MFA FINANCIAL, INC. Q3 FY2024 earnings call

• Market Environment: Fed cut federal funds rate target by 50 basis points on September 18, signaling an easing cycle after a challenging period of restrictive policy.
• Company Changes: Bryan Wulfsohn named President in addition to Chief Investment Officer, Lori Samuels named Chief Loan Operations Officer.
• Financial Results: Q3 distributable earnings $0.37, book value up ~1%, economic return 3.3%. Acquired over $550M loans and ~$300M agencies. Closed two securitization deals in Q3, including a rated deal for residential transition loans from Lima One.
• Lima One: Originated $312M of loans in Q3, down from prior quarter. Working to fill personnel vacancies, asset management team engaged with Servicing Group on delinquent loans.
• Securitization: Over $10B of loans securitized since 2020, 70% of portfolio financed by securitizations. Estimated duration rose to 1.16% in Q3.

In the third quarter, MFA Financial acquired over $550 million of loans with an average coupon of 9.4% and added just shy of $300 million in agencies. Lima One originated $312 million of loans in Q3, down from over $400 million in the prior quarter. GAAP book value was $13.77 per common share at September 30, up ~1% from $14.34 at June end. Distributable earnings were $0.37 per common share, and economic return was 3.3%. The company generated GAAP earnings of $48.2 million or $0.38 per basic common share in Q3, up from $41.9 million or $0.32 per basic common share in Q2.

• Optimistic about business model in lower rates and steepening yield curve. Lima One working to fill personnel vacancies for higher origination volume in 2025. Economic book value decreased ~3-4% post quarter end due to higher market interest rates.

• Market Risks: Interest rate changes could impact economic book value. - Lima One Risks: Personnel vacancies affecting origination volume, delinquent loans in multifamily portfolio.

Q: Could you clarify the book value comments and how to think about dividend accrual in the context of market movements?

A: The 3%-4% decrease in economic book value is as of earlier this morning, net of dividend accrual, and it's a moving target due to spread and rate volatility.

Q: How to think about the earnings power of the portfolio and sensitivity to lower short-term rates considering swaps?

A: Earnings power is evaluated by restriking yields today. Swaps rolling off, but the company feels good about earnings power going forward.

Q: How much loan warehouse capacity does Lima One have in case securitization pipeline slows?

A: Combined between MFA and Lima One, there's over $1 billion of potential borrowing on assets away from securitization, so ample capacity.

Q: Considerations for increasing the agency portfolio?

A: Look at available spreads versus other assets; if spreads remain attractive and curve steepens, could grow to $1.5B-$2B in coming quarters.

Q: Detail on programmatic loan sale outlook and size?

A: Could be significant, especially on rental side. Third-party sales validate pricing and open distribution channel; rental loans were 25% of Q3 origination, could grow over time.

Q: Credit mark on multifamily BPO and exposure?

A: Credit mark on multifamily was ~$15M in Q3, portfolio has a 4-point discount to total UPB, total UPB at 9/30 was ~$1.1B.

Q: Competitive side of BPL business?

A: Competitive, but the company is working on improving sales force, marketing, and technology to regain volume lost.