MFA Financial(US:MFA)2023-11-07 19:07Financial Data and Key Metrics Changes - MFA's GAAP book value decreased by 6.5% and economic book value decreased by 8.5% in Q3 2023 [25] - Distributable earnings were $0.40 per share, covering the $0.35 dividend, with net interest spread increasing to 217 basis points and net interest margin increasing to 302 basis points [54][87] - The average coupon on loan acquisitions was approximately 9.9%, with a significant increase in yield on interest-earning assets to 6.35%, up 25 basis points from Q2 and 111 basis points from a year ago [27][88] Business Line Data and Key Metrics Changes - Lima One originated $671 million of business purpose loans in Q3, a 15% increase from Q2, accounting for over 80% of MFA's loan acquisitions [5] - The average loan-to-value (LTV) ratio for loans originated by Lima One was 65%, with an average FICO score of 754 [67][78] - The 60-plus day delinquency rate on BPL loans originated by Lima One increased to 3.2% but remained within modeling expectations [67] Market Data and Key Metrics Changes - The interest rate environment was highly volatile, with the 10-year treasury rate increasing by about 75 basis points during the quarter [27][25] - Home prices increased by approximately 5% year-to-date, supported by low inventory and a resilient labor market [89] Company Strategy and Development Direction - MFA continues to focus on high-quality borrowers and has successfully increased its market share in the business purpose loan sector due to the exit of smaller originators [95] - The company aims to manage interest rate risk through securitization, having executed two securitizations totaling $600 million in Q3 [87][91] - MFA is committed to increasing non-mark-to-market financing, which now stands at 77% of its loan portfolio [87] Management's Comments on Operating Environment and Future Outlook - Management noted that the Fed appears to be nearing the end of its tightening cycle, which may improve the outlook for levered investor returns [2] - The company expressed confidence in its ability to manage delinquencies effectively, leveraging in-house expertise and the performance of Lima One [28][36] - The economic environment remains resilient, with GDP growth at 4.9% in Q3, supporting the credit portfolio [56] Other Important Information - MFA has executed over $6.5 billion in securitizations since 2020, with over 60% of loans financed through securitization [91] - The company sold 77 properties from its REO portfolio for $26 million, resulting in over $3 million in gains [30] Q&A Session Summary Question: What is the outlook for the fair value mark taken this quarter? - Management indicated that the fair value mark is primarily due to market interest rate movements and that recovery will take time as prepayment speeds are slower in the current environment [71] Question: How is Lima One performing in the current market? - Management highlighted that Lima One has been hiring experienced personnel from competitors and has successfully expanded its market share due to its integrated operations with MFA [95][96] Question: What are the plans for refinancing unsecured debt coming due next June? - Management noted that the convertible market is not currently viable due to stock trading below book value, and they are exploring options for refinancing [81]