MFA Financial, Inc. (MFA)

MFA 
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MFA Financial, Inc. (MFA)

Q2 2013 Earnings Conference Call

August 1, 2013 10:00 AM ET

Executives

Danielle Rosatelli – Financial Analyst-Investments Department

Stewart Zimmerman – Chief Executive Officer

Craig L. Knutson – Executive Vice President

Stephen D. Yarad – Chief Financial Officer

Gudmundur Kristjansson – First Vice President

Analysts

Steve C. DeLaney – JMP Securities LLC

Douglas M. Harter – Credit Suisse Securities, LLC

Jason Arnold – RBC Capital Markets, LLC

Joel J. Houck – Wells Fargo Securities, LLC

Martin J. Kemnec – Jefferies & Company

Christopher R. Donat – Sandler O'Neill & Partners LP

Michael R. Widner – Keefe, Bruyette & Woods, Inc.

Jordan Neil Hymowitz – Philadelphia Financial Management of San Francisco LLC

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to MFA Financial, Inc.'s Second Quarter 2013 Earnings Call. At this time, all lines are in a listen-only mode. Later, there will be an opportunity for your questions and instructions will be given at that time. (Operator Instructions) And as a reminder, this conference is being recorded.

I'll now turn the conference over Analyst, Danielle Rosatelli. 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 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, believe, 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 second 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 second quarter 2013 earnings call. Joining me this morning on the call are Bill Gorin, President; Stephen Yarad, Chief Financial Officer; Ron Freydberg, Executive Vice President; Craig Knutson, Executive Vice President; Terence B. Meyers, Senior Vice President; Harold Schwartz, Senior Vice President and General Counsel; Kathleen Hanrahan, Senior Vice President and Chief Accounting Officer; Gudmundur Kristjansson, First Vice President.

Today, we announced financial results for the second quarter ended June 30, 2013, recent financial results and other significant highlights for MFA include the following; our second quarter net income per common share of $0.19 and core earnings per common share of $0.19. On July 31, 2013, we paid our second quarter 2013 dividend of $0.22 per share of common stock to stockholders of record as of July 12, 2013. On August 1, 2013, our Board of Directors declared a special cash dividend of $0.28 per share of common stock. This dividend will be paid on August 30, 2013 to stockholders of record on August 12, 2013.

After the special dividend, we will have distributed approximately $155 million in dividends in 2013, not allocated to prior years. The company has until the filing of its 2013 tax return, due not later than September 15, 2014, to declare the distribution of any 2013 REIT taxable income not previously distributed. The company is currently working on completing a taxable income calculation for the first six months of 2013 and we expect that we will be able to provide you with the calculation of taxable income for the first six months of 2013 at the time of our third quarter earnings presentation. As a result, we are not at this time able to give you guidance or an estimate of MFA’s 2013 taxable income.

Book value per common share declined to $8.19 as of June 30, 2013, from $8.84 as of March 31, 2013. Increased uncertainty about the pace and amount of future Federal Reserve asset purchases impacted the value of our mortgaged backed securities during the second quarter of 2013.

Strong home price appreciation continues to decrease the loan-to-value for many of the mortgages underlying our Non-Agency portfolio, and we believe that due to underlying mortgage loan amortization and based on regional home price appreciation, the loan-to-value of mortgage loans underlying our Non-Agency MBS has declined from approximately 105% to approximately 90% since January of 2012. As a result, we continue to reduce our estimated future losses.

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