MFA Financial(MFA) - 2025 Q4 - Earnings Call Transcript

Financial Data and Key Metrics Changes - As of December 31, GAAP book value was $13.20 per share, and economic book value was $13.75 per share, both showing modest increases from the end of September [14] - For the fourth quarter, MFA generated GAAP earnings of $54.3 million, or $0.42 per basic common share, with net interest income at $55.5 million, a slight decline from $56.8 million in the previous quarter [15][16] - Distributable earnings for the fourth quarter were approximately $27.8 million, or $0.27 per share, an increase from $0.20 per share in the third quarter [18] Business Line Data and Key Metrics Changes - In the fourth quarter, MFA acquired $1.9 billion of loans and securities, including $1.2 billion of agencies, $443 million of non-QM loans, and $226 million of new business purpose loans [10] - The agency book grew by over 50% to $3.3 billion during the quarter, with a focus on low payout spec pools [20] - Lima One originated $226 million of new loans in the fourth quarter, including various types of loans such as new construction and rehab loans [22] Market Data and Key Metrics Changes - The Bloomberg US Aggregate Index was up 7.3% in 2025, following a decline of 7.1% over the previous three years [5] - Treasury rates declined, with 2-year yields dropping 77 basis points and 10-year yields dropping by 39 basis points [5] - The delinquency rate across the entire loan portfolio ended the year at just over 7%, down from 7.5% a year ago [23] Company Strategy and Development Direction - MFA is focused on increasing earnings and growing return on equity (ROE) through strategic initiatives, including deploying excess cash into target assets [9] - The company is excited about 2026, starting the year with favorable market conditions and government support for housing affordability [6][7] - MFA plans to relaunch multifamily lending and has made investments in technology and sales force to enhance operational efficiency [11][22] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the mortgage market due to lower rates, reduced volatility, and a positively sloped yield curve [6] - The company expects to see results from its strategic initiatives in 2026, with a focus on resolving delinquent loans and reducing general and administrative expenses [12][13] - Management anticipates that distributable earnings will reconverge with the common dividend in the latter half of 2026 [30] Other Important Information - MFA paid a common dividend of $0.36 for the fourth quarter and $1.44 for the full year, with approximately 40% of dividends treated as a tax-deferred return of capital [14] - The company has rolled out several technology platforms to enhance borrower experience and drive operational efficiencies [11] Q&A Session Summary Question: Can you talk about the run rate ROE on your EAD once loss provisions are through? - Management indicated that DE on a lossless basis is expected to be in the 8%-9% range, potentially reaching 10-11% in the back half of next year [29] Question: Can you discuss the re-entry into the multifamily market? - The company is targeting higher quality loans with larger unit sizes and an originate-to-sell model to capture fees [31] Question: How do you think about the potential deals that could be called? - Management expects to unlock $50 million-$100 million of capital that can be redeployed, with several deals anticipated in the coming quarters [36] Question: How should we think about capital allocation going forward? - The expectation is to initially increase investments in the agency portfolio before transitioning to non-QM and BPL asset classes as capital is freed up [40] Question: What are your expectations for margins and total volumes throughout the year? - The company anticipates healthy spreads and significant growth potential, particularly in the back half of the year as new channels come online [54]