MFA - Earnings call transcript Q4 2024

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Operator

Greetings, and welcome to the MFA Financial Fourth Quarter 2024 Earnings Conference Call and webcast. [Operator Instructions] As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Hal Schwartz, General Counsel. Please go ahead.

Harold Schwartz

Thank you, operator, and good morning, everyone. as this statements today which regarding beliefs, and on refer contain reflects discussed performance expectations forward-looking future to MFA assumptions information conference may call or management's and The operations. MFA's to Financial, Inc., in are that such containing forward-looking. intended believe, anticipate, to historical will, would could, including estimate, those identify When used, should, not or nature, statements expect, are words as similar expressions the date All on they forward-looking as statements speak are of only made. which and Form statements unknown factors, December of These and the reports are may from Commission. other and in various known that year and uncertainties, subject other Securities file risks, Exchange types time including MFA's to assumptions annual XX-K ended described time those to XXXX, the it report XX, on for with MFA's and to implied in These other results from projected, makes. cause it statements could factors expressed actual those uncertainties any or materially differ risks, forward-looking

use relevant quarter press statements, For forward-looking please regarding information financial results. the XXXX announcing MFA's release your Thank you see time. additional for the of MFA's in disclosure fourth

I to this to turn call Craig CEO, MFA's like Knutson. would over now

Craig Knutson

market With Investment you, a today our CFO; morning, review everyone, and Call. for MFA and with high-level of team. Bryan thank review environment are Thank quarter and Officer; then Chief of our Financial's Mike Fourth members XXXX Hal. Roper, President begin highlights. XXXX other Earnings for and joining Wulfsohn, Quarter the management I'll you Good us me our fourth senior

Lima review the questions. the detail, financing, One by before review call financial more our I'll portfolio, followed risk up Following to open management my will results who prepared call for over and turn Mike to we remarks, Bryan, in our

during Fed's yields at in X XXXX in fourth September rate November December, markets Despite direction grown on XX. and only higher long-awaited quarter the the cut fourth rally in points additional quarter, strength after XX reversed election following with X-year highs, rallying still a quarter continues the the November. short-lived strongly a show while while reductions steepened the XX-basis-point and with Fixed remained the rising basis quarter XX the rose points. basis of points down steadily of the third inflation, basis end has the income yields of XX-year materially persistent in market after rates to labor rate nearly yield exhibits the fourth curve economy The resilient, from stickiness. Thankfully, XX

Fed the pushed market rates little of deficits securitizations We Oelerich sudden in shift together MFA over including RTL, book and million during note, over sad BPL X. in loans agencies. the On $XXX of the A in and fourth of decline in a quarter, remained adding Board with for a less than and on about the over this Non-QM modest of the Non-QM on billion NPL This rates concerns unexpected higher we We $X $XXX executed selloff QX quarter. in value supply economic a X December active mourn and in treasury QX million anticipated from member, data, to in passing tone Frank of face X%. and loans, loans. led

will a and was years. team XX quick colleague wit. advice valuable trusted over a sage for management Frank's Board miss and mine and Our friend insights, members He of dear

his with are sympathies deepest and family. wife, Mary, Our their large

acquisitions, month-to-month profile our an attractive provides billion, grew Agency and the billion. billion and which vary of position year us our increase timing liquidity to our $XX.X an book and volume we return Agency million, quarter-to-quarter. this while from easily complement that believe loan to XXXX, enabling increasing the including our can year assets We at of ending $XXX over in the $X.X For $XX.X

due to on the at Our and year-end, is securitization, primarily provides at term nonrecourse X.Xx which end XXXX. at our financing. recourse as reliance same remained This leverage fixed of

including of weighted have On of We appendix in we our bonds believe ROEs. underappreciated show makes securitizations, that outstanding is our XX to all call each callability an optionality the when that average deck, amounts, additional this to and these coupon liquidity and we deal. unlock the outstanding securitizations earnings of sense Page on sold it increase

February We callable also coupon of under but and million par XXXX, at XXXX. bonds years, totaling an $XX par bonds, issued These $XXX X after average X-year they're at X%. just in are X early of specifically August

dividends and benefit a to paid these explain in also same is $X.XX confers detail. which Mike shareholders, common as portion more somewhat treatment in the And in substantial believe dividends unique, which Roper we We tax XXXX, of XXXX. is of the material and a will

third our management we on our discussed and we for leadership as One affected earnings MFA quarter November, during excited call at Lima changes, the years XXXX, are and in both ahead. and Finally, team at and in we confident XXXX some

Roper talk financial to turn results. I'll call Mike to And about the now over

Michael Roper

GAAP from at of total At for and was XX, per value year. good book X.X% for positive of of and We $XX.XX September. value share, quarter X.X% Craig, December share approximately end the economic per and negative $XX.XX book the decrease Thanks, morning. return a X.X% the economic $XX.XX was a delivered

late capital and our We $X.XX for As per of declared report we XX% were shareholders. January Craig the year. return happy for full the that mentioned, to treated to XXXX of in our per to share dividends nontaxable the quarter again approximately $X.XX share of common dividend fourth were

by dividend that common fifth straight distributions. our substantially yield of our portion as treated year substantial This nontaxable This was the realized stock. the treatment of were favorable tax holders dividends a common increases after-tax

which tax underappreciated a owning that has common us on to the significant Though carried which the our of sheet. we our This treatment favorable million, we stock. potential burden deferred tax balance an $XX.X reserved payments, remaining be At transactions can protection DTA efficiently assurances this December at had about of structure often was minimize tax tax there totaling future to offers shareholders. on additional obligations, MFA's dividend X no tax assets flexibility fully total been from XX, treatment future believe benefit allows

quarterly Switching back to our results.

a generated earnings common $X.X of $X.XX loss MFA or million basic the fourth per GAAP quarter, share. For of

Our from earnings an common higher losses the for in Distributable interest driven $X.XX reduction reduction GAAP were earned million taxes by was primarily DE $X.XX per rate for value basic $X.XX the quarter up carry loans, by in offsetting income our $XX.X share, on a in were negatively in the the fourth credit rates quarterly across earnings realized a $X.XX our our on $X.XX quarter. our yield and in impacted reduction swaps. fair or increase curve. third The provision

lower rates SOFR result of lower series the a the average of recent rate. the for in was funds primarily quarter carry federal as following Swap cuts

value a with pay Additionally, near of the the a fixed interest of points rate and million of $XXX maturity. quarter, end their approximately XX rate swaps notional reached basis

of approximately by distributable of presentation, to quarter. that we second quarter. mature expired the and $X.XX $XXX expect Slide in our rates, our will an of that cohort the will Based billion an that approximately current $XXX million swaps swaps highlight We the have X in Collectively, same on DE, expiring first first this SOFR $X.XX earnings. contributed swaps followed quarter the quarter fourth $X.X impact second contribute of insignificant mature quarter we in notional the additional to on will a further million or

reported and significant of forward. fundamental reduce reported we increasingly in about better liquidity financing earnings business cuts than expiration rate our these quite earnings cost strong distributable we increase swaps time. as housing our all of our and will funds, the serve moving power yield feel portfolio expected, long-term have Although of today positively some spreads, our accommodative tailwinds sloped The our should curve, fundamentals additional for the

power we the strong dividend power and far the earnings one While in interest several of that portfolio today is rate Board the of considers of the aforementioned believe that impact the DE more tailwinds indicative of our the swaps. our remains than the expiration factors of portfolio legacy macroeconomic of are setting earnings policy,

economic Finally, the the to since end, end unchanged we that effectively value subsequent is our book of quarter year. estimate

performance to highlights Bryan, Lima and the like our One. over now the I'd portfolio talk turn will who to call of through

Bryan Wulfsohn

Thanks, Mike.

continue We carrying and the additions LTV coupon the our a loans The bulk our $XXX an of loans million quarter. securities XX%. investment adding $X.X fourth billion channel. $XX.X acquiring between X.X% to of to were those acquired loans Non-QM billion majority of over success through of have and portfolio, in were

at again of active purchasing are liquidity to to XX% the agency carry were securities, year. the to the spreads our X.X% and in discounts We portfolio quarter We MBS par. end over addition modest by benefits almost to providing to the portfolio. in pay-up Agency attractive growing billion low acquired at were no believe MBS $X.X

an with X.X% of of in of One Lima XX%. LTV quarter $XXX million and loans originated average an coupon the

purpose business in billion $X.X originated Lima XXXX, of total the For loans.

may in high would the people have being technological show liked, confidence team growth the process Although implemented believe have improvements we we and originations have been at will as down not of XXXX. and high throughout Lima One as

We to Lima SFR from sell originated continue One. loans newly

Over the to million, contributing income. we quarter, $X.X banking sold mortgage million $XXX

million $XXX with Non-QM additions unsecuritized of The coupon low increased coupon seasoned sold new to we loans. addition, points XX X.XX%. combined portfolio In Non-QM our sale basis

fourth strong, quarter year in billion securitizations On over UPB finished the of loans. we financing front, backed X issuing by the the $X

RTL just under us able deal. rated after RTL first we over a portfolio significantly X%. to our million allows securitization, securitized bonds Lima legacy were MFA transaction NPL nonrated lower last for RPL/NPL $XXX coupon of Our nature from The cost to at is our and Important a issuance issuing nonrated the XX% rated our now of our One, funds of of deal. issue

basis backed last transaction. our rated in December, XX deal securitization And of $XXX million by The in XXth points senior our we our loans. tranche tighter traded completed than nonrated Non-QM

portfolio over is our through X/X After of X these loan securitization. transactions, financed

funding compared yet gradual significant previous much Our resilient years. to transformation, undergone making it more profile has a

to our duration a ago. quarter X.XX reduced X.XX the fourth We from modestly asset net quarter in

interest these bonds the billion of X tools, of a interest securitizations outstanding $X.X our rate notional utilizing as billion securitizations value year. rate $X.X the Currently, rate end interest swaps. issuing and As hedge primarily fixed we in of and exposure have from through swaps key we rate reminder,

heightened portfolio X of swaps increased these continue Over $XXX utilization as be can of an our we And and our longer-dated anticipate the expand swaps rolling to million activity swap ensure will with next balanced. agencies, remains quarters, to portfolio you additional off.

for portfolio X.X% from our day performance. credit quarter entire our delinquencies rose to a X.X% to ago. XX-plus Moving

an turn that, role that portfolio questions. the While we combination and of confidence call can operator a in LTV with the losses. even elevated of have have our asset team management for potential to mitigated. experienced low The And with in our be LTV mitigating we'll increase ratios portfolio losses an us delinquencies, delinquencies, observed gives over played important low

Operator

question KBW. [Operator from Bose today Our George from Instructions] first is coming

Bose George

clarify, Does portfolio? down the that from quarter the discuss made, that you so comment that kind the on you based is a couple of the And wanted that swaps Can you economic see -- the also the rolling current quarter? of by your that with cents just first this that? of does to where comments just off, in on does match the go return EAD EAD, --

Harold Schwartz

the Yes. question. Thanks for

sort ROE with restrike So return, on restrike XX-ish I you're low in the think the we range. that one of and nicely the -- these about sort look economic of couple to And think sort on of calls effectively a the assets, dividend, But the been. if I if straight the aligns in meaning based said we about the that you hedges of what like measure sort the the to we it of economic were certainly, when times of just you that sort right ROE, at think power. really the teens about think that think where percent first is earnings earnings it's I return, liabilities and economic like DE

my in question? second first for script, expect that before to I $X.XX fourth and the we answer the contribute Thinking the numbers about quarter, your in running $X.XX your quarter about gave those swaps had question, Does we off.

Bose George

Yes.

Just... difference impact the between for DE the the the just and quarter. $X.XX on Is first that is the $X.XX right? So the

Harold Schwartz

Exactly.

Bose George

then... And Okay.

Craig Knutson

by points. I just as when Fed that particularly I'll measure rather think value that of terms to was basis using of raising in Bose, of where just they another think, important, so value on changes due rely much fair the DE the cycle, a we in constant. the mention in DE, more earnings rates XXX And felt there's accounting, raised middle was GAAP I a fair Because we noise the

of when portfolio value, I that's environment, our the we book I different earnings book do right? say things, as Board said, lot at power economic Mike we our think things. mark-to-market. I but rate think So a And the in lot think essentially, -- everything we market, consider think a that considers of -- obviously, a the value of is we in strike we what

of, how sort of married a being think, just it more particular And about to so just number. -- DE that's I we think than

Bose George

Yes. makes is economic the the by the just And so the to clarify, not DE the declining $X.XX, that just the $X.XX No, declining sense. yes, return so it's return? and difference economic is between

Harold Schwartz

right, So already the book That's perspective. swaps, Like doesn't right? they're from Bose. the exactly those economic impact anything Exactly. roll-off in an of value, swaps

Bose George

that Okay. X those on, guys just what's on are assets? That's the The great. putting return then that you And Agency MBS more. --

Bryan Wulfsohn

the mid-teens. see return hedge Yes. in We

Operator

Next from question come is coming Harter from UBS. Douglas

Corey Johnson

loans? delinquencies in Doug. why just I guess, transitional single-family on Johnson is ask This those the than, multifamily are Corey other higher delinquencies the I increase was to wanted And and for what the behind for portfolios? actually

Bryan Wulfsohn

mean shorter-term higher invest classes parts, you across risk. just sold maturity, I and riskiest our are because And value-add if can of may other look or or those not of terms various when sort can either portfolios occur loan up so things those we delinquencies those there's fix that additional the loans, that been ground have in flip projects, as of are in with lending reaching bridge the -- delinquency home nature type you're generally, right? in, loans then a enter Yes. against not So asset extended. yet, and the

I but the guess, be various to the class comes of always it's that we're things lower, of, it's sort them happen, sort can there's it. of delinquency. higher that We'd seeing unexpected not of levels like So but along asset with nature

Corey Johnson

of what on like experienced delinquencies then And And time has loss type are underwriting? at portfolios? the assumed it. or those of the kind of what Got losses

Bryan Wulfsohn

loss terms kind we Yes. XXX points we of loans, basis the expect somewhere in on -- make when like I expect losses, of mean and underwritten of average. we XX between

back to If where number historically had, type has have very de fees extension a much historically, losses you that been That we how offset delinquent low, you that's and given at minimis. of look sort HPA close collected. other interest look we with collected number net

certain basis Now with to to expect our HPA points. do sort we in of flattening numbers those towards expectation out of sort XXX areas, trend loss XX of

do forward. expect that's of kind we So what going

Operator

from Citizens. today question Next coming from is Mikhail Goberman

Mikhail Goberman

perhaps, type What's follow kind the your was just like, the loans could I to If to are going focused One It of seems focus quarter, product going -- Lima One continue you for do guys you up for going? currently see that in forward? on continue the transition fourth single-family rest things outlook of Lima is on? how the of what year? And most be sort

Bryan Wulfsohn

wholesale to of gradually to rental channel loan now. there. which single-family continues we're coming Yes. be additional Transitional originations, the hired It's growth. the -- We've rental, of sort and the into focus -- online salespeople a really doing lot to term we're moved is moving help there. things We've support grow

prospects in So for growth see we XXXX. do

number trending wouldn't be In but sort an billion, exact upwards year. of the I the terms it's surprised end for if somewhere around of towards XXXX, $X.X of

We expect versus first quarter. be quarter the to somewhat of sort the flattish fourth

Mikhail Goberman

from Got you. management directly to team that And the Bryan? reporting unit you, is now

Bryan Wulfsohn

MFA to reports It as collectively, Samuels well. Lori myself, Craig, Yes.

Mikhail Goberman

about question I current squeeze book Great. in a And maybe? could value

Harold Schwartz

effectively We the flat that's year. the from we of the the dividend mentioned in prepared net think And of Yes. remarks, accrual. it's end

Operator

question [Operator coming Our from from Instructions] is Hagen BTIG. Eric next

Eric Hagen

go loans realize probably on I've Non-QM, to deals, old on funds guys. got basis, to what's to adjoining of those I relative question, think like terms would the here? maybe those on forward? a the the a deals. the then recapture for large on the there? pickup as the prepays the of an to the cost think And to them back up what Non-QM and mean, I option override the the seasoned in But way mean the liquidity, don't appreciate And portfolio look then to opportunity you cost back both in And I'll resetting ask and think going releasing I like I right about in economic in would mean, resecuritize portfolio book the just an return benefits leverage, economic like the you call that together. I a couple I return going liquidity degree?

Craig Knutson

So Eric, it, about talk and I'll Non-QM. then take the the, call Bryan securitizations have question

the coupons those at some look back we you some if on yes, sold of than where deals the that coupons in there X%. were think, I I of XXXX, think less AAAs were some

higher securitization new because from take at to holistically may bit a deal little 'XX clearly, deal now. a would AX there But whole be of have outstanding be very that's right rate. the the So left you that

increase ability substantially ROE the the And on pretty me, straightforward. at algebra standpoint. delever as fairly the borrowing deals. goes run simple deals day, problem. be -- to time so profound It's math or complicated But because the those we of an can a on those it's the somewhat And end trust it's from

Bryan Wulfsohn

relates that. And so did prepays, there's it up to as they a nuanced things over it of quarter. couple pick the to relates as And

at, currently For loans something because we of prepayment. a dollar. say, a at for that get prepays that is an cash as book at But premium it $X.XX on we to premium purchased because for discount, prepays upon is get hold years the value those those a amortization relates loans there we DE were when ago, that obviously, positive a we increasing that had for marked

So we that as company. economically view positive But again, lower a the would that DE. incrementally for

Eric Hagen

Yes.

I level up? commitments expect portfolio, share to and time one, can Last in the stuff. what the Good you you called get I over commitments unfunded One those Okay. frame might of appreciate. mean, Good Lima answers. just

Harold Schwartz

we It's that sure in the of mind, not the I'm next $XXX number terms it And when range, Eric, that of in sort revolving will guesstimating. I'm of -- be just probably in so. or fund to it, it's year in have the are say, in And Eric, over in those keep let's expect Ks, to securitization. handy. million we most loans

Like as And self our draws those lines, paydowns obviously, us lenders those fund fund So for on effectively our draws. funds, it they occur. right? warehouse those

Operator

closing I'd further of We comments. end over for the like floor question-and-answer our session. or to reached back turn any

Craig Knutson

interest again when for All right. first announce results. May with you, to in your you we our look Thank quarter speaking everyone, forward We MFA in Financial.

Operator

Thank teleconference you. That does conclude webcast. today's and

disconnect and time, at may you You thank for your this line your participation today. We a have day. wonderful

MFA Financial (MFA) 19 Feb 252024 Q4 Earnings call transcript