are pledged
as collateral and Senior Notes. On a GAAP
basis, which excludes the impact of Linked
Transactions, our debt-to-equity ratio is
1.64x for Legacy Non-Agency MBS, 4.35x for
RPL/NPL MBS and 2.81x in total.
(4) Yields reported on our interest earning
assets are calculated based on the interest
income recorded and the average amortized
cost for the quarter of the respective
asset. At December 31, 2014 the amortized
cost of our interest earning assets were as
follows: Agency MBS - $5,824,093; Legacy
Non-Agency MBS - $3,920,911; RPL/NPL MBS
- $2,008,106; and Residential Whole Loans
at carrying value - $207,923. In addition,
the yield for residential whole loans at
carrying value is presented net of 68 basis
points of servicing fee expense incurred
during the quarter. For GAAP reporting
purposes, such expenses are included in
Other investment related operating expenses
in our statement of operations. Interest
payments received on residential whole loans
at fair value is reported in other income as
Gain on residential whole loans held at fair
value in our statement of operations.
Accordingly, no yield is presented as such
loans are not included in interest earning
assets for reporting purposes.
(5) Information presented on a non-GAAP basis.
On a GAAP basis, which excludes the impact
of Linked Transactions the total yield on
average interest earning assets for the
quarter is 4.24% and the total net interest
rate spread for the quarter was 2.41%.
(6) Information presented on a non-GAAP basis.
Average cost of funds includes interest on
repurchase agreements (including interest on
$1.520 billion of repurchase agreements
underlying Linked Transactions), the cost of
swaps and securitized debt. Agency cost of
funds includes 79 basis points and Non-
Agency cost of funds includes 60 basis
points associated with Swaps to hedge
interest rate sensitivity on these assets.
On a GAAP basis, which excludes the impact
of Linked Transactions, the average cost of
funds for the quarter was 1.76%.
(7) Includes amortization costs in connection
with the issuance in of Senior Notes.
At December 31, 2014, MFA's $10.564 billion of Agency and Legacy Non-Agency MBS, which includes $66.4 million of Non-Agency MBS underlying Linked Transactions, were backed by hybrid, adjustable and fixed-rate mortgages. Additional information about these MBS, including average months to reset and three-month average CPR, is presented below:
Table 3
Agency MBS Legacy Non-Agency MBS (1) Total (1)
---------- ------------------------ --------
($ in Thousands)
Time to Reset Fair Average 3 Month Fair Average 3 Month Fair Average 3 Month
Value (2) Months Average Value Months Average Value (2) Months Average
to Reset CPR (4) to Reset CPR (4) to CPR (4)
(3) (3) Reset (3)
--- --- --- --------
< 2 years (5) $2,155,382 6 15.1% $2,958,870 6 12.1% $5,114,252 6 13.5%
2-5 years 1,254,137 42 14.2 229,896 28 10.7 1,484,033 40 13.5
> 5 years 329,416 82 9.1 - - - 329,416 82 9.1
ARM-MBS Total $3,738,935 25 14.8% $3,188,766 7 12.0% $6,927,701 17 13.4%
------------- ---------- --- ---- ---------- --- ---- ---------- --- ----
15-year fixed (6) $2,164,730 8.1% $11,522 13.2% $2,176,252 8.1%
30-year fixed (6) - - 1,454,924 13.6 1,454,924 13.6
40-year fixed (6) - - 5,577 14.1 5,577 14.1
--- --- ----- ---- ----- ----
Fixed-Rate Total $2,164,730 8.1% $1,472,023 13.6% $3,636,753 10.5%
---------------- ---- ----
MBS Total $5,903,665 12.3% $4,660,789 12.5% $10,564,454 12.4%
========= ========== ==== ========== ==== =========== ====
(1) Excludes $2.008 billion of RPL/NPL
MBS. Refer to Table 4 for further
information.
(2) Does not include principal payments
receivable of $542,000.
(3) MTR or Months to Reset is the number
of months remaining before the
coupon interest rate resets. At
reset, the MBS coupon will adjust
based upon the underlying benchmark
interest rate index, margin and
periodic or lifetime caps. The MTR
does not reflect scheduled
amortization or prepayments.
(4) 3 month average CPR weighted by
positions as of beginning of each
month in the quarter.
(5) Includes floating rate MBS that may
be collateralized by fixed rate
mortgages.
(6) Information presented based on data
available at time of loan
origination.
Table 4
The following table presents certain information about our RPL/NPL MBS portfolio at December 31, 2014:
Fair Value Net Coupon Months to Current Credit Original 3 Month
Step-Up (1) Support (2) Credit Average
Support Bond CPR (3)
------- -----------
($ in Thousands)
Re-Performing MBS $562,772 3.68% 27 43% 42% 13.3%
Non-Performing MBS 1,445,060 3.49 32 51 51 19.7
Total RPL/NPL MBS $2,007,832 3.55% 30 49% 48% 17.6%
========== ==== === === === ====
(1) Months to step-up is the weighted
average number of months remaining
before the coupon interest rate
increases a cumulative 300 basis
points. We anticipate that the
securities will be redeemed prior
to the step-up date.
(2) Credit Support for a particular
security is expressed as a
percentage of all outstanding
mortgage loan collateral. A
particular security will not be
subject to principal loss as long
as credit enhancement is greater
than zero.
(3) All principal payments are
considered to be prepayments for
CPR purposes. Excludes RPL/NPL
MBS that have not had a principal
payment.
Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Thursday, February 12, 2015, at 10:00 a.m. (Eastern Time) to discuss its fourth quarter 2014 financial results. The live audio webcast will be accessible to the general public over the internet at http://www.mfafinancial.com through the "Webcasts & Presentations" link on MFA's home page. To listen to the conference call over the internet, please go to the MFA website at least 15 minutes before the call to register and to download and install any needed audio software. Earnings presentation materials will be posted on the MFA website prior to the conference call and an audio replay will be available on the website following the call.
When used in this press release or other written or oral communications, statements which are not historical in nature, including those containing words such as "will," "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "may" or similar expressions, are intended to identify "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, may involve known and unknown risks, uncertainties and assumptions. Statements regarding the following subjects, among others, may be forward-looking: changes in interest rates and the market value of MFA's MBS; changes in the prepayment rates on the mortgage loans securing MFA's MBS; changes in the default rates and management's assumptions regarding default rates on the mortgage loans securing MFA's Non-Agency MBS; MFA's ability to borrow to finance its assets and the terms, including the cost, maturity and other terms, of any such borrowing; implementation of or changes in government regulations or programs affecting MFA's business; MFA's estimates regarding taxable income the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by the Company to accrete the market discount on Non-Agency MBS and the extent of prepayments, realized losses and changes in the composition of MFA's Agency MBS and Non-Agency MBS portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals; the timing and amount of distributions to stockholders, which are declared and paid at the discretion of MFA's Board of Directors and will depend on, among other things, MFA's taxable income, its financial results and overall financial condition and liquidity, maintenance of its REIT qualification and such other factors as the Board deems relevant; MFA's ability to maintain its qualification as a REIT for federal income tax purposes; MFA's ability to maintain its exemption from registration under the Investment Company Act of 1940, as amended (or the Investment Company Act), including statements regarding the Concept Release issued by the SEC relating to interpretive issues under the Investment Company Act with respect to the status under the Investment Company Act of certain companies that are in engaged in the business of acquiring mortgages and mortgage-related interests; MFA's ability to successfully implement its strategy to grow its residential whole loan portfolio; and risks associated with investing in real estate assets, including changes in business conditions and the general economy. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that MFA files with the Securities and Exchange Commission, could cause MFA's actual results to differ materially from those projected in any forward-looking statements it makes. All forward-looking statements speak only as of the date on which they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect MFA. Except as required by law, MFA is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
INVESTOR CONTACT: InvestorRelations@mfafinancial.com
212-207-6433
www.mfafinancial.com
MEDIA CONTACT: Abernathy MacGregor
Tom Johnson, Andrew Johnson
212-371-5999
MFA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts) December 31, December 31,
2014 2013
--- ---- ----
(Unaudited)
Assets:
Mortgage-backed securities ("MBS") and CRT securities:
Agency MBS, at fair value ($5,519,813 and $6,142,306 pledged as collateral, respectively) $5,904,207 $6,519,221
Non-Agency MBS, at fair value ($2,377,343 and $1,778,067 pledged as collateral, respectively) 3,358,426 2,569,766
Non-Agency MBS transferred to consolidated variable 1,397,006 2,282,371
interest entities ("VIEs"), at fair value
CRT securities, at fair value ($94,610 and $0 pledged as collateral, respectively) 102,983 -
Securities obtained and pledged as collateral, at fair value 512,105 383,743
Residential whole loans ($67,536 and $0 pledged as collateral, respectively) 207,923 -
Residential whole loans, at fair value ($143,072 and $0 pledged as collateral, respectively) 143,472 -
Cash and cash equivalents 182,437 565,370
Restricted cash 67,255 37,520
Interest receivable 31,257 35,828
Derivative instruments:
MBS linked transactions, net ("Linked Transactions"), at fair value 398,336 28,181
Interest rate swap agreements ("Swaps"), at fair value 3,136 13,000
Goodwill 7,189 7,189
Prepaid and other assets 39,012 29,719
------ ------
Total Assets $12,354,744 $12,471,908
=========== ===========
Liabilities:
Repurchase agreements $8,267,388 $8,339,297
Securitized debt 110,574 366,205
Obligation to return securities obtained as collateral, at fair value 512,105 383,743
8% Senior Notes due 2042 ("Senior Notes") 100,000 100,000
Accrued interest payable 13,095 14,726
Swaps, at fair value 62,198 28,217
Dividends and dividend equivalents rights ("DERs") payable 74,529 73,643
Accrued expenses and other liabilities 11,583 23,826
------ ------
Total Liabilities $9,151,472 $9,329,657
========== ==========
Commitments and contingencies
Stockholders' Equity:
Preferred stock, $.01 par value; 7.50% Series B cumulative redeemable; 8,050 shares authorized; 8,000 shares issued and
outstanding ($200,000 aggregate liquidation preference) $80 $80
Common stock, $.01 par value; 886,950 shares authorized; 370,084 and 365,125 shares issued and outstanding, respectively 3,701 3,651
Additional paid-in capital, in excess of par 3,013,634 2,972,369
Accumulated deficit (568,596) (571,544)
Accumulated other comprehensive income 754,453 737,695
------- -------
Total Stockholders' Equity $3,203,272 $3,142,251
========== ==========
Total Liabilities and Stockholders' Equity $12,354,744 $12,471,908
=========== ===========
MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended For the Year Ended
December 31, December 31,
------------ ------------
(In Thousands, Except Per Share Amounts) 2014 2013 2014 2013
--------------------------------------- ---- ---- ---- ----
(Unaudited) (Unaudited) (Unaudited)
Interest Income:
Agency MBS $32,539 $39,064 $142,543 $156,046
Non-Agency MBS 50,637 42,310 185,806 170,485
Non-Agency MBS transferred to consolidated VIEs 25,014 39,644 130,524 156,285
CRT securities 742 - - 772 -
Residential whole loans 2,234 - 4,083 -
Cash and cash equivalent investments 26 31 89 124
--- --- --- ---
Interest Income $111,192 $121,049 $463,817 $482,940
-------- -------- -------- --------
Interest Expense:
Repurchase agreements $35,890 $38,700 $145,244 $143,885
Securitized debt 1,062 2,719 6,533 12,100
Senior Notes 2,008 2,008 8,031 8,028
----- ----- ----- -----
Interest Expense $38,960 $43,427 $159,808 $164,013
Net Interest Income $72,232 $77,622 $304,009 $318,927
------- ------- -------- --------
Other Income, net:
Unrealized net gains and net interest income from Linked Transactions $7,506 $1,440 $17,092 $3,225
Gains on Residential whole loans, at fair value 447 - 447 -
Gains/(losses) on TBA short positions - 1,207 - (7,517)
Gain on sales of MBS and U.S. Treasury securities, net 12,194 6,147 37,497 25,825
Other, net 55 54 (251) 219
--- --- ---- ---
Other Income, net $20,202 $8,848 $54,785 $21,752
------- ------ ------- -------
Operating and Other Expense:
Compensation and benefits $7,203 $4,477 $25,581 $20,328
Other general and administrative expense 3,690 3,186 15,164 13,361
Excise tax and interest - 250 1,162 2,250
Impairment of resecuritization related costs - - - 2,031
Other investment related operating expenses 1,833 - 3,383 -
----- --- ----- ---
Operating and Other Expense $12,726 $7,913 $45,290 $37,970
------- ------ ------- -------
Net Income $79,708 $78,557 $313,504 $302,709
Less Preferred Stock Dividends 3,750 3,750 15,000 13,750
Less Issuance Costs of Redeemed Preferred Stock - - - 3,947
--- --- --- -----
Net Income Available to Common Stock and Participating Securities $75,958 $74,807 $298,504 $285,012
======= ======= ======== ========
Earnings per Common Share - Basic and Diluted $0.20 $0.20 $0.81 $0.78
===== ===== ===== =====
Dividends Declared per Share of Common Stock $0.20 $0.20 $0.80 $1.64 (1)
===== ===== ===== ===== ===
(1) Includes special dividends of $0.78 per share declared during the year ended December 31, 2013.
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SOURCE MFA Financial, Inc.
