Attached files
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| 8-K - MFA FINANCIAL, INC. | e606413_8k-mfa.htm |
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MFA
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| FINANCIAL, INC. | ||
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350
Park Avenue
New
York, New York 10022
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PRESS
RELEASE
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FOR
IMMEDIATE RELEASE
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||
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February
11, 2010
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NEW
YORK METRO
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CONTACT:
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MFA
Investor Relations
800-892-7547
www.mfa-reit.com
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NYSE:
MFA
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MFA
Financial, Inc.
Announces
Fourth Quarter 2009 Financial Results
MFA
Financial, Inc. (NYSE:MFA) today reported net income of $76.5 million, or $0.27
per share of common stock, for the fourth quarter ended December 31,
2009. For the fourth quarter, core earnings (as defined below) were
$72.3 million, or $0.26 per share of common stock. “Core Earnings”
for the quarter represents a non-GAAP financial measure which reflects net
income excluding impairment losses, gains on sales of securities and changes in
the unrealized net gains on MBS Forwards, none of which impacts MFA’s
distributable income. On December 16, 2009, MFA announced its fourth
quarter 2009 dividend of $0.27 per share of common stock, which was paid on
January 29, 2010 to stockholders of record as of December 31,
2009. As of December 31, 2009, MFA’s book value per share of common
stock was $7.40.
Stewart
Zimmerman, MFA’s Chairman of the Board and CEO, said “MFA continues to provide
stockholders with attractive returns through appropriately leveraged investments
in residential mortgage-backed securities (“MBS”) and we are very pleased with
the year’s results. In 2009, MFA was able to take advantage of
significant market dislocations by identifying and acquiring Non-Agency
residential MBS (“Non-Agency MBS”) with superior loss-adjusted yields at prices
significantly below par. Our fourth quarter net income represents a
return on average equity (“ROE”) of 13.9% and our goal remains to position MFA
to continue to generate double digit ROEs through appropriately leveraged
investments in residential MBS, including both Agency MBS and Non-Agency MBS.
With $653.5 million of cash and cash equivalents and $54.8 million of unpledged
Agency MBS at year-end, we remain poised to take advantage of future investment
opportunities within the residential MBS marketplace. By blending
Non-Agency MBS with Agency MBS, we seek to generate attractive returns while
reducing leverage and sensitivity to prepayments.”
William
Gorin, MFA’s President and CFO, added “We continue to benefit from the
investments we made in 2009. As of January 31, 2010, MFA’s book value
per share of common stock has increased to $7.61 due primarily to further
appreciation in MFA’s Agency and Non-Agency MBS portfolio. Due to
high premium prices and historically low yields, driven in part by the Federal
Reserve purchase of $1.25 trillion of Agency MBS, we did not purchase any Agency
MBS in 2009. As a result, MFA’s Agency MBS holdings were reduced by
$2.25 billion throughout the year, and $736.6 million in the fourth quarter of
2009 alone, through principal payments and asset sales. Given this
strategic reduction in both MFA’s Agency MBS portfolio and leverage, we
currently expect that first quarter 2010 Core EPS will be generally in line with
the fourth quarter 2009 Core EPS. We project that over 40% of our earnings will
be generated by Non-Agency MBS. We are positioned to acquire Agency MBS in 2010
as the Federal Reserve completes its Agency MBS purchase program as it has
previously indicated.”
As a
result of the reduction in its Agency MBS portfolio, MFA has substantially
reduced its reliance on leverage through repurchase financings. As of
December 31, 2009, MFA’s debt-to-equity multiple was 3.3x versus 7.2x as of
December 31, 2008. By utilizing less leverage, MFA believes that future earnings
will be less sensitive to changes in interest rates and the yield
curve.
Utilizing
comprehensive analysis focused primarily on quantifying and pricing credit risk
in our asset selection process, MFA continues to take advantage of the
investment opportunities in Non-Agency MBS. As of December 31, 2009,
approximately 47% of MFA’s total equity was allocated to funding investments in
Non-Agency MBS. In the second half of 2009, MFA’s wholly-owned
subsidiary, MFResidential Assets I, LLC (“MFR LLC”), began to utilize a modest
amount of leverage in connection with certain of its purchases of Non-Agency
MBS. Under GAAP, purchases of Non-Agency MBS in which the seller also
provides the initial repurchase financing are considered part of a single
arrangement, or a “linked transaction.” In linked transactions,
rather than report the gross amount of the purchased Non-Agency MBS and the
repurchase financing liability separately, the net of these items is included on
the balance sheet as a forward contract to repurchase MBS (“MBS Forwards”), with
any changes in the value of MBS Forwards recorded in earnings. As of
December 31, 2009, MFA had Non-Agency MBS and related receivables with fair
value of $331.0 million linked to $245.0 million of repurchase liabilities and
related payables, which were reported net as MBS Forwards of $86.0 million on
MFA’s consolidated balance sheet.
At
December 31, 2009, MFR LLC owned Non-Agency MBS (including the Non-Agency MBS
underlying MBS Forwards) with a fair value of $1.22 billion. These
Non-Agency MBS, which had a cost basis of $1.08 billion at December 31, 2009,
were acquired at a deeply discounted weighted average purchase price of 63.1% of
the face amount of the securities and, at December 31, 2009, had average
structural credit enhancement of 10.0%. This structured credit
enhancement, along with the highly discounted purchase price, mitigates MFA’s
risk of loss on these investments. In the fourth quarter, these assets generated
a loss-adjusted yield of 11.3%. Unlike MFA’s Agency MBS, due to their
discounted purchase prices, the return on these assets will increase if the
prepayment rates on these securities trend up.
During
the fourth quarter of 2009, MFA’s portfolio spread, which is the difference
between MFA’s interest-earning asset portfolio (including cash balances) net
yield of 5.23% and its 2.50% cost of funds, was 2.73%. During the
fourth quarter, MFA’s MBS net spread, which is the difference between MFA’s MBS
net yield of 5.57% and its cost of funds, was 3.07%. MFA’s book value
per share as of December 31, 2009 includes a negative interest rate swap
valuation of $152.5 million from existing interest rate hedges. As of
December 31, 2009, under our swap agreements, MFA had an average fixed pay rate
of interest of 4.23% and a floating receive rate of 0.25% on notional balances
totaling $3.0 billion, with an average maturity of 25 months. In the fourth
quarter of 2009, MFA’s costs for compensation and benefits and other general and
administrative expenses were $4.9 million.
At
December 31, 2009, Agency MBS and related receivables totaled $7.7 billion,
Non-Agency MBS and related receivables (MFA legacy Non-Agency MBS and MFR
Non-Agency MBS, including assets underlying MBS Forwards) were $1.4 billion and
cash and restricted cash was $721 million. In the fourth quarter, MFA had net
gains on sales of Agency MBS of $9.1 million and recognized in earnings
impairment losses of $8.9 million on its legacy Non-Agency MBS. We
anticipate that the majority of MFA’s assets will continue to be whole pool
Agency MBS. The average cost basis of MFA’s Agency MBS portfolio was
101.3% of par at December 31, 2009. MFA’s MBS assets continue to be
financed with multiple funding providers through repurchase
agreements.
MFA takes
into account both coupon resets and expected prepayments when measuring the
sensitivity of its MBS portfolio to changing interest rates. MFA’s MBS are
primarily hybrids which have an initial fixed interest rate for a specified
period of time and, thereafter, generally reset annually. In
measuring its assets-to-borrowing repricing gap (“Repricing Gap”), MFA measures
the difference between: (a) the weighted average months until coupon
adjustment or projected prepayment on its MBS portfolio; and (b) the months
remaining on its repurchase agreements including the impact of interest rate
swap agreements. Assuming a 15% CPR, as of December 31, 2009, the
weighted average time to repricing or assumed prepayment for MFA’s MBS portfolio
(excluding those assets held through MFR LLC which are less sensitive to changes
in interest rates due to the fact that they generate significantly higher
yields, and are impacted to a greater extent by credit performance and
prepayments) was approximately 29 months and the average term remaining on its
repurchase agreements, including the impact of interest rate swaps, was
approximately 13 months, resulting in a Repricing Gap of approximately 16
months. The prepayment speed on MFA’s MBS portfolio averaged 19% CPR during the
fourth quarter of 2009.
Stockholders
interested in participating in MFA’s Discount Waiver, Direct Stock Purchase and
Dividend Reinvestment Plan (the “Plan”) or receiving a Plan prospectus may do so
by contacting The Bank of New York Mellon, the Plan administrator, at
1-866-249-2610 (toll free). For more information about the Plan,
interested stockholders may also go to the website established for the Plan at
http://www.bnymellon.com/shareowner/isd or visit MFA’s website at
www.mfa-reit.com.
MFA will
hold a conference call on Thursday, February 11, 2010, at 10:00 a.m. (New York
City time) to discuss its fourth quarter 2009 financial results. The
number to dial in order to listen to the conference call is (800) 288-8968 in
the U.S. and Canada. International callers must dial (612)
332-0228. The replay will be available through Thursday, February 18,
2010, at 11:59 p.m., and can be accessed by dialing (800) 475-6701 in the U.S.
and Canada or (320) 365-3844 internationally and entering access
code: 146379. The conference call will also be webcast
over the internet and can be accessed at http://www.mfa-reit.com through the
appropriate link on MFA’s Investor Information page or, alternatively, at
http://www.ccbn.com. To listen to the call over the internet, go to
the applicable website at least 15 minutes before the call to register and to
download and install any needed audio software.
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
“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; MFA’s
ability to borrow to finance its assets; implementation of or changes in
government regulations or programs affecting MFA’s business; 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; 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
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At
December 31,
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2009
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2008
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(In
Thousands, Except Per Share Amounts)
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Assets:
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Mortgage-backed
securities (“MBS”) at fair value (including pledged MBS of
$7,837,830
and $10,026,638, respectively)
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$ | 8,757,954 | $ | 10,122,583 | ||||
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Cash
and cash equivalents
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653,460 | 361,167 | ||||||
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Restricted
cash
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67,504 | 70,749 | ||||||
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Forward
contracts to repurchase MBS (“MBS Forwards”), at fair
value
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86,014 | - | ||||||
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Interest
receivable
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41,775 | 49,724 | ||||||
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Real
estate, net
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10,998 | 11,337 | ||||||
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Securities
held as collateral, at fair value
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- | 17,124 | ||||||
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Goodwill
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7,189 | 7,189 | ||||||
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Prepaid
and other assets
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2,315 | 1,546 | ||||||
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Total
Assets
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$ | 9,627,209 | $ | 10,641,419 | ||||
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Liabilities:
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Repurchase
agreements
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$ | 7,195,827 | $ | 9,038,836 | ||||
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Accrued
interest payable
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13,274 | 23,867 | ||||||
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Mortgage
payable on real estate
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9,143 | 9,309 | ||||||
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Swaps,
at fair value
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152,463 | 237,291 | ||||||
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Obligations
to return cash and security collateral, at fair value
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- | 22,624 | ||||||
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Dividends
and dividend equivalent rights payable
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76,286 | 46,385 | ||||||
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Accrued
expenses and other liabilities
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11,954 | 6,030 | ||||||
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Total
Liabilities
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$ | 7,458,947 | $ | 9,384,342 | ||||
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Stockholders’
Equity:
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Preferred
stock, $.01 par value; series A 8.50% cumulative redeemable;
5,000
shares authorized; 3,840 shares issued and outstanding
($96,000
aggregate liquidation preference)
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$ | 38 | $ | 38 | ||||
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Common
stock, $.01 par value; 370,000 shares authorized;
280,078
and 219,516 issued and outstanding, respectively
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2,801 | 2,195 | ||||||
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Additional
paid-in capital, in excess of par
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2,180,605 | 1,775,933 | ||||||
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Accumulated
deficit
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(202,189 | ) | (210,815 | ) | ||||
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Accumulated
other comprehensive income/(loss)
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187,007 | (310,274 | ) | |||||
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Total
Stockholders’ Equity
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$ | 2,168,262 | $ | 1,257,077 | ||||
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Total
Liabilities and Stockholders’ Equity
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$ | 9,627,209 | $ | 10,641,419 | ||||
MFA FINANCIAL, INC.
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Three
Months Ended
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For
the Year Ended
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||||||||||||||
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December
31,
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December
31,
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(In
Thousands, Except Per Share Amounts)
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2009
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2008
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2009
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2008
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(Unaudited)
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Interest
Income:
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MBS
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$ | 121,435 | $ | 136,762 | $ | 504,464 | $ | 519,738 | ||||||||
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Cash
and cash equivalent investments
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77 | 1,018 | 1,097 | 7,729 | ||||||||||||
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Income
notes
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- | - | - | 50 | ||||||||||||
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Interest
Income
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121,512 | 137,780 | 505,561 | 527,517 | ||||||||||||
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Interest
Expense
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46,287 | 87,522 | 229,406 | 342,688 | ||||||||||||
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Net
Interest Income
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75,225 | 50,258 | 276,155 | 184,829 | ||||||||||||
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Other-Than-Temporary
Impairments:
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Total
other-than-temporary impairment losses
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(6,975 | ) | - | (85,110 | ) | (5,051 | ) | |||||||||
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Portion
of loss (reclassified from)/recognized in other
comprehensive
income/(loss)
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(1,944 | ) | - | 67,182 | - | |||||||||||
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Net Impairment Losses
Recognized in Earnings
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(8,919 | ) | - | (17,928 | ) | (5,051 | ) | |||||||||
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Other
Income/(Loss):
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Gain
on MBS Forwards, net
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8,075 | - | 8,829 | - | ||||||||||||
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Net
gain/(loss) on sale of MBS
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9,122 | - | 22,617 | (24,530 | ) | |||||||||||
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Revenue
from operations of real estate
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375 | 384 | 1,520 | 1,603 | ||||||||||||
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Loss
on termination of Swaps, net
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- | - | - | (92,467 | ) | |||||||||||
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Miscellaneous
other income, net
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- | 51 | 43 | 298 | ||||||||||||
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Other
Income/(Losses)
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17,572 | 435 | 33,009 | (115,096 | ) | |||||||||||
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Operating
and Other Expense:
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||||||||||||||||
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Compensation
and benefits
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3,241 | 1,875 | 14,065 | 10,470 | ||||||||||||
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Real
estate operating expense and mortgage interest
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434 | 465 | 1,793 | 1,777 | ||||||||||||
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Other
general and administrative expense
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1,630 | 1,704 | 7,189 | 6,638 | ||||||||||||
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Operating
and Other Expense
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5,305 | 4,044 | 23,047 | 18,885 | ||||||||||||
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Net
Income Before Preferred Stock Dividends
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78,573 | 46,649 | 268,189 | 45,797 | ||||||||||||
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Less: Preferred
Stock Dividends
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2,040 | 2,040 | 8,160 | 8,160 | ||||||||||||
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Net Income to Common
Stockholders
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$ | 76,533 | $ | 44,609 | $ | 260,029 | $ | 37,637 | ||||||||
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Income
Per Share of Common Stock:
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Basic
and Diluted
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$ | 0.27 | $ | 0.21 | $ | 1.06 | $ | 0.21 | ||||||||
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Dividends
Declared Per Share of Common Stock
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$ | 0.27 | $ | 0.21 | $ | 0.99 | $ | 0.81 | ||||||||
Reconciliations
of Non-GAAP Financial Measures
This
press release contains disclosures related to MFA’s core earnings, investments
in Non-Agency MBS, and returns on such assets for the three months ended
December 31, 2009, which may constitute non-GAAP financial measures within the
meaning of Regulation G as promulgated by the Securities and Exchange
Commission. MFA’s management believes that these non-GAAP financial
measures presented in our press release, when considered together with GAAP
financial measures, provide information that is useful to investors in
understanding period-over-period operating results and balance sheet
composition. An analysis of any non-GAAP financial measure should be
used in conjunction with results presented in accordance with GAAP.
Core
earnings and core earnings per share (“EPS”) for the quarter are not measures of
performance in accordance with GAAP, as they exclude impairment losses, gains on
sales of securities and changes in the unrealized net gains on MBS
Forwards. These excluded items are difficult to predict and do not
impact MFA’s distributable earnings. As a REIT, MFA must distribute
at least 90% of its taxable ordinary net income, which excludes, among other
things, capital gains and losses, impairment charges and mark-to-market
adjustments on MBS Forwards. We believe that core earnings and core
EPS provide useful supplemental information to both management and investors in
evaluating our financial results. A reconciliation of GAAP net income
and EPS to core earnings and core EPS for the three months ended December 31,
2009 is as follows:
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(In
Thousands, except per share data)
|
Reconciliation
|
Basic
and Diluted EPS
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||||||
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GAAP
net income/EPS
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$ | 76,533 | $ | 0.27 | ||||
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Adjustments
to GAAP net income:
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||||||||
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Net
Impairment Losses Recognized in Earnings
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8,919 | |||||||
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Net
Gain on Sales of MBS
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(9,122 | ) | ||||||
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Changes
in Unrealized Net Gains on MBS Forwards
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(3,982 | ) | ||||||
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Core
Earnings/EPS
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$ | 72,348 | $ | 0.26 | ||||
(Continued)
The
Company reports its Non-Agency MBS based on the following
categories: (1) “Legacy MBS,” which are comprised of Non-Agency MBS
that were purchased by MFA prior to July 2007 and (2) “MFR MBS,” which are
Non-Agency MBS acquired by MFR LLC. As previously described, certain
MFR MBS purchases are presented as linked transactions in MFA’s GAAP financial
statements for the quarter ended December 31, 2009. In assessing the
performance of our MFR MBS portfolio, MFA’s management does not view these
transactions as linked, but rather views the performance of the linked MBS and
the related repurchase financing as we would any other Non-Agency MBS that is
not part of a linked transaction. These non-GAAP financial measures
enhance the ability of investors to analyze the performance of MFA’s Non-Agency
MBS in the same way that MFA’s management assesses such assets. These
Non-Agency financial measures do not, however, take into account the effect of
the recognized changes in mark-to-market values in MFA’s earnings, which are
included in GAAP earnings, as a component of the net gain on MBS Forwards for
the periods presented.
A
reconciliation of information pertaining to MFA’s Non-Agency MBS that are a
component of a linked transaction are reconciled below at and for the three
months ended December 31, 2009 with the most directly comparable financial
measure calculated in accordance with GAAP, as follows:
|
(Dollars
in Thousands)
|
GAAP
Based
Information
|
Adjustments
to
Include
MFR
MBS Underlying MBS
Forwards (1)
|
Non-GAAP
Presentation (Including MBS Underlying Linked
Transactions)
|
|||||||||
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At December 31,
2009:
|
||||||||||||
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Amortized
Cost of MFR MBS
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$ | 759,166 | $ | 325,706 | $ | 1,084,872 | ||||||
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Amortized
Cost of Legacy MBS
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257,794 | - | 257,794 | |||||||||
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Total
Amortized Cost of Non-Agency MBS
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$ | 1,016,960 | $ | 325,706 | $ | 1,342,666 | ||||||
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Fair
Value of MFR MBS
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$ | 888,407 | $ | 329,540 | $ | 1,217,947 | ||||||
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Fair
Value of Legacy MBS
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204,696 | - | 204,696 | |||||||||
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Fair
Value of Non-Agency MBS
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1,093,103 | 329,540 | 1,422,643 | |||||||||
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Accrued
Interest on Non-Agency MBS
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6,601 | 1,484 | 8,085 | |||||||||
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Non-Agency
MBS and Related Receivables
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$ | 1,099,704 | $ | 331,024 | $ | 1,430,728 | ||||||
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Percent of Equity
Allocated to Non-Agency MBS:
|
||||||||||||
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Total
Stockholders’ Equity
|
$ | 2,168,262 | $ | - | $ | 2,168,262 | ||||||
|
Fair
Value of Non-Agency MBS
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$ | 1,093,103 | $ | 329,540 | $ | 1,422,643 | ||||||
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Less
Financing on Non-Agency MBS (2)
|
(396,813 | ) | - | (396,813 | ) | |||||||
|
Net
Equity Allocated to Non-Agency MBS
|
$ | 696,290 | $ | 329,540 | $ | 1,025,830 | ||||||
|
Percent
of Equity Allocated to Non-Agency MBS
|
32.1 | % | - | 47.3 | % | |||||||
|
For the Three Months
Ended December 31, 2009:
|
||||||||||||
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MFR
MBS average amortized cost
|
$ | 704,215 | $ | 281,258 | $ | 985,473 | ||||||
|
Coupon
Interest on MFR MBS
|
$ | 14,695 | $ | 3,738 | $ | 18,433 | ||||||
|
Discount
Accretion on MFR MBS
|
8,022 | 1,364 | 9,386 | |||||||||
|
Interest
Income on MFR MBS
|
$ | 22,717 | $ | 5,102 | $ | 27,819 | ||||||
|
Net
Asset Yield on MFR MBS
|
12.9 | % | 7.2 | % | 11.3 | % | ||||||
|
(1) Represents
amounts associated with the Non-Agency MBS underlying our MBS Forwards,
had such MBS qualified to be recorded as a purchase, rather than as a
component of a net derivative.
|
||||||||||||
|
(2) Includes
financing of $245.0 million which is not presented as borrowings under
repurchase agreements on the Company’s consolidated balance
sheet.
|
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