I rate MFA Financial, Inc. (NYSE: NYSE: MFA ) as a Hold for income-focused investors interested in a mortgage real estate investment trust, or mREIT. The most important factors that influence my opinion of the stock are:David A. Johnson is founder and principal of Endurance Capital Management, a New Jersey Limited Liability Company. As an investor entrepreneur, David invests in stocks, bonds, options, ETFs, REITs, real estate, closed end funds and alternative investment funds such as hedge funds and private ...

Financial Performance - The company generated GAAP earnings per share (EPS) of $0.83 and Distributable earnings of $1.57 per basic common share for the year[227]. - For the year ended December 31, 2024, net income available to common stock and participating securities was $86.4 million, or $0.83 per basic share, compared to $47.3 million, or $0.46 per basic share in 2023, reflecting a significant increase of 82.7%[265]. - Basic earnings per common share increased to $0.83 in 2024 from $0.46 in 2023, representing a growth of 80.4%[265]. - Net income for 2024 was $119.25 million, compared to $80.16 million in 2023, marking a year-over-year increase of approximately 48.8%[384]. - The Company reported a net gain on residential whole loans measured at fair value through earnings of $45.99 million in 2024, down from $89.85 million in 2023[384]. - The Company’s net interest income after reversal for credit losses was $204.68 million in 2024, compared to $185.33 million in 2023, an increase of approximately 10.4%[384]. - Other income increased by $22.3 million to $85.428 million in 2024, driven by mark-to-market gains compared to losses in 2023[265]. - The company reported a net gain on derivatives used for risk management purposes of $78.503 million in 2024, compared to a gain of $3.761 million in 2023, reflecting an increase of $74.742 million[264]. Asset and Loan Portfolio - As of December 31, 2024, the company had total assets of approximately $11.4 billion, with $8.8 billion (77%) in residential whole loans[216]. - The residential mortgage asset portfolio increased to approximately $10.5 billion at December 31, 2024, compared to $9.9 billion at December 31, 2023[231]. - The company held $1.5 billion in Securities at fair value as of December 31, 2024, including $1.4 billion in Agency MBS[235]. - The total recorded investment in residential whole loans and REO was $8.9 billion, representing 85.3% of the residential mortgage asset portfolio[234]. - Loan acquisition activity during 2024 totaled $2.6 billion, including $991.5 million in Single-family transitional loans and $1.2 billion in Non-QM loans[234]. - The company originated Business purpose loans with a maximum unpaid principal balance of $1.4 billion in 2024, down from $2.2 billion in 2023[228]. - The company had $2.6 billion of total unpaid principal balance related to asset-backed financing agreements with mark-to-market collateral provisions as of December 31, 2024[320]. Dividends and Shareholder Returns - The company declared dividends of $1.40 per common share during the year[227]. - The company paid $143.9 million in cash dividends on common stock and $32.9 million on preferred stock during 2024[331]. - The dividend payout ratio for Q4 2024 was 0.90, indicating a slight decrease from 0.70 in Q4 2023[299]. - The company repurchased $39.9 million principal amount of Convertible Senior Notes for $39.8 million during the three months ended March 31, 2024[319]. Interest Income and Expense - Total interest income for 2024 was $723.965 million, up from $605.597 million in 2023, marking an increase of $118.368 million[264]. - Interest income on residential whole loans for 2024 increased by $95.7 million, or 17.8%, to $633.6 million compared to $537.9 million for 2023, driven by a yield increase to 6.74% from 6.15%[282]. - Interest expense rose to $521.234 million in 2024 from $429.118 million in 2023, an increase of $92.116 million[264]. - The net interest spread and margin for 2024 were 2.10% and 2.91%, respectively, compared to 2.05% and 2.90% in 2023, showing slight improvements in profitability metrics[268]. Credit Losses and Risk Management - The total allowance for credit losses on residential whole loans held at carrying value was $10.7 million as of December 31, 2024[236]. - The reversal of provision for credit losses on residential whole loans was $3.084 million in 2024, down from $8.853 million in 2023, indicating a decrease of $5.769 million[264]. - The company expects heightened levels of delinquency and credit loss risks in its Business purpose loan portfolio during 2025 due to market conditions[228]. - The company is exposed to credit risk primarily through residential whole loans, with current LTVs estimated to have decreased significantly due to home price appreciation[353]. Financial Position and Liquidity - GAAP total stockholders' equity as of December 31, 2024, was $1,841.8 million, down from $1,899.9 million as of December 31, 2023[301]. - The company had unused financing capacity of approximately $3.8 billion across its financing arrangements as of December 31, 2024[321]. - The company was in compliance with all financial covenants as of December 31, 2024[330]. - Cash, cash equivalents, and restricted cash increased by $113.1 million during 2024, with $424.6 million used in investing activities and $337.6 million provided by financing activities[325]. Market and Economic Conditions - The company expects to continue pledging residential mortgage assets as part of its ongoing financing arrangements[323]. - The fair value of the company's net portfolio is sensitive to interest rate changes, with a projected decrease of $145.8 million (1.28%) for a 100 basis point increase in rates as of December 31, 2024[345]. - The company has a liquidity risk arising from financing long-maturity assets with shorter-term borrowings, which could lead to increased margin calls if asset values decrease[364]. Operational Expenses - Compensation and benefits expenses increased by $1.9 million to $87.7 million for 2024, primarily due to separation and severance-related costs[289]. - Other general and administrative expenses rose by $0.4 million to $44.3 million for 2024, attributed to accelerated depreciation and higher IT infrastructure costs[290]. - Loan servicing and other related operating expenses increased by approximately $1.2 million, or 3.4%, primarily due to higher non-recoverable advances[291].

Financial Data and Key Metrics Changes - As of December 31, GAAP book value was $13.39 per share, and economic book value was $13.93 per share, a decrease of approximately 3.7% from $14.46 at the end of September [17] - The company delivered a total economic return of negative 1.2% for the quarter and positive 5.2% for the year [18] - Distributable earnings for the fourth quarter were $40.8 million or $0.39 per basic common share, up from $0.37 in the third quarter [21] Business Line Data and Key Metrics Changes - The investment portfolio grew by over $1.2 billion in the fourth quarter, with $470 million in non-QM loans carrying a coupon of 7.8% and an LTV of 67% [26] - Lima One originated $235 million of loans in the quarter with an average coupon of 9.5% and LTV of 67%, totaling $1.4 billion in business purpose loans for 2024 [28] Market Data and Key Metrics Changes - The yield curve steepened in the fourth quarter, with two-year yields rising sixty basis points while ten-year rates rose nearly eighty basis points [9] - The company added over $700 million in loans, non-QM and BPL, and over $450 million of agencies during the quarter [10] Company Strategy and Development Direction - The company aims to maintain a strong liquidity position while complementing the volume and timing of loan acquisitions [12] - Management expressed confidence in the leadership team for 2025 and beyond, indicating a focus on growth and operational improvements [15] Management's Comments on Operating Environment and Future Outlook - Management noted that the economy remains resilient, with a strong labor market and persistent inflation [9] - The company expects macroeconomic tailwinds, including a positively sloped yield curve and additional rate cuts, to support business moving forward [24] Other Important Information - The company mourned the passing of Board member Frank Ulrich, highlighting his contributions and impact [11] - Approximately 40% of the 2024 common dividends were treated as a non-taxable return of capital to shareholders, enhancing after-tax dividend yield [18] Q&A Session Summary Question: Current economic return of the portfolio - Management indicated that the economic return is in the low teens, aligning with the economic earnings power of the portfolio [39][40] Question: Increase in delinquency for single-family and multifamily transitional loans - Management explained that higher delinquencies are expected in riskier asset classes, particularly in transitional loans [54][56] Question: Outlook for Lima One - Management confirmed that single-family loans remain the focus, with expectations for growth in 2025, potentially reaching around $1.5 billion [64] Question: Level of unfunded commitments in the Lima One portfolio - Management estimated unfunded commitments to be in the $600 million range, with expectations for funding over the next year [81]

Company Update FOURTH QUARTER 2024 Forward-looking statements When used in this presentation or other written or oral communications, statements that are not historical in nature, including those containing words such as "will," "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "could," "would," "may," the negative of these words or similar expressions, are intended to identify "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, ...

Core Insights - MFA Financial reported revenue of $50.8 million for the quarter ended December 2024, reflecting a year-over-year increase of 9.4% [1] - The earnings per share (EPS) for the quarter was $0.39, down from $0.49 in the same quarter last year [1] - The reported revenue fell short of the Zacks Consensus Estimate of $52.05 million, resulting in a surprise of -2.40% [1] - The company did not deliver an EPS surprise, as the consensus EPS estimate was also $0.39 [1] Financial Performance Metrics - Other interest-earning assets amounted to $0.72 million, significantly below the two-analyst average estimate of $4.45 million [4] - Residential whole loans were reported at $152.77 million, slightly below the average estimate of $155.37 million from two analysts [4] - Cash and cash equivalent investments totaled $5.10 million, compared to the average estimate of $5.47 million based on two analysts [4] - Securities at fair value were valued at $19.75 million, exceeding the average estimate of $18.25 million from two analysts [4] Stock Performance - Shares of MFA Financial have returned +1.1% over the past month, while the Zacks S&P 500 composite has changed by +2.4% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating potential performance in line with the broader market in the near term [3]

Core Viewpoint - MFA Financial reported quarterly earnings of $0.39 per share, matching the Zacks Consensus Estimate, but down from $0.49 per share a year ago [1] - The company posted revenues of $50.8 million for the quarter, missing the Zacks Consensus Estimate by 2.40%, compared to $46.46 million in the same quarter last year [2] Earnings Performance - The company has surpassed consensus EPS estimates only once in the last four quarters [1] - The current consensus EPS estimate for the upcoming quarter is $0.38, with expected revenues of $54.3 million, and for the current fiscal year, the estimate is $1.61 on revenues of $224.66 million [7] Market Comparison - MFA Financial shares have increased by approximately 1.1% since the beginning of the year, while the S&P 500 has gained 4.2% [3] - The stock currently holds a Zacks Rank 3 (Hold), indicating expected performance in line with the market in the near future [6] Industry Outlook - The REIT and Equity Trust industry is currently in the top 50% of over 250 Zacks industries, suggesting that stocks in this category tend to outperform those in the bottom 50% by more than 2 to 1 [8] - Ellington Credit, another company in the same industry, is expected to report significant revenue growth of 2397.4% year-over-year, with an EPS estimate of $0.26 for the upcoming quarter [9]

Core Insights - Mortgage rates have increased to 6.91% as of January 2, 2025, the highest since July 2024, following the Federal Reserve's slower rate-cutting timeline [1][3] - Despite rising mortgage rates, mREIT stocks such as NexPoint Real Estate Finance, Two Harbors Investment Corp, and MFA Mortgage Investments are recommended for solid returns in 2025 [2][7] - The U.S. economy is expected to grow in 2025, albeit at a slower pace, with anticipated interest rate cuts leading to lower mortgage rates and moderate house price appreciation [4][5] mREITs Overview - The rise in mortgage rates has led to a decline in purchase applications and refinancing activities, with the refinance share dropping to 39.4% from 44.3% [3] - mREIT companies are expected to see improvements in book value in 2025 as mortgage rates gradually decrease, enhancing purchase originations and refinancing activities [5][6] NexPoint Real Estate Finance (NREF) - NREF focuses on first mortgage loans, mezzanine loans, and multi-family commercial mortgage-backed securities, with a current dividend yield of 12.96% [10][13] - The company’s net interest income (NII) fell by 50.3% to $6.4 million in the first nine months of 2024, but is expected to improve with Fed rate cuts [13][14] - The Zacks Consensus Estimate for NREF's 2025 earnings is $2.44 per share, reflecting a 41.6% year-over-year increase [14] Two Harbors Investment Corp (TWO) - TWO's portfolio is primarily composed of RMBS with mortgage servicing rights, which helps mitigate exposure to mortgage spread changes [15][16] - The company has faced net interest losses due to high borrowing costs but anticipates relief as interest rates fall, potentially increasing dividend payouts [17][18] - The Zacks Consensus Estimate for TWO's 2025 earnings is 85 cents per share, indicating an 81.9% year-over-year increase [19] MFA Mortgage Investments, Inc. (MFA) - MFA invests in residential mortgage loans and MBS, with significant progress in its portfolio and loan originations, including $293.9 million of Agency MBS added in Q3 2024 [20][21] - The current dividend yield for MFA is 13.93%, with a payout ratio of 94% [22] - The Zacks Consensus Estimate for MFA's 2025 earnings is $1.62 per share, reflecting a 3.6% year-over-year increase [24]

Company Overview - MFA Financial, Inc. (NYSE: MFA) is a real estate investment trust (REIT) that specializes in investing in mortgages, also referred to as mREIT [4]. Investment Appeal - The company has attracted income investors due to its current dividend yield of 13.5%, although this yield has been unstable over time [4].

Financial Performance - GAAP earnings for Q3 2024 were $0.38 per basic common share, with Distributable Earnings at $0.37 per share [277]. - For Q3 2024, net income available to common stock and participating securities was $40.0 million, or $0.38 per basic share, up from $33.7 million, or $0.32 per share in Q2 2024, reflecting a $10.4 million increase in Other income/(loss), net [307]. - The company reported net income available to common stock of $88.7 million for the nine months ended September 30, 2024, compared to a net loss of $(34.2) million in the same period of 2023 [336]. - Basic earnings per common share for the nine months ended September 30, 2024, was $0.85, a significant increase from $(0.34) per share in the same period of 2023 [336]. - The return on average total assets improved to 1.74% in Q3 2024 from 1.52% in Q2 2024 [331]. - The return on average total stockholders' equity for Q3 2024 was 9.89%, a decrease from 11.53% in Q2 2024 [362]. - The company reported a net gain on residential whole loans measured at fair value for the nine months ended September 30, 2024, compared to a loss in the prior year [336]. Asset and Investment Management - As of September 30, 2024, the company had total assets of approximately $11.2 billion, with $9.0 billion (81%) representing residential whole loans [265]. - Approximately $1.1 billion (10%) of total assets were invested in securities, including Agency MBS and Non-Agency MBS as of September 30, 2024 [265]. - The residential mortgage asset portfolio was approximately $10.3 billion, up from $10.2 billion at the end of Q2 2024 [278]. - The total asset allocation amounts to $10,867 million, with business purpose loans at $3,682 million and Non-QM loans at $4,171 million [285]. - The company had $3.5 billion in borrowings under asset-backed financing agreements as of September 30, 2024, with $2.5 billion secured by residential whole loans [382]. - The company had unused financing capacity of approximately $3.1 billion across its financing arrangements for all collateral types [374]. Interest Income and Expense - Net interest income for Q3 2024 decreased by $2.9 million to $50.6 million, compared to $53.5 million in Q2 2024, primarily due to lower net interest income from the residential whole loan portfolio [309]. - Average interest-earning assets for Q3 2024 were $10.84 billion, generating interest income of $181.97 million, with an average yield of 6.71% [311]. - Interest income on residential whole loans decreased by $8.3 million, or 5.0%, to $157.4 million for Q3 2024 compared to Q2 2024, primarily due to a decrease in yield to 6.74% from 6.92% [320]. - Interest expense decreased by $2.0 million, or 1.5%, to $131.3 million for Q3 2024 from $133.3 million for Q2 2024, reflecting lower average balance and rates on financing agreements [321]. - The net interest margin for Q3 2024 was 3.00%, compared to 3.01% for Q2 2024 [315]. - The net yield on residential whole loans was 6.74% for Q3 2024, compared to 6.92% for Q2 2024 [316]. Credit Risk and Delinquency - Delinquency on Residential whole loans increased from 6.5% to 6.7%, with Multifamily transitional loan delinquency rising to 8.1% as of October 31, 2024 [277]. - The company is exposed to credit risk through residential whole loans, but current loan-to-value ratios (LTVs) have decreased significantly due to home price appreciation [402]. - The company is exposed to potential credit losses from CRT securities, which are not guaranteed by Fannie Mae and Freddie Mac [406]. - The company reported a reversal for credit losses on residential whole loans of $1.94 million in Q3 2024, compared to a provision of $1.08 million in Q2 2024 [306]. Regulatory Environment - The Dodd-Frank Act and its regulations are likely to increase economic and compliance costs for participants in the mortgage and securitization industries [300]. - The company is subject to ongoing regulatory changes under the Dodd-Frank Act, which may increase compliance costs and affect operations in the mortgage and securitization industries [298][300]. Market Conditions and Economic Factors - The Federal Reserve cut the target for the Fed Funds rate by 50 basis points on September 18, 2024, marking the beginning of a rate-cutting cycle [276]. - The two-year Treasury yield fell approximately 110 basis points and the ten-year Treasury yield fell approximately 60 basis points during the third quarter of 2024 [276]. - A 100 basis point increase in interest rates could lead to a decrease in estimated net portfolio value by $159,900,000, representing a 1.44% decline [398]. - A 50 basis point decrease in interest rates could increase estimated net portfolio value by $57,244,000, representing a 0.51% increase [398]. Shareholder Returns and Dividends - The company paid $107.9 million in cash dividends on common stock and $24.7 million on preferred stock during the nine months ended September 30, 2024 [387]. - The company declared a third quarter 2024 dividend of $0.35 per share, totaling approximately $36.0 million, including dividend equivalents of approximately $0.3 million [387]. - The company announced a new $200 million stock repurchase program effective through the end of 2025, with $200 million remaining available under this authorization as of September 30, 2024 [372]. Operational Expenses - Compensation and benefits expenses rose to $22.42 million in Q3 2024 from $21.75 million in Q2 2024 [306]. - Other general and administrative expenses rose to $11.4 million in Q3 2024 from $10.8 million in Q2 2024, mainly due to software asset impairment [328].

Financial Data and Key Metrics Changes - Distributable earnings for Q3 2024 were $0.37 per share, a decrease from $0.45 in Q2 2024 [23] - GAAP earnings increased to $48.2 million or $0.38 per share, up from $41.9 million or $0.32 per share in the previous quarter [18] - GAAP book value was $13.77 per share, and economic book value was $14.46 per share, reflecting a 1% increase from $14.34 at the end of June [18] Business Line Data and Key Metrics Changes - The company acquired over $550 million in loans with an average coupon of 9.4% during the quarter [11] - Lima One funded $329 million in business purpose loans, reflecting a decline in origination volume due to management changes and a shift away from multifamily originations [13][35] - Non-QM acquisitions remained flat compared to Q2, with total asset acquisitions for Q3 being almost identical to the previous quarter [14] Market Data and Key Metrics Changes - The Federal Reserve cut the federal funds rate target by 50 basis points, signaling the start of an easing cycle [8] - The company reported a modest increase in estimated duration to 1.16% from 1.12% in the previous quarter [34] Company Strategy and Development Direction - The company is focusing on enhancing its portfolio through securitization, having closed two deals in Q3 and two more post-quarter [12] - Lima One is seen as a key differentiator, allowing the company to create high-yielding assets organically [15] - The management team is working on filling personnel vacancies and improving underwriting guidelines to strengthen the platform for future growth [14] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the business model in the context of lower rates and a steepening yield curve, indicating potential growth opportunities [16] - The company anticipates a modest reduction in G&A expenses and a benefit to distributable earnings starting in Q1 2025 due to recent personnel changes [25] Other Important Information - The company sold single-family rental loans with an unpaid principal balance of approximately $236 million, marking the beginning of a new distribution channel for Lima One [20] - The company expects to see additional swap activity and the use of longer-dated swaps to balance the portfolio as it continues to add agencies [34] Q&A Session Summary Question: Clarification on book value comments - Management indicated that the 3% to 4% decrease in economic book value was as of earlier that morning and is subject to market volatility [40] Question: Earnings power of the portfolio and sensitivity to lower short-term rates - Management discussed the earnings power of the portfolio and the impact of swaps, expressing confidence in the portfolio's earnings potential moving forward [42][44] Question: Loan warehouse capacity for Lima One - Management confirmed ample capacity for retaining loans on the balance sheet, with over $1 billion of potential borrowing available [46] Question: Considerations for increasing leverage in the agency portfolio - Management stated that growth in the agency portfolio would depend on market spreads and conditions, with potential growth to $1.5 billion to $2 billion [47] Question: Programmatic loan sale outlook - Management indicated that third-party sales could become a significant distribution channel, particularly for rental loans, as origination volumes grow [49] Question: Credit mark on the multifamily piece - Management reported a credit mark of about $15 million on the multifamily portfolio, with a total UPB of approximately $1.1 billion [50] Question: Competitive landscape in the BPL business - Management acknowledged the competitive nature of the market but expressed confidence in their ability to regain lost volume through improvements in sales and marketing [51]