Form: 8-K

Current report filing

November 6, 2024

 

Exhibit 99.1

 

 

 

MFA    
FINANCIAL, INC.    
     
One Vanderbilt Ave.    
New York, New York 10017    

 

PRESS RELEASE   FOR IMMEDIATE RELEASE
     
November 6, 2024   NEW YORK METRO
     
INVESTOR CONTACT:   InvestorRelations@mfafinancial.com NYSE:  MFA
  212-207-6488  
  www.mfafinancial.com  
     
MEDIA CONTACT: H/Advisors Abernathy  
  Tom Johnson  
  212-371-5999  

 

MFA Financial, Inc. Announces Third Quarter 2024 Financial Results

 

NEW YORK - MFA Financial, Inc. (NYSE:MFA) today provided its financial results for the third quarter ended September 30, 2024:

 

MFA generated GAAP net income for the third quarter of $40.0 million, or $0.38 per basic common share and $0.37 per diluted common share.

 

Distributable earnings, a non-GAAP financial measure, were $38.6 million, or $0.37 per basic common share. MFA paid a regular cash dividend of $0.35 per common share on October 31, 2024.

 

GAAP book value at September 30, 2024 was $13.77 per common share. Economic book value, a non-GAAP financial measure, was $14.46 per common share.

 

Total economic return was 3.3% for the third quarter.

 

Net interest spread averaged 2.18% and net interest margin was 3.00%.

 

MFA closed the quarter with unrestricted cash of $305.6 million.

 

“We are pleased to report strong results for the third quarter,” stated Craig Knutson, MFA’s Chief Executive Officer. “We generated Distributable earnings of $0.37 per share and our Economic book value rose approximately 1% to $14.46 per share from $14.34 at June 30. We purchased or originated over $565.2 million of residential mortgage loans with an average coupon of 9.4%. We also added $294 million of Agency MBS at attractive yields. We completed two loan securitizations during the quarter and two more subsequent to quarter-end.”

 

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“With a 50 basis point rate cut at its September meeting, the Federal Reserve began an easing cycle that should benefit mortgage REITs and other levered fixed income investors,” Mr. Knutson added. “This is a welcome development after a challenging period of restrictive monetary policy and an inverted yield curve. Although it remains to be seen how long this cycle lasts and how far the Fed ultimately cuts rates, a return to a more neutral policy rate and the normalization of the yield curve should both serve as tailwinds for our business.”

 

“Finally, we were delighted to announce in late August that Bryan Wulfsohn will serve as President of MFA and that Lori Samuels has been named Chief Loan Operations Officer. Bryan and Lori are exceptionally talented leaders who have each been at MFA for nearly 15 years. We are proud to elevate them into new roles,” concluded Mr. Knutson.

 

Q3 2024 Portfolio Activity

 

Loan acquisitions were $565.2 million, including $329.0 million of funded originations of business purpose loans (including draws on Transitional loans) and $236.2 million of Non-QM loan acquisitions, bringing MFA’s residential whole loan balance to $9.0 billion.

 

Lima One funded $196.0 million of new business purpose loans with a maximum loan amount of $312.3 million. Further, $132.9 million of draws were funded on previously originated Transitional loans. Lima One generated $8.9 million of mortgage banking income.

 

MFA added $293.9 million of Agency MBS during the quarter, bringing its Agency MBS portfolio to $993.5 million.

 

Asset dispositions included $241.5 million of single-family rental (SFR) loans and $16.0 million of credit risk transfer (CRT) securities. MFA also sold 58 REO properties in the third quarter for aggregate proceeds of $18.3 million.

 

60+ day delinquencies (measured as a percentage of UPB) for MFA’s residential loan portfolio increased to 6.7% from 6.5% in the second quarter.

 

MFA completed two loan securitizations during the quarter, collateralized by $643.4 million UPB of Non-QM and Legacy RPL/NPL loans, bringing its total securitized debt to approximately $5.3 billion.

 

MFA increased its position in interest rate swaps to a notional amount of approximately $3.5 billion. At September 30, 2024, these swaps had a weighted average fixed pay interest rate of 1.91% and a weighted average variable receive interest rate of 4.96%.

 

MFA estimates the net effective duration of its investment portfolio at September 30, 2024 rose to 1.16 from 1.12 at June 30, 2024.

 

MFA’s Debt/Net Equity Ratio was 4.8x and recourse leverage was 1.8x at September 30, 2024.

 

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Webcast

 

MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Wednesday, November 6, 2024, at 11:00 a.m. (Eastern Time) to discuss its third quarter 2024 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 $4.8 billion in dividends to stockholders since its initial public offering in 1998. MFA is an internally-managed, publicly-traded real estate investment trust.

 

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The following table presents MFA’s asset allocation as of September 30, 2024, and the third quarter 2024 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, 2024   Business purpose
loans (1)
    Non-QM
loans
    Legacy
RPL/NPL loans
    Securities,
at fair value
    Other,
net (2)
    Total  
(Dollars in Millions)                                    
Asset Amount   $ 3,682     $ 4,171     $ 1,118     $ 1,140     $ 756     $ 10,867  
Receivable/(Payable) for Unsettled Transactions                       (65 )           (65 )
Financing Agreements with Non-mark-to-market Collateral Provisions     (678 )                             (678 )
Financing Agreements with Mark-to-market Collateral Provisions     (802 )     (653 )     (309 )     (918 )     (90 )     (2,772 )
Securitized Debt     (1,617 )     (3,030 )     (641 )           (1 )     (5,289 )
Senior Notes                             (183 )     (183 )
Net Equity Allocated   $ 585     $ 488     $ 168     $ 157     $ 482     $ 1,880  
Debt/Net Equity Ratio (3)     5.3 x     7.5 x     5.7 x     6.3 x             4.8 x
                                                 
For the Quarter Ended September 30, 2024                                                
Yield on Average Interest Earning Assets (4)     7.91 %     5.47 %     7.75 %     6.48 %             6.71 %
Less Average Cost of  Funds (5)     (5.65 )     (3.47 )     (4.08 )     (3.94 )             (4.53 )
Net Interest Rate Spread     2.26 %     2.00 %     3.67 %     2.54 %             2.18 %

 

(1) Includes $1.2 billion of Single-family transitional loans, $1.1 billion of Multifamily transitional loans and $1.5 billion of Single-family rental loans.
(2) Includes $305.6 million of cash and cash equivalents, $197.3 million of restricted cash, $55.9 million of Other loans and $16.8 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.
(3) Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements as a multiple of net equity allocated.
(4) 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, 2024, the amortized cost of our Securities, at fair value, was $1.1 billion. In addition, the yield for residential whole loans was 6.73%, net of one basis point 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.
(5) Average cost of funds includes interest on financing agreements, Convertible Senior Notes, 8.875% Senior Notes, 9.00% 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, 2024, this decreased the overall funding cost by 131 basis points for our overall portfolio, 131 basis points for our Residential whole loans, 101 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, 56 basis points for our Legacy RPL/NPL loans and 171 basis points for our Securities, at fair value.

 

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The following table presents the activity for our residential mortgage asset portfolio for the three months ended September 30, 2024:

 

Table 2 - Investment Portfolio Activity Q3 2024

 

(In Millions)   June 30, 2024     Runoff (1)     Acquisitions (2)     Other (3)     September 30, 2024     Change  
Residential whole loans and REO   $ 9,294     $ (611 )   $ 565     $ (94 )   $ 9,154     $ (140 )
Securities, at fair value     863       (18 )     294       1       1,140       277  
Totals   $ 10,157     $ (629 )   $ 859     $ (93 )   $ 10,294     $ 137  

 

(1) Primarily includes principal repayments and sales of REO.
(2) Includes draws on previously originated Transitional loans.
(3) Primarily includes sales, 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/Residential Whole Loans

 

    Held at Carrying Value     Held at Fair Value     Total  
(Dollars in Thousands)   September 30,
2024
    December 31,
2023
    September 30,
2024
    December 31,
2023
    September 30,
2024
    December 31,
2023
 
Business purpose loans:                                                
Single-family transitional loans (1)   $ 25,382     $ 35,467     $ 1,127,519     $ 1,157,732     $ 1,152,901     $ 1,193,199  
Multifamily transitional loans                 1,058,079       1,168,297       1,058,079       1,168,297  
Single-family rental loans     119,153       172,213       1,353,909       1,462,583       1,473,062       1,634,796  
Total Business purpose loans   $ 144,535     $ 207,680     $ 3,539,507     $ 3,788,612     $ 3,684,042     $ 3,996,292  
Non-QM loans     751,550       843,884       3,421,247       2,961,693       4,172,797       3,805,577  
Legacy RPL/NPL loans     467,202       498,671       658,078       705,424       1,125,280       1,204,095  
Other loans                 55,909       55,779       55,909       55,779  
Allowance for Credit Losses     (10,657 )     (20,451 )                 (10,657 )     (20,451 )
Total Residential whole loans   $ 1,352,630     $ 1,529,784     $ 7,674,741     $ 7,511,508     $ 9,027,371     $ 9,041,292  
Number of loans     5,757       6,326       18,837       19,075       24,594       25,401  

 

(1) Includes $446.5 million and $471.1 million of loans collateralized by new construction projects at origination as of September 30, 2024 and December 31, 2023, respectively.

 

Table 4 - Yields and Average Balances/Residential Whole Loans

 

    For the Three-Month Period Ended  
    September 30, 2024     June 30, 2024     September 30, 2023  
(Dollars in Thousands)   Interest     Average
Balance
    Average
Yield
    Interest     Average
Balance
    Average
Yield
    Interest     Average
Balance
    Average
Yield
 
Business purpose loans:                                                                        
Single-family transitional loans   $ 28,486     $ 1,196,227       9.53 %   $ 30,242     $ 1,241,300       9.75 %   $ 22,259     $ 1,003,031       8.88 %
Multifamily transitional loans     23,479       1,145,051       8.20 %     25,291       1,213,450       8.34 %     17,964       924,502       7.77 %
Single-family rental loans     26,333       1,616,723       6.52 %     27,564       1,703,334       6.47 %     24,087       1,639,626       5.88 %
Total business purpose loans   $ 78,298     $ 3,958,001       7.91 %   $ 83,097     $ 4,158,084       7.99 %   $ 64,310     $ 3,567,159       7.21 %
Non-QM loans     58,467       4,279,297       5.47 %     58,749       4,280,761       5.49 %     51,724       4,053,924       5.10 %
Legacy RPL/NPL loans     20,139       1,040,010       7.75 %     23,346       1,070,629       8.72 %     24,018       1,167,872       8.23 %
Other loans     502       67,070       2.99 %     525       67,771       3.10 %     486       71,306       2.73 %
Total Residential whole loans   $ 157,406     $ 9,344,378       6.74 %   $ 165,717     $ 9,577,245       6.92 %   $ 140,538     $ 8,860,261       6.34 %

 

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Table 5 - Net Interest Spread/Residential Whole Loans

 

    For the Three-Month Period Ended  
    September 30,
2024
    June 30,
2024
    September 30,
2023
 
Business purpose loans                        
Net Yield (1)     7.91 %     7.99 %     7.21 %
Cost of Funding (2)     5.65 %     5.80 %     5.34 %
Net Interest Spread     2.26 %     2.19 %     1.87 %
                         
Non-QM loans                        
Net Yield (1)     5.47 %     5.49 %     5.10 %
Cost of Funding (2)     3.47 %     3.55 %     3.22 %
Net Interest Spread     2.00 %     1.94 %     1.88 %
                         
Legacy RPL/NPL loans                        
Net Yield (1)     7.75 %     8.72 %     8.23 %
Cost of Funding (2)     4.08 %     3.70 %     3.21 %
Net Interest Spread     3.67 %     5.02 %     5.02 %
                         
Total Residential whole loans                        
Net Yield (1)     6.74 %     6.92 %     6.34 %
Cost of Funding (2)     4.45 %     4.54 %     4.10 %
Net Interest Spread     2.29 %     2.38 %     2.24 %

 

(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, 2024, this decreased the overall funding cost by 131 basis points for our Residential whole loans, 101 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 56 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2024, this decreased the overall funding cost by 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, and 107 basis points for our Legacy RPL/NPL loans. For the quarter ended September 30, 2023, this decreased the overall funding cost by 143 basis points for our Residential whole loans, 240 basis points for our Business purpose loans, 176 basis points for our Non-QM loans, and 254 basis points for our Legacy RPL/NPL loans.

 

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Table 6 - Credit-related Metrics/Residential Whole Loans

 

September 30, 2024

 

                Unpaid Principal     Weighted Average     Weighted Average Term to     Weighted Average     Weighted Average     Aging by UPB     60+     60+  
(Dollars   Asset     Fair     Balance     Coupon     Maturity      LTV      Original           Past Due Days     DQ     LTV  
In Thousands)   Amount     Value     (“UPB”)     (1)     (Months)     Ratio (2)     FICO (3)     Current     30-59     60-89     90+          (4)   
Business purpose loans:                                                                                            
Single-family transitional (4)   $ 1,151,733     $ 1,152,489     $ 1,158,413     10.46 %   6     67 %   748     $ 1,021,676     $ 41,089     $ 6,034     $ 89,614     8.3 %   84 %
Multifamily transitional (4)     1,058,079       1,058,079       1,102,732     9.06 %   9     67 %   748       994,102       47,898       10,800       49,932     5.5 %   79 %
Single-family rental     1,472,687       1,474,723       1,505,242     6.43 %   325     68 %   738       1,436,384       16,896       5,180       46,782     3.5 %   103 %
Total Business purpose loans   $ 3,682,499     $ 3,685,291     $ 3,766,387     8.44 %         68 %         $ 3,452,162     $ 105,883     $ 22,014     $ 186,328     5.5 %      
Non-QM loans     4,171,055       4,145,143       4,264,091     6.26 %   339     64 %   735       4,013,257       100,943       37,025       112,866     3.5 %   65 %
Legacy RPL/NPL loans     1,117,908       1,147,684       1,250,859     5.15 %   255     55 %   647       854,721       128,022       48,794       219,322     21.4 %   63 %
Other loans     55,909       55,909       64,875     3.44 %   323     65 %   757       64,875                       %   %
Residential whole loans, total or weighted average   $ 9,027,371     $ 9,034,027     $ 9,346,212     6.99 %         64 %         $ 8,385,015     $ 334,848     $ 107,833     $ 518,516     6.7 %      

 

(1) 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.
(2) 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. 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.
(3) Excludes loans for which no Fair Isaac Corporation (“FICO”) score is available.
(4) For Single-family and Multifamily 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. At September 30, 2024, for certain Single-family and Multifamily Transitional loans totaling $459.2 million and $568.3 million, respectively, an after repaired valuation was not available. For these loans, the weighted average LTV is calculated based on the current unpaid principal balance and the as-is value of the collateral securing the related loan.

 

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, 2024. 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, 2024.

 

Change in Interest Rates  

Percentage Change

in Portfolio Value

   

Percentage Change

in Total
Stockholders’ Equity

 
+100 Basis Point Increase     (1.44 )%     (8.50 )%
+ 50 Basis Point Increase     (0.65 )%     (3.85 )%
Actual at September 30, 2024     %     %
- 50 Basis Point Decrease     0.51 %     3.04 %
-100 Basis Point Decrease     0.89 %     5.28 %

 

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MFA FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

 

(In Thousands, Except Per Share Amounts)   September 30,
2024
    December 31,
2023
 
    (unaudited)        
Assets:                
Residential whole loans, net ($7,674,741 and $7,511,508 held at fair value, respectively) (1)   $ 9,027,371     $ 9,041,292  
Securities, at fair value     1,140,036       746,090  
Cash and cash equivalents     305,560       318,000  
Restricted cash     197,348       170,211  
Other assets     489,531       497,097  
Total Assets   $ 11,159,846     $ 10,772,690  
                 
Liabilities:                
Financing agreements ($5,097,002 and $4,633,660 held at fair value, respectively)   $ 8,922,502     $ 8,536,745  
Other liabilities     356,876       336,030  
Total Liabilities   $ 9,279,378     $ 8,872,775  
                 
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; 102,083 and 101,916 shares issued and outstanding, respectively     1,021       1,019  
Additional paid-in capital, in excess of par     3,709,534       3,698,767  
Accumulated deficit     (1,840,399 )     (1,817,759 )
Accumulated other comprehensive income     10,122       17,698  
Total Stockholders’ Equity   $ 1,880,468     $ 1,899,915  
Total Liabilities and Stockholders’ Equity   $ 11,159,846     $ 10,772,690  

 

(1) Includes approximately $6.3 billion and $5.7 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at September 30, 2024 and December 31, 2023, respectively. Such assets can be used only to settle the obligations of each respective VIE.

 

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MFA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   

Three Months Ended

September 30,

   

Nine Months Ended

September 30,

 
(In Thousands, Except Per Share Amounts)   2024     2023     2024     2023  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
Interest Income:                                
Residential whole loans   $ 157,406     $ 140,538     $ 480,788     $ 388,096  
Securities, at fair value     14,742       11,945       41,363       29,201  
Other interest-earning assets     4,001       2,587       6,341       7,560  
Cash and cash equivalent investments     5,825       4,095       17,144       10,863  
Interest Income   $ 181,974     $ 159,165     $ 545,636     $ 435,720  
                                 
Interest Expense:                                
Asset-backed and other collateralized financing arrangements   $ 126,833     $ 109,088     $ 377,030     $ 293,852  
Other interest expense     4,516       3,936       16,678       11,853  
Interest Expense   $ 131,349     $ 113,024     $ 393,708     $ 305,705  
                                 
Net Interest Income   $ 50,625     $ 46,141     $ 151,928     $ 130,015  
                                 
Reversal/(Provision) for Credit Losses on Residential Whole Loans   $ 1,942     $ 1,258     $ 3,481     $ 977  
Reversal/(Provision) for Credit Losses on Other Assets                 (1,135 )      
Net Interest Income after Reversal/(Provision) for Credit Losses   $ 52,567     $ 47,399     $ 154,274     $ 130,992  
                                 
Other Income/(Loss), net:                                
Net gain/(loss) on residential whole loans measured at fair value through earnings   $ 143,416     $ (132,894 )   $ 148,333     $ (134,423 )
Impairment and other net gain/(loss) on securities and other portfolio investments     22,928       (14,161 )     15,310       (15,799 )
Net gain/(loss) on real estate owned     241       2,409       3,112       8,504  
Net gain/(loss) on derivatives used for risk management purposes     (56,818 )     34,860       9,210       74,103  
Net gain/(loss) on securitized debt measured at fair value through earnings     (75,273 )     36,431       (108,377 )     12,100  
Lima One mortgage banking income     8,921       12,109       24,468       32,562  
Net realized gain/(loss) on residential whole loans held at carrying value                 418        
Other, net     (3,131 )     1,418       61       9,924  
Other Income/(Loss), net   $ 40,284     $ (59,828 )   $ 92,535     $ (13,029 )
                                 
Operating and Other Expense:                                
Compensation and benefits   $ 22,417     $ 24,051     $ 69,632     $ 66,452  
Other general and administrative expense     11,430       10,075       34,260       31,272  
Loan servicing, financing and other related costs     8,503       8,989       24,262       26,126  
Amortization of intangible assets     800       800       2,400       3,400  
Operating and Other Expense   $ 43,150     $ 43,915     $ 130,554     $ 127,250  
                                 
Income/(loss) before income taxes   $ 49,701     $ (56,344 )   $ 116,255     $ (9,287 )
Provision for/(benefit from) income taxes   $ 1,518     $ 94     $ 2,913     $ 295  
Net Income/(Loss)   $ 48,183     $ (56,438 )   $ 113,342     $ (9,582 )
Less Preferred Stock Dividend Requirement   $ 8,219     $ 8,219     $ 24,656     $ 24,656  
Net Income/(Loss) Available to Common Stock and Participating Securities   $ 39,964     $ (64,657 )   $ 88,686     $ (34,238 )
                                 
Basic Earnings/(Loss) per Common Share   $ 0.38     $ (0.64 )   $ 0.85     $ (0.34 )
Diluted Earnings/(Loss) per Common Share   $ 0.37     $ (0.64 )   $ 0.83     $ (0.34 )

 

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Segment Reporting

 

At September 30, 2024, 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:

 

(In Thousands)   Mortgage-Related Assets     Lima One     Corporate     Total  
Three months ended September 30, 2024                                
Interest Income   $ 101,374     $ 77,234     $ 3,366     $ 181,974  
Interest Expense     72,373       54,460       4,516       131,349  
Net Interest Income/(Expense)   $ 29,001     $ 22,774     $ (1,150 )   $ 50,625  
Reversal/(Provision) for Credit Losses on Residential Whole Loans     1,942                   1,942  
Reversal/(Provision) for Credit Losses on Other Assets                        
Net Interest Income/(Expense) after Reversal/(Provision) for Credit Losses   $ 30,943     $ 22,774     $ (1,150 )   $ 52,567  
                                 
Net gain/(loss) on residential whole loans measured at fair value through earnings   $ 117,957     $ 25,459     $     $ 143,416  
Impairment and other net gain/(loss) on securities and other portfolio investments     24,431             (1,503 )     22,928  
Net gain on real estate owned     656       (415 )           241  
Net gain/(loss) on derivatives used for risk management purposes     (42,823 )     (13,995 )           (56,818 )
Net gain/(loss) on securitized debt measured at fair value through earnings     (53,766 )     (21,507 )           (75,273 )
Lima One mortgage banking income           8,921             8,921  
Net realized gain/(loss) on residential whole loans held at carrying value                        
Other, net     163       (3,757 )     463       (3,131 )
Other Income/(Loss), net   $ 46,618     $ (5,294 )   $ (1,040 )   $ 40,284  
                                 
Compensation and benefits   $     $ 10,757     $ 11,660     $ 22,417  
Other general and administrative expense     70       5,068       6,292       11,430  
Loan servicing, financing and other related costs     4,297       595       3,611       8,503  
Amortization of intangible assets           800             800  
Income/(loss) before income taxes   $ 73,194     $ 260     $ (23,753 )   $ 49,701  
Provision for/(benefit from) income taxes   $     $     $ 1,518     $ 1,518  
Net Income/(Loss)   $ 73,194     $ 260     $ (25,271 )   $ 48,183  
                                 
Less Preferred Stock Dividend Requirement   $     $     $ 8,219     $ 8,219  
Net Income/(Loss) Available to Common Stock and Participating Securities   $ 73,194     $ 260     $ (33,490 )   $ 39,964  

 

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(Dollars in Thousands)   Mortgage-Related Assets     Lima One     Corporate     Total  
September 30, 2024                                
Total Assets   $ 6,968,000     $ 3,831,181     $ 360,665     $ 11,159,846  
                                 
December 31, 2023                                
Total Assets   $ 6,370,237     $ 4,000,932     $ 401,521     $ 10,772,690  

 

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. Realized gains and losses arising from loans sold to third-parties by Lima One shortly after the origination of such loans are included in Distributable earnings. The transaction costs are primarily comprised of costs only incurred at the time of execution of our securitizations and include costs such as underwriting fees, legal fees, diligence fees, bank fees and other similar transaction related expenses. These costs are all incurred prior to or at the execution of our securitizations and do not recur. Recurring expenses, such as servicing fees, custodial fees, trustee fees and other similar ongoing fees are not excluded from distributable earnings. During the third quarter of 2024, the Company changed the determination of Distributable earnings to exclude depreciation, for consistency with the reporting of similar non-cash expenses; this change has been reflected in all periods presented. 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.

 

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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,
2024
    June 30,
2024
    March 31,
2024
    December 31,
2023
    September 30,
2023
 
GAAP Net income/(loss) used in the calculation of basic EPS   $ 39,870     $ 33,614     $ 14,827     $ 81,527     $ (64,657 )
Adjustments:                                        
Unrealized and realized gains and losses on:                                        
Residential whole loans held at fair value     (143,416 )     (16,430 )     11,513       (224,272 )     132,894  
Securities held at fair value     (17,107 )     4,026       4,776       (21,371 )     13,439  
Residential whole loans and securities at carrying value     (7,324 )     (2,668 )     (418 )     332        
Interest rate swaps     84,629       10,237       (23,182 )     97,400       (9,433 )
Securitized debt held at fair value     71,475       7,597       20,169       108,693       (40,229 )
Investments in loan origination partners     1,503       1,484             254       722  
Expense items:                                        
Amortization of intangible assets     800       800       800       800       800  
Equity based compensation     2,104       3,899       6,243       3,635       4,447  
Securitization-related transaction costs     3,485       3,009       1,340       2,702       3,217  
Depreciation     2,604       822       889       869       841  
Total adjustments     (1,247 )     12,776       22,130       (30,958 )     106,698  
Distributable earnings   $ 38,623     $ 46,390     $ 36,957     $ 50,569     $ 42,041  
                                         
GAAP earnings/(loss) per basic common share   $ 0.38     $ 0.32     $ 0.14     $ 0.80     $ (0.64 )
Distributable earnings per basic common share   $ 0.37     $ 0.45     $ 0.36     $ 0.49     $ 0.41  
Weighted average common shares for basic earnings per share     103,647       103,446       103,175       102,266       102,255  

 

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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,
2024
    June 30,
2024
    March 31,
2024
    December 31,
2023
    September 30,
2023
 
GAAP Total Stockholders’ Equity   $ 1,880.5     $ 1,883.2     $ 1,884.2     $ 1,899.9     $ 1,848.5  
Preferred Stock, liquidation preference     (475.0 )     (475.0 )     (475.0 )     (475.0 )     (475.0 )
GAAP Stockholders’ Equity for book value per common share     1,405.5       1,408.2       1,409.2       1,424.9       1,373.5  
Adjustments:                                        
Fair value adjustment to Residential whole loans, at carrying value     6.7       (26.8 )     (35.4 )     (35.6 )     (85.3 )
Fair value adjustment to Securitized debt, at carrying value     64.3       82.3       88.4       95.6       122.5  
Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value)   $ 1,476.5     $ 1,463.7     $ 1,462.2     $ 1,484.9     $ 1,410.7  
GAAP book value per common share   $ 13.77     $ 13.80     $ 13.80     $ 13.98     $ 13.48  
Economic book value per common share   $ 14.46     $ 14.34     $ 14.32     $ 14.57     $ 13.84  
Number of shares of common stock outstanding     102.1       102.1       102.1       101.9       101.9  

 

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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 and loss severities 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, industry competition, 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 and loss severities 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.

 

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