MFA Financial, Inc. Announces Second Quarter 2016 Financial Results

NEW YORK, Aug. 3, 2016

Second Quarter 2016 and other highlights:

• Generated second quarter net income available to common shareholders of $75.2 million, or $0.20 per common share (based on 373.0 million weighted average common shares outstanding). As of June 30, 2016, book value per common share was $7.41.
• On July 29, 2016, MFA paid its second quarter 2016 dividend of $0.20 per share of common stock to shareholders of record as of June 28, 2016.
• MFA acquired $465.3 million of 3 year step-up RPL/NPL securities and $88.9 million of credit sensitive residential whole loans increasing these portfolios to $2.6 billion and $1.1 billion, respectively, at the end of the quarter. Additionally, MFA acquired $51.1 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 second quarter, we continued to execute our strategy of targeted investment within the residential mortgage universe with a focus on credit sensitive assets.  We increased our acquisitions of 3 year step-up RPL/NPL securities, bringing our holdings to $2.6 billion.  We also acquired $88.9 million of credit sensitive residential whole loans during the quarter.  Further, we opportunistically purchased $32.9 million of Non-Agency MBS issued prior to 2008 ("Legacy Non-Agency MBS") and also sold $19.8 million of Legacy Non-Agency MBS, realizing gains of $9.2 million for the quarter.  This is the sixteenth 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 0.50 at quarter-end. Leverage, which reflects the ratio of our financing obligations to equity, was 3.3:1 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 second quarter of 2016, we reduced our credit reserve by $22.4 million.  Despite heavy supply, RPL/NPL MBS spreads have tightened since the first quarter of 2016, as more buyers find these short duration and well credit-protected assets attractive.  And 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 $3.9 billion with an amortized cost of $2.9 billion and a net purchase discount of $1.0 billion at June 30, 2016.  This discount consists of a $724.2 million credit reserve and other-than-temporary impairments and a $323.6 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 7.72% for the second quarter is based on projected defaults equal to 21% of underlying loan balances.  On average, these loans are approximately ten years seasoned and approximately 12.6% are currently 60 or more days delinquent.

The Agency MBS portfolio had an average amortized cost basis of 103.8% of par as of June 30, 2016, and generated a 1.96% yield in the second quarter.  The Legacy Non-Agency MBS portfolio had an average amortized cost of 73.4% of par as of June 30, 2016, and generated a loss-adjusted yield of 7.72% in the second quarter.  At the end of the second quarter, MFA held approximately $2.6 billion of the senior most tranches of RPL/NPL MBS.  These securities had an amortized cost of 99.9% of par and generated a 3.83% yield for the quarter.