EX-99.1 2 tm2421067d1_ex99-1.htm EXHIBIT 99.1

 

Exhibit 99.1

 

 

 

MFA

FINANCIAL, INC.

 

One Vanderbilt Ave.

New York, New York 10017

 

PRESS RELEASE   FOR IMMEDIATE RELEASE

 

August 8, 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 Second Quarter 2024 Financial Results

 

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

 

·MFA generated GAAP net income for the second quarter of $33.7 million, or $0.32 per basic and diluted common share.

 

·Distributable earnings, a non-GAAP financial measure, were $45.6 million, or $0.44 per basic common share. MFA paid a regular cash dividend of $0.35 per common share on July 31, 2024.

 

·GAAP book value at June 30, 2024 was $13.80 per common share. Economic book value, a non-GAAP financial measure, was $14.34 per common share.

 

·Total economic return was 2.6% for the second quarter.

 

·Net interest spread averaged 2.16% and net interest margin was 3.01%.

 

·MFA closed the quarter with unrestricted cash of $289.4 million.

 

Commenting on the quarter, Craig Knutson, MFA’s CEO and President, stated: “We are pleased to announce strong results for what was yet another volatile quarter in the fixed income and mortgage markets. We generated Distributable earnings of $0.44 per share and our Economic book value rose to $14.34 per share. We continued to execute our strategy of acquiring residential mortgage assets at attractive levels. During the quarter, we purchased or originated $688 million residential mortgage loans with an average coupon of 9.6%. We also added $176 million of Agency MBS.”

 

Mr. Knutson continued: “On the liability side, we repaid the remaining $170 million balance of our maturing convertible notes and issued $75 million of 9.00% senior unsecured notes due in August 2029. We completed two securitizations collateralized by $557 million of Non-QM and Transitional loans. We also securitized $303 million of primarily re-performing loans subsequent to quarter-end. Finally, we once again benefited from our $3.3 billion interest rate swap position, which generated a net positive carry of $29 million.”

 

1

 

 

Q2 2024 Portfolio Activity

 

·Loan acquisitions were $688.2 million, including $422.1 million of funded originations of business purpose loans (including draws on Transitional loans) and $266.1 million of Non-QM loan acquisitions, bringing MFA’s residential whole loan balance to $9.2 billion.

 

·Lima One funded $270.0 million of new business purpose loans with a maximum loan amount of $412.3 million. Further, $152.2 million of draws were funded on previously originated Transitional loans. Lima One generated $7.6 million of origination, servicing, and other fee income.

 

·MFA added $175.5 million of Agency MBS during the quarter, bringing its total Securities portfolio to $863.3 million.

 

·Asset dispositions included $12.4 million UPB of single-family rental (SFR) loans and $26.9 million of MSR-related securities. MFA also continued to reduce its REO portfolio, selling 63 properties in the second quarter for aggregate proceeds of $25.6 million.

 

·60+ day delinquencies (measured as a percentage of UPB) for MFA’s residential loan portfolio declined to 6.5% from 6.9% in the first quarter.

 

·MFA completed two loan securitizations during the quarter, collateralized by $365.2 million UPB of Non-QM loans and $191.8 million UPB of Transitional loans, bringing its total securitized debt to approximately $5.0 billion.

 

·MFA increased its position in interest rate swaps to a notional amount of approximately $3.3 billion. At June 30, 2024, these swaps had a weighted average fixed pay interest rate of 1.92% and a weighted average variable receive interest rate of 5.33%.

 

·MFA estimates the net effective duration of its investment portfolio at June 30, 2024 rose to 1.12 from 0.98 at March 31, 2024.

 

·MFA’s Debt/Net Equity Ratio was 4.7x and recourse leverage was 1.7x at June 30, 2024.

 

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Webcast

 

MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Thursday, August 8, 2024, at 10:00 a.m. (Eastern Time) to discuss its second 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 $4.7 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 June 30, 2024, and the second 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 June 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  $4,016   $3,994   $1,123   $863   $778   $10,774 
Financing Agreements with Non-mark-to-market Collateral Provisions   (931)   —    —    —    —    (931)
Financing Agreements with Mark-to-market Collateral Provisions   (651)   (796)   (479)   (731)   (72)   (2,729)
Securitized Debt   (1,843)   (2,747)   (457)   —    (1)   (5,048)
Senior Notes   —    —    —    —    (183)   (183)
Net Equity Allocated  $591   $451   $187   $132   $522   $1,883 
Debt/Net Equity Ratio (3)   5.8x   7.9x   5.0x   5.5x        4.7x
                               
For the Quarter Ended June 30, 2024                              
Yield on Average Interest Earning Assets (4)   7.99%   5.49%   8.72%   7.03%        6.79%
Less Average Cost of  Funds (5)   (5.80)   (3.55)   (3.70)   (3.84)        (4.63)
Net Interest Rate Spread   2.19%   1.94%   5.02%   3.19%        2.16%

 

(1)Includes $1.2 billion of Single-family transitional loans, $1.2 billion of Multifamily transitional loans and $1.6 billion of Single-family rental loans.
(2)Includes $289.4 million of cash and cash equivalents, $252.0 million of restricted cash, $53.4 million of Other loans and $18.3 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 June 30, 2024, the amortized cost of our Securities, at fair value, was $846.8 million. In addition, the yield for residential whole loans was 6.91%, 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 June 30, 2024, this decreased the overall funding cost by 127 basis points for our overall portfolio, 128 basis points for our Residential whole loans, 92 basis points for our Business purpose loans, 163 basis points for our Non-QM loans, 107 basis points for our Legacy RPL/NPL loans and 190 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 June 30, 2024:

 

Table 2 - Investment Portfolio Activity Q2 2024

 

(In Millions)  March 31, 2024   Runoff (1)   Acquisitions (2)   Other (3)   June 30, 2024   Change 
Residential whole loans and REO  $9,225   $(624)  $688   $5   $9,294   $69 
Securities, at fair value   737    (19)   176    (31)   863    126 
Totals  $9,962   $(643)  $864   $(26)  $10,157   $195 

 

(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)  June 30,
2024		   December 31,
2023		   June 30,
2024		   December 31,
2023		   June 30,
2024		   December 31,
2023		 
Business purpose loans:                              
Single-family transitional loans (1)  $27,857   $35,467   $1,190,699   $1,157,732   $1,218,556   $1,193,199 
Multifamily transitional loans   —    —    1,155,198    1,168,297    1,155,198    1,168,297 
Single-family rental loans   129,471    172,213    1,514,219    1,462,583    1,643,690    1,634,796 
Total Business purpose loans  $157,328   $207,680   $3,860,116   $3,788,612   $4,017,444   $3,996,292 
Non-QM loans   791,746    843,884    3,203,845    2,961,693    3,995,591    3,805,577 
Legacy RPL/NPL loans   477,826    498,671    655,230    705,424    1,133,056    1,204,095 
Other loans   —    —    53,416    55,779    53,416    55,779 
Allowance for Credit Losses   (13,271)   (20,451)   —    —    (13,271)   (20,451)
Total Residential whole loans  $1,413,629   $1,529,784   $7,772,607   $7,511,508   $9,186,236   $9,041,292 
Number of loans   5,973    6,326    19,848    19,075    25,821    25,401 

 

(1)Includes $476.9 million and $471.1 million of loans collateralized by new construction projects at origination as of June 30, 2024 and December 31, 2023, respectively.

 

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Table 4 - Yields and Average Balances/Residential Whole Loans

 

   For the Three-Month Period Ended 
  June 30, 2024   March 31, 2024   June 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  $30,242   $1,241,300    9.75%  $28,018   $1,239,558    9.04%  $18,749   $885,057    8.47%
Multifamily transitional loans   25,291    1,213,450    8.34%   25,198    1,209,393    8.33%   13,872    769,528    7.21%
Single-family rental loans   27,564    1,703,334    6.47%   27,102    1,746,058    6.21%   23,141    1,587,636    5.83%
Total business purpose loans  $83,097   $4,158,084    7.99%  $80,318   $4,195,009    7.66%  $55,762   $3,242,221    6.88%
Non-QM loans   58,749    4,280,761    5.49%   55,861    4,149,257    5.39%   45,518    3,879,175    4.69%
Legacy RPL/NPL loans   23,346    1,070,629    8.72%   20,969    1,100,553    7.62%   26,250    1,208,036    8.69%
Other loans   525    67,771    3.10%   517    68,490    3.02%   518    72,875    2.84%
Total Residential whole loans  $165,717   $9,577,245    6.92%  $157,665   $9,513,309    6.63%  $128,048   $8,402,307    6.10%

 

Table 5 - Net Interest Spread/Residential Whole Loans

 

   For the Three-Month Period Ended 
   June 30, 2024   March 31, 2024   June 30, 2023 
Business purpose loans               
Net Yield (1)   7.99%   7.66%   6.88%
Cost of Funding (2)   5.80%   5.67%   5.01%
Net Interest Spread   2.19%   1.99%   1.87%
                
Non-QM loans               
Net Yield (1)   5.49%   5.39%   4.69%
Cost of Funding (2)   3.55%   3.44%   3.07%
Net Interest Spread   1.94%   1.95%   1.62%
                
Legacy RPL/NPL loans               
Net Yield (1)   8.72%   7.62%   8.69%
Cost of Funding (2)   3.70%   3.44%   2.96%
Net Interest Spread   5.02%   4.18%   5.73%
                
Total Residential whole loans               
Net Yield (1)   6.92%   6.63%   6.10%
Cost of Funding (2)   4.54%   4.43%   3.83%
Net Interest Spread   2.38%   2.20%   2.27%

 

(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 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 March 31, 2024, this decreased the overall funding cost by 132 basis points for our Residential whole loans, 227 basis points for our Business purpose loans, 168 basis points for our Non-QM loans, and 238 basis points for our Legacy RPL/NPL loans. For the quarter ended June 30, 2023, this decreased the overall funding cost by 144 basis points for our Residential whole loans, 222 basis points for our Business purpose loans, 175 basis points for our Non-QM loans, and 297 basis points for our Legacy RPL/NPL loans.

 

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Table 6 - Credit-related Metrics/Residential Whole Loans

 

June 30, 2024

 

                            Weighted                                      
                Unpaid     Weighted     Average     Weighted     Weighted                                      
                Principal     Average     Term to     Average     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)   $ 1,217,255     $ 1,217,599     $ 1,226,736       10.39 %     6       67 %     748     $ 1,100,554     $ 20,416     $ 8,837     $ 96,929       8.6 %     87 %
Multifamily transitional (4)     1,155,198       1,155,198       1,184,613       8.87 %     11       66 %     748       1,097,323       33,188       15,544       38,558       4.6 %     69 %
Single-family rental     1,643,081       1,642,760       1,712,879       6.62 %     330       69 %     739       1,637,918       12,197       4,627       58,137       3.7 %     112 %
Total Business purpose loans   $ 4,015,534     $ 4,015,557     $ 4,124,228       8.39 %             68 %           $ 3,835,795     $ 65,801     $ 29,008     $ 193,624       5.4 %        
Non-QM loans     3,994,236       3,949,676       4,183,917       6.16 %     341       64 %     735       3,975,323       82,676       34,121       91,797       3.0 %     62 %
Legacy RPL/NPL loans     1,123,050       1,140,736       1,284,232       5.12 %     257       56 %     647       874,319       134,000       43,974       231,939       21.5 %     64 %
Other loans     53,416       53,416       65,671       3.44 %     326       66 %     758       65,671       —       —       —       — %     — %
Residential whole loans, total or weighted average   $ 9,186,236     $ 9,159,385     $ 9,658,048       6.98 %             64 %           $ 8,751,108     $ 282,477     $ 107,103     $ 517,360       6.5 %        

 

(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 June 30, 2024, for certain Single-family and Multifamily Transitional loans totaling $467.2 million and $498.7 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 June 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 June 30, 2024.

 

Change in Interest Rates 

Percentage Change

in Portfolio Value

  

Percentage Change

in Total Stockholders’ Equity 

 
 +100 Basis Point Increase   (1.37)%   (7.96)%
 + 50 Basis Point Increase   (0.62)%   (3.62)%
Actual at June 30, 2024   —%   —%
 - 50 Basis Point Decrease   0.50%   2.90%
 -100 Basis Point Decrease   0.87%   5.08%

  

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MFA FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

 

(In Thousands, Except Per Share Amounts)  June 30,
2024		   December 31,
2023		 
    (unaudited)      
Assets:           
Residential whole loans, net ($7,772,607 and $7,511,508 held at fair value, respectively) (1)  $9,186,236   $9,041,292 
Securities, at fair value   863,289    746,090 
Cash and cash equivalents   289,412    318,000 
Restricted cash   252,015    170,211 
Other assets   485,973    497,097 
Total Assets  $11,076,925   $10,772,690 
           
Liabilities:          
Financing agreements ($5,082,181 and $4,633,660 held at fair value, respectively)  $8,891,042   $8,536,745 
Other liabilities   302,641    336,030 
Total Liabilities  $9,193,683   $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   3,707,886    3,698,767 
Accumulated deficit   (1,843,507)   (1,817,759)
Accumulated other comprehensive income   17,652    17,698 
Total Stockholders’ Equity  $1,883,242   $1,899,915 
Total Liabilities and Stockholders’ Equity  $11,076,925   $10,772,690 

 

(1)Includes approximately $6.0 billion and $5.7 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at June 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

June 30, 

  

Six Months Ended

June 30, 

 
(In Thousands, Except Per Share Amounts)  2024   2023   2024   2023 
   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited) 
Interest Income:                    
Residential whole loans  $165,717   $128,048   $323,382   $247,558 
Securities, at fair value   13,629    9,948    26,621    17,256 
Other interest-earning assets   1,177    2,622    2,340    4,973 
Cash and cash equivalent investments   6,308    3,732    11,319    6,768 
Interest Income  $186,831   $144,350   $363,662   $276,555 
                     
Interest Expense:                    
Asset-backed and other collateralized financing arrangements  $126,755   $95,884   $250,197   $184,764 
Other interest expense   6,587    3,961    12,162    7,917 
Interest Expense  $133,342   $99,845   $262,359   $192,681 
                     
Net Interest Income  $53,489   $44,505   $101,303   $83,874 
                     
Reversal/(Provision) for Credit Losses on Residential Whole Loans  $1,079   $(294)  $1,539   $(281)
Reversal/(Provision) for Credit Losses on Other Assets   (26)   —    (1,135)   — 
Net Interest Income after Reversal/(Provision) for Credit Losses  $54,542   $44,211   $101,707   $83,593 
                     
Other Income/(Loss), net:                    
Net gain/(loss) on residential whole loans measured at fair value through earnings  $16,430   $(130,703)  $4,917   $(1,529)
Impairment and other net gain/(loss) on securities and other portfolio investments   (2,842)   (4,569)   (7,618)   (1,638)
Net gain/(loss) on real estate owned   1,880    2,153    2,871    6,095 
Net gain/(loss) on derivatives used for risk management purposes   16,087    60,451    66,028    39,243 
Net gain/(loss) on securitized debt measured at fair value through earnings   (10,642)   27,394    (33,104)   (24,331)
Lima One - origination, servicing and other fee income   7,619    11,477    15,547    20,453 
Net realized gain/(loss) on residential whole loans held at carrying value   —    —    418    — 
Other, net   1,317    5,492    3,192    8,506 
Other Income/(Loss), net  $29,849   $(28,305)  $52,251   $46,799 
                     
Operating and Other Expense:                    
Compensation and benefits  $21,747   $21,771   $47,215   $42,401 
Other general and administrative expense   10,835    11,522    22,830    21,199 
Loan servicing, financing and other related costs   8,717    7,598    15,759    17,137 
Amortization of intangible assets   800    1,300    1,600    2,600 
Operating and Other Expense  $42,099   $42,191   $87,404   $83,337 
                     
Income/(loss) before income taxes  $42,292   $(26,285)  $66,554   $47,055 
Provision for/(benefit from) income taxes  $346   $(357)  $1,395   $199 
Net Income/(Loss)  $41,946   $(25,928)  $65,159   $46,856 
Less Preferred Stock Dividend Requirement  $8,218   $8,218   $16,437   $16,437 
Net Income/(Loss) Available to Common Stock and Participating Securities  $33,728   $(34,146)  $48,722   $30,419 
                     
Basic Earnings/(Loss) per Common Share  $0.32   $(0.34)  $0.47   $0.30 
Diluted Earnings/(Loss) per Common Share  $0.32   $(0.34)  $0.46   $0.29 

 

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Segment Reporting

 

At June 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 June 30, 2024                    
Interest Income  $101,216   $81,780   $3,835   $186,831 
Interest Expense   70,009    56,746    6,587    133,342 
Net Interest Income/(Expense)  $31,207   $25,034   $(2,752)  $53,489 
Reversal/(Provision) for Credit Losses on Residential Whole Loans   1,079    —    —    1,079 
Reversal/(Provision) for Credit Losses on Other Assets   (26)   —    —    (26)
Net Interest Income/(Expense) after Reversal/(Provision) for Credit Losses  $32,260   $25,034   $(2,752)  $54,542 
                     
Net gain/(loss) on residential whole loans measured at fair value through earnings  $28,474   $(12,044)  $—   $16,430 
Impairment and other net gain/(loss) on securities and other portfolio investments   (1,358)   —    (1,484)   (2,842)
Net gain on real estate owned   2,167    (287)   —    1,880 
Net gain/(loss) on derivatives used for risk management purposes   11,296    4,791    —    16,087 
Net gain/(loss) on securitized debt measured at fair value through earnings   (6,620)   (4,022)   —    (10,642)
Lima One - origination, servicing and other fee income   —    7,619    —    7,619 
Net realized gain/(loss) on residential whole loans held at carrying value   —    —    —    — 
Other, net   (85)   914    488    1,317 
Other Income/(Loss), net  $33,874   $(3,029)  $(996)  $29,849 
                     
Compensation and benefits  $—   $10,765   $10,982   $21,747 
Other general and administrative expense   115    4,936    5,784    10,835 
Loan servicing, financing and other related costs   4,796    615    3,306    8,717 
Amortization of intangible assets   —    800    —    800 
Income/(loss) before income taxes  $61,223   $4,889   $(23,820)  $42,292 
Provision for/(benefit from) income taxes  $—   $—   $346   $346 
Net Income/(Loss)  $61,223   $4,889   $(24,166)  $41,946 
                     
Less Preferred Stock Dividend Requirement  $—   $—   $8,218   $8,218 
Net Income/(Loss) Available to Common Stock and Participating Securities  $61,223   $4,889   $(32,384)  $33,728 

 

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(Dollars in Thousands)  Mortgage-Related
Assets		   Lima One   Corporate   Total 
June 30, 2024                    
Total Assets  $6,575,888   $4,167,768   $333,269   $11,076,925 
                     
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. 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. 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)  June 30,
2024		   March 31,
2024		   December 31,
2023		   September 30,
2023		   June 30,
2023		 
GAAP Net income/(loss) used in the calculation of basic EPS  $33,614   $14,827   $81,527   $(64,657)  $(34,146)
Adjustments:                         
Unrealized and realized gains and losses on:                         
Residential whole loans held at fair value   (16,430)   11,513    (224,272)   132,894    130,703 
Securities held at fair value   4,026    4,776    (21,371)   13,439    3,698 
Residential whole loans and securities at carrying value   (2,668)   (418)   332    —    — 
Interest rate swaps   10,237    (23,182)   97,400    (9,433)   (37,018)
Securitized debt held at fair value   7,597    20,169    108,693    (40,229)   (30,908)
Investments in loan origination partners   1,484    —    254    722    872 
Expense items:                         
Amortization of intangible assets   800    800    800    800    1,300 
Equity based compensation   3,899    6,243    3,635    4,447    3,932 
Securitization-related transaction costs   3,009    1,340    2,702    3,217    2,071 
Total adjustments   11,954    21,241    (31,827)   105,857    74,650 
Distributable earnings  $45,568   $36,068   $49,700   $41,200   $40,504 
                          
GAAP earnings/(loss) per basic common share  $0.32   $0.14   $0.80   $(0.64)  $(0.34)
Distributable earnings per basic common share  $0.44   $0.35   $0.49   $0.40   $0.40 
Weighted average common shares for basic earnings per share   103,446    103,175    102,266    102,255    102,186 

  

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The following table presents our non-GAAP Distributable earnings by segment for the quarterly periods below:

 

(In Thousands)  Mortgage-Related
Assets		   Lima One   Corporate   Total 
Three months ended June 30, 2024                    
GAAP Net income/(loss) used in the calculation of basic EPS  $61,223   $4,876   $(32,485)  $33,614 
Adjustments:                    
Unrealized and realized gains and losses on:                    
Residential whole loans held at fair value   (28,474)   12,044    —    (16,430)
Securities held at fair value   4,026    —    —    4,026 
Residential whole loans and securities at carrying value   (2,668)   —    —    (2,668)
Interest rate swaps   7,863    2,374    —    10,237 
Securitized debt held at fair value   4,179    3,418    —    7,597 
Investments in loan origination partners   —    —    1,484    1,484 
Expense items:                    
Amortization of intangible assets   —    800    —    800 
Equity based compensation   —    279    3,620    3,899 
Securitization-related transaction costs   (197)   —    3,206    3,009 
Total adjustments  $(15,271)  $18,915   $8,310   $11,954 
Distributable earnings  $45,952   $23,791   $(24,175)  $45,568 

 

(In Thousands)  Mortgage-Related
Assets		   Lima One   Corporate   Total 
Three Months Ended March 31, 2024                    
GAAP Net income/(loss) used in the calculation of basic EPS  $36,363   $10,655   $(32,191)  $14,827 
Adjustments:                    
Unrealized and realized gains and losses on:                    
Residential whole loans held at fair value   8,699    2,814    —    11,513 
Securities held at fair value   4,776    —    —    4,776 
Residential whole loans and securities at carrying value   (418)   —    —    (418)
Interest rate swaps   (17,068)   (6,114)   —    (23,182)
Securitized debt held at fair value   9,591    10,578    —    20,169 
Investments in loan origination partners   —    —    —    — 
Expense items:                    
Amortization of intangible assets   —    800    —    800 
Equity based compensation   —    261    5,982    6,243 
Securitization-related transaction costs   197    —    1,143    1,340 
Total adjustments  $5,777   $8,339   $7,125   $21,241 
Distributable earnings  $42,140   $18,994   $(25,066)  $36,068 

 

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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)  June 30,
2024		   March 31,
2024		   December 31,
2023		   September 30,
2023		   June 30,
2023		 
GAAP Total Stockholders’ Equity  $1,883.2   $1,884.2   $1,899.9   $1,848.5   $1,944.8 
Preferred Stock, liquidation preference   (475.0)   (475.0)   (475.0)   (475.0)   (475.0)
GAAP Stockholders’ Equity for book value per common share   1,408.2    1,409.2    1,424.9    1,373.5    1,469.8 
Adjustments:                         
Fair value adjustment to Residential whole loans, at carrying value   (26.8)   (35.4)   (35.6)   (85.3)   (58.3)
Fair value adjustment to Securitized debt, at carrying value   82.3    88.4    95.6    122.5    129.8 
Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value)  $1,463.7   $1,462.2   $1,484.9   $1,410.7   $1,541.3 
GAAP book value per common share  $13.80   $13.80   $13.98   $13.48   $14.42 
Economic book value per common share  $14.34   $14.32   $14.57   $13.84   $15.12 
Number of shares of common stock outstanding   102.1    102.1    101.9    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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