MFA Financial, Inc. (MFA)

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MFA Financial, Inc. (MFA)

Q3 2013 Earnings Conference Call

November 4, 2013 10:00 AM ET


Danielle Rosatelli - IR

Stewart Zimmerman - CEO

Bill Gorin - President

Stephen Yarad - CFO

Craig Knutson - EVP

Ron Freydberg - EVP

Terry Meyers - SVP

Harold Schwartz - SVP and General Counsel

Kathleen Hanrahan - SVP and CAO

Gudmundur Kristjansson - First Vice President


Dan Altscher - FBR Capital Markets

Steve DeLaney - JMP Securities

Douglas Harter - Credit Suisse

Rick Shane - JP Morgan

Nick Agrawal - JP Morgan

Henry Coffey - Sterne, Agee & Leach

Jordan Hymowitz - Philadelphia Financial

Daniel Furtado - Jefferies

Chris Donat - Sandler O'Neill

Mike Widner - KBW

Howard Henick - ScurlyDog Capital

Arren Cyganovich - Evercore Partners



Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial Incorporated Third Quarter 2013 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a questions-and-answer session instructions will be given at that time. (Operator Instructions) As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, 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 estimates regarding taxable income and the timing and amount of distributions to stockholders; MFA’s ability to maintain its qualification as a real estate investment trust for federal income tax purposes; and MFA’s ability to maintain its exemption from registration under the Investment Company Act of 1940.

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, its quarterly reports on Form 10-Q for the quarters ended March 31 and June 30, 2013 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 third 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 third quarter 2013 earnings call. Joining me this morning on the call are Bill Gorin, President; Stephen Yarad, Chief Financial Officer; Craig Knutson, Executive Vice President; Ron Freydberg, Executive Vice President; Terry 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 third quarter ended September 30, 2013. I will briefly discuss recent financial results and other significant highlights for MFA. I will then ask Bill Gorin and Craig Knutson to present certain of this information in greater detail during their webcast slide presentations following my remarks.

This quarter 2013 and other highlights include the following; third quarter net income per common share of $0.19 and core earnings per common share of $0.18. In the third quarter, we declared two dividends, we declared a special cash dividend of $0.28 per share of common stock on August 1, 2013, we paid the stockholders’ on August 30, 2013. In addition, on September 26, 2013 we declared a regular quarterly dividend of $0.22 per share of common stock, which was paid to stockholders on October 31, 2013.

On September 11, 2013 we timely filed our 2012 tax return an amount equal to all taxable income for years prior to 2013 has been distributed to stockholders. We currently estimate for the first nine months of 2013 our taxable income was approximately $297 million. Including the dividend paid on October 31, 2013, we have distributed approximately 236 million in dividends in 2013 not allocated to prior years. Book value per common share was $7.85 as of September 30, 2013 due primarily to the special dividend of $0.28. Book value declined from $8.19 as of June 30, 2013.

In addition, the third quarter dividend per share exceeded net income per share by $0.03 so as to more closely track REIT taxable income. Due primarily to increases in accretable discount, the changes in the forward curve, the loss adjusted yield on our non-agency portfolio increased from 7.15% in the second quarter to 7.33% in the third quarter. For the third quarter ended December 30, 2013, we generated net income allocable to common stockholders of $67.3 million and $0.19 per share of common stock. Core earnings for the third quarter were $64.7 million or $0.18 per share of common stock.

At quarter-end our debt to equity ratio was 3.0:1. Our Agency portfolio had an average amortized cost basis of 103.5% of par as of September 30, 2013, and generated a 2.13% yield in the third quarter. Our Non-Agency portfolio had an average amortized cost of 73.4% of par as of September 30, 2013, and generated a loss-adjusted yield of 7.33% in the third quarter.

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