MFA Financial, Inc. (MFA) Q1 2021 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial, Inc. First Quarter Earnings 2021 Conference Call. [Operator Instructions]. I would now like to turn the conference over to our host, Mr. Hal Schwartz. Please go ahead, sir.

Thank you, Operator. 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 used, 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, 2020, 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 releases announcing MFA's first quarter 2021 financial results and the acquisition of Lima One Capital. Thank you for your time. I would now like to turn this call over to MFA's CEO and President, Craig Knutson.

Thank you, Hal. Good morning, everyone. I would like to thank you for your interest in and welcome you to MFA Financial's First Quarter 2021 Financial Results webcast. Also with me today are Steve Yarad, our CFO; Gudmundur Kristjansson and Bryan Wulfsohn, our co-Chief Investment Officers and other members of senior management. As we sit here today to talk about the first quarter of 2021, it's impossible not to recall where we were a year ago, and the difference between the 2 time periods could not be more stark. A tenacious defensive stance is now a spirited and determined offense. Today, we are reporting strong financial results, continued execution of a strategic plan that we implemented early last fall and a new exciting initiative that we announced today. With vaccinations becoming more prevalent and the gradual easing of restrictions beginning to occur, we have reason to be optimistic about an eventual return to some semblance of ordinary. While it is undoubtedly months away, we are cherishing brief snippets of limited normalcy, and it's great to see our colleagues at work in person rather than on video calls as we have for the last year. A strong economic outlook, additional fiscal stimulus and the expectation of more government spending pushed loan rates higher in the first quarter of 2021. The 10-year treasuries backed up 83 basis points to 1.74 at the end of Q1, which, by the way, is where they were in late January of 2020. And the curve steepened with two 10s widening by about 80 basis points to 158 basis points at March 31. Short rates remain firmly anchored at very low levels, with 2s only 4 basis points wider during the quarter. Interestingly, although 10-year rates at 170 are back to levels seen in late 2019 and early 2020, 2-year rates in the low to mid-teens have barely changed in the last year. But 2s were at 160 back in late 2019. So clearly, the market anticipates some inflationary pressure in the future but sees fed policy as anchoring short rates at or around current levels for 2021 and 2022. Agency origination crowded out nonconforming production for much of 2020, but even with a modest increase in agency eligible mortgage rates, we've seen an increase in production from Non-QM and business purpose loans in 2021. With short rates at particularly low levels and credit spreads tight, suffice to say there are no cheap assets out there. However, these same market conditions have pushed yields on issued securities to very low levels. So while it is a difficult period for assets, it's an extremely attractive one for liabilities, and MFA has taken advantage of this opportunity to lock in low cost, term, nonrecourse debt, which will substantially reduce interest expense in the future. In addition, a strong housing market, together with our ability to actively manage residential mortgage credit assets has also been reflected in our financial results as we achieved better-than-expected results on credit sensitive assets, resulting in reversals of prior credit reserves and sales of REO properties at attractive levels. Please turn to Page 4. We reported GAAP earnings of $0.17 per share in the first quarter. These results were driven by continued price appreciation of loans held at fair value and by further improvement in credit leading to credit loss reserve reversals. GAAP book value was $4.63, up 2% from December 31, and economic book value was $5.09, up 3.5% from December 31. GAAP economic return for the quarter was 3.6%, but economic book value economic return was up 5% for the quarter. We repurchased 10.8 million common shares at an average purchase price of $4.14 or 80% of economic book value from March 1 through April 30. Our leverage declined slightly over the quarter to 1.6:1, and we paid a $0.075 dividend to shareholders on April 30. Please turn to Page 5. Our efforts to lower interest expenses through securitizations had visible impact on our first quarter earnings as interest expense declined by 27% from the fourth quarter of 2020. And the securitizations executed in Q1 had limited impact on the full quarter because they were closed in early February and late March. Net interest income for the first quarter increased by $4 million versus the previous quarter and by $13 million versus Q3 of 2020 after adjusting for a large interest income contribution of $8 million from the payoff of a single non-agency bond with a very low amortized cost during the first quarter. Please turn to Page 6. Again, continuing the theme of aggressively taking advantage of available market opportunities, we have executed 3 additional securitizations on nearly $1 billion of UPB at attractive levels. As you can see on this page, AAA yields on bonds sold on the INB-1 deal was 83 basis points and 112 basis points on the Non-QM One deal with the blended cost of debt for both deals in the low 1s. The NPL deal that closed in March replaces securitizations sold in 2018 at a blended cost of debt that's over 150 basis points cheaper than that they replaced. Please turn to Page 7. Robust increases in housing prices and strengthening credit fundamentals provide obvious tailwinds for MFA's mortgage credit exposure. Home price increases in the last year are the largest, in some cases, in 20 years, and housing supply is at extremely low levels. So this trend is not likely to abate soon. We liquidated 177 REO properties in the first quarter, generating $50 million in proceeds and $2.2 million in gains. These strong housing fundamentals also support the performance of our nonperforming loans as we see more full payoffs and better prices on liquidated properties. Finally, for borrowers, still negatively impacted by COVID, we can offer modifications and/or repayment plans to allow them to stay in their homes, restore their status to current and keep the equity in their homes. Please turn to Page 8. Under our share repurchase program, we instituted a 10b5-1 plan in March that permits share repurchases at any time. Previous to instituting a 10b5-1 plan, we were permitted to purchase shares only during open window periods. And because our 10-K is filed later in the quarter than our 10-Qs, our open window period after our fourth quarter earnings call would have been very short. And again, from early March through April 30, we repurchased 10.8 million shares at an average price of $4.14. Please turn to Page 9. We illustrate our investment portfolio and summarize our asset backed financing on this slide. The investment portfolio has not changed materially since December 31. We did purchase $253 million of loans in the first quarter. Bryan and Gudmundur will discuss additional details about the loan portfolio later in this presentation. And just to review, loans held at carrying value on our balance sheet are represented in 3 slices of this pie chart; the purple section PCD or purchased credit deteriorated loans that's accounting speak for reperforming loans and other loans included in this purple slice are seasoned performing loans. The gray slice business purpose loans, which are fixed and flip, and single-family rental loans and the red section, which is Non-QM loans. On the financing side, you can see that 68% of our asset-based financing is non mark-to-market with the Non-QM securitization that we closed in April, it's now over 70%. Please turn to Page 10. In addition to announcing first quarter earnings this morning, we also announced that we are acquiring Lima One Holdings, a nationwide leading originator and servicer of business purpose loans. This transaction will significantly enhance our ability to deploy capital in the business purpose space, and we believe that our capital base will fortify Lima One's already strong market presence. We expect that this transaction will be accretive to MFA's earnings by $0.08 to $0.12 per year. MFA currently owns a 43% equity stake in Lima One, and we have purchased over $1 billion of business purpose loans from Lima One since 2017. We acquired our initial strategic minority ownership interest in Lima One in 2018, and our partnership with Lima One has grown over the years since. This acquisition includes the Lima One operating platform as well as their $1 billion servicing book. We've issued a separate press release this morning to announce this transaction, and we also provided a stand-alone deck to furnish more detail about Lima One and the strategic advantages of this initiative that we're extremely excited about. I would encourage listeners to review this presentation. Gudmundur will also present additional color about this important transaction during his prepared remarks. And I'll now turn the call over to Steve Yarad to discuss additional details of our financial results.

Thank you, Craig. Please turn to Slide 11 for an overview of our first quarter 2021 financial results. In reviewing our results this quarter, I guess I could say what a difference a year makes, but this simply doesn't do it justice. A year ago, I had the unpleasant task of talking through a myriad of negative numbers on this slide, including realized and unrealized losses on securities and loans, impairment charges, CECL reserves and other large and unusual items. This quarter, I am very pleased to be able to provide a much more positive report. Much of the noise reported in our net income over the past several quarters, resulting from volatile changes in asset prices and cash flow estimates, driven by uncertainty related to the longer-term effects of COVID-19 have dissipated and hopefully are largely behind us. While not fully reflecting MFA's normalized earnings for the short to medium term, I believe that Q1 results do provide a clearer picture of what the key drivers of our earnings will be for the next several quarters. Specifically, our earnings will be driven by net interest income and gains on loans held at fair value. This is - there is also some potential for further adjustments to decrease CECL reserves if unemployment rates and home prices stabilize or continue to improve. But absent any significant future macroeconomic shocks in the near term, I would anticipate that CECL reserve changes going forward will be primarily driven by net increases or decreases in our portfolio of carrying value loans. Additionally, in anticipation of the successful completion of the acquisition of Lima One, starting in Q2, we plan to elect fair value accounting and all future whole loan purchases. This should facilitate appropriate reporting of the economics of Lima One origination and servicing activities, while still properly capturing the performance of loans originated and held on MFA's balance sheet. Note that this accounting will only apply prospectively. We are not able to retrospectively apply fair value accounting to loans that we currently report at carrying value. So for the intermediate term until the majority of this portfolio of loans runs off, we expect to continue to report both GAAP and economic book value measures. Turning now to the detail of our Q1 2021 results. Net income to common shareholders was $77.3 million or $0.17 per share. The key items impacting our results are as follows. Net interest income of $31.8 million was $12.4 million higher sequentially. This included approximately $8 million of accretion on a non-agency bond that we hold a significant discount to par that was redeemed during the quarter. It should be noted that gains of this nature are expected to occur somewhat less frequently going forward as our remaining portfolio of securities that we hold at a discount to par continues to run off. One other point to highlight is the impact of the successful execution of securitization and other debt refinancing activity on our cost of financing. As Craig noted, interest expense this quarter fell 27% sequentially and our overall cost of funds fell to 2.92% from 3.63% in Q4 2020. We reduced our overall CECL allowance on our carrying value loans to $63.2 million, reflecting lower estimates of future unemployment and higher home price appreciation in our credit loss modeling as well as lower loan balances. This reversal and other net adjustments to our CECL reserves positively impacted net income for the quarter by $22.8 million. After the initial significant increase in CECL reserves taken in Q1 2020, when uncertainty related to COVID-19 economic impacts were at their highest, we have reduced our CECL reserves by more than $80 million in the subsequent 4 quarters. Actual charge-off experience continues to remain very modest, with approximately $1.2 million of net charge-offs taken in the first quarter. Once again, our loans held at fair value performed strongly this quarter. Net gains of $49.8 million were recorded. This overall gain is unchanged from the prior quarter and its components, which include $32.1 million of market value increases and $17.7 million of interest payments, liquidation gains and other cash income were also essentially unchanged quarter-over-quarter. Finally, our operating and other expenses were $22.5 million for the quarter. This is much closer to our expected normal run rate, but was elevated primarily due to costs related to replacing warehouse financing with securitization. I will point out that following the confirmation of the Lima One acquisition, our overall G&A cost as a ratio of our stockholders' equity will rise. We will endeavor to provide some additional color on the potential impacts on a future earnings call. And with that, I will turn the call over to Bryan Wulfsohn, who will review details of our Non-QM loan portfolio.

Thank you, Steve. Turning to Page 12. Housing has performed exceedingly well throughout the pandemic, and prices have accelerated in recent months. The Zillow median home value was up 10.6% in March from a year ago. Demographic trends, historically low rates and a severe lack of supply have all contributed to the rising prices. The unemployment rate continues to recover from a peak of almost 15% down to 6% as the economy reopens. With the vaccination rollout underway, the pace of reopening should pick up in the coming months, lowering the unemployment rate further. All these factors, combined with monetary and fiscal support have played a part in keeping mortgage credit performance strong and bode well for continued credit performance. Turning to Page 13. Non-QM origination volume increased over the quarter as rates offered to borrowers have been dropping. We purchased over $200 million over the first quarter, which is more than double our acquisitions from the prior quarter. Prepayment speeds remained elevated over the quarter as mortgage rates for Non-QM loans have come down in recent months. The 3-month average CPR for the portfolio remains around 30%. We closed on another minority investment in an originator over the quarter, raising the number of Non-QM originators we have invested into 3. We believe the strategy of aligning our interest with select origination partners will allow us to effectively grow our portfolio over time while ensuring loan quality. We executed on an additional securitization at the beginning of April, bringing a total amount of collateral securitized to approximately $1.75 billion. These securitizations have lowered our financing costs and at the same time, have provided additional stability to our borrowings. Securitization, combined with non mark-to-market term facility has resulted in over 80% of our Non-QM portfolio financed with non mark-to-market leverage. We expect to continue to be a programmatic issuer of securitizations as it is currently the most efficient form of financing for our portfolio. Turning to Page 14. A significant percentage of our borrowers in the Non-QM portfolio, have been impacted by the pandemic. Many of our borrowers are owners of small businesses, that were affected by shutdowns across the nation. We instituted a deferral program at the onset of the pandemic in an effort to help our borrowers manage through the crisis. Through our servicers, we granted almost 32% of the portfolio of temporary payment relief, which we believe help put our borrowers in a better position for long-term payment performance. Subsequent to June, we reverted to a forbearance program instead of a deferral as the economy opened up. The forbearance program instituted are largely now determined by state guidelines. For clarity, a deferral program tax on the payments missed to the maturity of the loan as a balloon payment. Forbearance requires the payments missed to be repaid at the conclusion of the forbearance period. If those amounts are unable to be paid in 1 month sum, we allow for the borrower to spread the amounts over an extended period of time. Over the first quarter, we saw a stable 60-plus delinquency rate as compared to the fourth quarter of 7.9%. In addition, over 25% of those delinquent loans made a payment in March. Many delinquent borrowers are in repayment plans, which will cause them to cure their delinquency status over the next 6 to 12 months. As the economy - as the economic recovery continues, the portfolio's credit performance should continue to improve. Our strategy of targeting lower LTV loans should mitigate losses under a scenario with elevated delinquencies. In many cases, borrowers, which no longer have the ability to afford their debt service, will sell their home in order to get the return of their equity. Turning to Page 15. Our RPL portfolio of $1 billion has been impacted by the pandemic but continues to perform well. 80% of our portfolio remains less than 60 days delinquent. And although the percentage of the portfolio is 60 days delinquent and status is 20%, 1/4 of those borrowers continue to make payments. Prepaid fees in the first quarter continued to rise to a 1-month CPR of 20. As mortgage rates continue to be historically low and more borrowers gain equity with the increase in home prices. While 30% of our RPL borrowers were impacted by COVID, we have worked with our servicers to provide assistance to borrowers and have seen improvement in delinquency levels over the quarter. Turning to Page 16. Our asset management team continues to drive performance of our NPL portfolio. The team has worked in concert with our servicing partners to maximize outcomes on our portfolio. This slide shows the outcomes for loans that were purchased prior to the year ended 2019, therefore, owned for more than 1 year. 37% of loans that were delinquent at purchase are now either performing or paid in full. 46% are either liquidated or REO to be liquidated. Our REO sale - our REO properties have continued at an accelerated pace at advantageous prices, selling 52% more properties over the last 12 months as compared to the year prior, and 17% are still in nonperforming status. Our modifications have been effective as almost 3/4 are either performing or is paid in full. And we are pleased with these results as they continue to outperform our assumptions at the time of purchase. Now I'd like to turn the call over to Gudmundur to walk you through our business purpose line.

Thanks, Bryan. Turning to Page 17. First of all, I would like to say that we are very excited about the acquisition of Lima One. The acquisition enhances our position as a long-term capital provider to the business purpose lending space, which we believe continues to benefit from positive fundamental and structural trends, and offers one of the most attractive options to deploy capital in the residential mortgage credit space. We worked closely with Lima One since 2017, first as a loan buyer and later as an equity investor, and have seen firsthand the quality of their loan origination and servicing operations. From our extensive experience in the BPL space, we know that Lima is one of the best operators in the space and look forward to collaborate with Lima's talented management team. Lima One is a leading nation and originator of business purpose loans with a strong brand recognition in the BPL borrower community with over 50% of loan origination coming from repeat borrowers. Their product offerings are diverse, serving the needs of short and long-term strategies within the BPL space. They have an established track record of originating fix and flip and new construction loans, longer-term rental loans and small balance multifamily value-add and bridge loans. Lima has originated over $3 billion since inception and has shown that they can reliably originate over $1 billion annually. We believe that by combining MFA's permanent capital and capital markets expertise with Lima's capabilities, we can create a differentiated platform capable of providing best-in-class financing options to investors with a clear path to grow well beyond $1 billion in annual volume. This acquisition will provide MFA with a reliable access to high-quality, high-yielding assets that are difficult to source in the marketplace. We believe based on current market conditions, at loans originated by Lima and retained on MFA's balance sheet will provide mid-teens ROE with appropriate leverage, either in the form of warehouse financing or MFA sponsored securitizations. Now I will turn to portfolio activities in the quarter. We continued to experience large principal pay downs in our fix and flip portfolio in the first quarter. The strong housing market with home prices rising more than 10% annually has allowed many of our borrowers to successfully complete their projects and sell quickly into a strong market. This combined with the seasoned nature of our portfolio, currently at a weighted average loan rates of 20 months, led to us receiving $144 million of principal payments in the quarter. We expect this trend to continue in 2021. MFA's fix and flip portfolio declined $117 million to $464 million in UPB at the end of the first quarter. Principal paydowns were $144 million, which is equivalent to a quarterly pay down rate of 69 CPR on an annualized basis. We advanced about $12 million of rehab draws and converted $5 million to REO. We purchased $20 million UPB of fix and flip loans in the first quarter. Purchase activity has picked up in the second quarter as we have committed to acquire over $30 million so far in the second quarter and expect purchase volume to pick up meaningfully with the acquisition of Lima One. The average yield on the portfolio was 4.93%, and all of our fix and flip financing is non mark-to-market debt with the remaining term of 15 months. 60-plus day delinquency declined $13 million to $149 million at the end of the first quarter. And so far, in the second quarter, we continue to see positive delinquency trends. Fix and flip loan loss reserves continued to trend down in the first quarter, declining by $4.7 million, primarily due to improved economic expectations and a strong housing market. Turning to Page 18. Seriously delinquent fix and flip loans decreased $13 million in the quarter to $149 million at the end of the first quarter. In the quarter, we saw $18 million of loans payoff in full, $5 million cured to current or 30-day delinquent pay status, $5 million converted to REO, while $15 million became new 60-plus delinquent. As mentioned previously, we've continued to see positive delinquency spends in the second quarter. Approximately half of the seriously delinquent loans are either completed projects or bridge loans for limited or no work is expected to be done, meaning these properties should be in generally salable conditions. In addition, approximately 13% of the seriously delinquent loans are already listed for sale, potentially shortening with time until resolution. When loans pay off in full from serious delinquency, we often collect default interest, extension fees and other fees of payoff. For loans, where there is a meaningful equity in the property, these can add up. Since inception, we've collected approximately $3.7 million in these types of fees across our fix and flip portfolio. The housing market continues to be extremely strong, with record low mortgage rates and low levels of inventories supporting annual home price appreciation in excess of 10%. In addition, we continue to see unemployment declining and overall economic activity improving across the country. We believe that the efforts of our experienced asset management team, combined with the recent strong economic trends can lead to acceptable outcomes on our delinquent loans. Turning to Page 19. Our single-family rental loan portfolio continues to exhibit very strong performance. Due to strong prepayment protection and solid credit profile, the portfolio yield has remained steady in the mid-5% range post COVID and was 5.61% in the first quarter. That number does not include prepayment penalties, which are a feature of almost all of our rental loans and are recorded in other income. Including those, the single-family rental portfolio yield was 6.33% in the first quarter. After temporarily increasing the fourth quarter prepayments trended back down to the historical low mid-teens range, with the first quarter 3-month prepayment rate at 12 CPR. 60-plus day delinquencies were relatively unchanged in the quarter in the mid- to high 5% area. We acquired $20 million of rental loans in the first quarter. Second quarter is off to a strong start with us committing to purchase over $35 million so far in the second quarter. We expect purchase activity to continue to accelerate with the acquisition of Lima One. We closed our first securitization, consisting solely of business purpose rental loans in the first quarter. Approximately $218 million for loans were securitized. We sold approximately 91% of the bonds at a weighted average coupon of 106 basis points. This transaction lowered the funding rate of the underlying assets by over 150 basis points and increased the percentage of SFR financing that's non mark-to-market to 75% at the end of the first quarter. Lima One originated rental loans represented about 2/3 of the collateral in our inaugural rental securitization. We believe that MFA's experience in the capital markets can provide meaningful funding advantages to Lima's origination activities and will significantly improve Lima's competitiveness in the BPL space. And with that, I will turn the call back over to Craig for some final comments.

Thank you, Gudmundur. We are pleased with the results of the first quarter of 2021 and even more excited about the future at MFA. We are continuing to execute our strategic plan to lower and term out borrowing costs, and we're beginning to see the results of this activity in our income statement. The strength of the housing industry has obvious positive implications for our mortgage credit investments. We have repurchased nearly 25 million shares of our common stock at levels that are accretive to book value and earnings. And today's announcement of our acquisition of Lima One is an important initiative that will enhance our ability to deploy future capital in the BPL sector and grow our future earnings power. Tony, would you please open up the line for questions?

[Operator Instructions]. Our first question comes from the line of Bose George with KBW.

This is actually Mike Smith on for Bose. Congrats on the acquisition. So on that, what is the pro forma breakdown of the capital allocation to the investments business versus the originator?

I mean it's not a large capital allocation to the originator, right, relative to our balance sheet. We already own 43%. So I mean, I don't think it's really a material change in how we allocate capital.

Yes. I think it's more going to be on the investment activities. So as we've said, we expect Lima will originate between $1.2 billion and $1.3 billion in 2021, and we believe that they can sustainably originate over $1 billion on an annual basis. And so based on that and the funding profile of the assets, you can make some assumptions that - if we're deploying 20% to 25% of equity to those types of trades that would support over time anywhere from $250 million to $300 million of equity deployed to those types of investments.

Okay. Great. That's helpful. And then how much excess capital will the company have after deploying capital into the transaction?

Well, what did we show for cash at 331, $800 million?

Yes, it's roughly $800 million, 331.

It will be over $700 million.

Okay. Great. Great. That's helpful. And then kind of on a different note. Thinking about buybacks, how do you - if you look at GAAP or economic book value? And kind of with that in mind, your expected excess capital, how should we think about additional buybacks from here?

Sure. So in answer to your question, what do we look at? We look at economic book value because I think something like 70% of our loan portfolio is not marked to market on our balance sheet for GAAP purposes. So it's purely economic book value. And I think as the stock trades, don't forget when we put the share repurchase plan in place, I think the stock was probably around 60% of economic book value. And it's now north of 80. So suffice to say, our appetite to repurchase stock is not as voracious at above 80, as it was above 60, but it's still one of the tools that we have.

Great. That's helpful. And then just one more. Can you provide some thoughts on how book value has trended during the month of April and into May?

So we haven't closed our books for April yet. We're still in the process, but just from what we can see from our sort of daily reporting, it's not materially different.

Our next question comes from the line of Doug Harter with Crédit Suisse.

This is John Wachowski [ph] on for Doug. Congratulations on the quarter. Just a quick question on the securitizations. You had a few successful securitizations this quarter and last quarter. Kind of going forward, what should we think in terms of the pace of securitizations and how it will affect your cost of funds?

So we expect to be out in the market regularly. I mean and we still have a good chunk of the portfolio that can be securitized. But really, once we work through that, it's just going to be the regular flow that we're purchasing, that is what we expect to securitize. So the majority of our financing going forward will be financed through securitization.

Our next question comes from Steve Delaney with JMP Securities.

Exciting times. Congratulations on the acquisition. I think it really adds something to the story and your franchise value. Craig, with the Lima deal, should we - can we read through that, just because you had a lot of options, I'm sure. Does this tell us that you see the BPL product to be the most attractive of the non-agency residential loan types that are in the marketplace?

So it's certainly - yes, we certainly view it as a very attractive sector. I think we also view Non-QM in a similar fashion. I think with Lima One, we've obviously been very familiar with that company for a long time. There's a lot more competition to acquire these assets today and to acquire these originators than there was previously. So I think we're - I think it was a strategic minority investment that we made in 2018. And I think it put us in a very good position to affect this transaction. There's probably no originator that we know better than Lima One, right? We bought over $1 billion of loans from them. And we've seen firsthand how their loans have performed relative to other BPL originators, particularly through a difficult 2020 period. We've been to Greenville. We worked closely with the management team, their servicing group, their accounting folks. So there's a lot of very good touch points between our companies. And I think while this is a big transaction, it's an unusual transaction for us. I think it should be a pretty seamless transaction.

Yes. You know what you're getting. So on the NQM side, obviously, I don't know whether it's - Bryan can probably tell us whether it's a larger market on NQM than BPL, they're both pretty good size. But on the NQM, should we assume you've got a strategic investment there as well. And there really are 2 different sourcing methods. So I mean, if you wanted - it would seem to me that if you wanted to do something in NQM, you might need to make another acquisition of someone specialized in that product.

We mentioned that we - we've made another minority investment in a Non-QM originator. I think it's all about sort of fact and circumstances, right? What is the originator looking for? And so I think at least for now, these minority investments have worked pretty well. They've helped us secure loan production. We also get to know these originators a lot better. We've always said when we meet new originators, and we can talk about capital needs. But one of the first things we say is we'll get to know each other a whole lot better when we start buying loans. So I think it's all a process, Steve, and it will really depend on where we stand and where these originators stand and what they're looking to do.

Sure. I understand. It's kind of like a marriage thing, right? It's got to be the right time and the right place. Yes, absolutely. And you don't want to make a mistake there I can tell you from experience. It costs, it's expensive. And just to close it out, one for Steve Yarad. So I was just trying to get - you had some big items. So I was trying to get to sort of a normalized first quarter. So I take the $8 million from the non-Agency RMBS, great recovery there. I get $0.02 there. And then the CECL reversal, $23 million, I get $0.05. So I'm looking at sort of $0.07 off of the $0.17 reported. Is that a reasonable adjustment, Steve? Or am I missing something else that you would say is an unusual or abnormal, which - should you need to add anything to that?

No. So I think certainly, the $8 million adjustment on the Non-QM bond that we have paid got redeemed. That's somewhat an unusual one. CECL, as I said in my comments, I mean, we've released a lot of CECL reserves over the last 12 months or so. And there could be some potential for some more. But I don't know that it will be as dramatic as what we've seen over the last 12 months. In terms of the rest of the income statement, as I said, it really is approaching what we think is a more normal level. Obviously, the carrying - or the fair value lines have performed extremely well over the past several quarters. So whether we can produce $50 million a quarter, that remains to be seen depending on pricing. But if you look in the details of that, it very consistently produces around $20 million of cash income each quarter. And you look in the footnotes to the 10-Q, which we'll file later today. So it's not like that's certainly going to be substantially different and with - as Craig mentioned, with the prospects of further economic recovery and stimulus, it could still continue to perform quite well.

[Operator Instructions]. I'm not seeing any additional questions in the queue. Please continue.

All right. Thank you, everyone, for your interest in MFA financial. We look forward to our next update when we announce our second quarter results in August.

Ladies and gentlemen, this does conclude your conference for today. It will be available for replay after 12:00 p.m. Eastern through August 6, 2020. You may access the AT&T replay system at any time by dialing 1-866-207-1041 and entering access code 4522814. International callers may dial 402-970-0847. Those numbers again are 1-866-207-1041 and 402-970-0847 with access code 4522814. That does conclude our conference for today. We thank you for your participation and for using AT&T conferencing service. You may now disconnect.