MFA Financial, Inc. (NYSE:MFA) today provided its financial
results for the third quarter ended September 30, 2023.
Third Quarter 2023 financial results
update:
- MFA generated a GAAP net loss for the third quarter of $64.7
million, or $0.64 per basic and diluted common share. Distributable
earnings, a non-GAAP financial measure, were $41.1 million, or
$0.40 per common share. MFA paid a regular cash dividend for the
quarter of $0.35 per share on October 31, 2023.
- GAAP book value at September 30, 2023 was $13.48 per common
share. Economic book value, a non-GAAP financial measure, was
$13.84 per common share.
- Net interest spread rose to 2.17%, a 3 bp increase from the
second quarter.
- Total economic return was (6.2)% for the third quarter.
- MFA closed the quarter with unrestricted cash of $300.1
million.
Commenting on the quarter, Craig Knutson, MFA’s CEO and
President said: “With the 10-year Treasury yield climbing nearly 80
bps, the third quarter was exceptionally challenging for
fixed-income investors and particularly for the mortgage industry.
While our book value was negatively impacted by the spike in
interest rates, we again generated distributable earnings in excess
of our dividend and continued to execute our business plan of
adding higher-yielding assets while keeping our cost of funds
relatively stable. Lima One originated a record $671 million of new
loans during the quarter. Overall, we acquired or originated over
$800 million of loans at an average coupon of approximately 10%. We
also purchased $152 million of Agency MBS at some of the widest
spreads seen since the 2008 financial crisis. These investments
propelled our net interest spread higher to 2.17% and our net
interest margin to 3.02%.”
Mr. Knutson continued: “Our emphasis on strong underwriting,
credit performance and more durable forms of financing has not
wavered. Loan delinquencies and loan-to-value (LTV) ratios remain
low. We securitized over $600 million of loans during the quarter
and an additional $225 million in October. We again benefited from
our $3.1 billion interest rate swap position, which generated a net
positive carry of $29 million during the quarter. We also added
$133 million of longer duration swaps and maintained a substantial
cash position to protect our balance sheet from further rate
volatility. Finally, we repurchased over $10 million of our
convertible senior notes that mature in June 2024 at a slight
discount to their unpaid principal balance.”
Q3 2023 Portfolio Activity
- Loan acquisitions were $802.6 million, including $646.5 million
of funded originations of business purpose loans (including draws
on Transitional loans) and $156.1 million of Non-QM loan
acquisitions, bringing MFA’s residential whole loan balance to $8.4
billion.
- Lima One funded $479.5 million of new business purpose loans
with a maximum loan amount of $671.0 million. Further, $166.9
million of draws were funded on previously originated Transitional
loans. Lima One generated $12.1 million of origination, servicing,
and other fee income.
- MFA added $151.8 million of Agency MBS during the quarter,
bringing its total Securities portfolio to $724.0 million.
- MFA continued to reduce its REO portfolio, selling 77
properties in the third quarter for aggregate proceeds of $26.2
million and generating $3.2 million of gains.
- 60+ day delinquencies (measured as a percentage of UPB) for
Purchased Performing Loans increased to 3.1% from 2.8% in the
second quarter. Combined Purchased Credit Deteriorated and
Purchased Non-Performing 60+ day delinquencies declined to 25.9%
from 27.4% in the second quarter.
- MFA completed two loan securitizations during the quarter,
collateralized by $601.5 million of unpaid principal balance (UPB)
loans, including $386.8 million of Non-QM loans and $214.7 million
of Single-family rental loans, bringing its securitized debt to
approximately $4.3 billion.
- MFA maintained its position in interest rate swaps at a
notional amount of approximately $3.1 billion. At September 30,
2023, these swaps had a weighted average fixed pay interest rate of
1.69% and a weighted average variable receive interest rate of
5.32%.
- MFA estimates the net effective duration of its investment
portfolio at September 30, 2023 declined to 1.05 from 1.19 at June
30, 2023.
- MFA’s Debt/Net Equity Ratio was 4.3x and recourse leverage was
2.0x at September 30, 2023.
Webcast
MFA Financial, Inc. plans to host a live audio webcast of its
investor conference call on Tuesday, November 7, 2023, at 11:00
a.m. (Eastern Time) to discuss its third quarter 2023 financial
results. The live audio webcast will be accessible to the general
public over the internet at http://www.mfafinancial.com through the
“Webcasts & Presentations” link on MFA’s home page. Earnings
presentation materials will be posted on the MFA website prior to
the conference call and an audio replay will be available on the
website following the call.
About MFA Financial,
Inc.
MFA Financial, Inc. (NYSE: MFA) is a leading specialty finance
company that invests in residential mortgage loans, residential
mortgage-backed securities and other real estate assets. Through
its wholly-owned subsidiary, Lima One Capital, MFA also originates
and services business purpose loans for real estate investors. MFA
has distributed $4.7 billion in dividends to stockholders since its
initial public offering in 1998. MFA is an internally-managed,
publicly-traded real estate investment trust.
The following table presents MFA’s asset allocation as of
September 30, 2023, and the third quarter 2023 yield on average
interest-earning assets, average cost of funds and net interest
rate spread for the various asset types.
Table 1 - Asset Allocation
At September 30, 2023
Purchased
Performing
Loans (1)
Purchased Credit
Deteriorated
Loans (2)
Purchased
Non-Performing
Loans
Securities, at
fair value
Real Estate
Owned
Other,
net (3)
Total
(Dollars in Millions)
Fair Value/Carrying Value
$
7,306
$
418
$
700
$
724
$
113
$
626
$
9,887
Financing Agreements with
Non-mark-to-market Collateral Provisions
(1,125
)
—
—
—
—
—
(1,125
)
Financing Agreements with Mark-to-market
Collateral Provisions
(1,375
)
(128
)
(222
)
(609
)
(27
)
—
(2,361
)
Securitized Debt
(3,797
)
(240
)
(284
)
—
(12
)
—
(4,333
)
Convertible Senior Notes
—
—
—
—
—
(219
)
(219
)
Net Equity Allocated
$
1,009
$
50
$
194
$
115
$
74
$
407
$
1,849
Debt/Net Equity Ratio (4)
6.2 x
7.4 x
2.6 x
5.3 x
0.5 x
4.3 x
For the Quarter
Ended September 30, 2023
Yield on Average Interest Earning Assets
(5)
6.06
%
6.63
%
9.59
%
7.38
%
N/A
6.35
%
Less Average Cost of Funds (6)
(4.23
)
(2.43
)
(3.65
)
(3.92
)
(5.91
)
(4.18
)
Net Interest Rate Spread
1.83
%
4.20
%
5.94
%
3.46
%
(5.91
)%
2.17
%
(1)
Includes $3.6 billion of Non-QM loans,
$2.1 billion of Transitional loans, $1.5 billion of Single-family
rental loans, $72.6 million of Seasoned performing loans, and $53.1
million of Agency eligible investor loans. At September 30, 2023,
the total fair value of these loans is estimated to be $7.2
billion.
(2)
At September 30, 2023, the total fair
value of these loans is estimated to be $423.2 million.
(3)
Includes $300.1 million of cash and cash
equivalents, $153.4 million of restricted cash, and $20.0 million
of capital contributions made to loan origination partners, as well
as other assets and other liabilities.
(4)
Total Debt/Net Equity ratio represents the
sum of borrowings under our financing agreements as a multiple of
net equity allocated.
(5)
Yields reported on our interest earning
assets are calculated based on the interest income recorded and the
average amortized cost for the quarter of the respective asset. At
September 30, 2023, the amortized cost of our Securities, at fair
value, was $725.2 million. In addition, the yield for residential
whole loans was 6.33%, net of one basis points of servicing fee
expense incurred during the quarter. For GAAP reporting purposes,
such expenses are included in Loan servicing and other related
operating expenses in our statement of operations.
(6)
Average cost of funds includes interest on
financing agreements, Convertible Senior Notes and securitized
debt. Cost of funding also includes the impact of the net carry
(the difference between swap interest income received and swap
interest expense paid) on our interest rate swap agreements (or
Swaps). While we have not elected hedge accounting treatment for
Swaps and accordingly net carry is not presented in interest
expense in our consolidated statement of operations, we believe it
is appropriate to allocate net carry to the cost of funding to
reflect the economic impact of our Swaps on the funding costs shown
in the table above. For the quarter ended September 30, 2023, this
decreased the overall funding cost by 141 basis points for our
overall portfolio, 143 basis points for our Residential whole
loans, 146 basis points for our Purchased Performing Loans, 161
basis points for our Purchased Credit Deteriorated Loans, 89 basis
points for our Purchased Non-Performing Loans and 191 basis points
for our Securities, at fair value.
The following table presents the activity for our residential
mortgage asset portfolio for the three months ended September 30,
2023:
Table 2 - Investment Portfolio Activity Q3 2023
(In Millions)
June 30, 2023
Runoff (1)
Acquisitions (2)
Other (3)
September 30, 2023
Change
Residential whole loans and REO
$
8,260
$
(393
)
$
803
$
(133
)
$
8,537
$
277
Securities, at fair value
594
(10
)
152
(12
)
724
130
Totals
$
8,854
$
(403
)
$
955
$
(145
)
$
9,261
$
407
(1)
Primarily includes principal repayments
and sales of REO.
(2)
Includes draws on previously originated
Transitional loans.
(3)
Primarily includes changes in fair value
and changes in the allowance for credit losses.
The following tables present information on our investments in
residential whole loans.
Table 3 - Portfolio composition
Held at Carrying Value
Held at Fair Value
Total
(Dollars in Thousands)
September 30, 2023
December 31, 2022
September 30, 2023
December 31, 2022
September 30, 2023
December 31, 2022
Purchased Performing Loans:
Non-QM loans
$
873,790
$
987,282
$
2,700,473
$
2,372,548
$
3,574,263
$
3,359,830
Transitional loans (1)
37,946
75,188
2,059,655
1,342,032
2,097,601
1,417,220
Single-family rental loans
182,879
210,833
1,333,484
1,165,741
1,516,363
1,376,574
Seasoned performing loans
72,675
82,932
—
—
72,675
82,932
Agency eligible investor loans
—
—
53,148
51,094
53,148
51,094
Total Purchased Performing Loans
$
1,167,290
$
1,356,235
$
6,146,760
$
4,931,415
$
7,314,050
$
6,287,650
Purchased Credit Deteriorated Loans
$
438,913
$
470,294
$
—
$
—
$
438,913
$
470,294
Allowance for Credit Losses
$
(28,557
)
$
(35,314
)
$
—
$
—
$
(28,557
)
$
(35,314
)
Purchased Non-Performing Loans
$
—
$
—
$
699,810
$
796,109
$
699,810
$
796,109
Total Residential Whole Loans
$
1,577,646
$
1,791,215
$
6,846,570
$
5,727,524
$
8,424,216
$
7,518,739
Number of loans
6,493
7,126
18,639
16,717
25,132
23,843
(1)
As of September 30, 2023 includes $1.1
billion of loans collateralized by one-to-four family residential
properties and $1.0 billion of loans collateralized by multi-family
properties. As of December 31, 2022 includes $784.9 million of
loans collateralized by one-to-four family residential properties
and $632.3 million of loans collateralized by multi-family
properties.
Table 4 - Yields and average balances
For the Three-Month Period
Ended
(Dollars in Thousands)
September 30, 2023
June 30, 2023
September 30, 2022
Interest
Average Balance
Average Yield
Interest
Average Balance
Average Yield
Interest
Average Balance
Average Yield
Purchased Performing Loans:
Non-QM loans
$
51,724
$
4,053,924
5.10
%
$
45,518
$
3,879,175
4.69
%
$
40,658
$
3,743,940
4.34
%
Transitional loans
40,223
1,927,533
8.35
%
32,621
1,654,585
7.89
%
19,342
1,126,178
6.87
%
Single-family rental loans
24,087
1,639,626
5.88
%
23,141
1,587,636
5.83
%
18,998
1,391,770
5.46
%
Seasoned performing loans
1,095
74,345
5.89
%
1,127
77,843
5.79
%
1,227
89,459
5.49
%
Agency eligible investor loans
486
71,306
2.73
%
518
72,875
2.84
%
7,542
1,035,266
2.91
%
Total Purchased Performing Loans
117,615
7,766,734
6.06
%
102,925
7,272,114
5.66
%
87,767
7,386,613
4.75
%
Purchased Credit Deteriorated Loans
7,371
444,568
6.63
%
8,087
455,993
7.09
%
7,916
487,918
6.49
%
Purchased Non-Performing Loans
15,552
648,959
9.59
%
17,036
674,200
10.11
%
18,732
761,706
9.84
%
Total Residential Whole Loans
$
140,538
$
8,860,261
6.34
%
$
128,048
$
8,402,307
6.10
%
$
114,415
$
8,636,237
5.30
%
Table 5 - Net Interest Spread
For the Three-Month Period
Ended
September 30, 2023
June 30, 2023
September 30, 2022
Purchased Performing Loans
Net Yield (1)
6.06
%
5.66
%
4.75
%
Cost of Funding (2)
4.23
%
3.97
%
3.60
%
Net Interest Spread
1.83
%
1.69
%
1.15
%
Purchased Credit Deteriorated
Loans
Net Yield (1)
6.63
%
7.09
%
6.49
%
Cost of Funding (2)
2.43
%
1.98
%
2.72
%
Net Interest Spread
4.20
%
5.11
%
3.77
%
Purchased Non-Performing Loans
Net Yield (1)
9.59
%
10.11
%
9.84
%
Cost of Funding (2)
3.65
%
3.53
%
2.86
%
Net Interest Spread
5.94
%
6.58
%
6.98
%
Total Residential Whole Loans
Net Yield (1)
6.34
%
6.10
%
5.30
%
Cost of Funding (2)
4.10
%
3.83
%
3.49
%
Net Interest Spread
2.24
%
2.27
%
1.81
%
(1)
Reflects annualized interest income on
Residential whole loans divided by average amortized cost of
Residential whole loans. Excludes servicing costs.
(2)
Reflects annualized interest expense
divided by average balance of agreements with mark-to-market
collateral provisions (repurchase agreements), agreements with
non-mark-to-market collateral provisions, and securitized debt.
Cost of funding shown in the table above includes the impact of the
net carry (the difference between swap interest income received and
swap interest expense paid) on our Swaps. While we have not elected
hedge accounting treatment for Swaps, and, accordingly, net carry
is not presented in interest expense in our consolidated statement
of operations, we believe it is appropriate to allocate net carry
to the cost of funding to reflect the economic impact of our Swaps
on the funding costs shown in the table above. For the quarter
ended September 30, 2023, this decreased the overall funding cost
by 143 basis points for our Residential whole loans, 146 basis
points for our Purchased Performing Loans, 161 basis points for our
Purchased Credit Deteriorated Loans, and 89 basis points for our
Purchased Non-Performing Loans. For the quarter ended June 30,
2023, this decreased the overall funding cost by 144 basis points
for our Residential whole loans, 145 basis points for our Purchased
Performing Loans, 206 basis points for our Purchased Credit
Deteriorated Loans, and 87 basis points for our Purchased
Non-Performing Loans. For the quarter ended September 30, 2022,
this decreased the overall funding cost by 20 basis points for our
Residential whole loans, 19 basis points for our Purchased
Performing Loans, 43 basis points for our Purchased Credit
Deteriorated Loans, and 24 basis points for our Purchased
Non-Performing Loans.
Table 6 - Credit related metrics/Residential Whole
Loans
September 30, 2023
Fair Value / Carrying
Value
Unpaid Principal Balance
(“UPB”)
Weighted Average Coupon
(2)
Weighted Average Term to
Maturity (Months)
Weighted Average LTV Ratio
(3)
Weighted Average Original FICO
(4)
Aging by UPB
60+ DQ %
60+
LTV (3)
Past Due Days
(Dollars In Thousands)
Current
30-59
60-89
90+
Purchased Performing Loans:
Non-QM loans
$
3,570,184
$
3,963,235
5.60
%
346
65
%
735
$
3,808,303
$
68,171
$
23,230
$
63,531
2.2
%
66.9
%
Transitional loans (1)
2,095,083
2,105,552
8.89
11
64
746
1,989,050
25,717
15,771
75,014
4.3
65.0
Single-family rental loans
1,515,032
1,667,902
6.16
321
68
737
1,586,313
17,947
28,249
35,393
3.8
73.3
Seasoned performing loans
72,647
79,751
4.38
145
28
725
75,016
1,271
911
2,553
4.3
29.9
Agency eligible investor loans
53,148
68,472
3.44
335
66
757
68,244
—
—
228
0.3
73.4
Total Purchased Performing Loans
$
7,306,094
$
7,884,912
6.56
%
249
3.1
%
Purchased Credit Deteriorated Loans
$
418,312
$
517,611
4.79
%
270
59
%
N/A
$
389,166
$
41,615
$
14,018
$
72,812
16.8
%
64.1
%
Purchased Non-Performing Loans
$
699,810
$
798,902
5.17
%
272
63
%
N/A
$
449,936
$
95,456
$
28,310
$
225,200
31.7
%
70.8
%
Residential whole loans, total or weighted
average
$
8,424,216
$
9,201,425
5.87
%
244
6.4
%
(1)
As of September 30, 2023 Transitional
loans includes $1.0 billion of loans collateralized by multi-family
properties with a weighted average term to maturity of 15 months
and a weighted average LTV ratio of 64%.
(2)
Weighted average is calculated based on
the interest bearing principal balance of each loan within the
related category. For loans acquired with servicing rights released
by the seller, interest rates included in the calculation do not
reflect loan servicing fees. For loans acquired with servicing
rights retained by the seller, interest rates included in the
calculation are net of servicing fees.
(3)
LTV represents the ratio of the total
unpaid principal balance of the loan to the estimated value of the
collateral securing the related loan as of the most recent date
available, which may be the origination date. For Transitional
loans, the LTV presented is the ratio of the maximum unpaid
principal balance of the loan, including unfunded commitments, to
the estimated “after repaired” value of the collateral securing the
related loan, where available. For certain Transitional loans,
totaling $423.6 million at September 30, 2023, an after repaired
valuation was not obtained and the loan was underwritten based on
an “as is” valuation. The weighted average LTV of these loans based
on the current unpaid principal balance and the valuation obtained
during underwriting, is 69% at September 30, 2023. Excluded from
the calculation of weighted average LTV are certain low value loans
secured by vacant lots, for which the LTV ratio is not meaningful.
60+ LTV has been calculated on a consistent basis.
(4)
Excludes loans for which no Fair Isaac
Corporation (“FICO”) score is available.
Table 7 - Shock Table
The information presented in the following “Shock Table”
projects the potential impact of sudden parallel changes in
interest rates on the value of our portfolio, including the impact
of Swaps and securitized debt, based on the assets in our
investment portfolio at September 30, 2023. Changes in portfolio
value are measured as the percentage change when comparing the
projected portfolio value to the base interest rate scenario at
September 30, 2023.
Change in Interest Rates
Percentage Change
in Portfolio Value
Percentage Change
in Total Stockholders’
Equity
+100 Basis Point Increase
(1.32
)%
(6.99
)%
+ 50 Basis Point Increase
(0.60
)%
(3.18
)%
Actual at September 30, 2023
—
%
—
%
- 50 Basis Point Decrease
0.48
%
2.54
%
-100 Basis Point Decrease
0.84
%
4.45
%
MFA FINANCIAL, INC. CONSOLIDATED
BALANCE SHEETS
(In Thousands, Except Per Share Amounts)
September 30,
2023
December 31,
2022
(unaudited)
Assets:
Residential whole loans, net ($6,846,570
and $5,727,524 held at fair value, respectively) (1)
$
8,424,216
$
7,518,739
Securities, at fair value
723,959
333,364
Cash and cash equivalents
300,089
334,183
Restricted cash
153,449
159,898
Other assets
503,087
766,221
Total Assets
$
10,104,800
$
9,112,405
Liabilities:
Financing agreements ($4,438,676 and
$3,898,744 held at fair value, respectively)
$
8,037,973
$
6,812,086
Other liabilities
218,311
311,470
Total Liabilities
$
8,256,284
$
7,123,556
Stockholders’ Equity:
Preferred stock, $0.01 par value; 7.5%
Series B cumulative redeemable; 8,050 shares authorized; 8,000
shares issued and outstanding ($200,000 aggregate liquidation
preference)
$
80
$
80
Preferred stock, $0.01 par value; 6.5%
Series C fixed-to-floating rate cumulative redeemable; 12,650
shares authorized; 11,000 shares issued and outstanding ($275,000
aggregate liquidation preference)
110
110
Common stock, $0.01 par value; 874,300 and
874,300 shares authorized; 101,916 and 101,802 shares issued
and outstanding, respectively
1,019
1,018
Additional paid-in capital, in excess of
par
3,695,406
3,684,291
Accumulated deficit
(1,862,452
)
(1,717,991
)
Accumulated other comprehensive income
14,353
21,341
Total Stockholders’ Equity
$
1,848,516
$
1,988,849
Total Liabilities and Stockholders’
Equity
$
10,104,800
$
9,112,405
(1)
Includes approximately $5.1 billion and
$4.0 billion of Residential whole loans transferred to consolidated
variable interest entities (“VIEs”) at September 30, 2023 and
December 31, 2022, respectively. Such assets can be used only to
settle the obligations of each respective VIE.
MFA FINANCIAL, INC. CONSOLIDATED
STATEMENTS OF OPERATIONS
Three Months Ended
September 30,
Nine Months Ended
September 30,
(In Thousands, Except Per Share
Amounts)
2023
2022
2023
2022
(Unaudited)
(Unaudited)
(Unaudited)
(Unaudited)
Interest Income:
Residential whole loans
$
140,538
$
114,415
$
388,096
$
316,235
Securities, at fair value
11,945
5,612
29,201
16,181
Other interest-earning assets
2,587
2,216
7,560
5,071
Cash and cash equivalent investments
4,095
1,629
10,863
2,055
Interest Income
$
159,165
$
123,872
$
435,720
$
339,542
Interest Expense:
Asset-backed and other collateralized
financing arrangements
$
109,088
$
67,636
$
293,852
$
159,806
Other interest expense
3,936
3,943
11,853
11,811
Interest Expense
$
113,024
$
71,579
$
305,705
$
171,617
Net Interest Income
$
46,141
$
52,293
$
130,015
$
167,925
Reversal of Provision/(Provision) for
Credit Losses on Residential Whole Loans
$
1,258
$
(588
)
$
977
$
1,106
Provision for Credit Losses on Other
Assets
—
—
—
(28,579
)
Net Interest Income after Provision for
Credit Losses
$
47,399
$
51,705
$
130,992
$
140,452
Other (Loss)/Income, net:
Net loss on residential whole loans
measured at fair value through earnings
$
(132,894
)
$
(291,818
)
$
(134,423
)
$
(797,934
)
Impairment and other net loss on
securities and other portfolio investments
(14,161
)
(411
)
(15,799
)
(16,159
)
Net gain on real estate owned
2,409
3,861
8,504
19,777
Net gain on derivatives used for risk
management purposes
34,860
111,816
74,103
253,721
Net gain on securitized debt measured at
fair value through earnings
36,431
98,858
12,100
247,548
Lima One - origination, servicing and
other fee income
12,109
12,372
32,562
37,539
Other, net
1,854
1,131
10,522
7,353
Other Loss, net
$
(59,392
)
$
(64,191
)
$
(12,431
)
$
(248,155
)
Operating and Other Expense:
Compensation and benefits
$
24,051
$
21,063
$
66,452
$
59,679
Other general and administrative
expense
10,605
8,812
32,165
28,016
Loan servicing, financing and other
related costs
8,989
11,357
26,126
34,993
Amortization of intangible assets
800
1,300
3,400
7,900
Operating and Other Expense
$
44,445
$
42,532
$
128,143
$
130,588
Net (Loss)/Income
$
(56,438
)
$
(55,018
)
$
(9,582
)
$
(238,291
)
Less Preferred Stock Dividend
Requirement
$
8,219
$
8,218
$
24,656
$
24,656
Net (Loss)/Income Available to Common
Stock and Participating Securities
$
(64,657
)
$
(63,236
)
$
(34,238
)
$
(262,947
)
Basic (Loss)/Earnings per Common
Share
$
(0.64
)
$
(0.62
)
$
(0.34
)
$
(2.54
)
Diluted (Loss)/Earnings per Common
Share
$
(0.64
)
$
(0.62
)
$
(0.34
)
$
(2.54
)
Segment Reporting
At September 30, 2023, the Company’s reportable segments include
(i) mortgage-related assets and (ii) Lima One. The Corporate column
in the table below primarily consists of corporate cash and related
interest income, investments in loan originators and related
economics, general and administrative expenses not directly
attributable to Lima One, interest expense on unsecured convertible
senior notes, securitization issuance costs, and preferred stock
dividends.
The following tables summarize segment financial information,
which in total reconciles to the same data for the Company as a
whole:
(Dollars in Thousands)
Mortgage-Related
Assets
Lima One
Corporate
Total
Three months ended September 30,
2023
Interest Income
$
94,855
$
61,101
$
3,209
$
159,165
Interest Expense
64,785
44,303
3,936
113,024
Net Interest Income/(Expense)
$
30,070
$
16,798
$
(727
)
$
46,141
Reversal of Provision for Credit Losses on
Residential Whole Loans
1,258
—
—
1,258
Net Interest Income/(Expense) after
Provision for Credit Losses
$
31,328
$
16,798
$
(727
)
$
47,399
Net loss on residential whole loans
measured at fair value through earnings
$
(99,500
)
$
(33,394
)
$
—
$
(132,894
)
Impairment and other net loss on
securities and other portfolio investments
(13,439
)
—
(722
)
(14,161
)
Net gain on real estate owned
2,062
347
—
2,409
Net gain on derivatives used for risk
management purposes
25,310
9,550
—
34,860
Net gain on securitized debt measured at
fair value through earnings
25,345
11,086
—
36,431
Lima One - origination, servicing and
other fee income
—
12,109
—
12,109
Other, net
515
684
655
1,854
Total Other (Loss)/Income, net
$
(59,707
)
$
382
$
(67
)
$
(59,392
)
Compensation and benefits
$
—
$
12,010
$
12,041
$
24,051
General and administrative expenses
—
4,664
5,941
10,605
Loan servicing, financing, and other
related costs
5,032
699
3,258
8,989
Amortization of intangible assets
—
800
—
800
Net (Loss)/Income
$
(33,411
)
$
(993
)
$
(22,034
)
$
(56,438
)
Less Preferred Stock Dividend
Requirement
$
—
$
—
$
8,219
$
8,219
Net (Loss)/Income Available to Common
Stock and Participating Securities
$
(33,411
)
$
(993
)
$
(30,253
)
$
(64,657
)
(Dollars in Thousands)
Mortgage-Related
Assets
Lima One
Corporate
Total
September 30, 2023
Total Assets
$
6,174,062
$
3,572,079
$
358,659
$
10,104,800
December 31, 2022
Total Assets
$
6,065,557
$
2,618,695
$
428,153
$
9,112,405
Reconciliation of GAAP Net Income to non-GAAP Distributable
Earnings
“Distributable earnings” is a non-GAAP financial measure of our
operating performance, within the meaning of Regulation G and Item
10(e) of Regulation S-K, as promulgated by the Securities and
Exchange Commission. Distributable earnings is determined by
adjusting GAAP net income/(loss) by removing certain unrealized
gains and losses, primarily on residential mortgage investments,
associated debt, and hedges that are, in each case, accounted for
at fair value through earnings, certain realized gains and losses,
as well as certain non-cash expenses and securitization-related
transaction costs. Management believes that the adjustments made to
GAAP earnings result in the removal of (i) income or expenses that
are not reflective of the longer term performance of our investment
portfolio, (ii) certain non-cash expenses, and (iii) expense items
required to be recognized solely due to the election of the fair
value option on certain related residential mortgage assets and
associated liabilities. Distributable earnings is one of the
factors that our Board of Directors considers when evaluating
distributions to our shareholders. Accordingly, we believe that the
adjustments to compute Distributable earnings specified below
provide investors and analysts with additional information to
evaluate our financial results.
Distributable earnings should be used in conjunction with
results presented in accordance with GAAP. Distributable earnings
does not represent and should not be considered as a substitute for
net income or cash flows from operating activities, each as
determined in accordance with GAAP, and our calculation of this
measure may not be comparable to similarly titled measures reported
by other companies.
The following table provides a reconciliation of our GAAP net
income/(loss) used in the calculation of basic EPS to our non-GAAP
Distributable earnings for the quarterly periods below:
Quarter Ended
(In Thousands, Except Per Share
Amounts)
September 30, 2023
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
GAAP Net (loss)/income used in the
calculation of basic EPS
$
(64,776
)
$
(34,265
)
$
64,407
$
(1,647
)
$
(63,410
)
Adjustments:
Unrealized and realized gains and losses
on:
Residential whole loans held at fair
value
132,894
130,703
(129,174
)
68,828
291,818
Securities held at fair value
13,439
3,698
(2,931
)
383
(1,549
)
Interest rate swaps
(9,433
)
(37,018
)
40,747
12,725
(108,917
)
Securitized debt held at fair value
(40,229
)
(30,908
)
48,846
(44,988
)
(100,767
)
Investments in loan origination
partners
722
872
—
8,526
2,031
Expense items:
Amortization of intangible assets
800
1,300
1,300
1,300
1,300
Equity based compensation
4,447
3,932
3,020
2,480
2,673
Securitization-related transaction
costs
3,217
2,071
4,602
1,744
5,014
Total adjustments
105,857
74,650
(33,590
)
50,998
91,603
Distributable earnings
$
41,081
$
40,385
$
30,817
$
49,351
$
28,193
GAAP earnings/(loss) per basic common
share
$
(0.64
)
$
(0.34
)
$
0.63
$
(0.02
)
$
(0.62
)
Distributable earnings per basic common
share
$
0.40
$
0.40
$
0.30
$
0.48
$
0.28
Weighted average common shares for basic
earnings per share
101,916
101,915
101,900
101,800
101,795
The following table presents our non-GAAP Distributable earnings
by segment for the quarterly periods below:
(Dollars in Thousands)
Mortgage-Related
Assets
Lima One
Corporate
Total
Three months ended September 30,
2023
GAAP Net (loss)/income used in the
calculation of basic EPS
$
(33,411
)
$
(993
)
$
(30,372
)
$
(64,776
)
Adjustments:
Unrealized and realized gains and losses
on:
Residential whole loans held at fair
value
99,500
33,394
—
132,894
Securities held at fair value
13,439
—
—
13,439
Interest rate swaps
(7,098
)
(2,335
)
—
(9,433
)
Securitized debt held at fair value
(28,572
)
(11,657
)
—
(40,229
)
Investments in loan origination
partners
—
—
722
722
Expense items:
Amortization of intangible assets
—
800
—
800
Equity based compensation
—
131
4,316
4,447
Securitization-related transaction
costs
—
—
3,217
3,217
Total adjustments
$
77,269
$
20,333
$
8,255
$
105,857
Distributable earnings
$
43,858
$
19,340
$
(22,117
)
$
41,081
(Dollars in Thousands)
Mortgage-Related
Assets
Lima One
Corporate
Total
Three months ended June 30,
2023
GAAP Net income/(loss) used in the
calculation of basic EPS
$
(5,539
)
$
118
$
(28,844
)
$
(34,265
)
Adjustments:
Unrealized and realized gains and losses
on:
Residential whole loans held at fair
value
97,459
33,244
—
130,703
Securities held at fair value
3,698
—
—
3,698
Interest rate swaps
(27,903
)
(9,115
)
—
(37,018
)
Securitized debt held at fair value
(21,756
)
(9,152
)
—
(30,908
)
Investments in loan origination
partners
—
—
872
872
Expense items:
Amortization of intangible assets
—
1,300
—
1,300
Equity based compensation
—
130
3,802
3,932
Securitization-related transaction
costs
—
—
2,071
2,071
Total adjustments
$
51,498
$
16,407
$
6,745
$
74,650
Distributable earnings
$
45,959
$
16,525
$
(22,099
)
$
40,385
Reconciliation of GAAP Book Value per Common Share to
non-GAAP Economic Book Value per Common Share
“Economic book value” is a non-GAAP financial measure of our
financial position. To calculate our Economic book value, our
portfolios of Residential whole loans and securitized debt held at
carrying value are adjusted to their fair value, rather than the
carrying value that is required to be reported under the GAAP
accounting model applied to these financial instruments. These
adjustments are also reflected in the table below in our end of
period stockholders’ equity. Management considers that Economic
book value provides investors with a useful supplemental measure to
evaluate our financial position as it reflects the impact of fair
value changes for all of our investment activities, irrespective of
the accounting model applied for GAAP reporting purposes. Economic
book value does not represent and should not be considered as a
substitute for Stockholders’ Equity, as determined in accordance
with GAAP, and our calculation of this measure may not be
comparable to similarly titled measures reported by other
companies.
The following table provides a reconciliation of our GAAP book
value per common share to our non-GAAP Economic book value per
common share as of the quarterly periods below:
Quarter Ended:
(In Millions, Except Per Share
Amounts)
September 30, 2023
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
GAAP Total Stockholders’ Equity
$
1,848.5
$
1,944.8
$
2,018.6
$
1,988.8
$
2,033.9
Preferred Stock, liquidation
preference
(475.0
)
(475.0
)
(475.0
)
(475.0
)
(475.0
)
GAAP Stockholders’ Equity for book value
per common share
1,373.5
1,469.8
1,543.6
1,513.8
1,558.9
Adjustments:
Fair value adjustment to Residential whole
loans, at carrying value
(85.3
)
(58.3
)
(33.9
)
(70.2
)
(58.2
)
Fair value adjustment to Securitized debt,
at carrying value
122.5
129.8
122.4
139.7
109.6
Stockholders’ Equity including fair value
adjustments to Residential whole loans and Securitized debt held at
carrying value (Economic book value)
$
1,410.7
$
1,541.3
$
1,632.1
$
1,583.3
$
1,610.3
GAAP book value per common share
$
13.48
$
14.42
$
15.15
$
14.87
$
15.31
Economic book value per common share
$
13.84
$
15.12
$
16.02
$
15.55
$
15.82
Number of shares of common stock
outstanding
101.9
101.9
101.9
101.8
101.8
Cautionary Note Regarding
Forward-Looking Statements
When used in this press release or other written or oral
communications, statements that are not historical in nature,
including those containing words such as “will,” “believe,”
“expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,”
“should,” “could,” “would,” “may,” the negative of these words or
similar expressions, are intended to identify “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended, and, as such, may involve known and unknown
risks, uncertainties and assumptions. These forward-looking
statements include information about possible or assumed future
results with respect to MFA’s business, financial condition,
liquidity, results of operations, plans and objectives. Among the
important factors that could cause our actual results to differ
materially from those projected in any forward-looking statements
that we make are: general economic developments and trends and the
performance of the housing, real estate, mortgage finance, broader
financial markets; inflation, increases in interest rates and
changes in the market (i.e., fair) value of MFA’s residential whole
loans, MBS, securitized debt and other assets, as well as changes
in the value of MFA’s liabilities accounted for at fair value
through earnings; the effectiveness of hedging transactions;
changes in the prepayment rates on residential mortgage assets, an
increase of which could result in a reduction of the yield on
certain investments in its portfolio and could require MFA to
reinvest the proceeds received by it as a result of such
prepayments in investments with lower coupons, while a decrease in
which could result in an increase in the interest rate duration of
certain investments in MFA’s portfolio making their valuation more
sensitive to changes in interest rates and could result in lower
forecasted cash flows; credit risks underlying MFA’s assets,
including changes in the default rates and management’s assumptions
regarding default rates on the mortgage loans in MFA’s residential
whole loan portfolio; MFA’s ability to borrow to finance its assets
and the terms, including the cost, maturity and other terms, of any
such borrowings; implementation of or changes in government
regulations or programs affecting MFA’s business; MFA’s estimates
regarding taxable income, the actual amount of which is dependent
on a number of factors, including, but not limited to, changes in
the amount of interest income and financing costs, the method
elected by MFA to accrete the market discount on residential whole
loans and the extent of prepayments, realized losses and changes in
the composition of MFA’s residential whole loan portfolios that may
occur during the applicable tax period, including gain or loss on
any MBS disposals or whole loan modifications, foreclosures and
liquidations; the timing and amount of distributions to
stockholders, which are declared and paid at the discretion of
MFA’s Board of Directors and will depend on, among other things,
MFA’s taxable income, its financial results and overall financial
condition and liquidity, maintenance of its REIT qualification and
such other factors as MFA’s Board of Directors deems relevant;
MFA’s ability to maintain its qualification as a REIT for federal
income tax purposes; MFA’s ability to maintain its exemption from
registration under the Investment Company Act of 1940, as amended
(or the “Investment Company Act”), including statements regarding
the concept release issued by the Securities and Exchange
Commission (“SEC”) relating to interpretive issues under the
Investment Company Act with respect to the status under the
Investment Company Act of certain companies that are engaged in the
business of acquiring mortgages and mortgage-related interests;
MFA’s ability to continue growing its residential whole loan
portfolio, which is dependent on, among other things, the supply of
loans offered for sale in the market; targeted or expected returns
on our investments in recently-originated mortgage loans, the
performance of which is, similar to our other mortgage loan
investments, subject to, among other things, differences in
prepayment risk, credit risk and financing costs associated with
such investments; risks associated with the ongoing operation of
Lima One Holdings, LLC (including, without limitation,
unanticipated expenditures relating to or liabilities arising from
its operation (including, among other things, a failure to realize
management’s assumptions regarding expected growth in business
purpose loan (BPL) origination volumes and credit risks underlying
BPLs, including changes in the default rates and management’s
assumptions regarding default rates on the BPLs originated by Lima
One)); expected returns on MFA’s investments in nonperforming
residential whole loans (“NPLs”), which are affected by, among
other things, the length of time required to foreclose upon, sell,
liquidate or otherwise reach a resolution of the property
underlying the NPL, home price values, amounts advanced to carry
the asset (e.g., taxes, insurance, maintenance expenses, etc. on
the underlying property) and the amount ultimately realized upon
resolution of the asset; risks associated with our investments in
MSR-related assets, including servicing, regulatory and economic
risks; risks associated with our investments in loan originators;
risks associated with investing in real estate assets generally,
including changes in business conditions and the general economy;
and other risks, uncertainties and factors, including those
described in the annual, quarterly and current reports that we file
with the SEC. These forward-looking statements are based on
beliefs, assumptions and expectations of MFA’s future performance,
taking into account information currently available. Readers and
listeners are cautioned not to place undue reliance on these
forward-looking statements, which speak only as of the date on
which they are made. New risks and uncertainties arise over time
and it is not possible to predict those events or how they may
affect MFA. Except as required by law, MFA is not obligated to, and
does not intend to, update or revise any forward-looking
statements, whether as a result of new information, future events
or otherwise.
Category: Earnings
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231103191132/en/
INVESTOR CONTACT: InvestorRelations@mfafinancial.com
212-207-6488 www.mfafinancial.com
MEDIA CONTACT: Abernathy MacGregor Tom Johnson
212-371-5999
MFA Financial (NYSE:MFA)
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