MFA Financial(MFA) - 2024 Q2 - Earnings Call Transcript

Financial Data and Key Metrics Changes - For Q2 2024, GAAP earnings were $41.9 million, or$ 0.32 per basic common share, an increase from $23.2 million, or$ 0.14 per basic common share in Q1 2024 [12] - Distributable earnings increased to $45.6 million, or$ 0.44 per basic common share, up from $0.35 in Q1 2024 [13] - GAAP and economic book values remained flat at$ 13.80 and $14.34 per common share, respectively [12] Business Line Data and Key Metrics Changes - The delinquency rate in the residential loan portfolio decreased to 6.5% from 6.9% at the end of Q1 2024, while multifamily transitional loan delinquencies increased [7][8] - Lima One originated approximately$ 410 million of business purpose loans (BPLs) in Q2 2024, maintaining a consistent origination volume [21] - The average loan-to-value (LTV) ratio for acquired loans was 65%, with an average FICO score of 750 [18] Market Data and Key Metrics Changes - The overall market environment was volatile, with two-year treasuries fluctuating between 5% and 4.75% during the quarter [4] - Securitization spreads remained stable, with recent Non-QM deals pricing in the low 5% yields [11] - The company observed a significant increase in paydowns across the portfolio, with over $640 million paying off in the quarter, a 50% increase quarter-over-quarter [19] Company Strategy and Development Direction - The company is refocusing resources away from multifamily lending due to market challenges and is concentrating on single-family transitional and rental lending [8][22] - The appointment of Josh Woodward as CEO of Lima One is expected to drive future growth in residential transitional and single-family rental lending [9] - The company plans to continue leveraging its securitization strategy to optimize its liability framework and unlock capital for reinvestment [6][27] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the second half of 2024, citing potential Fed rate cuts and a more constructive environment for loan prices [10][11] - The company anticipates some level of increased volatility in reported distributable earnings due to the timing of resolutions of delinquent fair value loans [15] - Management highlighted the importance of their asset management capabilities in addressing delinquent loans effectively [30] Other Important Information - The company completed a$ 75 million senior unsecured bond offering with a 9% coupon rate and paid off $170 million of convertible senior notes [5] - Subsequent to the quarter-end, the economic book value is estimated to have increased by approximately 2% to 3% due to lower market interest rates [17] Q&A Session Summary Question: What are the expectations for multifamily delinquencies? - Management noted that while delinquencies increased, the total balance was manageable, and they have a strong asset management team to address these issues [31][32] Question: How does the company view the Non-QM market as rates decrease? - Management expects increased demand for Non-QM loans as rates decline, with a focus on flow channels for sourcing loans [38][39] Question: What is the potential mark-to-market upside if the Fed cuts rates by 50 basis points? - A 50 basis point cut could imply about a 3% upside in equity [42] Question: How does the company plan to manage securitization spreads moving forward? - Management indicated that while spreads may widen temporarily with a strong rally in rates, demand for securitizations remains robust [49][50]