MFA Financial, Inc. 8.875% Senior Notes Q3 FY2024 earnings call

• Federal Reserve cut federal funds rate by 50 basis points on Sept 18, signaling easing cycle. - Management changes: Bryan Wulfsohn named President of MFA, Lori Samuels named Chief Loan Operations Officer. - Solid Q3 results: distributable earnings $0.37, book value up ~1%, economic return 3.3%. - Acquired over $550M loans with 9.4% avg coupon and ~$300M agencies. - Utilized securitization, closing 2 deals in Q3 and 2 post-Q3, including first rated deal for residential transition loans from Lima One. - Lima One's origination volume down in Q3 due to management changes and focus shift, but working to fill personnel vacancies and improve sales. - Credit performance: 60+ day delinquencies increased to 6.7% from 6.5% due to Non-QM and multifamily loan portfolios.

In the third quarter, MFA Financial acquired over $550 million of loans with an average coupon of 9.4%. They also 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 and economic book value was $14.46 per common share, an increase of ~1% from Q2. Distributable earnings (DE) were $0.37 per basic common share, down from $0.45 in Q2. GAAP earnings were $48.2 million or $0.38 per basic common share, up from $41.9 million or $0.32 per basic common share in Q2. $236 million of single-family rental loans were sold, with $74 million UPB of recently originated SFR loans sold by Lima One.

• Economic book value decreased by ~3%-4% as of earlier this morning due to higher market interest rates. - Expect Lima One's origination volume to start picking up in 2025 with added talent and marketing/technology initiatives. - Believes third-party sales of Lima's originations provide strategic diversification and improved returns.

• Market interest rate volatility could impact economic book value. - Credit risks in loan portfolios, such as increases in delinquencies on Non-QM and multifamily loans. - Securitization market conditions could affect funding costs and ability to refinance.

Q: Could you clarify the book value comments and dividend accrual context?

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

Q: How are you thinking about the earnings power of the portfolio and sensitivity to lower short-term rates?

A: We look at what assets and liabilities and hedges would be if restruck today, feel good about earnings power in context of dividend, and swaps rolling off but benefit from past below-market pay rates.

Q: How much loan warehouse capacity does Lima One have?

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

Q: Considerations for increasing agency portfolio leverage?

A: Look at available spreads versus other assets, think it could grow to $1.5B-$2B if spreads remain and curve steepens.

Q: Detail on programmatic loan sale outlook?

A: Could be significant, especially on rental side, validates pricing and opens distribution channel, with rental loans being ~25% of Q3 origination.

Q: Credit mark on multifamily piece of BPO and exposure?

A: Credit mark was ~$15M during the quarter, portfolio has a 4-point discount to total UPB, total UPB at 9/30 was ~$1.1 billion.

Q: Competitive side of BPL business?

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