MFA FINANCIAL, INC. Q4 FY2024 earnings call

• Market environment: Fixed income markets reversed direction in Q4 2024 after a rally in Q3, with yields rising despite Fed rate cuts. The economy was resilient but inflation sticky.
• 2024 highlights: Assets grew from $10.8B to $11.4B, agency book increased by over $800M, recourse leverage at 1.7 times, issued $190M of 5-year bonds callable at par after 2 years, paid $1.40 in common dividends (same as 2023), and mourned the passing of Board member Frank Ulrich.
• Operational: Active in Q4 adding loans and agencies, executed three securitizations, and made management changes at Lima One and MFA.

MFA Financial's assets grew from $10.8 billion to $11.4 billion in 2024. The agency book increased by over $800 million, ending the year at $1.4 billion. In the fourth quarter, the company added over $700 million in loans (non-QM and BPL) and over $450 million in agencies. It executed three securitizations in Q4 on over a billion dollars of loans, including RTL, Non-QM, and NPL loans. The recourse leverage remained at 1.7 times at year-end. The Non-QM portfolio coupon increased twenty-five basis points to 6.65% after sales.

• Economic book value is effectively unchanged since year-end.
• Swap expirations: The expiration of $1.1 billion notional of swaps will reduce distributable earnings and increase cost of funds in the near term, but long-term earnings power is看好 due to positively sloped yield curve, expected rate cuts, accommodative financing spreads, liquidity, and strong housing fundamentals.

• Delinquencies: Sixty-plus day delinquencies for the entire portfolio rose to 7.5% from 6.7% in the prior quarter, particularly in single-family and multifamily transitional loans which are riskier asset classes.
• Market risks: Interest rate changes, treasury supply concerns, and potential impact of economic factors on portfolio performance.

Q: Can you discuss where you see the current economic return of the portfolio? Does that match the EAD this quarter? And impact of swaps rolling off?

A: Mike Roper stated economic return is in the ten-ish percent range, DE ROE is low teens, and swaps will contribute about 2 cents to first quarter distributive earnings before running off.

Q: What was behind the increase in delinquency for single-family and multifamily transitional loans?

A: Bryan Wulfsohn said delinquencies are higher in these riskier portfolios due to the nature of the loans (fix and flip, ground-up, bridge) and shorter-term nature which can lead to breaches of maturity and delinquency if not extended.

Q: How do you see things going for Lima One? Outlook for 2025? Focus on product type loans?

A: Bryan Wulfsohn said single-family continues to be the focus, hired additional salespeople, moving into wholesale channel, expects growth in 2025 around $1.5B, with first quarter somewhat flattish vs Q4.

Q: On non-QM, option to call and resecuritize seasoned deals, pickup in prepays for non-QM portfolio, and unfunded commitments in Lima One portfolio?

A: Craig Knutson discussed that the option to call and resecuritize has liquidity benefits, Bryan Wulfsohn talked about prepays positively affecting book value but potentially lowering DE, and Mike Roper mentioned unfunded commitments were in the $600M range, mostly in revolving securitization which self-funds