MFA Financial (MFA) Misses Q2 EPS by 4c

August 6, 2020 8:33 AM EDT

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MFA Financial (NYSE: MFA) reported Q2 EPS of $0.19, $0.04 worse than the analyst estimate of $0.23.

Second Quarter 2020 financial results update:

  • MFA generated second quarter net income of $88.4 million, or $0.19 per common share.
  • During the second quarter, we continued to take actions to preserve book value, reduce leverage, generate liquidity and stabilize our financial position. MFA sold approximately $3.2 billion of residential mortgage assets, realizing net gains of $49.5 million for the quarter. In addition, overall asset prices recovered appreciably during this period, resulting in a partial recovery of the significant losses recorded in the first quarter. Unrealized gains on residential mortgage securities accounted for at fair value were $64.4 million during the quarter and the overall price appreciation of residential mortgage assets drove the positive changes in our book value.
  • As previously announced, on June 26, 2020 we finalized a number of financing transactions, including a $500 million capital raise through a private senior secured loan agreement and approximately $2.0 billion of non-mark-to-market term borrowing facilities. In conjunction with the completion of the transactions, we also entered into agreements to reinstate our repurchase agreement financings with certain of our financing counterparties on an ongoing basis on renegotiated terms and to terminate the forbearance agreements we initially entered into on April 10, 2020.
  • After taking into consideration dividends payable on our Series B and Series C Preferred Stock that were reinstated and declared on July 1, 2020 and paid on July 31, 2020, estimated undistributed REIT taxable income as of June 30, 2020 is $0.16 per common share.
  • GAAP book value at June 30, 2020 was $4.51 per common share, while Economic book value, a non-GAAP financial measure of MFA's financial position that adjusts GAAP book value by the amount of unrealized market value changes in residential whole loans held at carrying value for GAAP reporting, was $4.46 per common share at quarter-end.
  • MFA also announced today that it has declared a regular cash dividend of $0.05 per share of common stock. The dividend will be paid on October 30, 2020, to stockholders of record on September 30, 2020.

Commenting on the second quarter 2020 results, Craig Knutson, MFA's CEO and President said, "The second quarter of 2020 was anything but "business as usual" for MFA Financial. The global COVID-19 pandemic led to unprecedented market conditions late in the first quarter of this year, and as we entered the second quarter, we were negotiating with our lender counterparties to seek forbearance, while simultaneously working to raise liquidity and de-lever our portfolio. We entered into an initial forbearance agreement on April 10, at which time we had already reduced our repurchase obligations to $5.8 billion from $9.5 billion on March 20. Through the rest of April and into May, we continued to generate liquidity and reduce our exposure to mark-to-market financing by selling assets. The initial forbearance period was extended on April 27 to June 1, and again on June 1 to June 26. When we emerged from forbearance on June 26, our balance sheet was materially different than at the beginning of the quarter, and our assets are now primarily comprised of residential whole loans. On the liability side, we have profoundly altered the nature of our financings to be more durable, with approximately two-thirds of our asset-based (secured) financing now containing non-mark-to-market collateral provisions."

Mr. Knutson continued, "While MFA spent nearly the entire second quarter in forbearance, these agreements enabled us to liquidate assets at higher prices than would have been achievable in late March, through more judicious and orderly sales. Sales of residential mortgage securities and MSR-related assets in the second quarter generated net gains of approximately $177.5 million versus their March 31 marks, preserving significant book value relative to a sale of these securities in March. In addition, we were able to sell a large pool of Non-QM whole loans in the second quarter through a broad and competitive process. While this sale generated a significant loss of $127.2 million ($57.0 million of which was reflected in second quarter earnings), this sale process likely produced an execution that was significantly better than would have been achieved through a less orderly and non-competitive process, again preserving book value. Finally, the patience afforded us through forbearance also benefited the Company and its shareholders by permitting us to conduct a very competitive third party capital search that resulted not only in a capital investment, but also a strategic and collaborative partnership with Apollo and Athene."

Mr. Knutson added, "MFA's second quarter financial results were overwhelmingly driven by unusual events and transactions. In addition to the significant realized gains and losses through asset sales, we incurred substantial expenses associated with our capital raise, exit from forbearance and balance sheet restructuring. Further, we recognized losses associated with the termination of our interest rate swap position and we recorded a partial reversal of allowance for credit loss. It should also be noted that MFA's interest expense for the second quarter was driven by expensive forbearance interest expense that is not indicative of borrowing expense on an ongoing basis. GAAP book value was up largely due to earnings for the quarter, but Economic book value was also up as a result of continued asset price appreciation on our residential whole loans held at carrying value. Finally, we are pleased to report that in addition to reinstating preferred stock dividends, we will resume paying a common stock dividend, as today we declared a cash dividend of $0.05 per share, payable on October 30, 2020 to stockholders of record on September 30, 2020."

For earnings history and earnings-related data on MFA Financial (MFA) click here.

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