MFA Financial, Inc. (MFA)

MFA 
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MFA Financial, Inc. (MFA)

Q1 2011 Earnings Call

May 3, 2011 10:00 AM ET

Executives

Alexandra Giladi – IR

Stewart Zimmerman – Chairman and CEO

Goodmeyer Christensen – VP

Analysts

Mike Taiano – Sandler O’Neill

Bose George – KBW

Henry Coffey – Sterne Agee

Steve Delaney – AMP Securities

Douglas Carter

Daniel Furtato – Jeffries

Presentation

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the MFA first quarter 2011 Earnings Conference Call. As a reminder, this conference is being recorded today, Tuesday, May 3, 2011. I would now like to turn the conference over to Alexandra Giladi. Please go ahead. (Operator instructions).

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 as to MFA’s future performance and operations. When used, statements which are not historical in nature, including those containing words such as 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 pre-payment rates and the market’s loan 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 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 are uncertainties and factors including those described in MFA’s Annual Report and Form 10K for the year ended December 31, 2010 and other reports it may file from time to time with the Security Exchange Commission could cause MFA’s actual results, performance and achievements to differ materially from those projected, expressed or implied in any forward-looking statements they made. For additional information regarding MFA’s use of forward-looking statements, please see the relevant disclosure in MFA’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2011 and/or the press release announcing MFA’s First Quarter 2011 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 2011 earnings call. With me this morning are Bill Gorin, President; Steven 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 Goodmeyer [ph] Christensen, Vice President.

Today we announce financial results of the first quarter ended March 31, 2011. Recent financial results and other significant highlights for MFA include the following. First quarter net income for common share of $0.27 and core earnings for common share of $0.25. Book value for common share increased to $7.86 at the end of the first quarter versus $7.68 at 2010 year end.

In February we sold $1.32 billion in principle value of non-agency mortgage-backed securities as part of the resecuritization. The connection with this transaction $488 million in senior bonds rated AAA by DBRS, Inc. were issued to third-party investors by earned trust at a rate of (inaudible).

In March we issued 74.75 million common shares to a public offering at a gross price of $8.10 per share, generating net proceeds of $605 million. In the first quarter we grew both our non-agency and agency mortgage-backed security portfolios through the purchase of approximately 855 million non-mortgage-backed securities and approximately 1.84 billion of agency mortgage-backed securities.

For the first quarter ended March 31, 2011, we generated net income allocable to common stockholders of $80.4 million at $0.27 per share of common stock. Core earnings for the first quarter were $73.9 million or $0.25 per share of common stock.

On April 29, 2011 we paid our first quarter 2011 dividends of $0.23½ per share of common stock to stockholders of record as of April 11, 2011.

I would now like to go over some additional data highlights as they pertain to our first quarter 2011 results. Leverage overall debt to equity three times; portfolio spread which is interest-earning assets minus cost of funds – 2.87%; portfolio spread which is the interest-earning assets minus the cost of funds, including MBS underlying win transactions – 3.01% and our agency CPR which is 21%.

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

Question-and-Answer Session

Operator

(Operator Instructions.) Your first question comes from the line of Mike Taiano of Sandler O’Neill. Please go ahead.

Mike Taiano – Sandler O’Neill

Good morning. Just had a question on the swap this quarter. Looks like they declined the percentage of the repo balance I think around 40%. Curious as to what you’re thinking on the swap that is going forward, particularly it looks like you added some 15-year and 30-year paper during the quarter. We expect that ratio to stay relatively stable from here or how should we think about that?

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