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 [21] - Total economic return for the fourth quarter was 3.1% and 9% for the full year of 2025, with total shareholder return for the year at 6% [11][21] - GAAP earnings for the fourth quarter were $54.3 million, or $0.42 per basic common share, with net interest income at $55.5 million, a decline from $56.8 million in the third quarter [23] Business Line Data and Key Metrics Changes - In the fourth quarter, the company acquired $1.9 billion of loans and securities, including $1.2 billion of agencies and $443 million of non-QM loans [13] - The agency portfolio grew by over 50% to $3.3 billion during the quarter, with significant investments made before spreads tightened [29] - 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 [26] 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 [6] - Treasury rates declined, with 2-year yields dropping 77 basis points and 10-year yields dropping by 39 basis points [7] - The MOVE Index, which measures bond market volatility, ended the year at just under 64, down from above 100 for most of the previous three years [8] Company Strategy and Development Direction - The company is focused on increasing earnings and growing return on equity (ROE) through strategic initiatives, including deploying excess cash into target assets [12] - The company plans to relaunch multifamily lending and has hired 45 new salespeople at Lima One, indicating a push for growth in 2026 [14] - The company is also working on resolving delinquent loans, with over $150 million resolved in the fourth quarter, unlocking capital for redeployment [17] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the macroeconomic environment, citing favorable conditions for the mortgage market due to lower rates and government support for housing affordability [9][10] - The company expects to see the results of its strategic initiatives reflected in financials in 2026, with a focus on enhancing earnings and ROEs [20] - Management noted that while the delinquency rate across the loan portfolio ended the year at just over 7%, it is expected to remain elevated in the legacy portfolio as it winds down [35] Other Important Information - The company reported a decline in general and administrative (G&A) expenses, totaling $119 million for 2025, down from $132 million in 2024 [25] - Approximately 40% of the 2025 common dividends were treated as a tax-deferred return of capital, enhancing after-tax yield for shareholders [21][22] - The company has reauthorized a stock buyback program, utilizing proceeds from preferred stock issuance to repurchase common stock at a discount [20] 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 was in the 8%-9% range, expected to rise to 10-11% in the back half of 2026 [44] Question: Can you discuss the re-entry into the multifamily market? - The company is targeting higher quality loans with larger average amounts, focusing on an originate-to-sell model [46] Question: How do you think about the potential deals that could be called? - Management noted that several deals could unlock $50 million-$100 million of capital for redeployment [51] 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 [68]