MFA Financial(MFA) - 2024 Q1 - Earnings Call Transcript

Financial Data and Key Metrics Changes - MFA Financial reported distributable earnings of $0.35 per share for Q1 2024, with GAAP earnings of $15 million or $0.14 per share [16][26] - GAAP book value decreased by 1.3% to $13.80 per common share, while economic book value decreased by 1.7% to $14.32 per common share [25][26] - The company declared dividends of $0.35 per common share, achieving a total economic return of 0.7% for the quarter [26] Business Line Data and Key Metrics Changes - Mortgage banking income at Lima One declined by $0.03 per share due to lower origination volumes [27] - Net interest income for Q1 2024 was $47.8 million, an increase from $46.5 million in the previous quarter [27] - Lima One originated approximately $430 million in loans during the quarter, with a strong credit profile reflected in an average LTV of 65% and an average FICO score of 749 [43][37] Market Data and Key Metrics Changes - The labor market remained strong with non-farm payroll growth accelerating and the unemployment rate under 4% [32] - Home prices continued to trend higher, rising by about 6% last year, supported by low supply and high demand [32] - Agency mortgage spreads widened slightly since the beginning of the year but remained tighter than last October [13] Company Strategy and Development Direction - The company emphasized a strategy focused on maintaining a relatively short net duration to protect against interest rate volatility [33] - MFA Financial plans to optimize its liability framework through callable securitizations, which provide optionality to unlock liquidity [22][50] - The company continues to see attractive investment opportunities, adding about $650 million of loans with an average coupon of approximately 10% [30] Management's Comments on Operating Environment and Future Outlook - Management noted that the path of interest rates remains uncertain, with future Fed actions being data-dependent [12][15] - The company expects continued strong economic data to push rates higher, with market participants reducing expectations for rate cuts in 2024 [40] - Management expressed confidence in the sustainability of dividends, citing solid earnings capability going forward [66] Other Important Information - The board authorized a $200 million share repurchase program and filed a $300 million at-the-market program [28] - The company executed a $193 million RTL securitization deal in February and a $365 million non-QM deal in April [17][48] Q&A Session Summary Question: Credit performance and resolution timelines - Management explained that resolution timelines vary by loan type and geography, with non-QM loans typically resolving within a year if the borrower sells the property [62][64] Question: Dividend sustainability amidst higher rates - Management indicated confidence in covering dividends based on solid net interest income and portfolio performance [66] Question: Typical losses on loan resolution - Management noted that while there are historical data on losses, the resolution process can take years, and many loans may ultimately pay off in full due to borrower equity [70][76] Question: Securitization and capital needs - Management discussed the potential to call prior securitizations to unlock liquidity, emphasizing the importance of optimizing the liability structure [94][96] Question: Extension activity for transitional loans - Management reported that about 12% of the portfolio was extended, which is modest historically, and extensions are part of normal business operations [101][105]