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.”

“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.

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.

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

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

The following tables present information on our investments in residential whole loans:

Table 3 - Portfolio Composition/Residential Whole Loans

Table 4 - Yields and Average Balances/Residential Whole Loans

Table 5 - Net Interest Spread/Residential Whole Loans

Table 6 - Credit-related Metrics/Residential Whole Loans

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.

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:

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.

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:

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: