MFA Financial, Inc. (MFA)

MFA 
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MFA Financial (MFA)

Q4 2010 Earnings Call

February 14, 2011 10:00 a.m. ET

Executives

Alexandra Giladi - Office Manager/Executive Assistant

Stewart Zimmerman – Chairman and CEO

Bill Gorin – President

Steve Yarad - Chief Financial Officer

Ron Freydberg - Executive Vice President

Craig Knutson - Executive Vice President

Tim Korth - Senior Vice President and General Counsel

Teresa Covello - Senior Vice President and Chief Accounting Officer

Kathleen Hanrahan - Senior Vice President

Shira Vinkel - Senior Vice President

[inaudible] - Vice President

Analysts

Steve DeLaney – JMP Securities

Bose George – KBW

Jason Arnold – RBC Capital Markets

Mike Taiano – Sandler O'Neill

Henry Coffey – Sterne Agee

Joe Plevelich - Schneider Capital

Dan Furtado – Jefferies

Matthew Kelly – Morgan Stanley

Jim Ballan – Lazard Capital Markets

Gabe Poggi – FBR Capital Markets

Isador Mostow - Private Investor

Matthew Howlett – Macquarie

Michael Garber - Private Investor

Presentation

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial Inc. Fourth Quarter 2010 Earnings. [Operator Instructions.] I would now like to turn the conference over to our host, Ms. Alexandra Giladi. Please go ahead.

Alexandra Giladi

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

When used, statements which are not historical in nature including those containing words such believe, expect, anticipate, estimate, plan, continue, intend, should, 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, 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, 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, 2010 and other reports that it may file from time to time with the Securities and Exchange Commission could cause MFA’s actual results, performance, and achievements to differ materially from those projected, expressed, or implied in any forward-looking statement it makes.

For additional information regarding MFA’s use of forward-looking statements, please see the relevant disclosure in MFA’s annual report on Form 10-K for the quarter ended December 31, 2010 and/or the press release announcing MFA’s fourth quarter 2010 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 2010 earnings call. With me this morning are Bill Gorin, president; Steve Yarad, chief financial officer; Ron Freydberg, executive vice president; Craig Knutson, executive vice president; Tim Korth, senior vice president and general counsel; Teresa Covello, senior vice president and chief accounting officer; Kathleen Hanrahan, senior vice president; Shira Vinkel, senior vice president; and [inaudible] vice president.

Today we announced financial results for the fourth quarter ended December 31, 2010. Recent financial results and other significant highlights for MFA include the following: our fourth quarter net income per common share of $0.21 and core earnings per common share of $0.22.

Overall, the value of MFA's assets increased in the fourth quarter. However, due to the fact that, as in prior years, MFA declared two common stock dividends within the fourth quarter totaling $0.46 per share, our book value per common share was $7.68 at the end of the fourth quarter versus $7.83 at the end of the third quarter.

In the fourth quarter, we continued to grow our non-agency MBS portfolio through the purchase of approximately $509.8 million of non-agency mortgage-backed securities, including mortgage-backed securities underlying linked transactions. In the fourth quarter, we allowed the agency mortgage-backed securities portfolio to decline. agency MBS run-off amounted to $496.3 million while we acquired $362.2 million of agency mortgage-backed securities.

In the fourth quarter, our agency mortgage-backed security portfolio generated unlevered yields of 3.87%. At December 31, 2010, we owned $5.9 billion of agency mortgage-backed securities consisting of $5.3 billion of hybrid and floating-rate MBS and $665 million of 15-year fixed rate MBS. These agency securities had an average cost basis of 101.8% of par.

For the fourth quarter ended December 31, 2010, we generated net income available to common stock of $59 million and $0.21 per share of common stock. Core earnings for the fourth quarter were $61.9 million or $0.22 per share of common stock. On January 31, 2011, we paid our fourth quarter 2010 dividend of $0.235 per share of common stock.

I thank you for your continued interest in MFA Financial, and at this time I would like to open the call to questions.

Question-and-Answer Session

Operator

[Operator Instructions.] And we'll first go to the line of Steve DeLaney with JMP Securities. Please go ahead.

Steve DeLaney – JMP Securities

I was wondering if you guys could comment a little bit on the agency purchases that you made in January. Could you give us a little color on the types of securities that you purchased, whether they were hybrids or 15-years?

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