Release Date: May 06, 2025
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- MFA Financial Inc (MFA, Financial) delivered a total economic return of 1.9% for the first quarter, including an increased dividend of $0.36.
- The company sourced $875 million of loans and securities across target asset classes, demonstrating active portfolio management.
- MFA's leverage remained stable with overall leverage at 5.1 times and recourse leverage at 1.8 times, only slightly higher than year-end.
- 83% of loan financing and 70% of all liabilities were non-mark-to-market, providing stability during market volatility.
- The company continues to see strong demand in securitization markets, with deals being oversubscribed even during volatile trading sessions.
Negative Points
- Economic book value decreased modestly by 0.6% in the first quarter.
- Lima One's mortgage banking income declined from $8.5 million in Q4 to $5.4 million in Q1 due to lower origination volumes.
- Distributable earnings decreased to $0.29 per basic common share from $0.39 in the previous quarter.
- The company expects short-term increases in realized credit losses as they resolve challenged assets in the transitional loan portfolio.
- Subsequent to quarter-end, economic book value is estimated to be down approximately 2% to 4% due to wider spreads.
Q & A Highlights
Q: Can you discuss the impact of swap runoff on the second quarter compared to the first quarter?
A: Michael Roper, CFO, explained that the impact for the second quarter is expected to be similar to the fourth quarter, with an additional $100 million expiring in the second quarter, resulting in an impact of about $0.02 when comparing Q1 to Q2.
Q: How should we quantify the impact of loans working through the system for modeling purposes?
A: Michael Roper noted that the timing is difficult to predict due to various factors like court processes and borrower actions. The multifamily transitional book is at a $40 million discount, attributed to credit, and this discount is expected to resolve over the next year or so.
Q: Can you break down the mid- to high-teens returns across different asset classes?
A: Bryan Wulfsohn, Co-Chief Investment Officer, stated that mid- to high-teens returns are achievable in both agencies and non-QM, while BPL side returns could exceed 20% due to the short-term nature and revolving securitizations.
Q: Regarding loan resolutions, how are they resolving relative to where they were marked?
A: Michael Roper mentioned that they are comfortable with the current marks, and most fair value write-downs occurred last year. Craig Knutson, CEO, added that the largest determinant of resolution value is the property value.
Q: How has the opportunity in the NQM program grown, and is there further growth potential?
A: Bryan Wulfsohn indicated that there is potential for growth, primarily limited by capital and competing asset classes. They have the ability to grow non-QM if desired.
Q: How has the disruption in the bond market affected NQM securitization pricing?
A: Bryan Wulfsohn explained that the last deal priced at 1.35 over for AAA, with recent deals pricing between 1.60 and 1.70. Despite wider spreads, deals remain oversubscribed, and ROEs remain stable.
Q: How has rate volatility impacted demand for Lima One's loan products and the competitive environment?
A: Bryan Wulfsohn noted strong demand from insurance companies for longer-duration assets, with no significant change in competition. Originators have adjusted to market pricing without stepping away.
Q: What is the interest rate sensitivity of the portfolio, and how is it affected by agency MBS and non-QM?
A: Bryan Wulfsohn stated that both agency MBS and non-QM contribute to interest rate sensitivity. The portfolio appears more negatively convex due to conservative modeling, but actual outcomes may differ.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
