NEW YORK, Feb. 15, 2018 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today announced its financial results for the fourth quarter ended December 31, 2017.

Fourth Quarter 2017 and other highlights:

  • MFA generated fourth quarter net income available to common shareholders of $96.8 million, or $0.24 per common share (based on 397.5 million weighted average common shares outstanding). As of December 31, 2017, book value per common share was $7.70.
  • Net income increased from the prior quarter due primarily to higher income on residential whole loans held at fair value, which exhibited mark to market gains and increased cash receipts. In addition, CRT securities held at fair value increased in value as prices recovered after hurricane-related concerns in the third quarter.
  • On January 31, 2018, MFA paid its fourth quarter 2017 dividend of $0.20 per share of common stock to shareholders of record as of December 28, 2017.
  • MFA purchased more than $700 million of residential mortgage assets in the fourth quarter, including $554 million of residential whole loans.

Craig Knutson, MFA's President and CEO, said, "In the fourth quarter, we continued to execute our strategy of targeted investment within the residential mortgage universe with a focus on credit sensitive assets.  We grew our portfolio slightly this quarter, as acquisitions exceeded run-off, which included opportunistic sales of $20.9 million of Legacy Non-Agency MBS that generated realized gains of $9.0 million.  As we have for over five years now, we continue to manage this portfolio through selective and strategic sales of positions.

"MFA remains well-positioned to generate attractive returns despite historically low interest rates.  Through our asset selection and hedging strategy, the estimated net effective duration, a gauge of MFA's interest rate sensitivity, remains relatively low and measured 0.91 at quarter-end.  MFA's book value per common share was unchanged during the quarter at $7.70 and increased during 2017 approximately 1% as our investment strategy continues to produce stable book value. Leverage, which reflects the ratio of our financing obligations to equity, was 2.3:1 at quarter-end."

Mr. Knutson added, "MFA's portfolio asset selection process continues to emphasize residential mortgage credit exposure while seeking to minimize sensitivity to interest rates.  As housing prices maintain their upward trend and borrowers repair their credit and balance sheets, MFA's Legacy Non-Agency MBS portfolio continues to outperform our credit assumptions.  In the fourth quarter of 2017, we reduced our credit reserve on this portfolio by $17.1 million.  Also, our credit sensitive residential whole loans offer additional exposure to residential mortgage credit while affording us the opportunity to improve outcomes through sensible and effective servicing decisions."

During the fourth quarter MFA successfully purchased more than $700 million of residential mortgage assets, including $554 million of residential whole loans.  Portfolio run-off in RPL/NPL MBS, which had been elevated for the past few quarters, returned to more normal levels during the fourth quarter.

MFA's Legacy Non-Agency MBS had a face amount of $2.8 billion with an amortized cost of $2.0 billion and a net purchase discount of $806.5 million at December 31, 2017.  This discount consists of a $593.2 million credit reserve and other-than-temporary impairments and a $213.3 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 have underlying mortgage loans that are on average approximately twelve years seasoned and approximately 12.8% are currently 60 or more days delinquent.

The Agency MBS portfolio had an amortized cost basis of 103.8% of par as of December 31, 2017, and generated a 2.08% yield in the fourth quarter.  The Legacy Non-Agency MBS portfolio had an amortized cost of 71.2% of par as of December 31, 2017, and generated a loss-adjusted yield of 9.12% in the fourth quarter.  At the end of the fourth quarter, MFA held approximately $923.1 million of RPL/NPL MBS.  These securities had an amortized cost of 99.79% of par and generated a 4.27% yield for the quarter.  Our investments in CRT securities totaled $664.4 million at December 31, 2017, and generated a yield of 5.77% in the fourth quarter.  Values of our CRT securities increased during the quarter, reversing the declines experienced in the third quarter, as hurricane-related concerns subsided.

In addition, at December 31, 2017, our investments in credit sensitive residential whole loans totaled $2.2 billion.  Of this amount, $908.5 million is recorded at carrying value, or 88.4% of the interest-bearing unpaid principal balance, and generated a loss-adjusted yield of 5.88% (5.43% net of servicing costs) during the quarter, and $1.3 billion is recorded at fair value on our consolidated balance sheet.  On this portion of the portfolio, we recorded gains for the quarter of approximately $41.4 million, primarily reflecting changes in the fair value of the underlying loans, coupon interest payments and other cash received during the quarter.

For the three months ended December 31, 2017, MFA's costs for compensation and benefits and other general and administrative expenses were $9.3 million, or an annualized 1.14% of stockholders' equity as of December 31, 2017.

The following table presents the weighted average prepayment speed on MFA's MBS portfolio.

Table 1





Fourth Quarter
2017 Average CPR


Third Quarter
2017 Average CPR

Agency MBS


14.1%


16.2%

Legacy Non-Agency MBS


16.3%


18.7%

RPL/NPL MBS (1)


20.1%


26.2%



(1)

All principal payments are considered to be prepayments for conditional prepayment rate ("CPR") purposes.  RPL/NPL MBS are securitized financial instruments that are primarily backed by securitized re-performing and non-performing loans.  The majority of these securities are structured such that the coupon increases up to 300 basis points at 36 months from issuance or sooner.

As of December 31, 2017, under its swap agreements, MFA had a weighted average fixed-pay rate of interest of 2.04% and a floating receive rate of 1.50% on notional balances totaling $2.6 billion, with an average maturity of 27 months.

The following table presents MFA's asset allocation as of December 31, 2017, and the fourth quarter 2017 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, 2017

Agency
MBS

Legacy

Non-Agency
MBS

RPL/NPL
MBS

Credit Risk

Transfer

Securities

MSR

Related
Assets

Residential
Whole
Loans, at
Carrying

Value (1)

Residential
Whole

Loans, at Fair

Value

Other,

net (2)

Total

($ in Millions)










Fair Value/Carrying Value

$

2,825

$

2,611

$

923

$

664

$

492

$

909

$

1,325

$

588

$

10,337

Less Repurchase
 Agreements

(2,501)

(1,726)

(567)

(459)

(317)

(348)

(696)

—

(6,614)

Less Securitized Debt

—

—

—

—

—

(156)

(208)

—

(364)

Less Senior Notes

—

—

—

—

—

—

—

(97)

(97)

Net Equity Allocated

$

324

$

885

$

356

$

205

$

175

$

405

$

421

$

491

$

3,262

Debt/Net Equity Ratio (3)

7.7x

2.0x

1.6x

2.2x

1.8x

1.2x

2.1x


2.3x











For the Quarter Ended December 31, 2017










Yield on Average Interest
  Earning Assets (4)

2.08%

9.12%

4.27%

5.77%

6.35%

5.88%

N/A

—%

4.80%

Less Average Cost of

  Funds (5)

(1.79)

(3.29)

(2.72)

(2.55)

(3.11)

(3.31)

(3.58)

—

(2.72)

Net Interest Rate Spread

0.29%

5.83%

1.55%

3.22%

3.24%

2.57%

N/A

—%

2.08%



(1)

The carrying value of such loans reflects the purchase price, accretion of income, cash received and provision for loan losses since acquisition.  At December 31, 2017, the fair value of such loans is estimated to be approximately $988.7 million.

(2)

Includes cash and cash equivalents and restricted cash, securities obtained and pledged as collateral, other assets, obligation to return securities obtained as collateral and other liabilities.

(3)

Represents the sum of borrowings under repurchase agreements and securitized debt as a multiple of net equity allocated.  The numerator of our Total Debt/Net Equity Ratio also includes the obligation to return securities obtained as collateral of $504.1 million and Senior Notes.

(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, 2017, the amortized cost of our interest earning assets were as follows: Agency MBS - $2.8 billion; Legacy Non-Agency MBS - $2.0 billion; RPL/NPL MBS - $920.1 million; Credit Risk Transfer securities - $608.1 million; and Residential Whole Loans at carrying value - $908.5 million. In addition, the yield for residential whole loans at carrying value was 5.43% net of 45 basis points of servicing fee expense incurred during the quarter.  For GAAP reporting purposes, such expenses are included in Loan servicing and other related operating expenses in our statement of operations.  Interest payments received on residential whole loans at fair value is reported in Other Income as Net 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)

Average cost of funds includes interest on repurchase agreements and other advances, the cost of swaps and Senior Notes.  Agency cost of funds includes 43 basis points and Legacy Non-Agency cost of funds includes 45 basis points associated with swaps to hedge interest rate sensitivity on these assets.

At December 31, 2017, MFA's $5.4 billion of Agency and Legacy Non-Agency MBS 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)














Time to Reset


Fair
Value
(2)

Average
Months
to Reset
(3)

3 Month
Average
CPR (4)


Fair
Value

Average
Months
to Reset
(3)

3 Month
Average
CPR (4)


Fair
Value (2)

Average
Months
to Reset
(3)

3 Month
Average
CPR (4)

($ in Millions)













< 2 years (5)


$

1,483

7

17.4%


$

1,727

5

16.5%


$

3,210

6

16.9%

2-5 years


152

45

12.3


—

—

—


152

45

12.3

> 5 years


45

70

9.9


—

—

—


45

70

9.9

ARM-MBS Total


$

1,680

12

16.8%


$

1,727

5

16.5%


$

3,407

8

16.7%

15-year fixed (6)


$

1,143


10.2%


$

3


2.8%


$

1,146


10.2%

30-year fixed (6)


—


—


842


15.9


842


15.9

40-year fixed (6)


—


—


39


14.2


39


14.2

Fixed-Rate Total


$

1,143


10.2%


$

884


15.8%


$

2,027


12.7%

MBS Total


$

2,823


14.1%


$

2,611


16.3%


$

5,434


15.2%



(1)

Excludes $923.1 million of RPL/NPL MBS.

(2)

Does not include principal payments receivable of $1.9 million.

(3)

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.  Months to Reset 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.

Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Thursday, February 15, 2018, at 10:00 a.m. (Eastern Time) to discuss its fourth quarter 2017 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.

Cautionary Language Regarding Forward-Looking Statements
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," "could," "would," "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 (i.e., fair) value of MFA's MBS, residential whole loans, CRT securities and other assets; changes in the prepayment rates on the mortgage loans securing MFA's MBS, an increase of which could result in a reduction of the yield on MBS in our portfolio and could require us to reinvest the proceeds received by us as a result of such prepayments in MBS with lower coupons; credit risks underlying MFA's assets, including changes in the default rates and management's assumptions regarding default rates on the mortgage loans securing MFA's Non-Agency MBS and relating to MFA's residential whole loan portfolio; MFA's ability to borrow to finance its assets and the terms, including the cost, maturity and other terms, of any such borrowings; 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 MFA to accrete the market discount on Non-Agency MBS and residential whole loans and the extent of prepayments, realized losses and changes in the composition of MFA's Agency MBS, Non-Agency MBS and residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and whole loan modification, foreclosure and liquidation; 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 MFA's Board of Directors 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 Securities and Exchange Commission ("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 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, which is dependent on, among other things, the supply of loans offered for sale in the market; expected returns on our investments in non-performing residential whole loans ("NPLs"), which are affected by, among other things, the length of time required to foreclose upon, sell, liquidate or otherwise reach a resolution of the property underlying the NPL, home price values, amounts advanced to carry the asset (e.g., taxes, insurance, maintenance expenses, etc. on the underlying property) and the amount ultimately realized upon resolution of the asset; risks associated with our investments in MSR related assets, including servicing, regulatory and economic risks, 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 SEC, 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.

MFA FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS


 (In Thousands, Except Share and Per Share Amounts)


December 31,
2017


December 31,
2016



(Unaudited)



Assets:





Mortgage-backed securities ("MBS") and credit risk transfer ("CRT") securities:





Agency MBS, at fair value ($2,727,510 and $3,540,401 pledged as collateral, respectively)


$

2,824,681


$

3,738,497

Non-Agency MBS, at fair value ($2,379,523 and $4,751,419 pledged as collateral, respectively) (1)


3,533,966


5,684,836

CRT securities, at fair value ($595,900 and $357,488 pledged as collateral, respectively)


664,403


404,850

Mortgage servicing rights ("MSR") related assets ($482,158 and $226,780 pledged as collateral, 
     respectively)


492,080


226,780

Residential whole loans, at carrying value ($448,689 and $427,880 pledged as collateral, respectively) (2)


908,516


590,540

Residential whole loans, at fair value ($996,226 and $734,331 pledged as collateral, respectively) (2)


1,325,115


814,682

Securities obtained and pledged as collateral, at fair value


504,062


510,767

Cash and cash equivalents


449,757


260,112

Restricted cash


13,307


58,463

Other assets


238,847


194,495

Total Assets


$

10,954,734


$

12,484,022






Liabilities:





Repurchase agreements and other advances


$

6,614,701


$

8,687,268

Obligation to return securities obtained as collateral, at fair value


504,062


510,767

Other liabilities


574,335


252,085

Total Liabilities


$

7,693,098


$

9,450,120






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; 397,831 and 371,854 shares issued 
     and outstanding, respectively


3,978


3,719

Additional paid-in capital, in excess of par


3,227,304


3,029,062

Accumulated deficit


(578,950)


(572,641)

Accumulated other comprehensive income


609,224


573,682

Total Stockholders' Equity


$

3,261,636


$

3,033,902

Total Liabilities and Stockholders' Equity


$

10,954,734


$

12,484,022



(1)

Includes approximately $174.4 million of Non-Agency MBS transferred to consolidated VIEs at December 31, 2016.  Such assets can be used only to settle the obligations of each respective VIE.

(2)

Includes approximately $183.2 million of Residential whole loans, at carrying value and $289.3 million of Residential whole loans, at fair value transferred to consolidated VIEs at December 31, 2017. Such assets can be used only to settle the obligations of each respective VIE.

 

 

MFA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS




Three Months Ended December 31,


For the Year Ended December 31,

(In Thousands, Except Per Share Amounts)

2017


2016


2017


2016


(Unaudited)


(Unaudited)


(Unaudited)



Interest Income:








Agency MBS

$

15,341


$

18,523


$

65,355


$

83,069

Non-Agency MBS

58,384


79,266


271,112


332,821

CRT securities

8,816


4,873


31,715


14,770

MSR related assets

6,997


2,100


24,830


2,100

Residential whole loans held at carrying value

9,968


7,804


36,187


23,916

Cash and cash equivalent investments

1,395


243


4,249


774

Interest Income

$

100,901


$

112,809


$

433,448


$

457,450









Interest Expense:








Repurchase agreements and other advances

$

44,903


$

47,859


$

186,347


$

184,986

Other interest expense

3,592


2,009


10,794


8,369

Interest Expense

$

48,495


$

49,868


$

197,141


$

193,355









Net Interest Income

$

52,406


$

62,941


$

236,307


$

264,095









Other-Than-Temporary Impairments:








Total other-than-temporary impairment losses

$

—


$

—


$

(63)


$

(1,255)

Portion of loss (reclassed from)/recognized in other
comprehensive income

—


—


(969)


770

Net Impairment Losses Recognized in Earnings

$

—


$

—


$

(1,032)


$

(485)









Other Income, net:








Net gain on residential whole loans held at fair value

$

41,359


$

14,876


$

90,019


$

62,605

Net gain on sales of MBS and U.S. Treasury securities

9,047


9,768


39,577


35,837

Other, net

14,579


756


29,423


10,600

Other Income, net

$

64,985


$

25,400


$

159,019


$

109,042









Operating and Other Expense:








Compensation and benefits

$

5,415


$

7,774


$

31,673


$

29,281

Other general and administrative expense

3,900


3,823


17,960


16,331

Loan servicing and other related operating expenses

7,483


4,107


22,268


14,372

Operating and Other Expense

$

16,798


$

15,704


$

71,901


$

59,984









Net Income

$

100,593


$

72,637


$

322,393


$

312,668

Less Preferred Stock Dividends

3,750


3,750


15,000


15,000

Net Income Available to Common Stock and 
  Participating Securities

$

96,843


$

68,887


$

307,393


$

297,668









Earnings per Common Share - Basic and Diluted

$

0.24


$

0.18


$

0.79


$

0.80









Dividends Declared per Share of Common Stock

$

0.20


$

0.20


$

0.80


$

0.80

 

 

INVESTOR CONTACT:                  

InvestorRelations@mfafinancial.com


212-207-6488


www.mfafinancial.com



MEDIA CONTACT: 

Abernathy MacGregor


Tom Johnson


212-371-5999

 

 

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SOURCE MFA Financial, Inc.