MFA Financial (MFA) Misses Q2 EPS by 2c, Revenue Beats

August 2, 2018 8:35 AM EDT

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MFA Financial (NYSE: MFA) reported Q2 EPS of $0.17, $0.02 worse than the analyst estimate of $0.19. Revenue for the quarter came in at $66.6 million versus the consensus estimate of $63.85 million.

Second Quarter 2018 and other highlights:

  • MFA generated second quarter GAAP net income of $66.6 million, or $0.17 per common share. As of June 30, 2018, book value per common share was $7.54.
  • Asset acquisitions exceeded run-off during the quarter. MFA purchased or committed to purchase in excess of $1.1 billion of residential mortgage assets in the second quarter, including $898 million of residential whole loans.
  • Recent growth in MFA\'s residential whole loan portfolio has been largely through purchases of newly originated performing whole loans, including Non-QM loans, rehabilitation or "fix and flip" loans and single family rental loans.
  • Net Income was $0.03 per common share lower than the first quarter of 2018, primarily due to:
  • Lower income from residential whole loans held at fair value. While this portfolio continues to perform well and again delivered mark to market gains, they were less than in the prior quarter;
  • Net interest income was lower as early quarter asset sales and run-off was not fully re-invested until later in the quarter, with closing of certain purchases of higher yielding loans held at carrying value, as well as a RPL/NPL MBS acquisition pending settlement at quarter-end; and
  • Operating and other expenses this quarter were impacted by the timing of recognition of expenses associated with certain share-based compensation awards.
  • On July 31, 2018, MFA paid its second quarter 2018 dividend of $0.20 per share of common stock to shareholders of record as of June 29, 2018.

Craig Knutson, MFA\'s CEO and President, said, "In the second quarter, we continued to execute our strategy of targeted investment within the residential mortgage universe with a focus primarily on residential whole loans. We again grew our portfolio this quarter, as acquisitions exceeded run-off and sales. To date in 2018, and particularly in the second quarter, much of the growth in the residential whole loan portfolio has been through purchases of newly originated performing whole loans, including Non-QM loans, fix and flip loans and single family rental loans. We are pleased to have gained traction on these new acquisition efforts, which involve relationships cultivated over the past year or more. Through our willingness and ability to explore and enter into various arrangements, including flow agreements, strategic alliances and also minority equity investments, we have been able to partner with originators to source attractive new investments, while enabling them to grow with support from MFA as a reliable provider of capital.

"MFA remains well-positioned to generate attractive returns despite higher funding cost due to Fed Funds increases and continued elevated asset prices. Through our asset selection and hedging strategy, the estimated net effective duration, a gauge of our portfolio\'s sensitivity to interest rates, remains relatively low and measured 1.19 at quarter-end. MFA's book value per common share decreased slightly to $7.54 from $7.62 as of March 31, 2018, due primarily to dividend distributions exceeding GAAP earnings by $0.03. Leverage, which reflects the ratio of our financing obligations to equity, was 2.3:1 at quarter-end."

Mr. Knutson added, "MFA\'s portfolio asset selection process continues to emphasize residential mortgage credit exposure while seeking to minimize sensitivity to interest rates. As housing prices maintain their upward trend and borrowers repair their credit and balance sheets, the performance of our credit sensitive residential whole loan portfolio benefits from this fundamental strength. MFA's proactive asset management team has been able to shorten liquidation timelines and increase property sale proceeds, leading to improved outcomes and better returns. Additionally, MFA\'s Legacy Non-Agency MBS portfolio continues to outperform our credit assumptions. In the second quarter of 2018, we reduced our credit reserve on this portfolio by $8.0 million and these assets generated a yield of 9.89% for the quarter."

For earnings history and earnings-related data on MFA Financial (MFA) click here.

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