MFA Financial, Inc. (MFA)

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

Q1 2013 Earnings Call

May 1, 2013 10:00 am ET

Executives

Danielle Rosatelli – Accounting and Operations Assistant

Stewart Zimmerman – Chairman and Chief Executive Officer

William S. Gorin – President of MFA Financial, Inc

Stephen D. Yarad – Chief Financial Officer

Craig L. Knutson – Executive Vice President

Analysts

Daniel Altscher – FBR Capital Markets

Henry Coffey – Sterne, Agee & Leach, Inc.

Steve DeLaney – JMP Securities LLC

Douglas Harter – Credit Suisse Securities

Joe Hudak – Wells Fargo Advisors LLC

Michael Widner – KBW

Christopher Donat – Sandler O'Neill & Partners LP

Richard Shane – JPMorgan Securities LLC

Arren Cyganovich – Evercore Partners

Presentation

Operator

Ladies and gentlemen thank you for standing by and welcome to the MFA Financial, Inc. First Quarter 2013 Earnings Call. For the conference, all participants are in a listen-only mode. (Operator Instructions) As a reminder, today’s call is being recorded.

With that being said, turning the conference now to Ms. Danielle Rosatelli, Financial Analyst and Investor Relations. Please go ahead.

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 reflect management’s beliefs, expectations and assumptions as to MFA’s future performance and operation.

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 distributions 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, 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 first quarter 2013 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 first quarter 2013 earnings call. Joining this morning on the call are the senior officers of MFA. Today we announced financial results for the first quarter ended March 31, 2013, reaching financial results and other significant highlights for MFA include the following. Our first quarter net income per common share of $0.21 and core earnings per common share of $0.20.

Book value per common share was $8.84 as of March 31, 2013, compared to $8.99 at December 31, 2012. Excluding the impact of the $0.50 per share special dividend declared March 4, 2013. Book value would have increased in the quarter due primarily to continued appreciation within the non-agency MBS portfolio.

Relating to that as you might notice on the front page of the Wall Street Journal today it mentions housing market accelerates, and again we believe that something that was very positive, continued positive for MFA and our non-agency portfolio.

On April 30, 2013, we paid our first quarter 2013 dividend of $0.22 per share of common stock to stockholders of record as of April 12, 2013.

A combination of both home price appreciation and mortgage amortization has led to a decrease in the loan-to-value ratio for many of the mortgages underlying our non-agency portfolio. Due to this lower LTV, we have reduced our estimate of future losses within our non-agency portfolio. As a result, in the first quarter we transferred $34.5 million to accretable discount from credit reserve, bringing the total transferred over the last nine months to of just sort of a $170 million. This increase in accretable discount prospectively increases the yield on our non-agency mortgage back securities and will be realizing income over the life of the assets.

For the first quarter ended March 31, 2013, we generated net income allocable to common stockholders of $75 million, or $0.21 per share of common stock. Core earnings for the first quarter were $72.3 million, or $0.20 per share of common stock.

We continue to provide stockholders attractive returns to what we believe to be appropriate leverage investments in both agency and non-agency residential mortgage back securities. At quarter end, our debt to equity ratio was 3.1:1. Our agency portfolio had an average amortized cost basis of a 103.4% of par as of March 31, 2013, and generated a 2.42% yield in the first quarter. Our non-agency portfolio had an average amortized cost of 73.2% of par as of March 31, 2013, and generated a loss adjusted yield of 6.8% in the first quarter.

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