MFA Financial, Inc. Announces Fourth Quarter 2010 Financial Results

NEW YORK, Feb. 14, 2011 /PRNewswire/ -- MFA Financial, Inc. (NYSE: MFA) today announced financial results for the fourth quarter ended December 31, 2010.

Fourth quarter 2010 and other recent highlights:

    --  Fourth quarter net income per common share of $0.21 and Core Earnings
        (as defined below) per common share of $0.22.
    --  Overall, the value of MFA's assets increased in the fourth quarter.
        However, due to the fact that, as in prior years, MFA declared two
        common stock dividends within the fourth quarter totaling $0.46 per
        share, our book value per common share was $7.68 at the end of the
        fourth quarter versus $7.83 at the end of the third quarter.
    --  In the fourth quarter, we continued to grow our Non-Agency MBS portfolio
        through the purchase of approximately $509.8 million of Non-Agency MBS
        (including MBS underlying Linked Transactions (as defined below)). In
        the fourth quarter, we allowed the Agency MBS portfolio to decline.
        Agency MBS run-off amounted to $496.3 million while we acquired $362.2
        million of Agency MBS.
    --  In January 2011, we purchased or agreed to purchase $536.8 million of
        Agency MBS, more than replacing the fourth quarter and January run-off,
        generally at lower prices than were available in the fourth quarter. We
        expect that growth in both the Agency and Non-Agency portfolio should
        positively impact MFA's first quarter 2011 Core EPS.
    --  For the year ended December 31, 2010, Core Earnings totaled $241.1
        million, while estimated REIT taxable income, which directly impacts
        MFA's dividend distribution requirements, was $257.2 million. We
        anticipate that MFA's REIT taxable income will again surpass Core
        Earnings in 2011, primarily due to the fact that for Non-Agency MBS
        acquired at a discount, Core Earnings are impacted by credit reserves
        for estimated future losses while taxable income is impacted by realized
        losses only as they occur.


For the fourth quarter ended December 31, 2010, MFA generated net income available to common stock of $59.0 million, or $0.21 per share of common stock. Core Earnings for the fourth quarter were $61.9 million, or $0.22 per share of common stock. "Core Earnings" is a non-GAAP financial measure, which reflects net income excluding $3.9 million of changes in the unrealized net gains on Linked Transactions and the $6.9 million other-than-temporary impairment charges recognized in GAAP earnings. On January 31, 2011, MFA paid its fourth quarter 2010 dividend of $0.235 per share of common stock to stockholders of record as of December 31, 2010.

Stewart Zimmerman, MFA's Chairman of the Board and CEO, said, "MFA continues to provide stockholders with attractive returns through appropriately leveraged investments in both Agency and Non-Agency residential MBS. In the fourth quarter, we continued to implement our strategy of identifying and acquiring Non-Agency MBS with superior loss-adjusted yields at prices well below par. We currently project that approximately 60% of our first quarter 2011 Core Earnings will be generated by Non-Agency MBS. Our goal remains to position MFA to generate double-digit returns on equity over time."

William Gorin, MFA's President, added, "Through investment in both Non-Agency and Agency MBS, we seek to generate attractive returns with reduced leverage and with less correlation to changes in interest rates. In the fourth quarter, MFA's Non-Agency residential MBS (including MBS underlying Linked Transactions) generated an unlevered loss-adjusted yield of 8.45%. At December 31, 2010, MFA owned $2.822 billion market value of Non-Agency MBS (including Linked Transactions) with an average amortized cost of 69.6% of par. In the fourth quarter, MFA's Agency MBS generated an unlevered yield of 3.87%. At December 31, 2010, MFA owned $5.981 billion of Agency MBS, consisting of $5.315 billion of hybrid and adjustable rate MBS ("ARM-MBS") and $665 million of 15-year fixed rate MBS. Agency MBS had an average amortized cost basis of 101.8% of par."

MFA's $2.822 billion fair market value of Non-Agency MBS had a face amount of $3.685 billion, an amortized cost of $2.566 billion (69.6% of face amount) and a net purchase discount of $1.073 billion (all amounts including Linked Transactions) at December 31, 2010. This discount consists of a $799.4 million credit reserve and a $273.4 million net accretable discount. In addition, at December 31, 2010, these Non-Agency MBS had 7.5% average structured credit enhancement in the form of subordination (subordinated bonds which absorb losses before MFA's Non-Agency MBS are impacted). This structured credit enhancement, along with the purchase discount, mitigates MFA's risk of loss on these investments. Unlike MFA's Agency MBS, due to their discounted purchase prices, the return on Non-Agency MBS will generally increase if the prepayment rates on these securities trend up.

During the fourth quarter of 2010, MFA's interest-earning asset portfolio net yield was 4.78%, its cost of funds was 2.23%, and the spread was 2.55% (including MBS underlying Linked Transactions, the net yield was 4.92%, the cost of funds was 2.18% and the spread was 2.74%). The weighted average prepayment speed on MFA's MBS portfolio (including MBS underlying Linked Transactions) was 22.1% CPR during the fourth quarter of 2010. MFA's book value per common share as of December 31, 2010 includes a negative interest rate swap valuation of $139.1 million from existing interest rate hedges. As of December 31, 2010, under our swap agreements, MFA had a weighted average fixed pay rate of interest of 3.74% and a floating receive rate of 0.27% on notional balances totaling $2.805 billion, with an average maturity of 23 months. For the three months ended December 31, 2010, MFA's costs for compensation and benefits and other general and administrative expenses were $6.1 million or 1.1% of average equity on an annualized basis.

In the fourth quarter of 2010, MFA continued to implement its asset allocation strategy. MFA anticipates that the majority of its assets will continue to be whole pool Agency MBS. MFA's repurchase agreement financing continues to be provided from multiple sources. The following table presents MFA's asset allocation as of December 31, 2010 and the fourth quarter 2010 yield, cost of funds and spread for the various asset types.




ASSET ALLOCATION(1)

At December                  Non-Agency MBS           Other, net
31, 2010       Agency MBS    (2)            Cash(3)   (4)         Total

($ in
Millions)

Amortized Cost $ 5,818        $ 2,566        $ 387    $ (20)      $ 8,751



Market Value   $ 5,981        $ 2,822        $ 387    $ (20)      $ 9,170

Less Repo
Financing        (5,057)        (1,503)        -        -           (6,560)

Less
Securitized
Debt             -              (221)                   -           (221)

Equity
Allocated      $ 924          $ 1,098        $ 387    $ (20)      $ 2,389

Less Swap Mark   -              -              -        (139)       (139)

Net Equity
Allocated      $ 924          $ 1,098        $ 387    $ (159)     $ 2,250




Debt/Net
Equity Ratio
(5)              5.48    x      1.57    x      -        -           3.01    x



For the Quarter Ended December 31, 2010

Yield
on
Assets           3.87    %      8.45    %    0.08   %               4.92    %

Less Cost
of Funds         2.34    (6)    1.68         -                      2.18

Spread           1.53    %      6.77    %    0.08   %               2.74    %





(1) Information presented with respect to Non-Agency MBS, related repurchase
agreement borrowings and resulting totals are presented on a non-GAAP basis.
See the accompanying Reconciliation of Non-GAAP Financial Measures.

(2) Includes Non-Agency MBS and repurchase agreements underlying Linked
Transactions. The purchase of a Non-Agency MBS and repurchase borrowing of
this MBS with the same counterparty are accounted for under GAAP as a "linked
transaction." The two components of a linked transaction (MBS purchase and
borrowing under repurchase agreement) are evaluated on a combined basis and
are presented as "Linked Transactions" on MFA's consolidated balance sheet.

(3) Includes cash, cash equivalents and restricted cash.

(4) Includes interest receivable, real estate, goodwill, prepaid and other
assets, interest payable, interest rate swap agreements at fair value,
dividends payable and accrued expenses and other liabilities.

(5) Represents borrowings under repurchase agreements and securitized debt
as a multiple of net equity allocated.

(6) Includes effect of Swaps.







At December 31, 2010, MFA's $8.803 billion of Agency and Non-Agency MBS, which includes MBS underlying Linked Transactions, were backed by hybrid, adjustable and fixed-rate mortgages. Additional information about these MBS, including months to reset, is presented below:






                 Agency MBS            Non-Agency MBS        Total

                            Average               Average               Average

($ in
Thousands)     Market Value MTR(1)   Market Value MTR(1)   Market Value MTR(1)

Time to Reset:

< 2 years (2)  $ 1,875,645  8        $ 1,596,052  10       $ 3,471,697  9

2-5 years        2,939,229  46         253,733    46         3,192,962  46

> 5 years        500,450    77         370,161    71         870,611    74

ARM-MBS Total  $ 5,315,324  35       $ 2,219,946  24       $ 7,535,270  32



15-year fixed  $ 665,299             $ -                   $ 665,299

30-year fixed    -                     594,748               594,748

40-year fixed    -                     7,762                 7,762

Fixed-Rate
Total          $ 665,299             $ 602,510             $ 1,267,809

MBS Total      $ 5,980,623           $ 2,822,456           $ 8,803,079

(1) MTR, or 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 mortgage benchmark interest rate index, margin and periodic or
lifetime caps. The MTR does not reflect scheduled amortization or prepayments.

(2) Includes floating rate MBS that may be collateralized by fixed-rate
mortgages.







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/equityaccess or visit MFA's website at www.mfa-reit.com.

MFA will hold a conference call on Monday, February 14, 2011, at 10:00 a.m. (New York City time) to discuss its fourth quarter 2010 financial results. The number to dial in order to listen to the conference call is (800) 230-1951 in the U.S. and Canada. International callers must dial (612) 332-7517. A replay of the call will be available through Monday, February 21, 2011 at 11:59 p.m. (New York City time), and can be accessed by dialing (800) 475-6701 in the U.S. and Canada or (320) 365-3844 internationally and entering access code: 192240. 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, over the Thomson Reuters Investor Distribution Network at http://www.earnings.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 Securities and Exchange Commission, 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



                                                  December 31,  December 31,

                                                  2010         2009

(In Thousands, Except Per Share Amounts)           (Unaudited)

Assets:

Mortgage-backed securities ("MBS")

Agency MBS, at fair value ($5,519,879 and
$7,597,136 pledged                                 $ 5,980,623  $   7,664,851

as collateral, respectively)

Non-Agency MBS, at fair value ($867,655 and
$240,694 pledged                                     1,372,383      1,093,103

as collateral, respectively)

Non-Agency MBS transferred to a consolidated
variable interest entity ("VIE")                     705,704        -

Cash and cash equivalents                            345,243        653,460

Restricted cash                                      41,927         67,504

MBS linked transactions, net ("Linked
Transactions"), at fair value                        179,915        86,014

Interest receivable                                  38,215         41,775

Real estate, net                                     10,732         10,998

Goodwill                                             7,189          7,189

Prepaid and other assets                             5,476          2,315

Total Assets                                       $ 8,687,407  $   9,627,209



Liabilities:

Repurchase agreements                              $ 5,992,269  $   7,195,827

Securitized debt                                     220,933        -

Accrued interest payable                             8,007          13,274

Mortgage payable on real estate                      -              9,143

Interest rate swap agreements, at fair value         139,142        152,463

Dividends and dividend equivalents rights payable    67,040         76,286

Accrued expenses and other liabilities               9,569          11,954

Total Liabilities                                  $ 6,436,960  $   7,458,947



Commitments and contingencies



Stockholders' Equity:

Preferred stock, $.01 par value; Series A 8.50%
cumulative redeemable;                             $ 38         $   38

5,000 shares authorized; 3,840 shares issued and
outstanding ($96,000

aggregate liquidation preference)

Common stock, $.01 par value; 370,000 shares
authorized;                                          2,805          2,801

280,481 and 280,078 issued and outstanding,
respectively

Additional paid-in capital, in excess of par         2,184,493      2,180,605

Accumulated deficit                                  (191,569)      (202,189)

Accumulated other comprehensive income               254,680        187,007

Total Stockholders' Equity                         $ 2,250,447  $   2,168,262

Total Liabilities and Stockholders' Equity         $ 8,687,407  $   9,627,209










MFA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



                           Three Months Ended        For the Year Ended

                           December 31,              December 31,

(In Thousands, Except Per
Share Amounts)             2010          2009          2010        2009

                           (Unaudited)   (Unaudited) (Unaudited)

Interest Income:

Agency MBS                 $ 57,003       $ 94,978    $ 250,602    $ 440,357

Non-Agency MBS               27,214         26,457      127,070      64,107

Non-Agency MBS
transferred to a
consolidated VIE             13,281         -           13,281       -

Cash and cash equivalent
investments                  99             77          385          1,097

 Interest Income             97,597         121,512     391,338      505,561



Interest Expense:

Repurchase agreements        34,556         46,287      144,212      229,406

Securitized debt             913            -           913          -

 Total Interest Expense      35,469         46,287      145,125      229,406



 Net Interest Income         62,128         75,225      246,213      276,155



Other-Than-Temporary
Impairments:

Total
other-than-temporary
impairment losses            (5,858)        (6,975)     (6,042)      (85,110)

Portion of loss
(reclassified
from)/recognized in other
comprehensive income         (1,007)        (1,944)     (6,235)      67,182

 Net Impairment Losses
 Recognized in Earnings      (6,865)        (8,919)     (12,277)     (17,928)



Other Income, Net:

Gain on Linked
Transactions, net            12,458         8,075       53,762       8,829

Gain on sale of MBS, net     -              9,122       33,739       22,617

Revenue from operations
of real estate               364            375         1,464        1,520

Loss on termination of
repurchase agreements        -              -           (26,815)     -

Miscellaneous other
income, net                  -              -           -            43

 Other Income, Net           12,822         17,572      62,150       33,009



Operating and Other
Expense:

Compensation and benefits    3,565          3,241       16,092       14,065

Other general and
administrative expense       2,576          1,630       8,571        7,189

Real estate operating
expense, mortgage
interest and                 363            434         1,661        1,793

 prepayment penalty

 Operating and Other
 Expense                     6,504          5,305       26,324       23,047



Net Income                   61,581         78,573      269,762      268,189

Less: Preferred Stock
Dividends                    2,040          2,040       8,160        8,160

 Net Income Available to
 Common Stock and
 Participating Securities  $ 59,541       $ 76,533    $ 261,602    $ 260,029



Earnings Per Share of
Common Stock:

Basic and Diluted          $ 0.21         $ 0.27      $ 0.93       $ 1.06



Dividends Declared Per
Share of Common

 Stock                     $ 0.235        $ 0.270     $ 0.890      $ 0.990







Reconciliations of Non-GAAP Financial Measures

This press release contains disclosures related to MFA's Core Earnings, Core Earnings per common share, investments in Non-Agency MBS, and returns on such assets for the three months and year ended December 31, 2010, 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 its 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 common share for the three months and year ended December 31, 2010 are not measures of performance in accordance with GAAP, as they exclude impairment losses recognized through earnings, changes in net unrealized gains on MBS underlying our Linked Transactions, gains on the sale of MBS and losses on termination of repurchase agreements. These excluded items are difficult to predict, and MFA believes that Core Earnings provides investors with a valuable measure of the performance of the Company's ongoing business. MFA's management believes that Core Earnings and Core Earnings per common share provide useful supplemental information to both management and investors in evaluating our financial results. Reconciliations of the GAAP items discussed above to their non-GAAP measures for the three months and year ended December 31, 2010 are as follows:




                        Three Months Ended          For the Year Ended

                        December 31, 2010           December 31, 2010

                                        Basic and                   Basic and
(In Thousands, Except
Per Share Amount)       Reconciliation  Diluted EPS Reconciliation  Diluted EPS

GAAP Net Income
Available to Common
Stock and               $ 59,541                    $ 261,602

 Participating
 Securities

Less: Dividends and
Dividend Equivalent
Rights on                 (584)                       (972)

 Participating
 Securities

GAAP Net Income
Allocable to Common
Stockholders            $ 58,957        $ 0.21      $ 260,630       $ 0.93

Non-GAAP Adjustments:

 Impairment Losses
 Recognized in Earnings $ 6,865                     $ 12,277

 Changes in Net
 Unrealized Gains on
 Linked Transactions      (3,933)                     (24,881)

 Gain on Sale of MBS      -                           (33,739)

 Losses on Termination
 of Repurchase
 Agreements               -                           26,815

Total Adjustments to
Arrive at Core Earnings $ 2,932         $ 0.01      $ (19,528)      $ (0.07)

Core Earnings           $ 61,889        $ 0.22      $ 241,102       $ 0.86

Weighted Average Common
Shares Outstanding -
Basic                     281,401                     281,173

Weighted Average Common
Shares Outstanding -
Diluted                   281,490                     281,243





As previously described, certain Non-Agency MBS purchases are presented as a component of Linked Transactions in MFA's GAAP financial statements for the three months and year ended December 31, 2010. In assessing the performance of the Non-Agency MBS portfolio, MFA's management does not view these transactions as linked, but rather views the performance of the linked Non-Agency MBS and the related repurchase agreement borrowings as it would any other Non-Agency MBS that is not part of a linked transaction. Consequently, MFA considers that 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. However, as noted above, these non-GAAP financial measures do not take into account the effect of the changes in net unrealized gains on Linked Transactions, the credit related component of charges for other-than-temporary impairments, gains on the sale of MBS and losses on termination of repurchase agreements, which are included in the GAAP earnings.

Information pertaining to MFA's Non-Agency MBS that are a component of Linked Transactions are reconciled below as of and for the three months ended December 31, 2010 with the most directly comparable financial measure calculated in accordance with GAAP, as follows:




                                           Adjustments to Include

                                           Assets/Liabilities

                            GAAP Based     Underlying Linked      Non-GAAP

(Dollars in Thousands)      Information    Transactions           Presentation

At December 31, 2010:

Repurchase Agreement
Borrowings                  $ 5,992,269    $ 567,287 (1)          $ 6,559,556

Securitized Debt              220,933                               220,933

Total Borrowings (Debt)     $ 6,213,202    $ 567,287 (1)          $ 6,780,489

Stockholders' Equity        $ 2,250,447                           $ 2,250,447

Debt-to-Equity
(Debt/Stockholders' Equity)   2.8       x                           3.0       x



For the Three Months Ended
December 31, 2010:

Average Interest Earning
Assets                      $ 8,171,850    $ 622,068 (2)          $ 8,793,918

Interest Income             $ 97,597       $ 10,566               $ 108,163

Yield on Interest Earning
Assets                        4.78      %    6.79    %              4.92      %



Average Total Borrowings    $ 6,324,079    $ 494,488 (1)          $ 6,818,567

Interest Expense            $ 35,469       $ 2,040                $ 37,509

Cost of Fund                  2.23      %    1.64    %              2.18      %



Net Interest Rate Spread      2.55      %    5.15    %              2.74      %

(1) Represents borrowings under repurchase agreements underlying Linked
Transactions.

(2) Represents Non-Agency MBS underlying Linked Transactions.







The table below reconciles MFA's Non-Agency MBS and related repurchase agreement borrowings and securitized debt on a GAAP basis to reflect on a combined basis its Non-Agency MBS and related repurchase agreements underlying its Linked Transactions, which is a non-GAAP financial measure.  Based on this non-GAAP presentation, MFA has also presented certain resulting performance measures on a non-GAAP basis.    






                                       Adjustments to Include

                                       Assets/Liabilities

                   GAAP Based          Underlying Linked        Non-GAAP

(Dollars in
Thousands)         Information         Transactions             Presentation

At December 31,
2010:

Amortized Cost of
Non-Agency MBS     $ 1,846,872 (1)     $ 718,734   (2)        $ 2,565,606

Fair Value of
Non-Agency MBS     $ 2,078,087 (1)     $ 744,369   (2)        $ 2,822,456

Face/Par Value of
Non-Agency MBS     $ 2,821,489 (1)     $ 863,280   (2)        $ 3,684,769

Purchase
(Discount)
Designated as
Credit Reserve and
OTTI               $ (746,678) (1) (3) $ (99,094)  (2)        $ (845,772)   (4)

Purchase
(Discount)
Designated as
Accretable         $ (228,966) (1)     $ (45,756)  (2)        $ (274,722)

Total Purchase
(Discount) of
Non-Agency MBS     $ (975,644) (3)     $ (144,850)            $ (1,120,494) (4)



Non-Agency
Repurchase
Agreements and     $ 1,155,874         $ 567,287   (5)        $ 1,723,161

Securitized Debt



For the Three
Months Ended
December 31, 2010:

Non-Agency MBS
Average Amortized
Cost               $ 1,796,379 (1)     $ 622,068   (2)        $ 2,418,447

Non-Agency Average
Total Borrowings   $ 1,139,355         $ 494,488   (5)        $ 1,633,843

Coupon Interest on
Non-Agency MBS     $ 32,743    (1)     $ 8,187     (2)        $ 40,930

Effective Yield
Adjustment(6)      $ 7,752     (1)     $ 2,378     (2)        $ 10,130

Interest Income on
Non-Agency MBS     $ 40,495    (1)     $ 10,565               $ 51,060



Interest Expense
on Non-Agency
Total Borrowings   $ 4,873             $ 2,040     (5)        $ 6,913

Net Asset Yield on
Non-Agency MBS       9.02      %   (1)   6.79      %            8.45        %

Non-Agency Cost of
Funds                1.70      %         1.64      %            1.68        %

Non-Agency Spread    7.32      %         5.15      %            6.77        %



(1) Includes Non-Agency MBS transferred to consolidated VIE.

(2) Adjustment to reflect Non-Agency MBS underlying Linked Transactions.

(3) Amounts disclosed reflect purchase discount designated as credit reserve of
$700.3 million and OTTI of $46.4 million.

(4) Amounts disclosed reflect purchase discount designated as credit reserve of
$799.4 million and OTTI of $46.4 million.

(5) Adjustment to reflect borrowings under repurchase agreements underlying
Linked Transactions.

(6) The effective yield adjustment on Non-Agency MBS is the difference between
net income calculated using the net yield, which is based on management's
estimates of future cash flows for Non-Agency MBS, less the current coupon
yield.







Reconciliation of GAAP Net Income, Core Earnings and Estimated REIT Taxable Income

MFA calculates estimated REIT taxable income in accordance with the requirements mandated by the Internal Revenue Code. Differences exist in the determination of net income for GAAP and REIT taxable income that can lead to a significant variance in the amount and timing of when income and losses are recognized under these two measures. The amount and characteristic of the dividends distributed to stockholders is impacted by REIT taxable income. The table below sets forth a reconciliation between GAAP net income, Core Earnings and Estimated REIT taxable income for the year ended December 31, 2010.




                                                             For the Year Ended

                                                             December 31, 2010

(In Thousands)

GAAP Net Income Before Preferred Dividends                   $ 269,762

Less: Preferred Dividends Paid to Stockholders                 (8,160)

Less: Dividends and Dividend Equivalent Rights on
Participating Securities                                       (972)

GAAP Net Income Allocable to Common Stockholders             $ 260,630

Adjustments to Arrive at Core Earnings:

Add: Impairment Loss Recognized in Earnings                  $ 12,277

Add: Loss on Termination of Repurchase Agreements              26,815

Less: Changes in Net Unrealized Gains on Linked Transactions   (24,881)

Less: Gain on Sale of MBS (1)                                  (33,739)

Total Adjustments to Arrive at Core Earnings                 $ (19,528)

Core Earnings                                                $ 241,102

Adjustments to Core Earnings to Arrive at Estimated REIT
Taxable Income:

Add: Preferred Dividends Paid to Stockholders (deducted
above)                                                       $ 8,160

Add: Dividend and Dividend Equivalent Rights on
Participating Securities (deducted above)                      972

Add: Adjustment to GAAP Income to Reflect Estimated Taxable
Income on Non-Agency MBS                                       25,842

Add: Adjustment to Reflect Estimated Taxable Income on
Re-securitized Non-Agency MBS                                  2,778

Add: Other Expenses Not Deductible in Determining Taxable
Income                                                         7,082

Total Adjustments Increasing Estimated REIT Taxable Income   $ 44,834

Less: Losses on Termination of Repurchase Agreements (added
above)                                                       $ (26,815)

Less: Adjustment to GAAP Income to Reflect Taxable Income on
Agency MBS                                                     (1,913)

Total Adjustments Decreasing Estimated REIT Taxable Income   $ (28,728)

Total Net Adjustments to Core Earnings to Arrive at
Estimated REIT Taxable Income                                $ 16,106

Estimated REIT Taxable Income Available for Distribution to
Preferred and Common Stockholders                            $ 257,208

(1) Gain on sales of MBS were not recognized for REIT taxable income because
the gain on sale was offset by capital loss carry forward generated in prior
years.








CONTACT: MFA Investor Relation

         800-892-7547

         www.mfa-reit.com







SOURCE MFA Financial, Inc.