MFA FINANCIAL, INC. NEW YORK, Nov. 3, 2016 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today announced its financial results for the third quarter ended September 30, 2016.
Third Quarter 2016 and other highlights:
-- Generated third quarter net income available to common shareholders of
$79.3 million, or $0.21 per common share (based on 373.1 million
weighted average common shares outstanding). As of September 30, 2016,
book value per common share was $7.64.
-- On October 31, 2016, MFA paid its third quarter 2016 dividend of $0.20
per share of common stock to shareholders of record as of September 28,
2016.
-- MFA acquired $374.8 million of 3 year step-up securities and $311.6
million of credit sensitive residential whole loans during the quarter.
Additionally, MFA acquired $60.4 million of Credit Risk Transfer
securities and was both an opportunistic buyer and seller of Legacy
Non-Agency MBS during the quarter.
William Gorin, MFA's CEO, said, "In the third quarter, we continued to execute our strategy of targeted investment within the residential mortgage universe with a focus on credit sensitive assets. We acquired $374.8 million of 3 year step-up securities, $311.6 million of credit sensitive residential whole loans and $60.4 million of Credit Risk Transfer securities during the quarter. Further, we opportunistically purchased $38.7 million of Non-Agency MBS issued prior to 2008 ("Legacy Non-Agency MBS") and sold $13.2 million of Legacy Non-Agency MBS, realizing gains of $7.1 million for the quarter. This is the seventeenth 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 well positioned to generate attractive returns despite this period of extremely low interest rates. Rates are being held down, as on a worldwide basis there appears to be insufficient growth and a bias towards low inflation. Clearly, accommodative monetary policy also continues to impact rates. Through asset selection and hedging strategy, the estimated effective duration, a gauge of MFA's interest rate sensitivity, remains below 1.0 and measured 0.55 at quarter-end. Leverage, which reflects the ratio of our financing obligations to equity, was 3.1:1 at quarter-end."
Craig Knutson, MFA's President and COO, 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 portfolio continues to outperform our credit assumptions. In the third quarter of 2016, we reduced our credit reserve by $6.8 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."
MFA's Legacy Non-Agency MBS had a face amount of $3.8 billion with an amortized cost of $2.8 billion and a net purchase discount of $1.0 billion at September 30, 2016. This discount consists of a $715.0 million credit reserve and other-than-temporary impairments and a $294.0 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 8.09% for the third quarter is based on projected defaults equal to 21% of underlying loan balances. On average, these loans are approximately ten years seasoned and approximately 12.5% are currently 60 or more days delinquent.
The Agency MBS portfolio had an average amortized cost basis of 103.8% of par as of September 30, 2016, and generated a 1.83% yield in the third quarter. The Legacy Non-Agency MBS portfolio had an average amortized cost of 73.3% of par as of September 30, 2016, and generated a loss-adjusted yield of 8.09% in the third quarter. At the end of the third quarter, MFA held approximately $2.5 billion of the senior most tranches of 3 year step-up securities. These securities had an amortized cost of 99.9% of par and generated a 3.86% yield for the quarter.
In addition, at September 30, 2016, our investments in credit sensitive residential whole loans totaled $1.3 billion. Of this amount, $550.6 million is recorded at carrying value, or 86.4% of the interest-bearing unpaid principal balance and generated a loss-adjusted yield of 6.09% (5.71% net of servicing costs) during the quarter and $797.2 million is recorded at fair value on our consolidated balance sheet. On this portion of the portfolio we recorded gains for the quarter of approximately $18.7 million, primarily reflecting changes in the fair value of the underlying loans and coupon interest payments received during the quarter.
For the three months ended September 30, 2016, MFA's costs for compensation and benefits and other general and administrative expenses were $10.8 million, or an annualized 1.42% of stockholders' equity as of September 30, 2016.
The following table presents the weighted average prepayment speed on MFA's MBS portfolio.
Table 1
Third Quarter Second Quarter
2016 Average CPR 2016 Average CPR
---------------- ----------------
Agency MBS 16.7% 13.9%
Legacy Non-Agency MBS 15.9% 16.1%
3 Year Step-up securities (1) 32.2% 25.4%
(1) All principal payments are considered to be prepayments for conditional prepayment rate (CPR) purposes. 3 year step-up securities are MBS that are backed by securitized
Re-performing and Non-performing Loans. The securities are structured such that the coupon steps-up 300 basis points at 36 months or sooner.
As of September 30, 2016, under its swap agreements, MFA had a weighted average fixed-pay rate of interest of 1.82% and a floating receive rate of 0.53% on notional balances totaling $3.0 billion, with an average maturity of 37 months.
The following table presents MFA's asset allocation as of September 30, 2016, and yield on average interest earning assets, average cost of funds and net interest rate spread for the various asset types for the quarter ended September 30, 2016.
Table 2
ASSET ALLOCATION
At September 30, 2016 Agency MBS Legacy 3 Year Step-Up
Securities Residential Residential Whole Other, Total
Whole
Non-Agency Loans, at net (1)
MBS Loans, at Fair Value
Carrying
Value
--- --- ---
($ in Thousands)
Fair Value/ Carrying Value $4,021,535 $3,385,588 $2,523,227 $550,623 $797,191 $862,916 $12,141,080
Less Payable for Unsettled - - - (111,232) (92,728) - (203,960)
Purchases
Less Repurchase Agreements (3,356,803) (2,287,178) (1,963,760) (213,781) (419,628) (241,606) (8,482,756)
Less FHLB advances (215,000) - - - - - (215,000)
Less Senior Notes - - - - - (96,724) (96,724)
--- --- --- --- --- ------- -------
Equity Allocated $449,732 $1,098,410 $559,467 $225,610 $284,835 $524,586 $3,142,640
Less Swaps at Market Value - - - - - (109,202) (109,202)
--- --- --- --- --- -------- --------
Net Equity Allocated $449,732 $1,098,410 $559,467 $225,610 $284,835 $415,384 $3,033,438
--------
Debt/Net Equity Ratio (2) 7.9x 2.1x 3.5x 1.4x 1.8x - 3.1x
========================= ==== ==== ==== ==== ==== === ====
For the Quarter Ended September 30, 2016
----------------------------------------
Yield on Average Interest Earning 1.83% 8.09% 3.86% 6.09% N/A -% 4.23%
Assets (3)
Less Average Cost of Funds (4) (1.28) (2.98) (2.05) (2.81) (3.27) - (2.10)
----------------------------- ----- ----- ----- ----- ----- --- -----
Net Interest Rate Spread 0.55% 5.11% 1.81% 3.28% N/A -% 2.13%
======================== ==== ==== ==== ==== === === ====
(1) Includes cash and cash equivalents
and restricted cash of $411.4
million, securities obtained and
pledged as collateral, $347.6
million of CRT securities, other
assets, obligation to return
securities obtained as collateral
and other liabilities.
(2) Represents the sum of borrowings under
repurchase agreements, Federal Home
Loan Bank advances and payable for
unsettled purchases 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 $506.2 million, Senior
Notes and repurchase agreements
financing CRT security purchases.
(3) 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
September 30, 2016, the amortized
cost of our interest earning assets
were as follows: Agency MBS -
$3,974,896; Legacy Non-Agency MBS -
$2,766,024; 3 year step-up
securities - $2,515,487; and
Residential Whole Loans at carrying
value - $550,623. In addition, the
yield for residential whole loans at
carrying value was 5.71% net of 38
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.
(4) Average cost of funds includes
interest on repurchase agreements and
other advances, the cost of swaps and
Senior Notes. Agency cost of funds
includes 62 basis points and Legacy
Non-Agency cost of funds includes 74
basis points associated with Swaps to
hedge interest rate sensitivity on
these assets.
At September 30, 2016, MFA's $7.4 billion of Agency and Legacy Non-Agency MBS were backed by Hybrid, adjustable and fixed-rate mortgages. Additional information about these MBS, including average months to reset and three-month average CPR, is presented below:
Table 3
Agency MBS Legacy Non-Agency MBS (1) Total (1)
---------- ------------------------ --------
($ in Thousands)
Time to Reset Fair Value (2) Average 3 Month Fair Average 3 Month Fair Average 3 Month
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) $1,826,632 7 19.3% $2,276,780 5 15.4% $4,103,412 6 17.0%
2-5 years 511,385 33 21.5 - - - 511,385 33 21.5
> 5 years 135,798 71 15.2 - - - 135,798 71 15.2
ARM-MBS Total $2,473,815 16 19.5% $2,276,780 5 15.4% $4,750,595 11 17.4%
------------- ---------- --- ---- ---------- --- ---- ---------- --- ----
15-year fixed (6) $1,545,954 12.2% $6,357 18.6% $1,552,311 12.2%
30-year fixed (6) - - 1,096,328 17.1 1,096,328 17.1
40-year fixed (6) - - 6,123 16.5 6,123 16.5
--- --- ----- ---- ----- ----
Fixed-Rate Total $1,545,954 12.2% $1,108,808 17.1% $2,654,762 14.4%
----------------
MBS Total $4,019,769 16.7% $3,385,588 15.9% $7,405,357 16.3%
========= ========== ==== ========== ==== ========== ====
(1) Excludes $2.5 billion of 3 year
step-up securities. Refer to
Table 4 for further information.
(2) Does not include principal payments
receivable of $1.8 million.
(3) Months to Reset is the number of
months remaining before the coupon
interest rate resets. At reset, the
MBS coupon will adjust based upon
the underlying benchmark interest
rate index, margin and periodic or
lifetime caps. Months to Reset
does not reflect scheduled
amortization or prepayments.
(4) 3 month average CPR weighted by
positions as of beginning of each
month in the quarter.
(5) Includes floating rate MBS that may
be collateralized by fixed-rate
mortgages.
(6) Information presented based on data
available at time of loan
origination.
Table 4
The following table presents certain information about our 3 year step-up securities portfolio at September 30, 2016:
Underlying collateral Fair Value Net Coupon Months to Current Original 3 Month
Credit Credit Average
Step-Up (1) Support (2) Support
Bond CPR (3)
-----------
($ in Thousands)
Re-Performing loans $334,931 3.61% 15 41% 38% 30.0%
Non-Performing loans 2,188,296 3.86 21 49 47 32.8
Total 3 year step-up securities $2,523,227 3.83% 20 48% 46% 32.2%
========== ==== === === === ====
(1) Months to step-up is the weighted
average number of months remaining
before the coupon interest rate
increases pursuant to the first
coupon reset. 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.
Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Thursday, November 3, 2016, at 11:00 a.m. (Eastern Time) to discuss its third quarter 2016 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 value of MFA's MBS; 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 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 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 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; 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; and risks associated with investing in real estate assets, including changes in business conditions and general economic conditions. 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) September 30, December 31,
2016 2015
--- ---- ----
(Unaudited)
Assets:
Mortgage-backed securities ("MBS") and credit risk transfer ("CRT") securities:
Agency MBS, at fair value ($3,783,913 and $4,532,094 pledged as collateral, respectively) $4,021,535 $4,752,244
Non-Agency MBS, at fair value ($4,882,017 and $4,874,372 pledged as collateral, respectively) 5,721,796 5,822,519
Non-Agency MBS transferred to consolidated variable interest entities ("VIEs"), at fair value 187,019 598,298
CRT securities, at fair value ($320,852 and $170,352 pledged as collateral, respectively) 347,640 183,582
Securities obtained and pledged as collateral, at fair value 506,182 507,443
Residential whole loans, at carrying value ($273,419 and $93,692 pledged as collateral, respectively) 550,623 271,845
Residential whole loans, at fair value ($618,846 and $585,971 pledged as collateral, respectively) 797,191 623,276
Cash and cash equivalents 288,698 165,007
Restricted cash 122,656 71,538
Other assets 208,049 166,799
------- -------
Total Assets $12,751,389 $13,162,551
=========== ===========
Liabilities:
Repurchase agreements and other advances $8,697,756 $9,387,622
Obligation to return securities obtained as collateral, at fair value 506,182 507,443
8% Senior Notes due 2042 ("Senior Notes") 96,724 96,697
Payable for unsettled residential whole loans purchases 203,960 -
Other liabilities 213,329 203,528
------- -------
Total Liabilities $9,717,951 $10,195,290
========== ===========
Stockholders' Equity:
Preferred stock, $.01 par value; 7.50% Series B cumulative redeemable; 8,050 shares authorized; $80 $80
8,000 shares issued and outstanding ($200,000 aggregate liquidation preference)
Common stock, $.01 par value; 886,950 shares authorized; 371,083 and 370,584 shares issued and 3,711 3,706
outstanding, respectively
Additional paid-in capital, in excess of par 3,023,033 3,019,956
Accumulated deficit (566,917) (572,332)
Accumulated other comprehensive income 573,531 515,851
------- -------
Total Stockholders' Equity $3,033,438 $2,967,261
========== ==========
Total Liabilities and Stockholders' Equity $12,751,389 $13,162,551
=========== ===========
MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
(In Thousands, Except Per Share Amounts) 2016 2015 2016 2015
--------------------------------------- ---- ---- ---- ----
(Unaudited)
Interest Income:
Agency MBS $18,957 $23,618 $64,546 $81,030
Non-Agency MBS 80,370 79,276 241,116 241,440
Non-Agency MBS transferred to consolidated VIEs 3,268 11,154 12,439 34,792
CRT securities 3,983 1,593 9,897 4,477
Residential whole loans held at carrying value 5,917 4,033 16,112 11,817
Cash and cash equivalent investments 221 32 531 88
--- --- --- ---
Interest Income $112,716 $119,706 $344,641 $373,644
-------- -------- -------- --------
Interest Expense:
Repurchase agreements and other advances $46,158 $41,331 $137,127 $122,736
Senior Notes and other interest expense 2,009 2,372 6,360 7,756
----- ----- ----- -----
Interest Expense $48,167 $43,703 $143,487 $130,492
Net Interest Income $64,549 $76,003 $201,154 $243,152
------- ------- -------- --------
Other-Than-Temporary Impairments:
Total other-than-temporary impairment losses $(1,255) $ - $(1,255) $(525)
Portion of loss recognized in/(reclassed from) other comprehensive 770 - 770 (180)
income
Net Impairment Losses Recognized in Earnings $(485) $ - $(485) $(705)
----- --- --- ----- -----
Other Income, net:
Net gain on residential whole loans held at fair value $18,701 $5,565 $45,052 $10,823
Gain on sales of MBS 7,083 11,196 26,069 25,248
Other, net 8,117 (259) 12,521 (626)
----- ---- ------ ----
Other Income, net $33,901 $16,502 $83,642 $35,445
------- ------- ------- -------
Operating and Other Expense:
Compensation and benefits $7,078 $6,482 $21,507 $19,759
Other general and administrative expense 3,709 3,538 12,508 11,673
Loan servicing and other related operating expenses 4,167 2,975 10,265 6,706
Operating and Other Expense $14,954 $12,995 $44,280 $38,138
------- ------- ------- -------
Net Income $83,011 $79,510 $240,031 $239,754
Less Preferred Stock Dividends 3,750 3,750 11,250 11,250
Net Income Available to Common Stock and Participating Securities $79,261 $75,760 $228,781 $228,504
======= ======= ======== ========
Earnings per Common Share - Basic and Diluted $0.21 $0.20 $0.61 $0.61
===== ===== ===== =====
Dividends Declared per Share of Common Stock $0.20 $0.20 $0.60 $0.60
===== ===== ===== =====
INVESTOR CONTACT: InvestorRelations@mfafinancial.com
212-207-6433
www.mfafinancial.com
MEDIA CONTACT: Abernathy MacGregor
Tom Johnson, Andrew Johnson
212-371-5999
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SOURCE MFA Financial, Inc.
