MFA Financial, Inc. (MFA)

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MFA Financial, Inc. (MFA)

Q1 2014 Earnings Conference Call

May 01, 2014 10:00 AM ET


Danielle Rosatelli – Investor Relations

William S. Gorin – Chief Executive Officer

Gudmundur Kristjansson – Senior Vice President

Craig L. Knutson – President & Chief Operating Officer

Stephen D. Yarad – Chief Financial Officer


Arren Cyganovich – Evercore Partners

Steve C. DeLaney – JMP Securities LLC

Douglas M. Harter – Credit Suisse Securities LLC

Joel Houck – Wells Fargo Securities LLC

Henry J. Coffey – Sterne, Agee & Leach, Inc.

Dan L. Furtado – Jefferies LLC



Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial Inc., First Quarter 2014 Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions will be given at that time. (Operator Instructions) As a reminder, this call is being recorded.

I would now like to turn the conference over to 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 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, 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 those described in MFA’s Annual Report on Form 10-K for the year ended December 31, 2013; and other reports that it may file from time to time with the Securities and Exchange Commission.

These risks, uncertainties and other factors 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 2014 financial results.

This discussion today also contains non-GAAP financial measures. Information relating to comparable GAAP financial measures maybe found in the first quarter of 2014 earnings release and earnings presentation slides, each of which has been filed with the SEC and posted on our website at We encourage you to review that information in conjunction with today’s discussion. Thank you for your time.

I would now like to turn this call over to Bill Gorin, MFA’s Chief Executive Officer.

William S. Gorin

Thanks a lot Danielle. I would like to welcome everyone to the MFA’s first quarter 2014 financial results webcast. With me today are Craig Knutson, MFA’s President and Chief Operating Officer, Gudmundur Kristjansson, Senior Vice President, Steve Yarad, CFO and other members of Senior Management.

Turning to Slide 3, Danielle? Great, so on Slide 3, you could see that in the investment environment characterized by very low short-term interest rates, MFA continues to generate consistent and attractive results. In the first quarter, we’ve generated net income of $72.4 million or $.0.20 per common share. Dividends per share was also $0.20 consistent with the prior quarter.

Book value per common share increased approximately 2% to $8.20 as of March 31, from $8.06 as of December 31, 2013. Based on continued improvements in the Loan-To-Value Ratio of the loans underlying our Non-Agency MBS portfolio, and other factors. In the first quarter, we again transferred a sizable amount, approximately $36 million from credit reserve to accretable discount.

MFA remains positioned for a more flexible monetary policy, but in federal reserve based on measures of labor markets, core inflation and other incoming economic data. By pursuing our strategy of investing across the residential mortgage asset universe, we continue to find opportunities to generate yields without increasing interest rate exposure.

In the quarter, our yield on interest earning assets increased, while our estimated effective duration, a measure of our interest rate sensitivity decreased. It’s important to remember that equity sensitivity, the changes in interest rates is impacted by both duration and the leverage realized, and we continue to maintain the leverage ratio of approximately three times.

Obviously, asset selection is what drives both our income and our interest rate sensitivity. But I’d like to point out three attributes of our assets, which I believe set us apart. First, we hold $5.7 billion base amount of Non-Agency MBS, with an average amortized costs of approximately 74% at par. We have a credit reserve of $ 1 billion against these assets, and these assets generated a loss adjusted yield of 7.8% in the first quarter.

Second, we continue to maintain our historical preference for adjustable rate and hybrid MBS. Two thirds of all our MBS are adjustable or hybrid, but only one third fixed rate. And third, within the fixed rate universe, none of our Agency MBS of 30 years, they’re all adjustable hybrid or the shorter 15 year fixed rate.

Turn to the next slide please. On Slide 4, you could see that, despite change in interest rates and prepayments fees, our key metrics have remained generally consistent. They’re generally consistent from the fourth quarter of last year to this quarter. And even going back to the first quarter of 2013, they’re fairly consistent with the positive trend, small positive trend, our yield on interest earning assets has gone up, and that interest rate spread has gone up, and our leverage ratio has gone down somewhat.

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