MFA Financial (MFA) 5 Nov 202020 Q3 Earnings call transcript

Ladies and gentlemen, thank you for standing by. Welcome to the MFA Financial, Inc.

Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. Instructions]. [Operator

today’s the recorded. Schwartz. call ahead, reminder, like would Please is sir. turn to over call a I being now go As to Hal

conference anticipate, The Kevin. and made. time-to-time various forward-looking to and operations. future materially and types MFA reflect subject forward-looking from discussed may as makes. expressed morning, the estimate, historical in could, nature, those will, used, assumptions you, believe, expressions that which XX-K assumptions such These factors regarding expect, forward-looking actual statements it similar may are everyone. differ year in it identify those to uncertainties, that risks, Form December are uncertainties These implied When in results or Inc. are known beliefs, and could not cause Thank or on or Good of unknown speak other annual statements this performance statements the management’s XX, to only statements other call to factors, and Exchange with file those forward-looking should, including reports for ended All MFA’s described of and risks, Financial, containing would refer statements including which intended as as today on Commission. words contain MFA’s information MFA’s are on expectations to date the and report they other from any Securities projected, XXXX, statements.

financial you your use to would to release and MFA’s the disclosure turn I MFA’s press relevant call information Thank now Craig announcing regarding see for over MFA’s XXXX quarter this in Knutson. For forward-looking of President, And like please statements, additional CEO time. third the results.

Also in Bryan Kristjansson; Good Hal. of webcast. Co-Chief to welcome Wulfsohn, you XXXX in Investment interest Officers; are Steve CFO; Financials and management. you Thank members Gudmundur with and and like our your Yarad, financial today I third thank results quarter dialed other me morning, MFA would for to you, everyone. our senior

days this entered out diagnoses very between sided, much the seems rate upcoming standpoint, saying out want low is most and two story clear really MFA our quarter shutdowns to the very world of of was I continues COVID-XX four of future the a XXXX, third quarter despite has of season rates and XXXX. the government circumstances. a Before not what of to sheet us, lockdowns, in quarter continue awash election third This what again fathom second of still we very MFA and not been Recall team. at wave environment results volatility. But regardless extraordinary. was entire the markets dedication XXXX persevere thrown the and that of been will the impossible team with stimulus recognize feature restrictive to to our has begin, commitment XXXX From of the we looming possibility that not Financial a other normal for balance third Their almost continues of to market historically challenging Yet year. the not is and And given obviously substantial and unquestionably economically or quarter be interest like the it be much. liquidity, measures of woods, also that’s fortified only forbearance uncertainty the muted a liquidity. measures, it backdrop. holiday are financial

environment, decision challenging availability, of given we cheapness. prior terms to the over which were relative investment the was easier leverage. both understandably immediately is aggressively not Given four inclined and investment our to add and pursue that and new months, experience investments But even in

improve to quarter second our significant front. substantial happy opportunities through liability this earnings to on our report However, as in made we And mentioned progress that we call, have capability earnings I’m management. saw we

the continued fought largely book these material absent third carrying financial and hard through of is our price evidence contributing portfolio so in in value on in crisis in efforts to financial our is value very quarter appreciation results evidence assets. results appreciation the fourth from much of While XXXX. fair loan retain income to be that whole results, our in the What quarter are somewhat on and both the year, third earlier apparent assets there months in economic we the quarter will value

better develop also that our as addition, early capability In on which year. reflected to reversals achieved has flow results began we as our are credit to as through a assets, results, in July with credit we of sensitive Xst than been actively this reserves, resulting our ability XXXX mortgage we Overall, in manage progress prior residential credit of income. since expected financial pleased assets,

to We have quarters. next several have forward taken over definitive success clear our a path continue and this to steps enhance earnings go the capability

base largely asset very nature. still Our a liabilities of are durable

We noisy manage by time by quarters gains assets forward assets. our earnings driven credit achieve value. largely GAAP of Unlike per share the quarter. $X.XX continuing enhance we to prior third These more results the our loan this and one to We to or continue were Please look third normal to quarter for reported two less to income shareholder year factors elements. influenced whole turn actively unrealized results of sensitive good by Page was and X.

over write down the a loans to whole a credit book retrace held was onset of XX% book GAAP the step provision as economic loss reversal loan the as well As up pandemic. the for value was continued on quarter carrying but the again with modestly, whole value carrying our value. in value up

turn still all mark-to-market. September We third Please XXth. based in and $X.XX two-thirds was quarter and page dividend on a we XXth to non asset one X. the to our Our up low dividends at leveraged quite financing in on preferred common caught October paid was X.X of

is are primarily in of have value XX over Housing a obviously which loans, major been we a suburban credit substantial advantage to Our very on sales this time experienced turn take March home particularly recording in Oreo residential million is quarter, prices outside portfolio comprised in also for shown of sensitive $XX is our strong, sell able to quarter induced for liquidity trend which assets. during good real Since the cities. the us. This of of and is appreciation. which Please Page X. have Page appendix in record neighborhoods third April. But the off

high executing the securitizations two the advantage securitization. for early for and September, $XXX totaling products million, non-QM to assets We taken of have One paucity week. one And extremely quality approximately also by closing of just non-QM last low the available demand Two, short rate environment. the other in three,

this see non-mark-to-market of page, was basis between similarly XXX and cost this bonds term. the below AAA of yields while securitize is respectively, noteworthy debt can XXX you is were cost replaced and sold X.XX%, on we X.XX% to and the Also As replace. on financing and points sold was borrowing non-mark-to-market debt of some blended that non-recourse

we XX% X. a liquidity. cost. generated additional on which of lowering of two So, UPV the Page XX% little to this durable approximately produced and substantially financing, while more transactions, the the of Please turn cash Bonds $XXX sold amount over actually million increased

$XXX refund was compelling and We any loan or permitted yield on down Athene share XXth, and when note negotiation maintenance generated our our Please balance to that per financing $X.XX quarter financing financial critically, noteworthy but we repayment loan debt without non-mark-to-market this from Also be this Senior debt, approximately these this I was by our And was quarter. penalty realized did you are fact this that in cheaper largely of announcing that our the the fortify quarter, reflected down one. our Page Obviously, report be not not investment payoff sheet. June results earnings quarters on but the call. did debt the the this terms to to tell also Apollo called paying pay loan portfolio tune high partially would from on this full in ROE The turn honestly subsequent was is will on with million of the can to cost its X. the forbearance of paid expect XX% will be we in source I we portfolio funds. the debt, closed of term provision. this we rescue critical liquidity fourth secured that happy so fully have in fully third exit, off results to per a clearly

stale finally, billion we has million of offer executions can additional have authorization financing So lend on And for transition to a have this lowering market X. debt additional deals. while a Page loans We still the NPL about a themselves will us although to existing still levels achieved while stock. non-rated would that additional with authorization only two SFRC Please today liquidity. authorized securitizations have similar current progress This announced be first securitization on on we made our called liquidity securitization -. Awaited and fronts, common million outstanding turn replaces relevered. of cheaper securitization as producing assets X.X to these to approximately wood Similarly, have we current chop. we hopefully we non-QM good our three program. that also that Board $XX In stock $XXX repurchase

primarily historically has because represents aggressive a book economic share when you economic discount straightforward. feel MFA’s our that at price of discount market stock around trading This versus With likely a our value the many not considerable a calculation even we it value, stock current disconnect As is to repurchases. substantial was to MFA traded relatively book value. pursued was value. rarely book book, of recall, XX%

there at precision. levels portfolio an a interest which a repurchase to with A value to and Our book And are large is to share inherently value company, difficult backed earnings. is to just MSR both clear, own action. small accretive conflict operating neither of loans difficult substantially in are more mortgage book market be whole primarily residential nor securities this assets not value. no current both We with of

completely will now paying we our our MFA’s last details more dividends is as motivation on of the internally $XXX loan, managed financial stock finally, liquidity turn fee. the over does Buying Yarad the million. cash to approximately an address after off REIT As liquidity I to balance October And provide and results. to the reduce stock execute call management shareholders. mortgage XXth not that the our Apollo/Athene back with Steve was buyback, Friday, of to aligned any available believe

you, Thank Craig.

and As items. Craig started normalize fewer included less call, for mentioned earlier and results to on third this sizable quarter unusual

have we the reduction net lower in share a forbearance asset income our behind of or continued and net valuations, credit other expenses recovery operating shareholders in as reserves, primarily reflects per million, $XX CECL to put and Our $X.XX residential mortgage loss negotiations it. common

However, we turn earnings period million continue Slide was items our our results expect some interest a we to the more reoccur metric. that don’t not include reflects present to $XX.X for reason in XX, to Please where we to continue income Net this core the each key results quarter detail. and the items impacting for following. present

interest X.XX% our should loans. loans million were In for an for stopped declined status. due UPB the securitization XX-days nonaccrual by increase interest recognizing residential a impacted quarter. impact non-QM accounting and become September. our portfolios. approximately loans the caused income prior non-QM our Under net $XXX net at that is loan on Accordingly, higher It whole the to value with September and transaction be nonaccrual loan recognized both total income non-accrual in quarter of spread forbearance, no amount in the we post noted loans as in quarter also the in fund positive and the to securities early on cost at delinquent, rates XX, to any Firstly, interest particular overall carrying interest for The recognized on the third reverse rose with the policy, of these interest income income period. in XXXX, was that period

$X.X approximately income with million, periods. became loans third the in during to prior as UPB accrued $XXX liquid income the approximately was Interest adjusted addition, quarter. million XX-days loans by reverse these on of In

expense and on was Athene quarter approximately to interest run Secondly, the the $XXX $XX third million. million Apollo

impacted carry net to also net $XX Primarily balances. to allowance on earning $XXX modeling publicly value adjustments by spread our would X.XX%. reserves assumptions for to for Excluding by a for have this - current expense loss the held net interest approximately million. other been and macroeconomic we income quarter approximately lines sheet CECL our or in that reduce entire forma used partially the quarter the purposes, cash This also to CECL was reversal pro balance the quarter adjustments assets noted generated basis, reflecting third approximately lower on due for but loan our borrowed the million.

We outlook, the our COVID-XX to making the the and given take in in due losses, approach continue uncertainty political to ongoing current for given a the estimates cautious credit pandemic environment. U.S. economic

quarter. income. Our loan million including of recorded, In strongly the for for increases Net second million an has fair more XXXX. of the portfolio first fair value loan gains market and were we of the of total of XX% quarter cash in third value quarter perform of value $XX $XX.X $XX.X they our recorded that than the XXXX, of the market declines million recovered

arrangement. not from any quarter, operating incur for further our million other and existing the we to forbearance expenses did prior down significantly the related Finally, as were expenses $XX.X the quarter from

severance expenses million approximately be However, noted reduction. accrual one-time to it should related for workforce a this quarter (Ph) included [$X.X] also that

all going quarter. forward compensation be $X equal, In each we anticipated addition, approximately expense that lower our else to million remaining

a taken our As result to right actions size of workforce.

will anticipate G&A details run we to Wulfsohn, call to turn equity loan non-QM forward, the that should who our Bryan of review over at annualized expenses will X% portfolio. that, quarter. with Going And I each about

Thank you, Steve.

acquisition This a volume three non-QM our Turning quarter plus non to second with subsequent to and non-QM gaining Financing first approximately to-date. third a has $X total, momentum addition strong. market In leverage. of portfolio the We successfully environment. and is a in the due XX. third very increased Non-QM for million the able is have improved non-QM closed nearly quarter over of to end. paper and to in yield and in borrowing were demand in been quarters and multiyear We the market non-mark-to-market non-QM portfolio securitization securitization origination XX demand, to Page our low overall securitized execution billion quarter growing partially our of our stable -. financed purchase is

programmatic further funds. percentage stability of a be providing to issuer of non-mark-to-market will of continue securitizations, lowering to which funding, addition costs in will We our increase the and our

we Page XX. help percentage non-QM by our of Many deferral our a owners affected of Through that payment better to the effort in the temporary small managed program portfolio for of The a pandemic. granted pandemic our of with nation. impacted significant through payment businesses borrowers believe borrowers deferral the borrowers our we the we portfolio, Turning put been by to economy across has helped A in almost onset our performance. program crisis. are instituted long-term were forbearance position of to in XX% shutdowns the servicers opened at the borrowers a the June, relief, up. as which an Subsequent to reverted instead

by Forbearance program determined instituted state now largely guidelines. are

For balloon the clarity, payments deferral missed, tax of program, the a on maturity as payment. loan the

amounts Forbearance extended to period spread of be the requires the to unable time. the to we over owed at of allow the payments the are missed amounts conclusion period. be repaid in one-month some, Those paid borrower forbearance an

state delinquencies seen supported affairs unique subsequent high end. level as stress one given have improvement combined we have Current much might supply unemployment. have levels rates economic values mortgage of of low have the with expected although Over deferrals third we lower seen quarter been is low a increasing quarter, and Own market. as than of and to percentage of a saw have high those in created levels the

loans equity. get will homes mitigate before elevated that debt In return of many have addition, our in the is longer no LTV a their borrowers targeting scenario order should strategy sell a their low In cases, delinquencies. their with can service to under losses ability

page to XX. Turning

continues of less delinquent. well. our to of X.X perform billion by the XX-days RPL than been impacted pandemic remains XX% portfolio Our but has portfolio

as portfolio XX% make by rebounded second Although the we to of quarter impacted in percentage source seen exhibited XX% fees ongoing payments. COVID an similar status This the delinquent percentage portfolio in Prepaid in the over portfolio. those XX-days of third quarter. a from borrowers continue the had

We servicers post ensure forbearance. outcomes are working positive our with to

XX. page to Turning

one servicing our maximize has purchased to Our of that our partners team the slide asset in the loans NPL on drive to third performance either are outcomes prior quarter delinquent outcomes were of XX% with than be portfolio. in at for owned shows concert worked the our more either paid to loans liquidated therefore continues now for for pandemic and are year. were management performing or XXXX purchase This in portfolio. through full, Team that our to REO XX% liquidated.

third quarters three in more versus paid liquidating XX% ago. increased been XX% significantly selling The the performing as effective, activity year We still Modifications or are properties non-performing have REO in full. status. either quarter have properties

these with the purchase. our results outperform to at they We of are as time pleased continue assumptions

would I Gudmundur like our to over walk loan. the to business Now, call to purposes through turn you

Bryan. the Turn in you, outs increase Flip an Page Thank on paid third the and in delinquencies Fix to We saw an and improvement XX. in portfolio quarter.

in loss third Fix quarterly X.XX%. quarter improved Principal the We investments equivalent sales portfolio all large as by annual conditions $XXX housing is to pace supported and and declined financing the As The downs Flip loans converted and on XX the MFA’s the declined for low were Fix non-mark-to-market at strong down home home in our credit Flip holdings market end Fix delinquencies. Flip in quarter. loan The the and rehab importantly, in and $XXX $X Flip $X an $XX on and average quarter. quarter. basis. the The million advanced general term Lower debt of rates increased a of asset mortgage million million monitoring the of on new Fix portfolio Flip completions lower was CPR the Fix reserves declined pay in million credit the fiscal the about stimulus, influenced of for to million is record sales and about And $XX and paid positively in $XXX and due quarter. and Fix REO to draws delinquent UPB project in seriously and to million yields make Flip to XX-months. the quarter. remaining and of the amount and conditions, total million quarter portfolio

acquiring strong the October. and and and loans pandemic partners of maintaining throughout are the ongoing with Fix an started in Flip dialogue month We relationships originating new

Turning to Page XX.

full either previously Fix is or declined of Flip loans and as the status. XX delinquent million As in loans XX-day delinquent in services pure million noted, pay off to XX pay quarter current or

foreclosure seven of XX day new and became completed we loans million and loans. While million plus delinquent XX

it are believe expected the improvement payoff is of where We team, home where as of Approximately limited often these no to well loans efforts the pace delinquent dependent housing Flip either sales strong pleased Fix on and to asset which is is seriously bridge work a with thirds is property. of for saleable our condition. has generally increased the recently, loans be be due of the two market and done, for completed loans the helpful as where have management sale projects properties should meaning or a

the the shortening gives non-mark-to-market a portfolio, And for our listed XX% loss be achieve time tremendous the with until combined work we we delinquent will us through in and already experienced sale, to to approximately loans potentially acceptable addition, our Fix financing able patiently asset mitigation. believe believe outcomes. Flip of In seriously are our team delinquent loans of resolution. that management advantage We term

monetary trends we to mitigation, helpful economic addition, be supportive for the been have policies and In of as housing fiscal continue market. macro recent believe loss

Page XX. to Turning

to Our well loan times. challenging continues these really portfolio single through family rental perform

through continues move benefit populated to trends monetary medium-term benefiting family densely push in delinquencies for in of to fiscal at strong the from have plus to relatively X.X% people points have in third family XX% a prepayment have in loan maintained rising the to the asset a our made In quarter. apartments addition was remained muted X.XX% no out and XX XX second short end and declined to of long-term After acquisitions new towards demographic stabilized to as as October. SFR in remained trends The cities, from with single has homes third throughout rental investments in and this quarter, origination the yield quarter. We and month of support quarter, portfolio it percentage days protection well as but strong space, the stable relatively increased resumed strong modestly quarter. SFR GPR more class. three the of pandemic the households supports the relationships basis single it healthy partners for third delinquency Repayments

exploring Finally, now a over And a I SFR lower as Craig which some market will of meaningfully to given our portion of of it possible alluded to cost current turn earlier, portfolio, our comments. funds conditions. could are securitization Craig for final we

in uncertainty pandemic, these value, believe from and year. progress asset respond fiscal would great I for that positioned Company Gudmundur. well is most weather equally to and still drove the world, securitized future. are of substantial monetary taking based this open price XX% Xst debt, you position challenges further to Considerable of materially since MFA Kevin, strides line market you in and exists, they we in made and our opportunities July up appreciation million durable politics financing MFA to debt debt. durable as asset the steps has Thank to to please uncertainties, and to arise which the payoff questions? proactive expansible but of Significant thrive earnings $XXX policy. moving our book cheaper around the recently face continue the

Thank first from you. question Instructions] Suisse. [Operator Harter Doug Our line Credit the of from

incremental actually and tradeoff maybe wondering Thanks. on is purchases? new the about the Doug. share and for between how more talk you This Josh on trading the guys. the of are generally, buybacks can incremental you Just seeing you pace are Hey yields if stock given And is investments? where I’m about repurchases. thinking

for The plan is stock a Thanks XX plan. repurchase question. the Josh. Sure XXb

volume. limited to the can are about I of XX% we I daily trading how it think think is so as purchase, much And last average four we weeks

still is significant. you pretty absolutely But it right. are So

that with is stock investment essence, an in I other opportunities, investment opportunity. because the weigh think repurchasing

investment is exist where properly what it trading think, also on opportunities I So depend book to stock there. relative other out the and will

off, our it be option. attractive level So, open. versus I clearly book an we is are But the trading wide a stock where trade see value, at that think eyes the clear but do to is as just

not on are makes us an it give sure, seeing you you. update performance if I But where And value quarter-to-date? missed sense. Great, you then this. I’m can Thank

Yes, I the a so that think We particularly we mention sales have we yet. two it arguably didn’t loan executed. a October given would it. takes those. even be marks loan little week non-QM actually maybe up end guess of to up I for little don’t marks process have where a could Because or are bit, flat recent and loans bit,

best up So the flattish to you. I give guess is a little can maybe I

Great. the comments. I appreciate

Thanks Sure. Josh.

you. Instructions]. further this At time, questions in Thank have we queue. [Operator no

Financial, like we thank I would results Well, in to for next their forward in and we February. our to MFA announce everybody Alright. look interest update when year-end

you thank does you. joining. do We and conference. your conclude that gentlemen, Thank for Ladies

a good may Have now disconnect. day. You