Prompt:
Human: In today's remarks by management, we will be discussing non-GAAP financial metrics.
In fact, in the second quarter, patient volumes across our total span of services has now exceeded pre-pandemic levels.
On a same-unit basis, total volume was up 1.3% versus the second quarter of 2019 with hospital-based services up by 10 basis points and office-based services up by 5.2%.
I'll add that other key metrics that were particularly volatile through last winter continued to show stable improving trends coming into the summer.
Payer mix remained favorable on a year-over-year basis for the second consecutive quarter and the rate of admission into our NICU did so as well.
As a result, our revenue for the quarter of $473 million was above our internal expectations, as was our adjusted EBITDA of $66 million.
There are, of course, the risks that we face, most importantly, the recent rise in COVID-19 cases driven by the Delta variant.
But that said, our updated view for the full year includes our experience to date.
Looking forward beyond 2021 and count for the same risks, there are a number of factors that give me increased confidence that we'll see additional growth in adjusted EBITDA in 2022 that will get us pass the $270 million run rate we achieved pre-COVID.
I'll expand on these in three areas.
First, we're building momentum in our core.
While demand has recovered faster than we had anticipated earlier in the year, we are also helping to drive additional growth across our practices.
I talked earlier this year about the investments we've made in improving patient access, better scheduling and a drive for increased pace and efficiency.
Q2 is the first quarter where we can estimate the impact of these initiatives, and we think we've just begun by adding roughly $2 million to the top line in the quarter.
I'm very confident that this is just the beginning of a long-term payoff.
And please remember that we call this initiative patient access because it's really just that.
We want to make sure that patients that need our care receive our care as soon as possible.
Our reengineered and focused sales efforts are accelerating our pipeline of organic growth.
We have such a superb focused and organized team that make this a reality.
Halfway through this year, our new business bookings and by that, I mean new contract sales have already approached our total bookings for 2020.
Our win rate has increased.
Our time to close has decreased, and our pipeline remains robust and diversified across multiple specialties.
Our M&A pipeline also continues to build with several acquisitions of important specialty groups completed for the year-to-date.
As an example, last week, Child Neurology Consultants of Austin joined the MEDNAX family.
This group of 12 physicians and three nurse practitioners are among the premium groups of neurologists in the country.
The lack of local neurology coverage is a major reason in time to transfer the way from the birth hospital.
This is the most recent example of investing to further support our hospital-based practices with subspecialty consultation to allow infants to stay near their homes.
But we believe this is also a plan for growth, both geographically and via telehealth.
Second, we're still in the early stages of building our presence in children's primary and urgent care.
Following our acquisition of NightLight, we're now in the planning stages for new clinic openings outside of NightLight's hometown of Houston.
We're also working on additional investments and initiatives for primary urgent care that we believe will meaningfully accelerate this expansion.
We also believe that our breadth and depth in women's and children's health will enable us to actually change nationally many aspects in pediatric care.
I look forward to doing the calls to cataloging our progress.
Third, we're making significant progress on improving the efficiency of our practice support infrastructure.
Mark Richards will detail some of this progress, but I'll highlight our previously announced agreement with R1 to transfer our RCM operations to them, which not only gives us immediate G&A savings, but also enables improved bottom line results that I'm certain would not have been possible had we continued on our own.
To put these things together, I think you should view our expectations for 2021 as far from the finished products.
Beyond this year, we believe the full benefit of our efficiency improvements will be paired with our ongoing and compounding growth initiatives that today are only just beginning to bear incremental fruit.
These factors together support our confidence that in 2022 we can achieve adjusted EBITDA above the $270 million that I just referenced.
Of course, none of this is possible without the strength in our core and a singular unwavering focus on our top priority, taking great care of the patients.
It's so timely to me to reiterate this to you today.
But the fact is that in talking to our clinicians and clinical leadership, it's becoming clear that as the country continues to evolve through this pandemic period, the need for many, many of the highly specialized services our doctors provide is only increasing, which makes it that much more important that these doctors are able to operate as part of a highly integrated collaborative network in order to ensure that patients have access to the services they need exactly at the time they need them.
That's why I'll ask Mack, who is a longtime neonatologist and pediatrician, to talk about the why behind the resurgence in volumes we've seen across many specialties as well as the why behind the importance of having access to the full continuum of care for expecting parents, newborns and children.
I'll start with what we're seeing across the country today.
And then for the benefit of all of our stakeholders, give some thoughts about what we truly are as a national medical group, and how MEDNAX is uniquely positioned to address this current and future environment.
I would describe the market trends we see today as twofold.
First, as isolation measures became less restrictive, our pediatric specialists are seeing a surge in respiratory illnesses during the summer, illnesses that we typically see during the winter months.
We've also seen a significant number of behavioral health issues that have resulted in both pediatric intensive care and pediatric hospital service admissions.
In addition to that, the American Academy of Pediatrics now recommends that any child with COVID has a cardiac evaluation prior to returning to sports.
Our pediatric cardiologists, hospitalists, critical care physicians, surgeons, urgent care physicians and other pediatric specialists are all seeing the near- and long-term consequence of COVID-19.
Regardless of the immediate rate of infection in our communities, we believe the consequence of isolation and delayed healthcare will continue to require access to the entire spectrum of our pediatric specialty services.
These services are scarce national resources and access to them is filed for the health of the children and our communities.
Second, alongside the significant increases in total births and NICU admissions we reported this quarter, our maternal fetal medicine volumes have now far surpassed pre-pandemic levels.
Here, too, for at least the near term, it's clear that trends in pregnancies and deliveries have turned upward.
And across the country, access to highly trained obstetrical specialists is vital for the health of expecting parents facing a high-risk pregnancy.
And in fact, a number of states have highlighted the risk of higher child-work complications that can result from insufficient access to proper care.
And all the payers we work with, both commercial and governmental, stress the importance of access to high-quality maternal care.
To put some statistics behind these two phenomena, I'll point out that compared to the second quarter of 2019 on a same-unit basis, volumes in our pediatric intensive care units were up 11.5% and pediatric hospitalist volumes were up 4%.
On the office space side, pediatric surgery volumes were up 8% and maternal-fetal medicine was up 9%.
Pediatric cardiology volume is still down slightly by 2%, but we anticipate that, that could increase as we move into the fall.
All of these statistics went to the breadth of specialty services provided across our organization and across the country, and the demand for these services has been increasing in this rapidly evolving environment.
But beyond these numbers, I'll speak to you now as a physician who's been fortunate to have been a leader of MEDNAX for many years.
There's a broad spectrum of care that is absolutely essential for prenatal, newborn and pediatric populations.
And that is exactly what our pediatrics at Stafford's medical groups provides every day of every year.
We are far more than a collection of practices and clinicians to ensure our clinicians trust for lives of thousands of women and children every year.
But more than that, we are a highly integrated group of affiliated maternal pediatric practices that work together to deliver care across the whole spectrum of pregnancy, childhood and in some cases, even adulthood.
This includes maternal-fetal medicine doctors, or the hospitalists and neonatologists, all working closely to provide diagnostic care to mothers who are at risk of the complicated pregnancy and to provide routine and emergency triage evaluation and care to pregnant patients presenting to the hospitals as well as to provide a complete inpatient spectrum of maternal in the neonatal care.
It includes pediatric hospitalist to cover smaller community pediatric services to large tertiary referral services, emergency medicine physicians who see patients in dedicated pediatric emergency departments, and pediatric critical care physicians who care for severely ill children and adolescence with a large range of medical and surgical problems, including patients requiring cardiac surgery.
With the addition of NightLight Urgent Care, it now includes pediatric urgent care clinicians who see pediatric patients at a time and place convenient for parents in an environment that's the right place for their child.
As Mark spoke to earlier, we see an enormous opportunity at MEDNAX to change the way pediatric primary and urgent care is practiced in our country, and this is totally complementary to our core business.
It includes developmental medicine specialists who evaluate and treat disorders of development and you see many of our former NICU patients.
It includes pediatric cardiologists who evaluate and treat the entire spectrum of childhood cardiac disease as well as adult congenital heart disease patients, and additionally support both neonatology and hospitalized pediatric patient population, including intensive caring cardiac intensive care patients.
We continue to add multiple other pediatrics specialties, include neurology, endocrinology, gastroenterology, hematology and infectious disease to better serve our patients and their families.
And this includes rapidly growing pediatric surgical services across general surgery, urology, ophthalmology, orthopedics, E&T and plastic surgery.
Each of these represents a scarce and highly specialized surgical specialty that's very important to our pediatric communities in their own right, but are also supportive to our inpatient services.
I hope all of this can help you appreciate how interconnected our organization is.
It is this network of care from pregnancy to delivery to childhood and sometimes even beyond that makes what we do special and, in fact, essential.
And of course, we do this in a very close partnership with our hospitals.
When they choose us, the vast majority of the time they stay with us because of our shared commitment to our patients, because of our work to maintain strategic alignment with them, and because they rightly expect and demand the robust resources we at MEDNAX provide to our affiliated clinicians everyday.
Rather than going through each line of our P&L, I'm going to focus today on our G&A restructuring and stabilization efforts during the quarter and our expectations as we move through the second half of this year.
And then, I'll touch on our financial position as it stands today.
We had a lot of activity during the quarter that I'll globally describe as the culmination of efforts to refine our support services and create efficiency going forward, all while keeping a priority on service to our practices.
First, as previously disclosed, in May, we finalized an agreement with R1 to transition our RCM functions to them.
This agreement followed a thorough decision-making process, from which we concluded that R1's scale, technology investments and dedicated focus on revenue cycle can give our affiliated clinicians capabilities we would never match.
Under the terms of our agreement, we realized near-term G&A savings.
And we also expect to benefit over time from future improvements in RCM performance, yield and revenue enhancements.
In terms of the impact of this transition on our P&L for the second quarter, it was a net savings to our G&A.
But as with any major transformational project, we did record certain onetime expenses within our transformational and restructuring line item, primarily related to expected terminations of other existing third-party RCM contracts.
In addition to this agreement, we passed two other important milestones related to information technology and infrastructure modernization.
We completed a significant data center consolidation, and we went live on our Oracle ERP solution that represents a far more advanced financial platform.
The planning and implementation of both of these have been in the works for some time.
But we did incur a surge of IT-related spend in the second quarter to bring all of this over the finish line, which all sized, is roughly $3 million to $4 million over the year-over-year increase in our total G&A when compared to last year.
Third, we have substantially completed the support services related to the PSA arrangement attached to last year's sale of our anesthesia organization and plan to wind down any remaining services through Q3.
As I noted in the past couple of quarters, there will still be some period of time when we're still incurring some of those expenses, but not being reimbursed for them.
Finally, we sold a secondary corporate office building in Florida during the quarter.
We received $25 million in cash proceeds and recorded a $7 million gain on the sale.
And on a go-forward basis, we'll realize approximately $2 million to $3 million in annual G&A savings from the building sale.
With all of these actions moving toward in our rearview mirror, we expect our dollar G&A spend for the second half of this year to be below $137 million we incurred during the first half.
I'll finish with a comment on our financial position.
We generated a strong $70 million in operating cash flow for the second quarter.
We ended up the quarter with $338 million in cash, up from $270 million at the end of the first quarter, and net debt of $662 million, implying leverage of less than three times.
In addition, you'll see on our balance sheet that we also have a $29 million income tax receivable primarily related to the tax elections made with respect to the sale of our Anesthesiology Medical group last year, and we anticipate receiving that cash sometime in late '21 or early '22.
Based on our expectations of second half adjusted EBITDA and cash flow, this tax receivable and normal uses of cash for capex and M&A, we would expect to end this year with leverage below 2.5 times.
We are ready to respond to any questions.
 Assistant:

Chosen response: q2 revenue $473 million versus refinitiv ibes estimate of $448.9 million.


Prompt:
Human: In today's remarks by management, we will be discussing non-GAAP financial metrics.
Total births at the hospitals where we provided NICU services were up 2.8% on a same-unit basis, and our NICU days were up 5.6%.
Key metrics such as payer mix and rate of admissions continue to be favorable compared to last year.
In fact, for MEDNAX as a whole, our patient volumes, revenue and adjusted EBITDA were all ahead of the same period in 2019, which suggests that at this time, our business has more than recovered from the significant negative impact to the COVID-19 pandemic that we experienced in 2020 and earlier this year.
Mark will give some details of our comparisons to pre-pandemic levels.
Our revenue for the quarter of $493 million was above our internal expectations as was our adjusted EBITDA of $73 million.
Based on our results, we now expect that our 2021 adjusted EBITDA will exceed our prior internal expectation of being above $240 million, and we now expect 2021 adjusted EBITDA of at least $250 million.
We also fully expect adjusted EBITDA next year to exceed $270 million, absent any major external events.
This is still a preliminary view into 2022, and we'll be in a better position to provide a more specific outlook after we finish our budgeting process, but I believe we're building momentum in our business.
Demand for the critical services that our affiliated clinicians provide not only recovered from last year's disruptions, but continues to grow.
We also estimate that the broader growth efforts we have in place have supplemented this demand so far in 2021.
I'll give some detail here as we see our growth concentrated in several areas.
First, we target opportunities to expand practices or add practices and enhance our hospital relationships and also directly improve care through the coordination of different subspecialties that many patients need to access.
Second, in our daily operations, we strive to provide the best 24/7 support possible to our practices, which combines our patient service access initiatives, improving technology support, improving revenue cycle management efficiency, recruiting the best talent and old-fashioned focused managerial actions.
And third, we look for acquisition opportunities where we see a clear combination of bolstering hospital relationships, adding to our patient care and support and a demonstrable growth path within that acquisition.
Acquisitions haven't been a major part of our activity so far this year, but they could play just as important role as organic growth when we do see them strategically.
The sum of these efforts is continuing to ramp up post-COVID.
And importantly, after all of our reorganization activities, pre-COVID.
For the 2021 year-to-date, we estimate that we have added approximately three percentage points to our adjusted EBITDA growth versus 2020, over and above the pure same-store growth that our affiliated practices have experienced.
In addition to all this activity, we recently announced our investment in Brave Care, and I want to explain why this is actually a very key piece of our growth plan.
We again believe that we are totally uniquely positioned to grow in the combined pediatric and primary emergent care space.
In our major markets, MEDNAX, under our pediatrics brand alone has the concentration of pediatrician population density, hospital relationships and partnerships and an enormous and growing base of vital patient relationships and our market managerial support that's already in place in our major markets.
With our NightLight acquisition in place and in fact, thriving, we have a nucleus from which recent growth.
But for this to grow, we needed the engine and the talent to enable building something really meaningful.
Brave Care brings scalable internal controls and patient-facing technology, systems and protocols that will otherwise take us years to create.
The proprietary technology systems and operating platform that Brave's team has built over a two-plus-year period gives patients and their parents a truly seamless experience when they visit.
It also gives great remote connectivity to clinicians through an extremely user-friendly remote mobile app, so parents always have a resource at their fingertips.
Brave Care systems are integrated with all facets of clinical operations.
And my view of the power of the Brave system is not theoretical.
It's proven and up and running in their existing clinics in the Northwest.
Our investment in Brave the company by an operating partnership agreement that provides Brave a long-term incentives to help us plan, develop, equip and open pediatric clinics over the coming years.
The clinic will be ours, and will be led and managed by our team working alongside the Brave team.
At a high level, looking at our geography of existing services, we believe that there's an opportunity for us to open more than 100 pediatric clinics across our footprint within a few years.
And as we move forward, we'll share with you how this will materialize.
We believe that our growth will include both De novo development and acquisitions, and we're already in discussions with certain existing platforms that we think overlap well with us and they can integrate into our strategic growth.
In summary, looking at all these factors, strength in our core of amazing patient relationships served by our sector leading clinicians, strength in our balance sheet, our growth efforts, efficiency and a smart strategic expansion into primary urgent care that together gives me confidence in our diversified growth potential in '22 and beyond.
Now, Mark will provide additional details on our third quarter activity.
I'll begin by providing some detailed volume comparisons to 2019 to flesh out Mark's earlier comments.
I'll then walk through where we stand on the number of projects we've discussed so far this year and how they flow through the income statement and finish with our financial position as it stands today, and how we're looking at our capital structure as we look forward.
Compared to 2019 on a same unit basis for the quarter, our hospital volumes were up 4.4%, and office-based volumes were up 2.8%.
Within hospital-based services, our NICU days were up 1.4%, pediatric intensive care was up 42% and pediatric hospitalist volumes were up 14%.
On the office-based side, maternal fetal medicine volume was up 8.6%, while pediatric cardiology was down 9%, with this decline likely reflecting some deferrals of appointments during the quarter due to the surge in Delta cases.
Turning to G&A, our overall spend in Q3 was down about $4 million sequentially.
This primarily reflects sequential reductions in certain operating and legal expenses as well as RCM savings related to our agreement with R1, which should increase further in Q4.
In terms of the transition of our revenue cycle activities to R1, to date, our metrics reflect that there hasn't been any disruption in service to our practices.
DSOs and cash collection activity in the third quarter were in line with our expectations and with the prior quarter.
I'll also reiterate that under the terms of our agreement, we realized near-term G&A savings, which are reflected in our current P&L.
And we also expect to benefit over time from future improvements in RCM performance, yield and revenue enhancements.
During the third quarter, we also completed the support services related to the PSA arrangement attached to last year's sale of our anesthesia organization.
Our Q3 G&A still reflects a comparable run rate of cost to what we were incurring previously, and we'll refine our views on an appropriate G&A level as we finish up our budgeting for '22.
But you'll see that our reimbursement for those costs in Q3, which we record in our investment in other income line, declined substantially.
It was $0.5 million this quarter versus about $9 million in a year ago period.
However, the strength of our core operations more than offset this decline, and in fact, enabled both year-over-year and sequential growth in adjusted EBITDA.
Finally, our transformational and restructuring expense in Q3 was $4.2 million, which predominantly reflects the cost of terminating other third-party agreements as part of the R1 transition.
All told, within our updated internal expectation of 2021 adjusted EBITDA, we expect our fourth quarter G&A expense to be flat to down compared to third quarter, based largely on our expectation of RCM cost savings.
This reinforces our prior view that the second half G&A will be lower than the $137 million we incurred in the first half of the year.
Turning to our capital structure, we continue to improve our leverage position in the third quarter.
We generated $67 million of operating cash flow, which exceeded the investments we made in capex, acquisitions and our Brave Care transaction.
Based on 9/30 debt of $642 million and our 2021 adjusted EBITDA expectation, net leverage stands at about 2.5 times.
And we would anticipate that to decline by year-end based on fourth quarter cash flows.
During the quarter, we also reduced our revolving credit facility capacity from $1.2 billion to $600 million, all of which is currently available to us with no remaining covenant restrictions.
As most of you know, we have $1 billion in outstanding 6.25% coupon senior notes due 2027, making our debt structure fairly inefficient given our cash position and current net leverage.
Given that our notes are callable in January of '22, we will be reviewing the best debt structure for our size, profitability and growth in capital plans.
While we haven't made any determinations yet, I anticipate that we'll be able to achieve meaningful savings and interest expense once we determine the most appropriate capital stack for our business as it exists today,and in the foreseeable future.
 Assistant:

Chosen response: q3 revenue $493 million.


Prompt:
Human: 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, 2019, and other reports that it may file from time to time with the Securities and Exchange Commission.
Before we begin, I want to again recognize our entire MFA team.
2020 was obviously a very challenging year on many levels, and our team powered through the adversity and persevered.
There is no quit in this group.
And I think we made extraordinary progress in the second half of 2020 and particularly in the fourth quarter.
So the fourth quarter of 2020 on a macro level was very much an extension of the third quarter.
Interest rate volatility was again muted, and accommodative Fed monetary policy continued to provide support for risk assets with little indication that this will change materially in 2021.
The short end of the curve remains firmly anchored, consistent with the lower for longer narrative.
Two-year rates inched into the high teens very briefly in mid-November, but are barely in double digits so far in 2021.
The yield curve does continue to surreptitiously steepen as the 10-year backed up 23 basis points in the fourth quarter and another almost 45 since year end.
With two 10s at approximately 125 basis points, this hardly qualifies as a steep yield curve by historical standards, but it has steepened by about 45 basis points since the end of the year.
This is not surprising in light of political developments as the expectation of additional stimulus will continue to raise concerns about inflation.
I do have to smile a little when I hear this recent chatter about higher rates, however, with 10s yielding 135 as 10s were above 3% less than two and a half years ago.
Yes, we're off the lows at least for 10 years, but let's not kid ourselves.
We are still in an extraordinary and unprecedented low-interest rate environment.
Agency origination crowded out nonconforming production for much of 2020.
But with even a modest increase in agency eligible mortgage rates, we've seen an increase in production from non-QM and business purpose loans in recent months, with rates at particularly low levels and credit spreads very tight, suffice to say there are no cheap assets out there.
However, these same market conditions have pushed yields on issued securities to all-time lows.
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 have 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 $0.08 per share in the fourth 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.
On the other hand, fourth-quarter earnings were reduced by expenses related to the acceleration of discount in connection with our payoff of the $500 million, 11% Apollo/Athene senior note in September and October.
We also closed out the outstanding warrant position of Apollo/Athene during the fourth quarter through straight warrant repurchases and a warrant exercise via a combination of cash and cashless exercise.
There are no more outstanding warrants.
And the overall dilution associated with these transactions was less than 4%.
Obviously, our GAAP book value would have been up by approximately 2.4% for the quarter had it not been for these warrants.
Economic book value also negatively impacted by 3.9% by the warrants was nevertheless unchanged at $4.92 during the fourth quarter as our loans held at carrying value appreciated further.
We repurchased 14.1 million common shares for an aggregate purchase price of a little over $50 million during the quarter at an average price of less than 80% of September 30 GAAP book value and less than 75% of economic book value.
We viewed these purchases as among the best available investments in the fourth quarter.
Our leverage declined modestly over the quarter to 1.7:1, primarily due to the payoff of the Apollo/Athene debt.
And we paid $0.075 dividend to shareholders on January 29.
Please turn to Page 5.
Our net interest income for the fourth quarter nearly doubled versus the third quarter, despite slightly lower overall interest income as our interest expense reductions began to meaningfully drive results.
Interest expense reductions are due to some repo borrowing cost spread reductions, securitizations, which replaced repo and non-mark-to-market financing with substantially cheaper funding and the payoff of the Apollo/Athene note.
The impact of these efforts was not fully reflected in the fourth quarter, as they were all done at varying points within the quarter.
We also took advantage of a strong housing market to opportunistically liquidate REO properties, which we own mostly through resolution of nonperforming loans purchased years ago.
These sales totaled over $270 million for the year and were executed at prices well above our carrying value.
We believe that the hard work that we've done since emerging from forbearance at the end of June has benefited stockholders as our total shareholder return was 62% from June 30 to December 31.
Clearly, we still have wood to chop, but we are committed to continuing to rebuild shareholder value.
We illustrate our investment portfolio and summarize our asset-based financing on this slide.
The investment portfolio has not changed materially since September 30.
We did add $111 million of loans in the fourth quarter.
Just to review this pie chart, the loans held at carrying value on our balance sheet are represented in three slices of the pie chart.
The purple section, PCD, or purchased credit deteriorated loans, this is accounting speed for reperforming loans and other loans are seasoned performing loans.
The gray section, business purpose loans, are fix-and-flip and single-family rental loans.
And the red section is the non-QM loans.
On the financing side, you can see that 67% of our asset-based financing is non mark to market.
With the SFR securitization that we closed at the beginning of February, this is now over 70%.
Please turn to Page 7.
Again, continuing the theme of aggressively taking advantage of available market opportunities, we've executed three additional securitizations on $1.2 billion of UPB at successively tighter levels.
As you can see on this page, AAA yields on bonds sold on the most recent two deals were below 1%, and the blended cost of debt sold was in the low ones and was in some cases almost 200 basis points lower than the cost of borrowing we replaced.
Also noteworthy is that while some of the financing that we replaced with these securitizations was non mark to market, the securitized debt is similarly non mark to market, nonrecourse, and term.
So we actually increased the amount of this more durable financing, while substantially lowering the cost.
Bonds sold generated cash of between 91% and 94% of UPB, which also produced approximately $250 million of additional liquidity.
Please turn to Page 8.
Page 8 provides the details of the repurchase and exercise of the previously outstanding warrant position.
Through a straight repurchase of warrants on December 10 for $33.7 million.
In an exercise through a combination of cash and cashless exercise on December 28, we were able to limit the dilution of warrants granted, which was 7.5% at the time of grant to less than 4%.
Apollo/Athene holds 12.3 million shares or about 2.7% of outstanding shares, and we continue to maintain a strong partnership with both Apollo and Athene.
That said, we think that the elimination of any uncertainty around an outstanding warrant position should have a positive impact on our stock.
Please turn to Page 9.
We announced on our third-quarter earnings call that our board had authorized a $250 million stock repurchase program and we executed this during the open-window period in the fourth quarter by purchasing 14.1 million shares at an average price of $3.61, which was accretive to GAAP and economic book value by $0.03 and $0.04, respectively.
In addition, the $33.7 warrant repurchase was included under this plan.
So, all in, we deployed almost $85 million during the quarter and still have $165 million available under this authorization.
Please turn to Page 10.
We announced the redemption of our $100 million 8% senior notes due in 2042.
These $25 par bonds were issued in 2012.
This redemption, which was completed shortly after year end will save $8 million in annual interest expense.
We did book a noncash charge of $3.1 million in the fourth quarter for unamortized issuance expenses.
These $25 par bonds were sold primarily to retail investors, similar to 20 firms, and hence, the relatively high issuance expense.
Please turn to Page 11.
So in the feel-good department and just to demonstrate that it's not solely about the numbers, I'm happy to report two significant accolades for MFA.
For the second year in a row, MFA was included in the Bloomberg Gender Equality index.
We were recognized as one of 380 public companies across 44 countries and regions for our commitment to and support of gender equality.
Additionally, MFA has been certified as a Great Place to Work by the Great Place to Work Institute.
This award is based on anonymous employee feedback through an engagement survey that we conducted through this organization.
This important validation of our culture is a testament to our people.
Management does not make MFA a Great Place to Work, our people do.
If management has a role, it's simply to hire great people, and our team collectively creates our culture.
In today's work-from-home world, this recognition is also an important distinction for us for hiring as almost all recruitment is virtual these days.
While we have certainly appreciated the support of Apollo, Athene, and our other financing counterparties during the challenging times of forbearance and over the past six months, we are pleased to close out 2020 with a significantly more durable mix of financing and having paid off most of our higher-cost debt.
Further, the execution of the warrant transactions has eliminated with a relatively modest solution, a potential source of uncertainty in our future results.
2020 was certainly a year of significant and unusual items, and while earnings have become more stable since June, there were some residual nonrecurring items in Q4 that I will discuss further shortly.
MSA entered 2021 with all significant items related to forbearance period financing effectively behind us.
Our continuing efforts to pursue securitization and other forms of non-mark-to-market financing have lowered our cost of funds and generated liquidity while maintaining relatively low leverage.
These efforts are already meaningfully benefiting net interest spreads, and we expect it to continue for at least the short to medium term.
Moving now to the detail of our Q4 results.
Net income to common shareholders was $37.6 million or $0.08 per share.
Net income includes $25.3 million or $0.06 per common share of expenses recognized on the repayment of the senior secured term loan from Apollo/Athene.
Recall that as we elected to account for this financing at fair value, GAAP required us to allocate a portion of the day 1 loan-to-value or approximately $14 million of the associated warrants.
This was recorded in shareholders' equity, while the residual loan value of approximately $481 million is recorded on our balance sheet as a liability.
Due to changes in interest rates and market spreads, the fair value of this liability declined in Q3.
However, as the loan was repaid at par, rather than at fair value, expenses are recorded on payoff related to the reversal of prior unrealized gains and the difference between par and the previously recorded carrying value.
The subsequent execution of the associated warrant transactions did not impact earnings directly, but they did result in modest book value dilution, as Craig has already discussed.
Away from the impact of the repayment of the senior secured debt and warrant transactions, our results for the quarter primarily reflect the ongoing recovery in residential mortgage asset valuations, a net reduction in our CECL credit loss reserves, and the previously mentioned improvement in net interest income.
Specifically, the key items impacting our results are as follows: net interest income for Q4 was $19.4 million, almost double Q3, and it reflects the following.
Firstly, higher net interest spreads, primarily on our residential whole loan portfolio as the impact of financing initiatives start to take hold.
The payoff of the senior secured debt resulted in high net interest income by approximately $12 million.
And as Craig noted, we redeemed our 8% senior notes early in January '21.
Q4 net interest expense includes a noncash charge of $3.1 million for unamortized deferred expenses that we incurred when this debt was originally issued in 2012.
In addition, future quarterly interest expense will be $2 million lower as a result of this note redemption.
I would also note that since exiting forbearance in June, we have lowered our cost of funds across our entire portfolio by 140 basis points to 3.1% December 31, 2020, and this falls even further to 2.9% with the senior note redemption.
Also, we reduced our overall CECL allowance in our current value loans to $86.8 million, primarily reflecting lower estimates of future unemployment used for credit loss modeling purposes, but also partially due to lower loan balances.
This reversal and other net adjustments to our CECL reserves positively impacted net income for the quarter by approximately $16 million.
After the initial significant increase in CECL reserves taken in Q1 and uncertainty related to COVID-19 economic impacts were at the highest, we have reduced our CECL reserves by almost $60 million in the past three quarters.
Actual charge-off experience to date remains very modest, with less than $2.5 million of net charge-offs taken in 2020.
Nonetheless, we continue to take a cautious approach in making our estimates for credit losses given uncertainty in the U.S. economic outlook as the time line to a post-COVID-19 impacted economy remains unclear and given the current political environment.
Once again, our loans at fair value performed strongly this quarter.
Net gains of $49.8 million were recorded, including $30.9 million of market value increases and $18.9 million of interest payments, liquidation gains, and other cash income.
By the end of 2020, our fair value loan portfolio recovered all of the market value declines that were recorded in the first quarter.
Finally, our operating and other expenses were $20.4 million for the quarter.
This reflects a lower run rate than we would normally expect primarily due to adjustments to lower incentive compensation accruals that were finalized in the fourth quarter.
We continue to estimate that annualized G&A expenses to equity should run at about 2% each quarter.
Turning to Page 13.
The fourth quarter for the non-QM space was a continuation from where the third quarter left off.
Origination volume increased over the quarter, and loan premiums paid have risen to levels seen prior to the pandemic.
We were able to purchase approximately $80 million in the fourth quarter and are on track to purchase over $100 million in the first two months of 2021.
We saw prepayment speeds increase over the quarter as mortgage rates for non-QM loans have come down in recent months.
The reduction in rates lagged conventional loans as non-QM originators had to rebuild capacity after reducing staff at the onset of the pandemic.
We closed on a minority investment in one of our origination partners in the quarter, providing the needed capital for them to be able to grow originations.
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 two additional securitizations in the fourth quarter, bringing the amount of collateral securitized in 2020 to approximately $1.25 billion.
As Craig mentioned previously, the 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 -- a non-mark-to-market term facility, has resulted in over 75% of our non-QM portfolio financed with non-mark-to-market leverage.
And we expect to continue to be a programmatic issuer of securitizations.
Turning to Page 14.
A significant percentage of our borrowers in our 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 services, we granted almost 32% of the portfolio temporary payment relief, which, we believe, helps 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.
Forbearance program instituted are largely now determined by state guidelines.
For clarity, the deferral program, tax on the payments missed to the maturity of the loan has 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 one month, we allow for the borrower to spread the amounts owed over an extended period of time.
Over the fourth quarter, we saw an improvement in delinquencies compared to the third quarter as 60-plus day delinquencies dropped almost a full percentage point.
In addition, approximately 30% of delinquent loans made a payment in December.
The current state of affairs is unique as although we have seen economic stress and increase unemployment levels, home values have been improving, as low levels of supply combined with low mortgage rates have supported the market.
In addition, our strategy of targeting lower LTV loans should mitigate losses under a scenario with elevated delinquencies.
In many cases, borrowers, which no longer had 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 $1.1 billion has been impacted by the pandemic but continues to perform well.
81% of our portfolio remains less than 60 days delinquent.
And although the percentage for the portfolio 60 days delinquent in status is 19%, over 24% of those borrowers continue to make payments.
Prepayment speeds in the fourth quarter continued to rise as mortgage rates continue to be historically low.
And 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 through the pandemic 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 one year.
36% of loans that were delinquent at purchase are now either performing or paid in full.
45% have either liquidated or REO to be liquidated.
We have significantly increased our activity, liquidating REO properties, selling 87% more properties as compared to a year ago.
19% are still in nonperforming status.
Our modifications have been effective as almost three-quarters are either performing or have paid in full.
We are pleased with these results as they continue to outperform our assumptions at the time of purchase.
Turning to Page 17.
The fourth quarter saw a continuation of the trend we have experienced in 2020 of large principal paydowns in our fix-and-flip portfolio.
A strong housing market, supported by record-low mortgage rates and limited housing inventory has allowed many of our borrowers to successfully complete the projects and sell quickly into a strong market.
This, combined with the seasoned nature of our portfolio, currently at weighted average loan rates of 17 months, led to us receiving $141 million of principal payments in the fourth quarter and a total of approximately $650 million for all of 2020.
We expect this trend to continue in 2021.
MSA's fix-and-flip portfolio declined $118 million to $581 million in UPB at the end of the fourth quarter.
Principal paydowns were $141 million, which is equivalent to a quarterly paydown rate of 59 CPR on an annualized basis.
We advanced about $11 million of rehab draws and converted $3 million to REO.
We began purchasing fix-and-flip loans again in the fourth quarter and acquired approximately $15 million UPB of new loans in the quarter.
The average yield for the fix-and-flip portfolio in the fourth quarter was 5.97%.
All of our fix-and-flip financing is non-mark-to-market debt with the remaining term of 18 months.
After declining by approximately $40 million in the third quarter, the total amount of seriously delinquent fix-and-flip loans increased $19 million in the fourth quarter to $162 million.
So far in the first quarter, delinquency trends have been good, and we've seen delinquencies trend down again closer to third-quarter levels.
Similar to the third quarter, improved economic expectations and a strong housing market contributed to a decline in fix-and-flip loan loss reserves.
Loan loss reserves declined by $4 million to approximately $18 million at the end of the fourth quarter.
Turning to Page 18.
Seriously delinquent fix-and-flip loans increased $19 million in the quarter to $162 million at the end of the fourth quarter.
In the quarter, we saw $25 million of loans paid off in full, $3 million cured to current of 30 days delinquent pay status, and $3 million of loans converted to REO, while $50 million became new 60-plus day delinquent loans.
Despite the increase in delinquency in the quarter, we are pleased that delinquency levels have declined from the high levels we saw in the second quarter of 2020 and with the continued robust level of full payoffs we've seen from loans in serious delinquency.
As mentioned previously, we have seen delinquencies trend down in the first quarter, closer to the third-quarter delinquency loans.
Approximately two-thirds of the seriously delinquent loans are either completed projects or bridge loans where limited or no work is expected to be done, meaning these properties should be in generally salable condition.
In addition, approximately 15% of the seriously delinquent loans are already listed for sale potentially shortening the 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's meaningful equity in the property, these can help.
Since inception, we have collected approximately $2.6 million in these types of fees across our fix-and-flip portfolio.
We believe that our experienced asset management team gives us a tremendous advantage in loss mitigation and the term non to market -- non-mark-to-market financing of our fix-and-flip portfolio allows us to efficiently work through our delinquent loans.
We believe that recent economic trends, in particular, the strong housing market with robust home price appreciation, combined with our loss mitigation efforts, can lead to acceptable outcomes on our delinquent loans.
Turning to Page 19.
Our single-family rental loan portfolio continued to perform well in the fourth quarter.
The portfolio yielded 5.27% in the quarter.
That number does not include prepayment penalties with our feature of almost all of our rental loans and are recorded in other income.
When including those, the SFR portfolio yield was 5.99% in the fourth quarter.
Prepayments increased in the quarter to a three-month CPR of 33%.
This was primarily due to payoffs on some of our three-year balloon loans that were approaching maturity.
So far in Q1, prepayments have trended back down to mid-teen CPR loans.
60-plus state delinquencies increased modestly in the quarter to 5.6%.
We resumed our acquisition of rental loans in the fourth quarter and purchased $12 million of loans in the quarter.
As Craig mentioned earlier, we closed our first securitization consisting solely of business purpose rental loans in the first week of February.
Approximately $218 million of loans were securitized.
We sold approximately 91% of the bonds at a weighted average coupon of 106 basis points.
This transaction lowers the funding rate of the underlying asset by over 150 basis points and increases the percentage of SFR financing that is non mark to market to 77%, up 54% from 23% at the end of the fourth quarter.
I believe that MFA has made great strides since July 1st of last year.
Significant asset price appreciation drove earnings and book value.
We made substantial progress in moving our asset-based financing from expensive durable debt to equally durable, but materially cheaper securitized debt, paying off other expensive debt, repurchasing MFA common stock at material discounts to book, and most recently, the settlement and elimination of the outstanding warrant package.
Considerable market uncertainties still exist as the country and the world continues to face challenges around the pandemic, politics, and monetary and fiscal policy, but MFA is well-positioned to weather these uncertainties, respond to opportunities as they arise, and we are taking proactive steps to further position our company to thrive in the future.
 Assistant:

Chosen response: q4 earnings per share $0.08.


Prompt:
Human: Financial Inc., which reflect management's beliefs, expectations and assumptions as to MFA's future performance and operations.
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.
The fourth quarter of 2021 was a stark wake up call for the fixed income market.
After languishing in a 15 basis point to 25 basis point range for nearly 18 months since late March of 2020, 2-year treasuries rose 50 basis points from the end of September to the end of December, and the curve flattened significantly as 10 years ended the quarter, essentially unchanged from September 30.
The first six weeks of 2022 have been even more volatile, with 2s higher by 75 basis points, 5s by 55, and 10s by 40.
The rate environment had an inevitable negative impact on our fair value assets.
But MFA nevertheless turned in a respectable fourth quarter in a very strong 2021.
We added so for interest rate swaps in the fourth quarter and have continued to manage our duration exposure into this year.
We are certainly not immune to interest rate risk.
We're still waiting for that vaccine, but between a relatively short duration assets or successful execution of $2.6 billion of securitizations last year, and our nimble hedging response to a dramatic rate moves more recently, we think we've weathered the storm reasonably well.
That said, this is no time for complacency.
With inflation seemingly raging, the Fed on the move in a very tense geopolitical environment, making it impossible to predict interest rate movements, particularly in the short-term.
Away from rates, MFA focus on residential mortgage credit serves as a terrific offset to interest rate risk.
As continued, very strong housing trends bolster the value of the underlying assets, securing the mortgages we own and lower LTVs.
Robust housing prices have also created a strong tailwind for delinquent mortgages and REO properties.
As these trends lead to improved resolutions and outcomes.
Please turn the Page 4.
We reported GAAP earnings of $35.9 million dollars, or $0.08 per share for the fourth quarter.
These results were driven largely by $42.6 million of unrealized and non-cash net losses on fair value loans.
Lima One had a strong contribution to our earnings for the second consecutive quarter.
Despite the volatile quarter, book value was relatively stable, with GAAP book value down less than 1%, an economic book value down less than 2%.
Economic return for the quarter was 1.5% for GAAP and essentially flat on economic book value.
Please turn to Page 5.
We acquired $1.4 billion of loans in the fourth quarter, and we grew our loan portfolio by $830 million to$7.9 billion after portfolio runoff.
These purchases included $950 million of non-QM loans and $500 million of business purpose loans.
We completed 3 securitizations totaling $937 million during the fourth quarter, including two agency eligible investor loan deals and one-single family rental loan deal, or net interest income increased versus Q3 by 13% to $70.1 million in the fourth quarter.
We continue to make excellent progress in liquidating REO properties as we capitalize on strong housing trends, selling over $50 million of REO properties for a net gain of over $10 million.
And finally, we've opportunistically continued to repurchase MFA common shares, adding $8.5 million shares at an average price of $4.42 during the fourth quarter.
Please turn to Page 6.
To briefly review the full year 2021, we achieved extraordinary portfolio growth, particularly considering the paucity of investments available in the early part of the year.
Our purchase of Lima One was a transformational, and timely transaction as we fortified our ability to source attractive assets.
We completed 8 securitizations totaling $2.6 billion, locking in very attractive fixed rate term financing.
As we pointed out every quarter, we continued to grow our net interest income, increasing this important and reliable earnings driver by 47% for the year to $242 million and $70 million in the fourth quarter.
Mortgage investors rarely talk about let alone brag about their REO portfolios, but we sold almost $190 million of REO properties in 2021 for a net gain of $23.5.
As a rule, REO property resolutions tend to be the least desirable and profitable outcomes when working out non-performing loans, but our asset management team turn this into a profit generating enterprise in 2021.
Our book value increased by about 5% during the year 2021, despite a rough fourth quarter in rates in our economic returns for the year, we're also very respectable.
We also purchased just over $20 million shares during the year at an average price of $4.26.
Please turn to Page 7.
This slide illustrates the components of our investment portfolio, and also the nature of our asset based financings.
While the liability pie chart shows $2.6 billion of mark-to-market borrowing, about half of this borrowing is that a significant discount to our available borrowing amount.
This under levering, creates a cushion that increases the amount of asset price decline that would need to occur before we receive a margin call.
So while this borrowing is technically mark-to-market or conservative borrowing practice produces a considerable synthetic margin buffer.
Please turn to Page 8.
So finally, in the feel good department and just to demonstrate that it's not solely about the numbers, I'm happy to report three significant accolades for MFA.
For the third year in a row, MFA was included in the Bloomberg Gender-Equality Index.
We were recognized as one of 418 public companies across 45 countries and regions for our commitment to and support of gender equality.
Additionally, MFA has been certified for the second consecutive year as a great place to work by the Great Place to Work Institute.
This award is based on anonymous employee feedback through an engagement survey that we conducted through this organization.
This important validation of our culture is a testament to our people.
Management does not make MFA a great place to work or people do.
If management has a role, it's simply to hire great people, and our team collectively creates our culture.
In today's work from home world, this recognition is also an important distinction for hiring, as recruitment is virtually all virtual these day.
And lastly, MFA has again been recognized by 50/50 women on boards, and we have achieved their highest rating level for gender balance.
MFA's results for the fourth quarter was solid overall, particularly given the challenging rate environment.
We continue to see the impact of the successful execution of our asset aggregation strategy and financing initiatives with another quarter of loan portfolio and net interest income growth.
In addition, second consecutive record quarter for originations at Lima One resulted in another meaningful contribution to our overall results.
Earnings of $0.08 per common share were impacted by valuation changes on loans, partially offset by gains on hedges and securitized debt held at fair value, as well as a significant gain on a minority investment.
After removing the impact of these items from the quarterly results, the residual net income of $47.3 million, or $10.8 per common share, is in line with our fourth quarter dividend of $0.11 per common share.
I will now provide some additional details for the key components of our Q4 results, which include; Net interest income of $70.1 million was $8.3 million, or 13% higher sequentially; Residential whole loan net interest income again increased this quarter by 7%, again, reflecting portfolio growth and the ongoing impact of securitizations, which has lowered the cost of financing; And net interest spread came in at 2.98% unchanged from the prior quarter.
Our overall CECL allowance and our carrying value loans decreased for the seventh quarter in a row and at December 31, was $39.5 million down from $44.1 million at September 30 and less than half where it began the year.
The decrease reflects continued run off of our carrying value loan portfolio, and adjustments to macroeconomic and loan prepayment speed assumptions used in our credit loss modeling.
This reversal and other net adjustments to [Inaudible] some reserves positively impacted net income for the quarter by $3.5 million.
Actual charge-offs experience continues to be relatively low.
For the full year, charge-offs for $3.4 million.
In 2020, charge-offs were $2.4 million.
Pricing across our residential whole loan portfolio was impacted by the volatile rate environment.
For loans held at fair value, net losses of $42.6 million were recorded.
It should be noted that for the full year, loans held at fair value generated $16.7 million of net gains.
Further, in the fourth quarter, unrealized losses on the fair value loan portfolio were partially offset by $7.2 million of gains on TBAs, swap hedges, and securitized debt held at fair value.
Included in this quarter results is a $24 million gain on a minority investment in one of our residential whole loan origination partners.
During the quarter, this company successfully completed a capital transaction with a third party unaffiliated to MFA.
As a result of this transaction, GAAP required that we revisit the carrying value of our minority stake.
We recorded a significant impairment write-down and investment back in Q1 of 2020, when COVID related uncertainties were very high and in origination companies were essentially shut down.
Based on the terms of this new capital investment, which included a $4 million principal repayment to MFA, we adjusted the carrying value of our investment to the fair value implied by the transaction.
This resulted in a significant reversal of the prior impairment, as well as a gain for the amount of principal repayment received.
Lima One also contributed $13 million of origination, servicing, and other fee income during the quarter, reflecting a second consecutive record quarter for origination volumes.
Gudmundur will discuss this in more detail shortly.
Finally, our operating and other expenses excluding amortization of Lima One intangible assets, were $41 million for the quarter.
This includes approximately $13.7 million of expenses, primarily compensation related at Lima One.
Lima utilizes a sales commission structure where incentives increase as cumulative production targets are achieved.
This will typically result in higher incentive compensation in Q3 and Q4 each year, particularly given the record production volumes achieved by Lima since acquisition.
MFA only G&A expenses were approximately $15 million for the quarter, which is in line with the prior quarter.
Other loan portfolio related costs, meaning those not related to Lima One loan origination and servicing, were $12.3 million, which is higher than a typical quarterly run rate, as it includes approximately $5.2 million of securitization deal related expenses.
Because we have elected the fair value option on recently completed securitization deals, GAAP does not permit us to capitalize these costs.
Turn to Page 10.
2021 was one of the hottest years for home prices in over two decades.
Prices increased year-over-year rate of almost 20%, fueled by historically low rates, coupled with limited supply.
In recent months, we have seen rates move higher with the 30-year conforming mortgage rate hovering around 4%.
Increased mortgage rates should have a dampening effect on home prices.
However, the severe lack of supply may still continue to push prices higher, albeit at a reduced rate.
Labor market is strong.
Unemployment is at 4%, and wages are rising at some of the fastest levels in recent history.
MFA is focused on mortgage credit, continues to perform well and benefits from the current economic tailwinds.
Turning to Page 11.
MFA was active in the fourth quarter, adding $950 million of nine-term loans to the portfolio.
We grew our base of originators over the quarter and strengthened existing relationships.
Currently in the market with securitization and although we have seen widening in spreads, we expect to continue to be a programmatic issuer of securitizations as it is still the most efficient form of non-mark-to-market term financing.
The credit on our portfolio has improved significantly from the onset of COVID in 2020.
60 plus day delinquencies are now down to 3.5%.
We have yet to suffer a credit loss on our non-QM portfolio, as a few loans taken to REO were subsequently sold for gains.
Many loans that experienced delinquencies end up getting paid in full as our borrowers have equity in the property to sell their property themselves.
The weighted average original LTV for borrowers that are 90 plus days delinquent is 65, and that does not account for any potential home price appreciation post origination.
Turning to Page 12.
After September's announcement from the FHFA and Treasury to suspend the 7% cap on investor loan purchases for Fannie Mae and Freddie Mac for at least one year.
Pricing for agency investor loans became less attractive and we significantly slowed purchases in the fourth quarter.
We utilize TBA hedges against his portfolio, which helps protect against rate moves and spread widening over the quarter.
We executed on our second securitization of this collateral in the fourth quarter of 2021, and expect to execute a third in the coming months.
We do not expect further growth to this segment of the portfolio out of more favorable environment relating to loan pricing and or securitization execution.
Turning the Page 13.
Our REO portfolio of approximately $900 million continues to perform well, 81% of our portfolio remains less than 60 days delinquent.
And although the percentage of the portfolio 60 days delinquent and status was 19%, almost 30% of those borrowers continue to make payments.
Prepay speed in the fourth quarter increased further to a three month CPR of 18%, combination of the length of time our borrowers have remained current on their mortgage and home price appreciation and unlocked refinancing opportunities for many of our borrowers.
We have a small amount of borrowers still receiving COVID assistance and believe that any impact from COVID will be minimal on the retail portfolio going forward.
Turning to Page 14.
Our asset management team continues to drive strong performance of our NPL portfolio.
The team has worked in concert with our servicing partners to maximize outcomes on our portfolio.
38% of loans that were delinquent at purchase are now either performing or paid in full.
49% have either liquidated or REO to be liquidated.
Our sales of REO properties have continued at an accelerated pace at advantageous prices.
Over the quarter, we again sold almost 3 times as many properties as the number of loans converting to REO.
13% still a non-performing status.
Our modifications have been effective, It's almost three quarters are either performing or have paid in full.
We are pleased with these results as they continue to outperform our assumptions at the time of purchase.
Turning to Page 15.
We closed the acquisition of Lima One on July 1, 2021, and realized an immediate impact on MFA's results in the second half of the year.
As Lima One originated approximately $1 billion of high yielding business purpose loans in the second half of 2021, all of which were absorbed MFA's balance sheet.
Fourth quarter activity was particularly robust, with over $600 million originate and in the fourth quarter, a 50% increase, over third quarter origination, and a record quarter for the company.
First quarter is usually the slowest month in the BPO space, but we maintain strong momentum into 2022 with approximately $200 million originated in January.
A key benefit of the acquisition is Lima's ability to provide MFA with a reliable flow of high quality, high yielding asses, that are difficult to source in the marketplace.
When we announced the transaction in May, we mentioned that we believe that Lima had the potential to grow substantially beyond the run rate at the time of $1.2 billion in annual origination, that has played out faster than we expected as Lima originated over $1.6 billion in 2021, about 33% more than we expected at the time of acquisition.
This tremendous result is in many ways due to the time and energy we spent around the deal closing to develop a clear strategic plan for Lima One business, including short and long-term goals for the management team, as well as exceptional execution by the management team throughout the second half.
We have improved financing costs, and expanded financing options by adding multiple new warehouse lines and issuing securitizations.
We passed some of those efficiencies onto Lima's borrowers in more competitive pricing across most of Lima's product offerings.
This is a lot of Lima to be more competitive, and grow volumes across all of our loan product offerings.
With Lima track record, increased volume, and strategic marketing efforts, we continue to see Lima's brand in the BPO space grow.
They're widely recognized as one of the nation's leading BPO lenders, and uniquely offer a diverse set of BPO products for short and long term investment strategies.
The increased volume would not be possible without the strong operational infrastructure Lima One has built, which has shown an impressive ability to scale up origination volume quickly while maintaining origination quality.
We are excited about the progress we have made this year with Lima One, and continue to see great opportunities to grow their origination footprint and gain market share.
As you mentioned earlier, the first quarter is off to a great start, and we expect origination volume in 2022 to exceed 2021.
In addition to the benefit of adding assets to our balance sheet, Lima has a profitable company.
The amount generated $10.2 million of net income from origination and servicing activities in the quarter, representing an annualized return on allocated equity of approximately 30%.
And finally, we closed our second business purpose master loan securitization in the fourth quarter, with approximately 90% of the collateral consisting of Lima One originated loans.
With increased rental loan acquisition volume from the Lima One acquisition, we expected to our third business purpose rental loan securitization in the first half of 2022.
Turn to Page 16.
Here we will discuss the fix and flip portfolio.
The portfolio grew by $137 million, or 23% in the quarter.
Loan acquisition activity rate remained elevated due to Lima One acquisition as we added approximately $220 million UPB with over $370 million max loan amounts in the fourth quarter, and have added over $110 million max loan a month in January.
As a reminder, fix and flip loans financed the acquisition, rehabilitation, and construction of homes.
Typically, a certain amount of the loan is held back in the form of a construction hold back, which explains the difference between UPB on day one and the max loan amount, which represents a fully funded loan at the completion of projects.
With a persistent increase in fix and flip acquisition activity, we are actively exploring securitization options for our fix and flip portfolio, and expect to make securitization a consistent part of our fix and flip financing strategy.
The UPB of 60 plus days delinquent loans were relatively unchanged at $109 million in the fourth quarter, but declined significantly in 2021 as it dropped by over $50 million.
60 plus days delinquency as a percentage of UPB declined 3% to 15% at the end of the fourth quarter.
A few things to note here is that, all the loans that are 60 plus days delinquent except one were originated prior to April 2020, and are simply working their way through the appropriate loss mitigation activities.
And, Lima one originated fix and flip loans held by MFA have only about 4% 60 plus days delinquency, speaking to the quality of the origination and servicing.
The strong housing market, generally favorable economic conditions, and the efforts of our BPO and asset management teams have led to good progress and seriously delinquent loans.
We continue to see a sizable amount of loans pay off and full out of serious delinquency.
And loans payoff in full from serious delinquency, we often collect default interest, extension fees, and other fees of payoff.
For loans where there's meaningful equity in the property these can add up.
Since inception, we have collected approximately $6.5 million in these types of fees across our fix and flip portfolio.
Turning to Page 17.
Our single-family rental loan portfolio continues to deliver attractive yields, and accepted strong credit performance, with 60 plus day delinquencies declining 90 basis points in the quarter to 2.6%, and fourth quarter portfolio of 5.16%.
Purchase activity remained elevated in the fourth quarter as we added approximately $250 million of single family rental loans in the quarter.
As a result, our portfolio grew by 29% in the quarter to over $920 million at the end of the year.
Acquisition activities have remained robust in the first quarter, as we've already added over $80 million in the month of January.
The acquisition of Lima One has significantly boosted our ability to source single family rental loans, and we believe that we will continue to grow our single family rental loan portfolio in the near future.
We issued our second rental on securitization in the fourth quarter.
The deal was backed by approximately $284 million of loans, we sold bonds representing about 91.5% of loan UPB with the weighted average coupon of approximately 2.15%.
Approximately 75% of our single family rental portfolios financed with non-mark-to-market financing almost 60% through securitizations.
We've done two single family rental securitization, and expect to continue to programmatically execute securitizations to efficiently finance our single family rental loss.
We believe that we produced solid results in a difficult fourth quarter of 2021, and we're very pleased with our results and the successful execution of our strategic initiatives for the year.
Our portfolio growth coupled with securitization financing, should enable us to continue to produce consistent net interest income.
A thriving Lima One will continue to provide us with the means to generate high quality assets at attractive yields.
And MFA's focus on residential mortgage credit should position us well as we enter a year that will surely challenge investment strategies that are dependent solely on rates.
 Assistant:

Chosen response:
q4 earnings per share $0.08.
qtrly net interest income increased on a sequential quarterly basis to $70.1 million.


Prompt:
Human: As with last quarter, let me first begin with some comments on the current state of the market and what we've seen so far and briefly update you on the actions that Mistras has taken to keep our employees, customers and partners safe while simultaneously mitigating these challenging conditions.
First, let me say that I'm extremely proud of how our team has responded to current conditions.
They have remained focused on the safety and well-being of our associates, clients, and partners.
They are continuing to deliver outstanding services which is helping our clients best manage through these unprecedented times, all the while positioning Mistras to emerge from this global pandemic stronger and better prepared to further our industry leadership.
In the first quarter, we posted solid operating results with revenues better than forecasted and our asset-light business model has continued to generate positive cash flow for which we have become well-known.
We have achieved this despite a quarter that experienced the dual impacts of a weak energy market continuing from late last year and the global pandemic that began to take root toward the end of the first quarter.
As it became clear that we were entering a period of incredible uncertainty, we took immediate action to adjust to these new realities.
The immediate focus was on things that we could control, with our goal being to preserve and protect our reputation and to reinforce our position as our customer's preferred partner.
So we doubled down our efforts to provide our customers with the high quality of service in which they have come to rely upon from Mistras.
We found innovative new uses for our technology.
MISTRAS Digital to help customers lower their cost and this is currently getting a high level of interest.
We believe this dedication to the needs of our clients not only enhances our franchise today but establishes a solid foundation on which to build upon the market’s eventual recovery.
At the same time, we took decisive actions in response to this new business environment.
We have significantly reduced cost, we've cut capex in line with revenue expectations and are more effectively managing working capital to maintain and enhance our positive cash flow.
We have accelerated some of the structural changes to improve margins while deploying technology to further improve productivity.
I and other members of the executive team along with nearly all salaried employees have taken pay cuts and our Board has also forgone some of their compensation.
Additionally, we have made adjustments to our variable headcount and broadly rationalize our assets to align with anticipated future levels of activity.
We are taking these actions while maintaining our commitment to delivering superior services which help our customers increase their efficiency, reduce their costs, and improve their outcomes.
Consequently, we continue to forge ahead in areas that offer the greatest returns.
For instance, customers are anxious to adapt digital technology that will help them improve efficiencies, as well as transition to more predictive solutions.
In this respect, we continue to work with our customers to leverage our MISTRAS Digital solution that helps reduce non-productive time and improve labor and asset efficiency.
Complementary to MISTRAS Digital is our industrial Internet of Things offerings such as remote sensor monitoring where we are having great success as our MISTRAS Digital ruggedized tablets are that are revolutionizing field reporting and we are seeing a steady increase in our mechanical work.
All of these actions and initiatives are helping diversify our revenue streams and significantly strengthen our foundation for long-term growth and profitability.
And while our customers in the energy industry are trying to stretch their dollars just like everyone else's, they nevertheless have an obligation to keep their facilities in compliance with regulations and operating at top efficiency.
So we are sensing new opportunities in even this environment of demand contraction.
We believe the second quarter should represent the largest deviation with our revenues potentially down as much as the high 30% range from a year ago.
April looks like it should be a peak revenue decline as we are already sensing that May will be better and June could potentially see further improvement if oil prices continue to recover and states continue to relax shelter-in-place orders.
The third quarter and fourth quarter will then be expected to rebound nicely.
Given the impact of COVID-19 to our business, we did perform an assessment of the carrying value of goodwill and other intangibles in the first quarter of 2020 and the result was that we recorded non-cash impairment charges of $106 million.
Ed will go through the details.
With our expectation of positive operating cash flow, each quarter this year, limited capital expenditure needs and our amended credit agreement, we have sufficient liquidity to support our operations and this would be while simultaneously reducing outstanding debt by the end of the year, including $4.5 million already paid down in the second quarter.
Our job is to build on the legacy Mistras has created over the years and it is our vision to take Mistras to the next level through more integrated programs and more predictive intelligence that will define our industry in the future.
First quarter revenues were somewhat better than expected, down a little less than 10% from a year ago.
As anticipated, our oil and gas revenues in our Services segment saw the largest decline, which was somewhat offset by nearly $2 million improvements in domestic aerospace and defense.
Conversely, revenues in our International segment were impacted by a decline in European aerospace revenues where production at our large facility in France was hampered by that country's complete shutdown, as well as a continued run-off of the staff leasing business in Germany.
Gross profit for the quarter was $40.6 million or 25.5% with margins down from a year ago, mostly due to underutilization resulting from the decrease in revenues.
To a much lesser extent, margins reflected a somewhat tighter pricing environment.
On a segment basis, both Services and International revenues were down.
Services primarily due to the weakness in energy markets, while International experienced a decrease in aerospace revenues, driven by the wind-down of staff leasing and the adverse foreign currency translation impact.
Gross margins were also down from a year ago, consistent with the decrease in revenues.
Selling, general and administrative expenses decreased from a year ago despite the addition of New Century's overhead to this year's cost.
Early in the second quarter of 2020, we initiated a cost reduction and efficiency program, which should reduce the run rate of overhead by approximately 10% beginning in the second quarter, a reduction we believe is consistent with our outlook for the year.
This program includes temporary adjustments to capital spends, reduction in travel and certain R&D, limiting of new hires, and the scaled reduction for salary expenses for essentially all overhead positions.
Also, note that all non-employee members of our Board also took a reduction in their compensation during the second quarter.
We typically review goodwill for impairment each October 1 or whenever events or changes in circumstances indicate that the carrying value of goodwill and intangibles may not be recoverable.
COVID-19 and the related impact to crude oil prices was deemed to be a triggering event requiring us to perform an interim assessment.
As a result, we recorded a non-cash charge of $106.1 million for permits in the first quarter of 2020, comprised of $77.1 million related to goodwill and $29 million related to primarily intangible assets.
On an after-tax basis, this was $92.1 million or $3.18 per diluted share exclusive of a $0.02 per diluted share benefit from other special items or $3.16 per diluted share on a net basis for all special items.
Although we were in compliance with our bank covenants as of March 31, 2020, we nevertheless executed an amendment effective May 15, 2020, to gain additional covenant flexibility.
We maintained the remaining maturity of our existing credit agreement through December 2023, including a $93.75 million term loan, but we reduced our revolving credit line to a maximum of $175 million to save cost related to the unused commitment, while ensuring a sufficient level of liquidity to fund our business.
We additionally maintained a $100 million uncommitted accordion within the amended credit agreement for potential expansion in the future.
Our net debt, total debt less cash, and cash equivalents was $241 million at March 31, 2020, compared to $239.7 million at December 31, 2019.
Gross debt increased by $3.3 million during the first quarter of 2020 from $254.7 million at the end of the year to $258 million at March 31, 2020.
As Dennis mentioned, we have already paid down an additional $4.5 million of debt in the second quarter of 2020.
Reiterating one of our key themes.
Our business has historically generated strong cash flow.
In the first quarter of 2020, we further enhanced that reputation with cash from operating activities of $6.1 million.
We did utilize a little over $4 million for capital expenditures in the first quarter, in line with our goal to reduce total capex this year from our typical run rate, in line with revenue expectations.
We recorded a net loss of $98.5 million for the first quarter of 2020 compared with a net loss of $5.3 million in the prior-year period, due primarily to the aforementioned non-cash impairment charges.
But we did nevertheless generate adjusted EBITDA of $5.4 million for the second quarter of 2020 and our goal remains to maintain adjusted EBITDA as well as positive operating cash flow in each quarter of this year.
Ongoing macro concerns attributable to the impact of COVID-19 coronavirus continue to put crude oil prices under intense pressure.
Given the continuing economic uncertainty, we are not providing guidance for the full year of 2020.
We do anticipate revenues for the second quarter of 2020 to decrease up to a high 30% range from the prior-year period level although cash from operations and adjusted EBITDA are expected to remain positive.
While it is extremely difficult to forecast with any degree of certainty at this time, we are optimistic that consolidated revenue in the second half of 2020 will be higher than that of the first half of 2020 with corresponding improvements in both cash flow and adjusted EBITDA.
This outlook is contingent on continuing macroeconomic improvements, including stabilization in crude oil prices and relaxing of certain stay-at-home mandates.
We are confident in our sustainable business model and we remain firmly committed to carrying on our strategy today and over the long term.
Mistras is essential to global energy infrastructure as well as to the aerospace, alternative energy, and other industries whether at our facilities or those of our customers' our teams are hard at work ensuring the safety and security of valuable assets, while observing today's coronavirus inspired rules of engagement.
We are far from out of the woods.
We intend to keep a consistent eye on our expected revenues and be sure we match our resources accordingly.
The crude oil prices have recently stabilized and are beginning to improve and more states around the country are beginning to relax some stay-at-home restrictions.
Conversations with our customers have become more constructive.
These are all positive signs and much different than the signals we were hearing in mid to late March.
Mistras intends to emerge from this pandemic stronger, determined and prepared to capitalize on the opportunities, which we believe exist within our industry.
Customers know they can count on Mistras to be there when they need us.
We have deep relationships built over years of dedicated service delivering on time and on budget and we are developing new age tools that customers know they're going to need as budgets shrink and we all have to learn how to do more with less.
We are excited about Mistras's future and are committed to our success.
Our industry is under intense pressure to optimize the efficiency of their assets and to continue to comply with increasingly complex safety, environmental, and other regulations.
This is creating a growing demand for our services.
In the short run, that trend may be disrupted, but over the long-term, we think these factors will drive growth in our markets and we intend to outpace that growth.
Our utmost concern remains safety of our employees as well as those of our customers and the many other Mistras associates.
Let me again state my deep appreciation for the hard work all the Mistras technicians and professionals are doing to keep our customers' assets safe while facing all the challenges, they must endure to get the work done.
Let me also commend all the administrative and management Mistras folks for finding a way to make this new normal work for us.
Our focus on cash generation, collection, and normal administrative processes has not diminished one bit and we are as strong and nimble as we ever have been.
I also want to sincerely recognize the patience of our long-term shareholders who continue to support us through this journey.
Gigi, please open up the phone lines.
 Assistant:

Chosen response:
mistras group not providing guidance for full year 2020.
strategic actions implemented to lower costs further in 2020.
covid-19 and related impact on crude oil prices trigger non-cash impairment charges of $106.1 million in quarter.
not providing guidance for full year 2020.
does anticipate revenues for q2 to decrease up to high 30% from prior period level.
optimistic that consolidated revenue in h2 of 2020 will be higher than h1 of 2020.