MFA Financial, Inc. (NYSE:MFA, Financial) today provided its financial results for the second quarter ended June 30, 2023.
Second Quarter 2023 financial results update:
- MFA generated a GAAP net loss for the second quarter of $34.1 million, or $0.34 per basic and diluted common share. Distributable earnings, a non-GAAP financial measure, were $40.4 million, or $0.40 per common share. MFA paid a regular cash dividend for the quarter of $0.35 per share on July 31, 2023.
- GAAP book value at June 30, 2023 was $14.42 per common share. Economic book value, a non-GAAP financial measure, was $15.12 per common share.
- Net interest spread rose to 2.14%, a 40 bps increase from the first quarter.
- MFA generated a total economic return of (3.4)% for the second quarter.
- MFA closed the quarter with unrestricted cash of $329.4 million.
Commenting on the quarter, Craig Knutson, MFA’s CEO and President said: “We are pleased to deliver distributable earnings in excess of our dividend during what was another challenging and volatile quarter for fixed-income investors. Although higher interest rates negatively impacted our book value, we took advantage of market conditions to acquire approximately $1 billion of loans and securities at attractive levels. Our net interest spread rose 40 bps during the quarter to 2.14%, further evidence that we are delivering on our mission to add higher-yielding assets while keeping our cost of funds relatively stable.”
Mr. Knutson continued: “Our Lima One subsidiary originated $584 million of new business purpose loans during the quarter, a 50% increase over the first quarter. We also acquired $345 million of Non-QM loans and again added to our Agency RMBS position. Our emphasis on disciplined underwriting and strong risk management continues to bear fruit. Delinquencies declined in each of our credit-sensitive asset classes, and loan-to-value (LTV) ratios remain quite low. Finally, we again benefited from our $3 billion interest rate swap position, which generated a net positive carry of $26 million during the quarter.”
Q2 2023 Portfolio Activity
- Loan acquisitions were $867.7 million, including $523.2 million of funded originations of business purpose loans (including draws on Transitional loans) and $344.5 million of Non-QM loan acquisitions, bringing MFA’s residential whole loan balance to $8.1 billion.
- Lima One funded $390.3 million of new business purpose loans with a maximum loan amount of $583.9 million. Further, $132.9 million of draws were funded on previously originated Transitional loans. Lima One generated $11.5 million of origination, servicing, and other fee income.
- MFA added $108.8 million of Agency MBS during the quarter, bringing its total Securities portfolio to $594.3 million.
- MFA continued to reduce its REO portfolio, selling 95 properties in the second quarter for aggregate proceeds of $31.7 million and generating $4.0 million of gains.
- 60+ day delinquencies (measured as a percentage of UPB) for Purchased Performing Loans declined to 2.8% from 3.1% in the first quarter. Combined Purchased Credit Deteriorated and Purchased Non-Performing 60+ day delinquencies declined to 27.4% from 30.6% in the first quarter.
- MFA completed one loan securitization during the quarter, collateralized by $371.6 million of unpaid principal balance (UPB) of Non-QM loans, bringing its securitized debt to approximately $4 billion.
- MFA maintained its position in interest rate swaps at a notional amount of approximately $3.0 billion. At June 30, 2023, these swaps had a weighted average fixed pay interest rate of 1.58% and a weighted average variable receive interest rate of 5.09%.
- MFA estimates the net effective duration of its investment portfolio at June 30, 2023 was 1.19.
- MFA’s Debt/Net Equity Ratio was 3.9x and recourse leverage was 1.9x at June 30, 2023.
Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Thursday, August 3, 2023, at 11:00 a.m. (Eastern Time) to discuss its second 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 over $4.6 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 June 30, 2023, and the second 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 June 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 | $ | 6,972 | $ | 428 | $ | 740 | $ | 594 | $ | 120 | $ | 690 | $ | 9,544 | ||||||||||||||
Receivable/(Payable) for Unsettled Transactions | — | — | — | (31 | ) | — | — | (31 | ) | |||||||||||||||||||
Financing Agreements with Non-mark-to-market Collateral Provisions | (968 | ) | — | — | — | — | — | (968 | ) | |||||||||||||||||||
Financing Agreements with Mark-to-market Collateral Provisions | (1,548 | ) | (131 | ) | (230 | ) | (464 | ) | (29 | ) | — | (2,402 | ) | |||||||||||||||
Securitized Debt | (3,416 | ) | (237 | ) | (304 | ) | — | (12 | ) | — | (3,969 | ) | ||||||||||||||||
Convertible Senior Notes | — | — | — | — | — | (229 | ) | (229 | ) | |||||||||||||||||||
Net Equity Allocated | $ | 1,040 | $ | 60 | $ | 206 | $ | 99 | $ | 79 | $ | 461 | $ | 1,945 | ||||||||||||||
Debt/Net Equity Ratio (4) | 5.7 x | 6.1 x | 2.6 x | 5.0 x | 0.5 x | 3.9 x | ||||||||||||||||||||||
For the Quarter Ended June 30, 2023 | ||||||||||||||||||||||||||||
Yield on Average Interest Earning Assets (5) | 5.66 | % | 7.09 | % | 10.11 | % | 7.67 | % | N/A | 6.10 | % | |||||||||||||||||
Less Average Cost of Funds (6) | (3.97 | ) | (1.98 | ) | (3.53 | ) | (4.29 | ) | (5.09 | ) | (3.96 | ) | ||||||||||||||||
Net Interest Rate Spread | 1.69 | % | 5.11 | % | 6.58 | % | 3.38 | % | (5.09 | )% | 2.14 | % | ||||||||||||||||
(1) | Includes $3.6 billion of Non-QM loans, $1.7 billion of Transitional loans, $1.5 billion of Single-family rental loans, $75.3 million of Seasoned performing loans, and $58.1 million of Agency eligible investor loans. At June 30, 2023, the total fair value of these loans is estimated to be $6.9 billion. | |
(2) | At June 30, 2023, the total fair value of these loans is estimated to be $447.5 million. | |
(3) | Includes $329.4 million of cash and cash equivalents, $174.0 million of restricted cash, and $27.4 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 June 30, 2023, the amortized cost of our Securities, at fair value, was $583.0 million. In addition, the yield for residential whole loans was 6.08%, net of two 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 June 30, 2023, this decreased the overall funding cost by 138 basis points for our overall portfolio, 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, 87 basis points for our Purchased Non-Performing Loans and 138 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 June 30, 2023:
Table 2 - Investment Portfolio Activity Q2 2023
(In Millions) | March 31, 2023 | Runoff (1) | Acquisitions (2) | Other (3) | June 30, 2023 | Change | ||||||||||||||
Residential whole loans and REO | $ | 7,915 | $ | (394 | ) | $ | 868 | $ | (129 | ) | $ | 8,260 | $ | 345 | ||||||
Securities, at fair value | 505 | (10 | ) | 109 | (10 | ) | 594 | 89 | ||||||||||||
Totals | $ | 8,420 | $ | (404 | ) | $ | 977 | $ | (139 | ) | $ | 8,854 | $ | 434 | ||||||
(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) | June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | June 30, 2023 | December 31, 2022 | ||||||||||||||||
Purchased Performing Loans: | ||||||||||||||||||||||
Non-QM loans | $ | 912,826 | $ | 987,282 | $ | 2,696,293 | $ | 2,372,548 | $ | 3,609,119 | $ | 3,359,830 | ||||||||||
Transitional loans (1) | 42,427 | 75,188 | 1,705,830 | 1,342,032 | 1,748,257 | 1,417,220 | ||||||||||||||||
Single-family rental loans | 191,780 | 210,833 | 1,300,130 | 1,165,741 | 1,491,910 | 1,376,574 | ||||||||||||||||
Seasoned performing loans | 75,389 | 82,932 | — | — | 75,389 | |||||||||||||||||
