管理層發言
Greetings, and welcome to the MFA Financial First Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to our host, Hal Schwartz, General Counsel. Thank you. You may begin.
Thank you, operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc. which reflect management's beliefs, expectations and assumptions as to MFA's future performance and operations. When you use statements that are not historical in nature, including those containing words such as will, believe, expect, anticipate, estimate, should, could, would or similar expressions are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions and other factors including those described in MFA's Annual Report on Form 10-K for the year ended December 31, 2024, and other reports that it may file from time to time with the Securities and Exchange Commission.
These risks, uncertainties and other factors could cause MFA's actual results to differ materially from those projected, expressed or implied in any forward-looking statements it makes. For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's first quarter 2025 financial results. Thank you for your time. I would now like to turn this call over to MFA's CEO, Craig Knutson.
Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's first quarter 2025 earnings call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer; Mike Roper, our CFO; and other members of our senior management team. I'll begin with a high-level review of the first quarter market environment and then touch on some of our results, activities and opportunities. Then I'll turn the call over to Mike to review our financial results in more detail, followed by Bryan who will review our portfolio, financing, Lima One and risk management, before we open up the call for questions. I must admit it feels a little strange to talk about the first quarter of 2025, given the market turmoil that ensued on and after April 2. But despite the fact that it is not possible to unsee market developments since April 2, it is instructive in the context of first quarter financial results to recall the market environment in which these results were achieved.
And I promise that we'll also address market developments since quarter-end later in this call. Fixed income markets were generally constructive throughout the first quarter of 2025. The 10-year yield peaked at 4.79% on January 14 and rallied to close the quarter at 4.20%. Credit spreads tightened somewhat over January and February, but widened modestly in March as the market began to anticipate and focus on the upcoming trade policy announcements. MFA's portfolio delivered a total economic return of 1.9% for the first quarter, which includes our first quarter dividend that we increased to $0.36. This dividend increase reflects what we believe is the earnings power of our portfolio, which Mike will explain more fully in his prepared remarks. Our economic book value was down very modestly in the first quarter by 0.6%. We were active in the quarter, sourcing $875 million of loans and securities across our target asset classes.
These included $383 million of non-QM loans, $268 million of Agency MBS and $223 million of business purpose loans, funded originations and draws on existing loans at Lima One. We issued our 17th non-QM securitization in early March, and we also sold $70 million of newly originated SFR loans at attractive levels. Our overall leverage at the end of the quarter was 5.1x, and our recourse leverage was 1.8x, both only slightly higher than at year-end by one-tenth of a turn each. The real fun started in April with the tariff circus kicking off on April 2. While the ultimate U.S. trade policy will undoubtedly take months to be determined, the day-to-day impacts have been a roller coaster for financial markets. Expectations for inflation, the economy, employment, corporate earnings, consumer confidence, Fed action and even housing are all considerably more uncertain. As is always the case, increased uncertainty and volatility are never friendly for fixed income and particularly for mortgages.
As we reflect on this volatility and uncertainty, however, I'd like to highlight the benefits of MFA's investment strategy, risk management and financing rigor. Since the onset of market disruptions and the heightened market volatility following Liberation Day, MFA has experienced total margin calls of just under $20 million, which were satisfied with $18.5 million of cash and $1.3 million of unpledged agency bonds. At the height of the impact of volatility when the 10-year treasury sold off by nearly 20 basis points on April 7, we were net receivers of margin as the cash received on our swaps exceeded the collateral posted for repo margin calls. On the other hand, during the largest rally in rates that we saw since April 2, with the 10-year down nearly 12 basis points, on April 14, we posted a total of just $1.5 million of net margin. There is no better testament to the effectiveness of our strategic emphasis on securitization, non-mark-to-market financing and the diversification into Agency MBS that we initiated in December of 2022.
At March 31, 83% of our loan financing and 70% of all of our liabilities were non-mark-to-market in nature, with more than half of the mark-to-market financing coming from extremely liquid Agency MBS. Although recent volatility has led to modest credit spread widening and higher rates, securitization markets are seeing strong demand and deals continued to be oversubscribed. Even on some of the most volatile trading sessions, non-QM securitizations continued to price and clear in an orderly fashion. MFA's investment portfolio, balance sheet composition and risk management approach are positioned to deliver results across multiple scenarios and weather unexpected market volatility and uncertainty. I'll now turn the call over to Mike Roper to discuss financial results.
Thanks, Craig, and good morning. At March 31, GAAP book value was $13.28 per share and economic book value was $13.84 per share, each down less than 1% since the end of December. For the first quarter, MFA generated GAAP earnings of $41.2 million or $0.32 per basic common share. Our strong GAAP earnings were driven by growth in our net interest income of $57.5 million, as well as modest net mark-to-market gains. The growth in net interest income was driven by our additions of higher-yielding assets over the last several quarters and lower interest expense, primarily due to rate cuts in November and December and lower day count for our repo liabilities during the month of February. Lima One contributed $5.4 million of mortgage banking income for the quarter, a decline from $8.5 million in the fourth quarter, driven by modestly lower origination volumes and a decline in gains on sales of single-family rental loans as sales volume declined from $111 million in the fourth quarter to $70 million in the first quarter.
As Craig mentioned earlier, MFA declared an increased dividend of $0.36 per common share for the first quarter. The increase in our dividend is reflective of our continuing and increasing confidence in the long-term earnings power of our portfolio. This confidence is informed by our success adding high-yielding assets and the resulting growth in our net interest income, the increasingly positive slope of the yield curve, resilient housing fundamentals and wider spreads available on assets today. We continue to see ample opportunities to add our target assets at mid to high-teen ROEs, which we believe is one of the best proxies for the current earnings power of our portfolio. Distributable earnings for the quarter were $30.5 million, or $0.29 per basic common share, down from $0.39 in the fourth quarter. The decrease in our distributable earnings was primarily due to the expiration of $1 billion notional of interest rate swaps over the course of the fourth quarter of 2024 and the first quarter of 2025.
DE was also impacted by the decline in Lima One's mortgage banking income as well as increased credit-related charges for the quarter associated with resolutions of certain non-performing assets. As we continue to work through some of the challenged assets in our transitional loan portfolio, we expect to see some short-term increases in realized credit losses in the quarters ahead as many of these troubled assets are approaching resolution through foreclosure. As a result, we expect that our distributable earnings will be increasingly volatile and less indicative of the current earnings power of our portfolio over the next several quarters. Importantly, we believe that these headwinds are short-term in nature, and economically, we emphasize that this is old news. Our expected credit exposure was already recorded in our book value and in our GAAP earnings as unrealized losses in several quarters and, in some cases, several years ago.
So we don't expect these resolutions to have any impact on our book value or on our GAAP results as the impact is limited to the reporting of our distributable earnings. As we continue to resolve these challenged loans and redeploy the capital into higher-yielding performing assets, we believe that our DE will begin to converge with our dividend over the back half of the next 12 months. Finally, subsequent to quarter-end, we estimate that our economic book value is down approximately 2% to 4% since the end of the first quarter, primarily as a result of wider spreads. I'd now like to turn the call over to Bryan, who will discuss our investment activities in the first quarter.
Thanks, Mike. In the first quarter, we experienced continued growth in our investment portfolio. We targeted our preferred asset classes, acquiring $875 million in loans and securities, which increased our portfolio net of runoff in sales to $10.7 billion from $10.5 billion at the end of the year. Our strategies remain focused on non-QM, BPL, and Agency MBS. During the quarter, we sourced $383 million in non-QM loans with an average coupon of 7.8% and a weighted average LTV of 65%. We maintained prudent underwriting standards, and we believe mid to high double-digit ROEs are feasible with securitization financing. In March, we issued our 17th securitization of non-QM loans, selling $283 million in bonds at an average coupon of 5.58%. Since the end of the quarter, we've observed AAA spreads widen from 1.35 to as much as 1.75. However, it’s important to highlight that liquidity has remained in the non-QM market, as participants are keen on new offerings at wider spread levels.
Recently, AAA spreads have tightened to 1.60 and this trend may continue if the macroeconomic environment stabilizes. We also added to our Agency MBS portfolio, increasing our position to $1.6 billion, focusing on low pay-up 5.5s bought at modest discounts to par. We plan to keep expanding this segment of our portfolio as long as spreads stay attractive. Current research indicates that mutual funds are overweight in agencies, suggesting that spreads might remain at these levels due to rate volatility. There are also potential factors that could lead to agency spread tightening, especially if banks receive relief on leverage ratios and can invest more aggressively or if the Fed changes its balance sheet strategy. We estimate our net duration decreased slightly in the first quarter to 0.96 from 1.02 at the year-end. As a reminder, we primarily hedge our interest rate exposure through fixed-rate securitized debt and interest rate swaps, with $5.9 billion of outstanding bonds from these securitizations and $3.4 billion of notional value swapped at the end of the quarter.
If we continue adding agencies, we anticipate our net asset duration will drop again to maintain a similar level of exposure of our equity to interest rate changes given the greater leverage associated with agencies. Regarding Lima One, Lima originated $213 million in business purpose loans during the quarter with an average coupon of 9.7% and an LTV of 65%. We kept selling newly originated rental loans, offloading $70 million during the first quarter, contributing $2 million to mortgage banking income. Overall, origination volume was slightly down from Q4, as the early months of the year are usually slower. We've taken steps at Lima to enhance volume growth without compromising credit quality, hiring nine loan officers in Q1 and seven so far in Q2. We continue to attract talent in both sales and underwriting at Lima and anticipate our efforts will pay off in the latter half of the year.
As for our credit performance, 60-plus day delinquencies across our loan portfolio stayed steady at 7.5%. Delinquency rates for our non-QM, SFR, legacy RPL, and NPL books were basically unchanged from year-end, and LTVs remained extremely low. The delinquency rates increased in our single-family transitional portfolio, but this was due to repayments outpacing origination, causing a decrease in the denominator. Actual delinquent loans rose by only $2 million on our $1 billion portfolio. Lastly, we're making progress in our multi-family book, resolving $35 million of previously delinquent loans, along with over $100 million in prepayments during the quarter. Now, we’ll turn the call over to the operator for questions.
分析師問答
Thank you. And at this time, we'll conduct our question-and-answer session. And our first question comes from Bose George with KBW. Please state your question.
Hey guys, good morning. In terms of the impact from the swap, the runoff, can you talk about the second quarter versus the first quarter, what the incremental sort of impact is going to be?
Thank you for the question, Bose. The impact for the second quarter aligns with what we discussed for the fourth quarter regarding the remaining runoff. We anticipate that the expirations from the first quarter, specifically an additional $100 million expiring in the second quarter, will result in an impact of about $0.02 when comparing Q1 to Q2.
Okay. Great. You mentioned the loans that will eventually have an impact. Is there any way for us to quantify that for our modeling, or will it be unpredictable regarding when it will actually occur?
Yes. Unfortunately, the timing is going to be a bit challenging. We are somewhat dependent on the courts in various states, the borrowers, and other factors. It’s safe to say that a significant portion of multi-family delinquencies is currently in foreclosure. In many states, this process can be relatively quick, although borrowers may employ tactics to delay it. Regarding our multi-family transitional book, we currently have a $40 million discount applied, which we primarily attribute to credit given the short-term nature of these assets. So while the timing might be difficult, we anticipate that the majority of this credit discount will be resolved over the next year or so.
Okay. Okay, great. That's helpful. And then just one quick question just on the returns. You noted the mid to high-teens returns. Can you just break that out between the agency, some of the other asset classes?
Yes. I mean, really, mid to high-teens are achievable both in agencies and non-QM. And then on the BPL side, on the short-term nature, those 10% coupons, given the revolving nature of our securitizations, those ROEs could be above 20%.
Okay. Great. Thanks.
Thanks, Bose.
Your next question comes from Doug Harter with UBS. Please state your question.
Thanks. On the loan resolutions, just a follow-up. Can you just talk about when you're seeing resolutions, kind of where those are coming out relative to where you had the loans marked?
Yes. In general, we've seen the loans resolve around the mark. We haven't had many of these since we began originating some of these loans. We're starting to see some of the troubled pipeline being resolved now. Overall, we are very comfortable with the way things have been marked. We are not continuously marking things down. We utilize multiple pricing services and have a team that reviews all those marks, constantly assessing the value of the underlying collateral. There is still more to come regarding the total amount of these resolutions. However, based on what we've observed so far, we feel very comfortable with our current marks.
And Doug, as Mike said before, the majority of the fair value write-downs on these assets took place last year. I mean I think it was actually in the third quarter of last year. And as I'm sure you know, on loans that are ultimately headed to foreclosure, the largest determinant of your ultimate resolution value is the value of the property. So we were pretty focused on that.
Great. Can you highlight which sectors or segments of the market you are currently focused on regarding the new BPL originations and how you anticipate that opportunity will evolve?
Yes. I mean, really, it continues to be similar to what it was in prior quarters, with the focus being on ground up, bridge and fixed flip. I mean the bulk of the new origination over the past quarter was ground up. And that's where we see sort of the biggest opportunity given that real estate transaction levels are down and home prices have gone up considerably, that there's just the opportunity to do sort of the quick flip type transactions is much smaller than it was previously. So the focus has been more on ground up and/or bridge.
Great. Thank you.
Welcome.
Your next question comes from Steve Delaney with Citizens JMP Securities. Please state your question.
Hey, good morning, everyone. Thanks for the question. For starters, just to be sure I've got the right numbers on your comments about changes in book value in the second quarter. First, is that relative to economic book value, not GAAP, and the figure at March was $13.84, is that correct?
That's right on both accounts, Steve.
Okay. Great. And you said down 2% to 4%. Okay. So something in...
I'll also add to that that 2% to 4% is net of the dividend accrual. Sorry to cut you off there.
Oh, no, I appreciate you throwing that out. Okay, net of the dividend. Okay, thanks. Obviously, great progress on building the NQM and the BPL. The NQM program, how many sellers, approved loan sellers, and I don't know whether that includes servicing, but let's just focus on sellers, how many counterparties do you have out there in the marketplace actually originating those loans for you to purchase?
It varies from quarter to quarter. In any given quarter, it could be as few as four and as many as eight. Historically, we've preferred to establish deeper relationships with fewer counterparties instead of widely distributing guidelines and working with numerous smaller, less well-capitalized risk centers.
Got it. How would you generally describe the growth of your opportunity in the last year? Is there still potential for further growth in that sector, or do you believe you are at a point where you’re capturing your fair share and it may stabilize in terms of volumes?
So we think there's definitely opportunity to grow, right? Really it's just capital and obviously, it competes with our other asset classes in terms of opportunities to deploy. So if we wanted to grow non-QM, we definitely have the ability to do so.
Got it. And I don't know when you priced your last securitization, but all the disruption in the bond market with following tariffs, et cetera, your last execution in the NQM, MBS market, can you comment on that as to whether that was in line with previous deals or whether it was priced wider? How are you seeing the opportunity to securitize those NQM loans that you have acquired given the kind of disruption in fixed income markets? Thank you.
The last deal we did was at 1.35 over for AAA, which reflected the market at the end of March. Since then, spreads have widened; they might have gone up to around 1.75, with some deals printing not much wider at 1.80. Recently, we've seen deals priced regularly between 1.60 and 1.70, and they continue to be well-received and oversubscribed. While spreads may have widened a bit, assets are also trading wider in line with those expanded securitization spreads. The return on equity remains stable, as the securitization spread is basically unchanged, and you might be earning an additional 25 to 30 basis points on the asset.
Got it. Thank you so much for the color.
Thank you, Steve.
Thank you. We will now begin our question-and-answer session. Our next question comes from Jason Stewart with Janney Montgomery Scott. Please go ahead with your question.
Hi, thank you. A question on Lima One. Just the rate volatility and the impact there, maybe you could give us more color on what's happened in terms of demand for loan products, the competitive environment and whether loan buyers, particularly insurance companies, have changed their appetite given the rate volatility.
Yes, we are in close contact with Lima to ensure we are aligned with the market when it comes to setting rates for borrowers. We are still experiencing strong demand from insurance companies, which has not changed. They appreciate the duration associated with longer locked-out assets in relation to DSCR and rental loans. Therefore, demand remains strong in that area.
Okay. And in terms of competition, is there any shakeout there in the competitive environment?
Not really. I mean the originators over the past sort of year have seen a really good market for them to produce and earn. So I believe that they have the capital situation of these originator is such that they don't necessarily have to pull back. Everybody has to sort of adjust to market pricing, which they do. But we haven't seen really originator step away.
Okay. Got it. And then one question on the agency book. Could you just remind me whether you look at the agency portfolio relative to swaps or treasuries and how that determines sort of ultimate sizing as portfolio allocation does?
So we hedge with SOFR swaps, but the market generally looks at a spread to treasuries. But yes, you do get some additional spread hedging with SOFR and borrowing against SOFR versus the quoted spread to treasury. So it might be an extra 20, 30 basis points from time to time that, that we see in the market that you're picking up kind of hedging with SOFR versus treasuries.
Yes. I mean obviously, you hedge with swaps and it looks much better against swaps. So given that outlook, does that change how big could agency get in terms of portfolio allocation?
We are taking our time with this decision. In the past, we mentioned the possibility of the portfolio reaching $2 billion, after which we will reassess the market conditions. However, this will take place over a few quarters.
Got it, okay. Thanks a lot.
Thank you.
And your next question comes from Eric Hagen with BTIG. Please state your question.
Hey thanks. Good morning, guys. We're looking at the interest rate sensitivity table in the press release. I guess we're a little surprised to see that much convexity risk in the portfolio for an up move in rates. Is that being driven by the Agency MBS portfolio? Or how meaningfully is the non-QM portfolio contributing to that sensitivity?
It's not just the agency portfolio; the non-QM portfolio is also a factor. As we've increased leverage, our exposure has grown slightly. However, our calculations are primarily model-driven, relying on proxies. The challenge with non-QM loans is that our historical data only goes back to 2017, which limits our predictive accuracy. Consequently, we tend to adopt a more conservative method when calculating convexity. This could lead to an impression of greater negative convexity than what might actually occur in the future.
Yes. Okay. That's helpful. On the delinquency pipeline and the nature of the defaults, right, specifically in the Lima One portfolio, are the defaults being driven because the borrowers are like upside down and interest expense has crowded out their return? Or is the project improvement component of the timeline just significantly delayed? And like how do you think about the impact of tariffs and the impact that could have on the credit performance and the timeline for the project improvement component?
In terms of delinquencies on the BPL side, there isn't just one reason. One factor is the high interest expense associated with it. If a project takes longer than expected, it can create liquidity pressure on the borrower, leading to delinquencies. Additionally, challenges such as permit issues, difficulties in obtaining materials, or unexpected situations during a project can cause defaults due to delays. Regarding tariffs, while costs like lumber make up a smaller percentage of home and renovation costs compared to labor, we don't anticipate tariffs to significantly affect delinquencies. However, we are planning for larger contingencies in the budget to ensure we are prepared for any potential cost impacts on projects.
Yes, that’s helpful. Thanks, Bryan.
Thank you.
Thank you. And ladies and gentlemen, that was our final question for today. We have no more further questions at this time. So at this point, we will conclude today's call. Thank you for participating, and have a good day.