MFA Financial, Inc. (MFA)

MFA 
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Industry: Consumer Services
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MFA Financial, Inc. (MFA)

Q4 2012 Earnings Call

March 6, 2013 10:00 AM ET

Executives

Danielle Rosatelli - Accounting and Operations Assistant

Stewart Zimmerman - Director, Chairman of the Board and Chief Executive Officer

William Gorin - Director and President

Stephen Yarad - Chief Financial Officer

Ronald Freydberg - Executive Vice President

Craig Knutson - Executive Vice President

Harold Schwartz - Senior Vice President, General Counsel and Assistant Secretary

Kathleen Hanrahan - Senior Vice President and Chief Accounting Officer

Gudmundur Kristjansson - First Vice President

Analysts

Henry Coffey - Sterne, Agee

Chris Donat - Sandler O'Neill

Daniel Furtado - Jefferies

Rick Shane - JPMorgan

Gabe Poggi - FBR

Vlad Rudnytsky - Deutsche Bank

Presentation

Operator

You may begin.

Danielle Rosatelli

Good morning. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflects management's beliefs, expectations and assumptions as to MFA's future performance and operations.

When used, statements that are not historical in nature, including those containing words such as will, believes, expect, anticipate, estimate, plan, continue, intend, should, could, would, may or similar expressions are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made.

These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors including, but not limited to those relating to changes in interest rates and the market value of MFA's investment securities; changes in the prepayment rates on the mortgage loans securing MFA's investment securities; changes in the default rates and management's assumptions regarding default 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 real estate investment trust for federal income tax purposes; MFA's ability to maintain its exemption from registration under the Investment Company Act of 1940; MFA's estimates regarding taxable income and the timing and amount of distribution to stockholders; and risks associated with investing in real estate related assets, including changes in business conditions and the general economy.

These and other risks, uncertainties and factors, including those described in MFA's Annual Report on Form 10-K for the year ended December 31, 2011, its quarterly reports on Form 10-Q for the quarters ended March 31, June 30 and September 30, 2012, and other reports that it may file from time-to-time with the Securities and Exchange Commission, could cause MFA's actual results to differ materially from those projected, expressed or implied in any forward-looking statements it makes.

For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's fourth quarter 2012 financial results. Thank you for your time.

I would now like to turn this call over to Stewart Zimmerman, MFA's Chief Executive Officer.

Stewart Zimmerman

Good morning, and welcome to MFA's fourth quarter 2012 earnings call. Joining me this morning are Bill Gorin, President; Steven Yarad, Chief Financial Officer; Ron Freydberg, Executive Vice President; Craig Knutson, Executive Vice President; Harold Schwartz, Senior Vice President and General Counsel; Kathleen Hanrahan, Chief Accounting Officer; and Gudmundur Kristjansson, First Vice President.

What I'd like to do this morning is just go over some of the highlight of the press release that I hope all of you have had the opportunity to look at. I'm not going to go over the whole thing, but just a number of them that I think are important and then very quickly open the call for Q&A.

So if we're looking at the fourth quarter 2012 highlights, our net income per common share was $0.19 with core earnings per common share of $0.20. Book value per common share grew to $8.99 as of December 31, 2012, compared to $8.80 as of September 30, 2012, and $6.74 at December 31, 2011.

For the year, MFA strategy of investing at both Agency and discounted Non-Agency mortgage-backed securities generated book value share growth of 33%, in addition to quarterly dividend payment. At January 31, 2013, our book value have grown to $9.40, as Non-Agency mortgage-backed security prices have continued to gain additional value.

On March 4, 2013, our Board of Directors declared a special cash dividend of $0.50 per share of common stock. This dividend reflects a portion of the re-taxable income in excess of distribution, previously paid to stockholders for prior period. This dividend will be paid on April 10, 2013, to stockholders of record on March 15, 2013.

A combination of both home price appreciation and mortgage amortization has led to a decrease in loan-to-value ratio for many of the mortgages, underlying our Non-Agency portfolio. Due to this lower LTV, we have reduced estimated future losses within our Non-Agency portfolio.

As a result, in the fourth quarter, we transferred $81 million to accretable discount from credit reserve, and transferred $152.5 million in total for 2012. This increase in accretable discount prospectively increases the yield on Non-Agency mortgage-backed securities and will be realized in income over the life of the assets.

Following a detailed review of tax calculations, initiated my management, we determined that REIT taxable income for certain prior periods exceeded distributions made to stockholders. Consequently, our Board of Directors declared a special cash dividend, totaling approximately $179.4 million.

Approximately $130 million of this distribution will be allocated to the previously undistributed REIT taxable income for 2010 and 2011, with the remainder available to satisfy a portion of 2012 taxable income undistributed to date. Determination of 2012 taxable income will not be finalized until a timely filing of our 2012 tax return, which is expected occur in the third quarter of 2013.

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