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Must-know highlights of MFA Financial’s second quarter 2014



Highlights of the quarter

MFA Financial reported net income of $0.20 a share. This was higher than the Wall Street estimate of $0.19 per share. Book value per share increased 2.1%, to $8.37 per share. Fixed-rate agency mortgage-backed securities accounted for 54% of the portfolio, while non-agency MBS accounted for 42%. Re-performing and non-performing whole loans accounted for the rest.

MFA Book Value

MFA was less leveraged than its peer group, with a debt-to-equity ratio of 2.8:1. Since MFA has a lot of non-agency exposure, it bears credit risk, and mortgage backed securities with credit risk tend to have higher yields. This makes the use of high leverage both unnecessary and risky.

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The average interest rate spread was 2.59%—about twice what an agency REIT like Annaly (NLY) or American Capital Agency (AGNC) would have. The yield on MFA’s portfolio was 4.36%, while its cost of funds was 1.77%. By category, the agency portion of the portfolio yielded 2.26%, the non-agency portion yielded 7.69%, and the non-performing/re-performing portion yielded 3.8%.

William Gorin, MFA’s CEO, said this about how the portfolio changed over the quarter: “In the second quarter, we continued to identify attractive investment opportunities across the residential mortgage asset universe. We have expanded our investment team and as a result, were positioned to significantly grow our holdings of securities backed by re-performing/non-performing loans to $495.1 million while moving forward with the acquisition of non-securitized re-performing loans, bringing our holdings of credit sensitive residential whole loans to $59.7 million. In addition, we acquired $14.2 million of Non-Agency MBS while opportunistically selling $26.5 million of Non-Agency MBS, realizing a gain of $7.9 million.”


The company paid a quarterly dividend for the fourth quarter of 20 cents a share—flat with last quarter and down 15 cents from a year ago. Given that REITs like Annaly (NLY), American Capital Agency (AGNC), MFA Financial (MFA), Capstead (CMO), and Hatteras (HTS) must pay out 90% of their income as dividends, they tend to have volatile dividend streams.


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