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 slight decline from $56.8 million in the previous 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 book grew by over 50% to $3.3 billion during the quarter, with a focus on low pay-up spec pools [29] - Lima One originated $226 million of new loans in the fourth quarter, including various types of loans, contributing to $5.7 million of mortgage banking income [32] Market Data and Key Metrics Changes - The Bloomberg US Aggregate Index increased by 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, leading to a steepening of the 2-10 spread from 32 basis points to 70 basis points [7] Company Strategy and Development Direction - The company is focused on increasing earnings and return on equity (ROE) through strategic initiatives, including deploying over $100 million of excess cash into target assets [12] - The company plans to relaunch multifamily lending and has made investments in technology and sales force at Lima One to enhance growth [14][15] - The company is optimistic about 2026, expecting supportive government policies and favorable market conditions to drive growth [10] Management's Comments on Operating Environment and Future Outlook - Management noted that 2025 felt like an exit from a challenging period for fixed income investors, with lower rates and volatility creating a favorable environment for the mortgage market [5][9] - The company expects to see the results of its strategic initiatives reflected in financials in 2026, with a focus on resolving delinquent loans and reducing expenses [17][20] Other Important Information - The company reported a decline in general and administrative (G&A) expenses to $119 million in 2025 from $132 million in 2024, achieving a reduction of approximately 9.5% [25] - Approximately 40% of the 2025 common dividends were treated as a tax-deferred return of capital, enhancing the after-tax yield for shareholders [21][22] 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 unit sizes and an originate-to-sell model to capture fees [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 reinvestment [52] 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 [55] 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 [70]