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MFA Mortgage Investments Q1 2010 Earnings Call Transcript

MFA Mortgage Investments Q1 2010 Earnings Call Transcript

MFA Mortgage Investments (MFA)

Q1 2010 Earnings Call

April 29, 2010 00:00. ET

Executives

Stewart Zimmerman - CEO

Bill Gorin - President and CFO

Ron Freydberg - EVP

Craig Knutson - EVP

Tim Korth - SVP and General Counsel

Teresa Covello - SVP and CAO

Kathleen Hanrahan - SVP

Analysts

Steve Delaney - JMP Securities

Bose George - KBW

Douglas Harter - Credit Suisse

Mike Taiano - Sandler O'Neill

Daniel Furtado - Jefferies

Mike Widner - Stifel Nicolaus

Matthew Howlett - Macquarie

Greg Eisen - ICM Asset Management

Presentation

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Operator

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Ladies and gentlemen, good morning and thank you for standing by and welcome to the MFA Mortgage Investments first quarter 2010 earnings conference call. At this time, all lines are in a listen only mode. Later there will be an opportunity for your questions and comments and instructions will be given at that time. (Operator Instructions)

At this time, I'd like to turn the conference over to our first speaker, (Alexandra Giladi). Please go ahead.

Unidentified Company Representative

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 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, 2009, quarterly report on form 10-Q for the quarter ended March 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 statements it makes.

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, 2010 and/or the press release announcing MFA's first quarter 2010 financial results. Thank you for your time.

I'd now like to turn this call over to Stewart Zimmerman, MFA's Chief Executive Officer.

Stewart Zimmerman

Good morning, and welcome to MFA Financial's first quarter 2010 earnings call. With me this morning are Bill Gorin, President and CFO; 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 and Kathleen Hanrahan, Senior Vice President.

We reported today net income of $80.6 million and $0.29 per share of common stock the first quarter ended March 31, 2010. For the first quarter, core earnings were $66.6 million and $0.24 per share of common stock.

Core earnings for the quarter represents a non-GAAP financial measure, which reflects net income excluding gains or losses on sales of securities. Determination of related repurchase financing and changes in the unrealized net gains and mortgage-backed securities or MBS forwards.

On April 1, 2010, we announced a first quarter 2010 dividend of $0.24 per share, which will be paid on April 30 to stockholders directed as of April 12, 2010. As of March 31, 2010 MFA's Financial's book value per share was $7.67. We're taking advantage of market dislocations by identifying and acquiring Non-Agency residential mortgage-backed securities with superior loss adjusted deals and prices significantly below par.

Our first quarter return on equity was 14.8% and our current core earnings represents Core ROE of 12.2%. With $768.7 million of cash and cash equivalence of $337.5 million of unfledged Agency mortgage-backed securities at quarter end, we remain poised to take advantage of future investment opportunities within the residential mortgage-backed securities market place.

By blending Non-Agency with Agency MBS we seek to generate attractive returns with reduced leverage and reduced sensitivity to prepayments. In the first quarter we grew our Non-Agency MBS portfolio through the purchase of $315.7 million of Non-Agency mortgage-backed securities including $121.9 million of mortgage-backed securities per quarter as MBS forward. At an average cost of 72% of par.

As a result of high premium prices on Agency MBS due in part to the now completed $1.25 trillion Federal Reserve Agency MBS purchase program. And the expectation of increased prepayment rates, we strategically reduced MFA's Agency MBS portfolio during the quarter with the sale $931.9 million of Agency MBS at a weighted average price of 105.1% of par.

With the recent completion of the Federal Reserve Agency MBS purchase program we anticipate acquiring Agency MBS in excess of runoff during the second quarter. We will be acquiring both Agency and Non-Agency assets as we go forward.

In the first quarter both Fannie Mae and Freddie Mac announced delinquent loan buy out operations pursuing to which 120 plus day delinquent loans will be purchased out of existing MBS pools. Due to the fact that Fannie Mae MBS represents approximately 91% of our Agency MBS portfolio, we expect the Fannie Mae's buyout operations will have the greatest impact on our results.

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