8-K
Mfa Financial, Inc. (MFA)
UNITED STATES
SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
May 4, 2022
MFA FINANCIAL, INC.
(Exact name of registrant as specified in its charter)
| Maryland | 1-13991 | 13-3974868 |
|---|---|---|
| (State<br> or other jurisdiction<br><br> <br>of<br> incorporation <br><br>or organization) | (Commission<br> File Number) | (IRS<br> Employer<br><br> <br>Identification<br> No.) |
| One<br> Vanderbilt Avenue, 48th<br> Floor<br><br><br><br>New<br>York, New<br>York | 10017 | |
| --- | --- | |
| (Address<br> of principal executive offices) | (Zip Code) |
Registrant's
telephone number, including area code: (212) 207-6400
| Not Applicable |
|---|
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
|---|---|
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class: | Trading Symbols: | Name of each exchange on which registered: |
|---|---|---|
| Common<br> Stock, par value $0.01 per share | MFA | New<br> York Stock Exchange |
| 7.50%<br> Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share | MFA/PB | New<br> York Stock Exchange |
| 6.50% Series C Fixed-to-Floating Rate<br>Cumulative Redeemable Preferred Stock, par value $0.01 per share | MFA/PC | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
Item 2.02 Results of Operations and Financial Condition and
Item 7.01 Regulation FD Disclosure
MFA Financial, Inc. (“MFA”) issued a press release, dated May 4, 2022, announcing its financial results for the quarter ended March 31, 2022, which is attached hereto as Exhibit 99.1 and is incorporated herein by reference. In addition, in conjunction with the announcement of its financial results, MFA issued additional information relating to its 2022 first quarter financial results. Such additional information is attached to this report as Exhibit 99.2 and is incorporated herein by reference.
The information referenced in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is being “furnished” and, as such, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section. The information set forth in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is and will not be incorporated by reference into any registration statement or other document filed by MFA pursuant to the Securities Act of 1933, as amended (the “Securities Act”), except as may be expressly set forth by specific reference in such filing.
As discussed therein, the press release contains forward-looking statements within the meaning of the Securities Act and the Exchange Act and, as such, may involve known and unknown risks, uncertainties and assumptions. These forward-looking statements relate to MFA’s current expectations and are subject to the limitations and qualifications set forth in the press release as well as in MFA’s other documents filed with the SEC, including, without limitation, that actual events and/or results may differ materially from those projected in such forward-looking statements.
Exhibit
| 99.1 | Press Release, dated May 4, 2022, announcing MFA’s financial results for the quarter ended March 31, 2022. |
|---|---|
| 99.2 | Additional information relating to the financial results of MFA for the quarter ended March 31, 2022. |
| --- | --- |
| 104 | Cover Page Interactive Data File<br>(formatted as Inline XBRL). |
| --- | --- |
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| MFA FINANCIAL, INC. | |
|---|---|
| (REGISTRANT) | |
| By: | /s/ Harold E. Schwartz |
| Name: Harold E. Schwartz | |
| Title: Senior Vice President and General Counsel |
Date: May 4, 2022
EXHIBIT INDEX
| Exhibit No. | Description |
|---|---|
| 99.1 | Press Release, dated May 4, 2022 announcing MFA Financial Inc.’s financial results for the quarter ended March 31, 2022. |
| 99.2 | Additional information relating to the financial results of MFA Financial, Inc. for the quarter ended March 31, 2022. |
| --- | --- |
| 104 | Cover Page Interactive Data File<br>(formatted as Inline XBRL). |
| --- | --- |
Exhibit 99.1
MFA
FINANCIAL, INC.
One Vanderbilt Ave
New York, New York 10017 ****
| PRESS RELEASE | FOR IMMEDIATE RELEASE | |
|---|---|---|
| May 4, 2022 | NEW YORK METRO | |
| INVESTOR CONTACT: | InvestorRelations@mfafinancial.com | NYSE: MFA |
| --- | --- | --- |
| 212-207-6488 | ||
| www.mfafinancial.com | ||
| MEDIA CONTACT: | Abernathy MacGregor | |
| Tom Johnson | ||
| 212-371-5999 |
MFA Financial, Inc. Announces First Quarter 2022 Financial Results
NEW YORK - MFA Financial, Inc. (NYSE:MFA**)** today provided its financial results for the first quarter ended March 31, 2022.
First Quarter 2022 financial results update:
| · | MFA generated a GAAP loss for the first quarter of $(91.1) million, or ($0.86) per common share^1^.<br>Distributable Earnings, a non-GAAP financial measure, which adjusts GAAP earnings by removing unrealized gains and losses, primarily on<br>residential mortgage investments, associated financing liabilities and hedges that are accounted for at fair value through earnings, as<br>well as certain non-cash expenses and securitization-related transaction costs, was $66.0 million, or $0.62 per common share. |
|---|---|
| · | GAAP book value at March 31, 2022 was $17.84 per common share, while Economic book value, a non-GAAP<br>financial measure of MFA’s financial position that adjusts GAAP book value by the amount of unrealized market value changes in residential<br>whole loans and securitized debt held at carrying value for GAAP reporting, was $18.81 per common share at quarter-end. |
| --- | --- |
| · | Rapid increases in interest rates, combined with wider spreads, resulted in losses on our residential<br>whole loans that are measured at fair value through earnings of $288.4 million. This was partially offset by net gains<br>of $158.2 million on derivatives used for risk management purposes and on securitized debt measured at fair value through earnings. |
| --- | --- |
| ^1^ | Except as otherwise noted, for all periods presented all per share amounts and common shares outstanding<br>have been adjusted to reflect the Company’s 1-for-4 reverse stock split which was effected following the close of business on April<br>4, 2022. |
| --- | --- |
1
| · | Net interest income for the first quarter was $63.1 million. Interest income from residential whole loans<br>increased 10% over the immediately prior quarter to $99.5 million. This increase was largely offset by a $9.0 million decline in interest<br>income from residential mortgage securities, as the prior quarter included the impact of the early repayment of an MSR bond. Interest<br>expense was $7.6 million higher than the immediately prior quarter, consistent with the rising rate environment, which impacted both repurchase<br>agreement funding and securitization execution. For the first quarter, the overall net interest spread generated by all of our interest-bearing<br>assets, including the carrying cost associated with swaps used for economic hedging purposes, was 1.96%. |
|---|---|
| · | During the quarter, we completed two securitizations of Non-QM loans totaling $569.9 million, with a weighted<br>average coupon of bonds sold of 4.05%, providing longer term, non-recourse, non-mark-to-market financing and $142.2 million of additional<br>liquidity. Subsequent to quarter end, we completed two securitizations of Business Purpose loans, totaling $509.5 million, including our<br>first securitization of approximately $250.0 million of Rehabilitation loans. |
| --- | --- |
| · | Loan acquisition activity of $1.2 billion, resulted in net portfolio growth for the quarter of approximately<br>$330 million. During the quarter we acquired, or committed to acquire, approximately $615 million of Non-QM loans. At Lima One, funded<br>originations of Business Purpose loans were more than $525 million (over $660 million maximum loan amount inclusive of undrawn amounts),<br>reflecting record volumes for the third consecutive quarter. In addition, draws funded during the quarter on Rehabilitation loans were<br>$63.1 million. |
| --- | --- |
| · | On April 29, 2022, MFA paid a regular cash dividend for the first quarter of $0.11 per share of common<br>stock (based on the number of shares held by stockholders at the record date (March 22, 2022) and before giving effect to the 1-for-4<br>reverse stock split effected on April 4, 2022). |
| --- | --- |
2
Commenting on the first quarter 2022, Craig Knutson, MFA’s CEO and President said, “The first quarter of 2022 was an extremely challenging period for fixed income investors, and exceptionally so for mortgage investors, including MFA. The magnitude of rate sell-off, particularly in the short end of the yield curve, was the most dramatic witnessed in over 30 years, eclipsing even the rate increases in early 1994. We proactively addressed this challenge by taking steps to further hedge our exposure to interest rate risk, as well as bolster our cash position. Specifically, we added $1.5 billion in interest rate swaps and completed additional securitizations. While higher absolute rates and materially wider spreads on securitized mortgage assets pressured mortgage loan pricing, the additional risk management measures taken did mitigate the impact of the rate environment and resulted in a moderate book value decline for MFA. Further, we continued to take advantage of the strong housing market, with another record quarter for loan originations at Lima One and reductions in our REO portfolio. Additionally, we executed two Non-QM securitizations in March and two Business Purpose loan securitizations in April. While these executions were wider than those achieved in 2021, we demonstrated that the securitization market remains a viable durable financing source, and these transactions generated added liquidity and freed up additional balance sheet capacity.
Mr. Knutson added “During the quarter our cash position increased by more than $100 million and was approximately $410 million at quarter-end. Overall leverage increased, mainly due to declines in asset values and additional securitized debt, but remains relatively low at 3.1 times debt to equity. Excluding securitized debt, our recourse leverage is 1.9 times debt to equity. Our net interest income for the first quarter was $63.1 million, down from $70.1 million in Q4 2021, but our Q4 interest income was bolstered by the pay-off of an MSR bond that produced an approximately $8.2 million gain. We reported a GAAP loss of ($0.86) per common share in the first quarter, as earnings were negatively impacted by market value decreases in our loan portfolio held at fair value. Our GAAP book value decreased $1.28 or 6.7% to $17.84 per share, and our Economic book value declined $1.77 or 8.6% to $18.81 per share. The latter measure was impacted by declines in prices of loans held at carrying value.”
Mr. Knutson continued, “We have introduced a new non-GAAP metric, Distributable Earnings, to provide a measure of earnings that primarily eliminates non-cash, unrealized gains and losses that impact our GAAP earnings. For the first quarter of 2022, MFA’s Distributable Earnings were $66 million or $0.62 per common share. Finally, we repurchased 3.2 million shares of our common stock at an average price of $17.15 during the first quarter, and an additional 2.8 million shares subsequent to quarter end as of April 29 at an average price of $14.48. These share repurchases are accretive to both earnings and book value.” ****
Q1 2022 Portfolio Activity
MFA’s residential mortgage investment portfolio increased by approximately $330 million during the first quarter. Loan acquisitions were $1.2 billion, including$617.4 million of Non-QM loans and $589.4 million of funded originations (including draws on Rehabilitation loans) of Business Purpose loans.
3
At March 31, 2022, our investments in residential whole loans totaled $8.3 billion. Of this amount, $6.8 billion are Purchased Performing Loans, $496.9 million are Purchased Credit Deteriorated Loans and $1.0 billion are Purchased Non-performing Loans. During the quarter, we recognized approximately $99.5 million of Interest Income on residential whole loans in our consolidated statements of operations, representing a yield of 4.94%. Purchased Performing Loans generated a yield of 4.18%, Purchased Credit Deteriorated Loans generated a yield of 6.79% and Purchased Non-performing Loans generated a yield of 9.82%. Additional acquisitions of Purchased Performing Loans drove a sequential quarterly increase in interest income from our residential whole loan portfolio of approximately $9.2 million. Overall delinquency rates across our residential whole loan portfolio were lower than the prior quarter, particularly on Business Purpose loans which saw declines in absolute dollar amounts of delinquencies as well as when measured as a percentage of the unpaid principal balance. In addition, the amount of Purchased Credit Deteriorated Loans that were 90 or more days delinquent, measured as a percentage of the unpaid principal balance, remained unchanged during the quarter and was 18.3% at March 31, 2022. The percentage amount of Purchased Non-performing Loans that were 90 or more days delinquent increased to 43.0% at March 31, 2022 from 42.4% at December 31, 2021, but declined in absolute dollar terms by approximately 6.5%.
Lima One had a third consecutive quarter of record origination volumes, funding more than $526 million of business purpose loans with a maximum loan amount of $660 million, and generating approximately $14.5 million of origination, servicing, and other fee income.
For the first quarter, a reversal of the provision for credit losses of $3.5 million was recorded on residential whole loans held at carrying value, primarily reflecting continued run-off of the carrying value portfolio and adjustments to certain macro-economic and loan prepayment speed assumptions used in our credit loss forecasts. The total allowance for credit losses recorded on residential whole loans held at carrying value at March 31, 2022 was $35.5 million. Early in the first quarter we increased our position in interest rate swaps to a notional amount of $2.4 billion and have maintained this position despite executing over $1 billion of securitizations in March and April of 2022. At March 31, 2022, these swaps had a weighted average fixed pay interest rate of 1.29% and a weighted average variable receive interest rate of 0.29%. After including the impact of these swaps and other derivatives that have been entered into for economic hedging purposes, as well as the effect of securitized and other fixed rate debt, we estimate that the net effective duration of our investment portfolio at March 31, 2022 was 1.09.
Our Purchased Non-performing Loans and certain of our Purchased Performing Loans are measured at fair value as a result of the election of the fair value option at acquisition, with changes in the fair value and other non-interest related income from these loans recorded in Other income, net each period. For the first quarter, net losses of $288.4 million were recorded, primarily reflecting unrealized fair value changes in the underlying loans. These losses were partially offset by $94.1 million of gains on derivatives used for risk management purposes (which include positions in swaps and short TBAs), as well as $64.1 million of mark-to-market gains on securitized debt held at fair value through earnings.
We also continued to take advantage of a strong housing market to reduce our REO portfolio, selling 135 properties in the first quarter for aggregate proceeds of $41.5 million and generating $8.7 million of gains. Our REO portfolio was $145.6 million at March 31, 2022, a 34% decrease since March 31, 2021.
At the end of the first quarter, MFA held approximately $250 million of Securities, at fair value, including $154 million of MSR-related assets and $96 million of CRT securities.
4
General and Administrative and other expenses
For the three months ended March 31, 2022, MFA’s costs for compensation and benefits and other general and administrative expenses were $28.3 million. Expenses this quarter include $12.2 million compensation and other general and administrative expenses recorded at Lima One.
Stock Repurchase Program
On March 11, 2022, the Company’s Board authorized a stock repurchase program under which the Company may repurchase up to $250 million of its common stock through the end of 2023. Including the purchases made through April 29, 2022, there is approximately $209.7 million of remaining capacity under the authorization as of such date.^^
The following table presents MFA’s asset allocation as of March 31, 2022, and the first quarter 2022 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 March 31, 2022 | Purchased Performing Loans (1) | Purchased Credit Deteriorated Loans (2) | Purchased<br><br> Non-<br><br>Performing<br><br> Loans | Securities,<br><br> at fair value | Real Estate<br><br> Owned | Other, net (3) | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in Millions) | |||||||||||||||||||||
| Fair Value/Carrying Value | $ | 6,777 | $ | 497 | $ | 988 | $ | 250 | $ | 146 | $ | 1,049 | $ | 9,707 | |||||||
| Payable for Unsettled Purchases | (29 | ) | — | — | — | — | (300 | ) | (329 | ) | |||||||||||
| Financing Agreements with Non-mark-to-market Collateral Provisions | (668 | ) | (118 | ) | (203 | ) | — | (12 | ) | — | (1,001 | ) | |||||||||
| Financing Agreements with Mark-to-market Collateral Provisions | (2,528 | ) | (105 | ) | (136 | ) | (159 | ) | (13 | ) | — | (2,941 | ) | ||||||||
| Less Securitized Debt | (2,353 | ) | (184 | ) | (301 | ) | — | (21 | ) | — | (2,859 | ) | |||||||||
| Less Convertible Senior Notes | — | — | — | — | — | (228 | ) | (228 | ) | ||||||||||||
| Net Equity Allocated | $ | 1,199 | $ | 90 | $ | 348 | $ | 91 | $ | 100 | $ | 521 | $ | 2,349 | |||||||
| Debt/Net Equity Ratio (4) | 4.7x | 4.5x | 1.8x | 1.7x | 0.5x | 3.1x | |||||||||||||||
| For the Quarter Ended March 31, 2022 | |||||||||||||||||||||
| Yield on Average Interest Earning Assets (5) | 4.18 | % | 6.79 | % | 9.82 | % | 10.13 | % | N/A | 4.86 | % | ||||||||||
| Less Average Cost of Funds (6) | (2.74 | ) | (2.88 | ) | (3.09 | ) | (1.72 | ) | (2.91 | ) | (2.90 | ) | |||||||||
| Net Interest Rate Spread | 1.44 | % | 3.91 | % | 6.73 | % | 8.41 | % | (2.91 | )% | 1.96 | % | |||||||||
| (1) | Includes $3.6 billion of Non-QM loans, $885.2 million of Rehabilitation loans, $1.2 billion of Single-familyrental loans, $98.2 million of Seasoned performing loans, and $1.0 billion of Agency eligible investor loans. At March 31, 2022,the total fair value of these loans is estimated to be approximately $6.7 billion. | ||||||||||||||||||||
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| (2) | At March 31, 2022, the total fair value of these loans is estimated to be approximately $566.3 million. | ||||||||||||||||||||
| --- | --- | ||||||||||||||||||||
| (3) | Includes $410.9 million of cash and cash equivalents, $144.6 million of restricted cash, and $70.8million 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 noted aboveas a multiple of net equity allocated. | ||||||||||||||||||||
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| (5) | Yields reported on our interest earning assets are calculated based on the interest income recordedand the average amortized cost for the quarter of the respective asset. At March 31, 2022, the amortized cost of our securities,at fair value, was $209.4 million. In addition, the yield for residential whole loans at carrying value was 4.91%, net of three basispoints of servicing fee expense incurred during the quarter. For GAAP reporting purposes, such expenses are included in Loan servicingand other related operating expenses in our statement of operations. | ||||||||||||||||||||
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| (6) | Average cost of funds includes interest on financing agreements, Convertible Senior Notes and securitizeddebt. Cost of funding also includes the impact of the net carrying cost (the amount by which swap interest expense paid exceeds swap interestincome received) on our Swaps. While we have not elected hedge accounting treatment for Swaps and accordingly the net carrying cost isnot presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocate the net carryingcost to the cost of funding to reflect the economic impact of our interest rate swap agreements (or Swaps) on the funding costs shownin the table above. For the quarter ended March 31, 2022, this increased the overall funding cost by 35 basis points for our Residentialwhole loans, 33 basis points for our Purchased Performing Loans, 56 basis points for our Purchased Credit Deteriorated Loans, and 39 basispoints for our Purchased Non-Performing Loans. | ||||||||||||||||||||
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5
The following table presents the activity for our residential mortgage asset portfolio for the three months ended March 31, 2022:
Table 2 - Investment Portfolio Activity Q12022
| (In Millions) | December 31, 2021 | Runoff (1) | Acquisitions<br> (2) | Other (3) | March 31, 2022 | Change | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Residential whole loans and REO | $ | 8,069 | $ | (582 | ) | $ | 1,207 | $ | (287 | ) | $ | 8,407 | $ | 338 | |
| Securities, at fair value | 257 | (1 | ) | — | (6 | ) | 250 | (7 | ) | ||||||
| Totals | $ | 8,326 | $ | (583 | ) | $ | 1,207 | $ | (293 | ) | $ | 8,657 | $ | 331 | |
| (1) | Primarily includes principal repayments and sales of REO. | ||||||||||||||
| --- | --- | ||||||||||||||
| (2) | Includes draws on previously originated Rehabilitation 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.
Residential Whole Loansat March 31, 2022 and December 31, 2021:
Table 3 - Portfolio composition
| Held at Carrying Value | Held at Fair Value | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in Thousands) | March 31,<br><br> 2022 | December 31,<br><br> 2021 | March 31, <br><br>2022 | December 31,<br><br> 2021 | March 31, <br><br>2022 | December 31,<br><br> 2021 | ||||||||||
| Purchased Performing Loans: | ||||||||||||||||
| Non-QM loans | $ | 1,265,731 | $ | 1,448,162 | $ | 2,391,632 | $ | 2,013,369 | $ | 3,657,363 | $ | 3,461,531 | ||||
| Rehabilitation loans | 154,508 | 217,315 | 735,849 | 517,530 | 890,357 | 734,845 | ||||||||||
| Single-family rental loans | 283,090 | 331,808 | 870,407 | 619,415 | 1,153,497 | 951,223 | ||||||||||
| Seasoned performing loans | 98,269 | 102,041 | — | — | 98,269 | 102,041 | ||||||||||
| Agency eligible investor loans | — | — | 991,633 | 1,082,765 | 991,633 | 1,082,765 | ||||||||||
| Total Purchased Performing Loans | $ | 1,801,598 | $ | 2,099,326 | $ | 4,989,521 | $ | 4,233,079 | $ | 6,791,119 | $ | 6,332,405 | ||||
| Purchased Credit Deteriorated Loans | $ | 518,450 | $ | 547,772 | $ | — | $ | — | $ | 518,450 | $ | 547,772 | ||||
| Allowance for Credit Losses | $ | (35,457 | ) | $ | (39,447 | ) | $ | — | $ | — | $ | (35,457 | ) | $ | (39,447 | ) |
| Purchased Non-Performing Loans | $ | — | $ | — | $ | 987,794 | $ | 1,072,270 | $ | 987,794 | $ | 1,072,270 | ||||
| Total Residential Whole Loans | $ | 2,284,591 | $ | 2,607,651 | $ | 5,977,315 | $ | 5,305,349 | $ | 8,261,906 | $ | 7,913,000 | ||||
| Number of loans | 8,506 | 9,361 | 16,706 | 14,734 | 25,212 | 24,095 |
6
Table 4 - Yields and average balances
| For the Three-Month Period Ended | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in Thousands) | March 31, 2022 | December 31, 2021 | March 31, 2021 | ||||||||||||||||||
| Interest | Average Balance | Average Yield | Interest | Average Balance | Average Yield | Interest | Average Balance | Average Yield | |||||||||||||
| Purchased Performing Loans: | |||||||||||||||||||||
| Non-QM loans | $ | 32,952 | $ | 3,658,912 | 3.60 | % | $ | 28,902 | $ | 3,002,644 | 3.85 | % | $ | 22,189 | $ | 2,315,890 | 3.83 | % | |||
| Rehabilitation loans | 14,861 | 814,055 | 7.30 | % | 9,214 | 652,663 | 5.65 | % | 6,668 | 540,549 | 4.93 | % | |||||||||
| Single-family rental loans | 13,325 | 1,024,731 | 5.20 | % | 10,684 | 828,183 | 5.16 | % | 7,081 | 447,585 | 6.33 | % | |||||||||
| Seasoned performing loans | 1,010 | 100,032 | 4.04 | % | 1,423 | 106,065 | 5.37 | % | 1,991 | 132,897 | 5.99 | % | |||||||||
| Agency eligible investor loans | 7,583 | 1,075,013 | 2.82 | % | 8,046 | 1,065,062 | 3.02 | % | — | — | — | % | |||||||||
| Total Purchased Performing Loans | 69,731 | 6,672,743 | 4.18 | % | 58,269 | 5,654,617 | 4.12 | % | 37,929 | 3,436,921 | 4.41 | % | |||||||||
| Purchased Credit Deteriorated Loans | 9,009 | 530,828 | 6.79 | % | 10,033 | 561,262 | 7.15 | % | 8,290 | 662,924 | 5.00 | % | |||||||||
| Purchased Non-Performing Loans | 20,726 | 844,206 | 9.82 | % | 22,010 | 895,472 | 9.83 | % | 18,319 | 1,027,491 | 7.13 | % | |||||||||
| Total Residential whole loans | $ | 99,466 | $ | 8,047,777 | 4.94 | % | $ | 90,312 | $ | 7,111,351 | 5.08 | % | $ | 64,538 | $ | 5,127,336 | 5.03 | % |
Table 5 - Net Interest Spread
| For the Three-Month Period Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| March 31, <br><br>2022 | December 31,<br><br> 2021 | March 31, <br><br>2021 | |||||||
| Purchased Performing Loans | |||||||||
| Net Yield (1) | 4.18 | % | 4.12 | % | 4.41 | % | |||
| Cost of Funding (2) | 2.74 | % | 2.24 | % | 2.46 | % | |||
| Net Interest Spread | 1.44 | % | 1.88 | % | 1.95 | % | |||
| Purchased Credit Deteriorated Loans | |||||||||
| Net Yield (1) | 6.79 | % | 7.15 | % | 5.00 | % | |||
| Cost of Funding (2) | 2.88 | % | 2.32 | % | 2.86 | % | |||
| Net Interest Spread | 3.91 | % | 4.83 | % | 2.14 | % | |||
| Purchased Non-Performing Loans | |||||||||
| Net Yield (1) | 9.82 | % | 9.83 | % | 7.13 | % | |||
| Cost of Funding (2) | 3.09 | % | 2.53 | % | 3.41 | % | |||
| Net Interest Spread | 6.73 | % | 7.30 | % | 3.72 | % | |||
| Total Residential Whole Loans | |||||||||
| Net Yield (1) | 4.94 | % | 5.08 | % | 5.03 | % | |||
| Cost of Funding (2) | 2.79 | % | 2.28 | % | 2.70 | % | |||
| Net Interest Spread | 2.15 | % | 2.80 | % | 2.33 | % | |||
| (1) | Reflects annualized interest income on Residential whole loans divided by average amortized cost ofResidential whole loans. Excludes servicing costs. | ||||||||
| --- | --- | ||||||||
| (2) | Reflects annualized interest expense divided by average balance of repurchase agreements, agreementswith non-mark-to-market collateral provisions, and securitized debt. Cost of funding shown in the table above for the quarterly periodsended March 31, 2022 and December 31, 2021 includes the impact of the net carrying cost (the amount by which swap interest expense paidexceeds swap interest income received) on our Swaps. While we have not elected hedge accounting treatment for Swaps and accordingly thenet carrying cost is not presented in interest expense in our consolidated statement of operations, we believe it is appropriate to allocatethe net carrying cost 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 March 31, 2022, this increased the overall funding cost by 35 basis points for our Residential whole loans, 33 basispoints for our Purchased Performing Loans, 56 basis points for our Purchased Credit Deteriorated Loans, and 39 basis points for our PurchasedNon-Performing Loans. For the quarter ended December 31, 2021, this increased the overall funding cost by 5 basis points for our Residentialwhole loans, 5 basis points for our Purchased Performing Loans, 9 basis points for our Purchased Credit Deteriorated Loans, and 2 basispoints for our Purchased Non-Performing Loans. | ||||||||
| --- | --- |
7
Table 6 - Allowance for Credit Losses
The following table presents a roll-forward of the allowance for credit losses on the Company’s Residential Whole Loans, at Carrying Value:
| Three Months Ended March 31, 2022 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars In Thousands) | Non-QM<br><br> Loans | Rehabilitation Loans (1)(2) | Single-family<br><br> Rental Loans | Seasoned<br><br> Performing<br><br> Loans | Purchased Credit Deteriorated Loans (3) | Totals | ||||||||||||
| Allowance for credit losses at December 31, 2021 | $ | 8,289 | $ | 6,881 | $ | 1,451 | $ | 46 | $ | 22,780 | $ | 39,447 | ||||||
| Current provision | (909 | ) | (1,460 | ) | (122 | ) | (1 | ) | (975 | ) | (3,467 | ) | ||||||
| Write-offs | (51 | ) | (219 | ) | (27 | ) | — | (226 | ) | (523 | ) | |||||||
| Allowance for credit losses at March 31, 2022 | $ | 7,329 | $ | 5,202 | $ | 1,302 | $ | 45 | $ | 21,579 | $ | 35,457 | ||||||
| Three Months Ended March 31, 2021 | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars In Thousands) | Non-QM<br><br> Loans | Rehabilitation Loans (1)(2) | Single-family<br><br> Rental Loans | Seasoned<br><br> Performing<br><br> Loans | Purchased Credit Deteriorated Loans (3) | Totals | ||||||||||||
| Allowance for credit losses at December 31, 2020 | $ | 21,068 | $ | 18,371 | $ | 3,918 | $ | 107 | $ | 43,369 | $ | 86,833 | ||||||
| Current provision | (6,523 | ) | (3,700 | ) | (1,172 | ) | (41 | ) | (10,936 | ) | (22,372 | ) | ||||||
| Write-offs | — | (1,003 | ) | — | — | (214 | ) | (1,217 | ) | |||||||||
| Allowance for credit losses at March 31, 2021 | $ | 14,545 | $ | 13,668 | $ | 2,746 | $ | 66 | $ | 32,219 | $ | 63,244 | ||||||
| (1) | In connection with purchased Rehabilitation loans at carrying value, the Company had unfunded commitments of $12.9 million and $54.4 million as of March 31, 2022 and 2021, respectively, with an allowance for credit losses of $156,000 and $795,905 at March 31, 2022 and 2021, respectively. Such allowance is included in “Other liabilities” in the Company’s consolidated balance sheets (see Note 7). | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (2) | Includes $80.2 million and $149.2 million of loans that were assessed for credit losses based on a collateral dependent methodology as of March 31, 2022 and 2021, respectively. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (3) | Includes $69.1 million and $87.7 million of loans that were assessed for credit losses based on a collateral dependent methodology as of March 31, 2022 and 2021, respectively. | |||||||||||||||||
| --- | --- |
8
Table 7 - Credit related metrics/Residential Whole Loans
March 31, 2022
| Fair <br><br>Value / | Unpaid<br><br> Principal | Weighted | Weighted<br> Average<br><br> Term to | Weighted<br><br> Average | Weighted<br><br> Average | Aging by UPB | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying | Balance | Average | Maturity | LTV | Original | Past Due Days | ||||||||||||||||
| (Dollars In Thousands) | Value | (“UPB”) | Coupon (1) | (Months) | Ratio (2) | FICO (3) | Current | 30-59 | 60-89 | 90+ | ||||||||||||
| Purchased Performing Loans: | ||||||||||||||||||||||
| Non-QM loans (4) | $ | 3,621,124 | $ | 3,670,937 | 4.92 | % | 356 | 65 | % | 733 | $ | 3,431,011 | $ | 119,445 | $ | 30,355 | $ | 90,126 | ||||
| Rehabilitation loans | 885,155 | 886,942 | 7.11 | 12 | 67 | 740 | 783,366 | 14,118 | 3,178 | 86,280 | ||||||||||||
| Single-family rental loans | 1,152,195 | 1,168,778 | 5.26 | 324 | 70 | 735 | 1,133,996 | 13,436 | 547 | 20,799 | ||||||||||||
| Seasoned performing loans | 98,224 | 107,624 | 2.71 | 159 | 36 | 722 | 98,569 | 634 | 97 | 8,324 | ||||||||||||
| Agency eligible investor loans | 991,633 | 1,034,815 | 3.40 | 351 | 62 | 767 | 1,026,214 | 7,595 | 814 | 192 | ||||||||||||
| Total Purchased Performing Loans | 6,748,331 | $ | 6,869,096 | 5.00 | % | 302 | ||||||||||||||||
| Purchased Credit Deteriorated Loans | $ | 496,871 | $ | 610,651 | 4.57 | % | 280 | 69 | % | N/A | 428,302 | 51,517 | 18,942 | 111,890 | ||||||||
| Purchased Non-Performing Loans | $ | 987,794 | $ | 1,017,658 | 4.89 | % | 280 | 73 | % | N/A | $ | 464,770 | $ | 85,856 | $ | 40,454 | $ | 426,578 | ||||
| Residential whole loans, total or weighted average | $ | 8,232,996 | $ | 8,497,405 | 4.96 | % | 298 |
December 31, 2021
| Fair <br><br>Value / | Unpaid<br><br> Principal | Weighted | Weighted<br><br> Average <br><br>Term to | Weighted<br><br> Average | Weighted<br><br> Average | Aging by UPB | ||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Carrying | Balance | Average | Maturity | LTV | Original | Past Due Days | ||||||||||||||||
| (Dollars In Thousands) | Value | (“UPB”) | Coupon (1) | (Months) | Ratio (2) | FICO (3) | Current | 30-59 | 60-89 | 90+ | ||||||||||||
| Purchased Performing Loans: | ||||||||||||||||||||||
| Non-QM loans | $ | 3,453,242 | $ | 3,361,164 | 5.07 | % | 355 | 66 | % | 731 | $ | 3,165,964 | $ | 77,581 | $ | 22,864 | $ | 94,755 | ||||
| Rehabilitation loans | 727,964 | 731,154 | 7.18 | 11 | 67 | 735 | 616,733 | 5,834 | 5,553 | 103,034 | ||||||||||||
| Single-family rental loans | 949,772 | 924,498 | 5.46 | 329 | 70 | 732 | 898,166 | 2,150 | 695 | 23,487 | ||||||||||||
| Seasoned performing loans | 101,995 | 111,710 | 2.76 | 162 | 37 | 722 | 102,047 | 938 | 481 | 8,244 | ||||||||||||
| Agency<br> eligible investor loans | 1,082,765 | 1,060,486 | 3.40 | 354 | 62 | 767 | 1,039,257 | 21,229 | — | — | ||||||||||||
| Total Purchased Performing Loans | $ | 6,315,738 | $ | 6,189,012 | 5.05 | % | 307 | |||||||||||||||
| Purchased Credit Deteriorated Loans | $ | 524,992 | $ | 643,187 | 4.55 | % | 283 | 69 | N/A | 456,924 | 50,048 | 18,736 | 117,479 | |||||||||
| Purchased Non-Performing Loans | $ | 1,072,270 | $ | 1,073,544 | 4.87 | % | 283 | 73 | N/A | 492,481 | 87,041 | 40,876 | 453,146 | |||||||||
| Residential whole loans, total or weighted average | $ | 7,913,000 | $ | 7,905,743 | 4.99 | % | 301 | |||||||||||||||
| (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. For Rehabilitation loans, the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “after repaired” value of the collateral securing the related loan, where available. For certain Rehabilitation loans, totaling $160.5 million and $137.3 million at March 31, 2022 and December 31, 2021, respectively, an after repaired valuation was not obtained and the loan was underwritten based on an “as is” valuation. The weighted average LTV of these loans based on the current unpaid principal balance and the valuation obtained during underwriting, is 74% and 71% at March 31, 2022 and December 31, 2021, respectively. 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. | |||||||||||||||||||||
| --- | --- | |||||||||||||||||||||
| (3) | Excludes loans for which no Fair Isaac Corporation (“FICO”) score is available. | |||||||||||||||||||||
| --- | --- | |||||||||||||||||||||
| (4) | Excluded from the table above are approximately $28.9 million of Residential whole loans, at fair value for which the closing of the purchase transaction had not occurred as of March 31, 2022. | |||||||||||||||||||||
| --- | --- |
9
Table 8 - LTV 90+ Days Delinquencies
The following table presents certain information regarding the Company’s Residential whole loans that are 90 days or more delinquent:
| March 31, 2022 | |||||||
|---|---|---|---|---|---|---|---|
| (Dollars In Thousands) | Carrying Value /<br><br> Fair Value | UPB | LTV (1) | ||||
| Purchased Performing Loans | |||||||
| Non-QM loans | $ | 91,200 | $ | 90,126 | 65.6 | % | |
| Rehabilitation loans | $ | 86,272 | $ | 86,280 | 73.3 | % | |
| Single-family rental loans | $ | 20,845 | $ | 20,799 | 73.5 | % | |
| Seasoned performing loans | $ | 7,780 | $ | 8,324 | 43.7 | % | |
| Agency eligible investor loans | $ | 180 | $ | 192 | 73.7 | % | |
| Total Purchased Performing Loans | $ | 206,277 | $ | 205,721 | |||
| Purchased Credit Deteriorated Loans | $ | 90,190 | $ | 111,890 | 78.2 | % | |
| Purchased Non-Performing Loans | $ | 424,871 | $ | 426,578 | 79.4 | % | |
| Total Residential whole loans | $ | 721,338 | $ | 744,189 | |||
| December 31, 2021 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars In Thousands) | Carrying Value /<br><br> Fair Value | UPB | LTV (1) | ||||
| Purchased Performing Loans | |||||||
| Non-QM loans | $ | 96,473 | $ | 94,755 | 64.6 | % | |
| Rehabilitation loans | $ | 103,166 | $ | 103,034 | 67.6 | % | |
| Single-family rental loans | $ | 23,524 | $ | 23,487 | 73.4 | % | |
| Seasoned performing loans | $ | 7,740 | $ | 8,244 | 45.6 | % | |
| Agency eligible investor loans | $ | — | $ | — | — | % | |
| Total Purchased Performing Loans | $ | 230,903 | $ | 229,520 | |||
| Purchased Credit Deteriorated Loans | $ | 95,899 | $ | 117,479 | 79.1 | % | |
| Purchased Non-Performing Loans | $ | 454,443 | $ | 453,146 | 80.2 | % | |
| Total Residential whole loans | $ | 781,245 | $ | 800,145 |
| (1) | LTV represents the ratio of the total unpaid principal balance of the loan to the estimated value ofthe collateral securing the related loan as of the most recent date available, which may be the origination date. For Rehabilitation loans,the LTV presented is the ratio of the maximum unpaid principal balance of the loan, including unfunded commitments, to the estimated “afterrepaired” value of the collateral securing the related loan, where available. For certain Rehabilitation loans, an after repairedvaluation was not obtained and the loan was underwritten based on an “as is” valuation. Excluded from the calculation of weightedaverage LTV are certain low value loans secured by vacant lots, for which the LTV ratio is not meaningful. |
|---|
10
Table 9 - 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 short positions in TBA securities (if any), over the next 12 months based on the assets in our investment portfolio at March 31, 2022. Changes in portfolio value are measured as the percentage change when comparing the projected portfolio value to the base interest rate scenario at March 31, 2022.
| Change in Interest Rates | Percentage Change<br> <br>in Portfolio Value | Percentage Change<br> <br>in Equity | ||||
|---|---|---|---|---|---|---|
| +100 Basis Point Increase | (1.49 | )% | (6.05 | )% | ||
| + 50 Basis Point Increase | (0.64 | )% | (2.60 | )% | ||
| Actual at March 31, 2022 | — | % | — | % | ||
| - 50 Basis Point Decrease | 0.44 | % | 1.77 | % | ||
| -100 Basis Point Decrease | 0.67 | % | 2.70 | % |
Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Wednesday, May 4, 2022, at 10:00 a.m. (Eastern Time) to discuss its first quarter 2022 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. To listen to the conference call over the internet, please go to the MFA website at least 15 minutes before the call to register and to download and install any needed audio software. 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.
11
Cautionary Language Regarding Forward-LookingStatements
When used in this press release or other written or oral communications, statements which 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 our business, financial condition, liquidity, results of operations, plans and objectives. Statements regarding the following subjects, among others, may be forward-looking: changes in interest rates and the market (i.e., fair) value of MFA’s residential whole loans, MBS and other assets; 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 MFA’s portfolio and could require MFA to reinvest the proceeds received by it as a result of such prepayments in investments with lower coupons, while a decrease in which could result in an increase in the interest rate duration of certain investments in MFA’s portfolio making their valuation more sensitive to changes in interest rates and could result in lower forecasted cash flows; credit risks underlying MFA’s assets, including changes in the default rates and management’s assumptions regarding default rates on the mortgage loans in MFA’s residential whole loan portfolio; MFA’s ability to borrow to finance its assets and the terms, including the cost, maturity and other terms, of any such borrowings; implementation of or changes in government regulations or programs affecting MFA’s business; MFA’s estimates regarding taxable income, the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by MFA to accrete the market discount on residential whole loans and the extent of prepayments, realized losses and changes in the composition of MFA’s residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and 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 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 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; 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; targeted or expected returns on MFA’s investments in recently-originated loans, the performance of which is, similar to MFA’s other mortgage loan investments, subject to, among other things, differences in prepayment risk, credit risk and financing cost associated with such investments; risks associated with MFA’s 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, including changes in business conditions and the general economy and risks associated with the integration and ongoing operation of Lima One Holdings, LLC (including, without limitation, unanticipated expenditures relating to or liabilities arising from the transaction and/or the inability to obtain, or delays in obtaining, expected benefits (including expected growth in loan origination volumes) from the transaction). These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that MFA files with the SEC, could cause MFA’s actual results to differ materially from those projected in any forward-looking statements it makes. All forward-looking statements are based on beliefs, assumptions and expectations of MFA’s future performance, taking into account all information currently available. Readers 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.
12
MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
| (In Thousands, Except Per Share Amounts) | December 31,<br> 2021 | ||||
|---|---|---|---|---|---|
| (unaudited) | |||||
| Assets: | |||||
| Residential whole loans, net (5,977,315 and 5,305,349 held at fair value, respectively) (1) | 8,261,905 | $ | 7,913,000 | ||
| Securities, at fair value | 250,171 | 256,685 | |||
| Cash and cash equivalents | 410,939 | 304,696 | |||
| Restricted cash | 144,600 | 99,751 | |||
| Other assets | 857,343 | 565,556 | |||
| Total Assets | 9,924,958 | $ | 9,139,688 | ||
| Liabilities: | |||||
| Financing agreements (3,804,906 and 3,266,773 held at fair value, respectively) | 7,028,211 | $ | 6,378,782 | ||
| Other liabilities | 547,792 | 218,058 | |||
| Total Liabilities | 7,576,003 | $ | 6,596,840 | ||
| 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; 105,036 and 108,138 shares issued and outstanding, respectively | 1,050 | 1,082 | |||
| Additional paid-in capital, in excess of par | 3,722,974 | 3,775,482 | |||
| Accumulated deficit | (1,417,115 | ) | (1,279,484 | ) | |
| Accumulated other comprehensive income | 41,856 | 45,578 | |||
| Total Stockholders’ Equity | 2,348,955 | $ | 2,542,848 | ||
| Total Liabilities and Stockholders’ Equity | 9,924,958 | $ | 9,139,688 |
All values are in US Dollars.
| (1) | Includes approximately $3.2 billion and $3.0 billion of Residential whole loans transferred to consolidatedvariable interest entities (“VIEs”) at March 31, 2022 and December 31, 2021, respectively. Such assets can be usedonly to settle the obligations of each respective VIE. |
|---|
13
MFA FINANCIAL, INC. CONSOLIDATEDSTATEMENTS OF OPERATIONS
| Three Months Ended<br> <br>March 31, | ||||||
|---|---|---|---|---|---|---|
| (In Thousands, Except Per Share Amounts) | 2022 | 2021 | ||||
| (Unaudited) | (Unaudited) | |||||
| Interest Income: | ||||||
| Residential whole loans | $ | 99,466 | $ | 64,538 | ||
| Securities, at fair value | 5,275 | 16,459 | ||||
| Other interest-earning assets | 1,506 | — | ||||
| Cash and cash equivalent investments | 102 | 54 | ||||
| Interest Income | $ | 106,349 | $ | 81,051 | ||
| Interest Expense: | ||||||
| Asset-backed and other collateralized financing arrangements | $ | 39,365 | $ | 26,050 | ||
| Other interest expense | 3,931 | 4,020 | ||||
| Interest Expense | $ | 43,296 | $ | 30,070 | ||
| Net Interest Income | $ | 63,053 | $ | 50,981 | ||
| Reversal of Provision for Credit Losses on Residential Whole Loans | $ | 3,511 | $ | 22,750 | ||
| Net Interest Income after Reversal of Provision for Credit Losses | $ | 66,564 | $ | 73,731 | ||
| Other Income, net: | ||||||
| Net mark-to-market and other net (loss)/gain on residential whole loans measured at fair value | $ | (288,375 | ) | $ | 31,490 | |
| Net gains on derivatives used for risk management purposes | 94,101 | — | ||||
| Net mark-to-market on Securitized debt measured at fair value | 64,117 | (1,011 | ) | |||
| Net gain on real estate owned | 8,732 | 2,440 | ||||
| Lima One - origination, servicing and other fee income | 14,494 | — | ||||
| Other, net | (585 | ) | 1,400 | |||
| Other (Loss)/Income, net | $ | (107,516 | ) | $ | 34,319 | |
| Operating and Other Expense: | ||||||
| Compensation and benefits | $ | 19,556 | $ | 8,437 | ||
| Other general and administrative expense | 8,697 | 6,792 | ||||
| Loan servicing, financing and other related costs | 10,401 | 7,299 | ||||
| Amortization of intangible assets | 3,300 | — | ||||
| Operating and Other Expense | $ | 41,954 | $ | 22,528 | ||
| Net (Loss)/Income | $ | (82,906 | ) | $ | 85,522 | |
| Less Preferred Stock Dividend Requirement | $ | 8,219 | $ | 8,219 | ||
| Net (Loss)/Income Available to Common Stock and Participating Securities | $ | (91,125 | ) | $ | 77,303 | |
| Basic (Loss)/Earnings per Common Share | $ | (0.86 | ) | $ | 0.68 | |
| Diluted (Loss)/Earnings per Common Share | $ | (0.86 | ) | $ | 0.67 |
14
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, as well as certain non-cash expenses and securitization-related transaction costs. Management believes that the adjustments made to GAAP earnings result in the removal of (i) income or expenses that are driven by changes in market valuations and 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 (loss)/income used in the calculation of basic EPS to our non-GAAP Distributable earnings for the quarters ended March 31, 2022 and 2021:
| Quarter Ended | |||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (In Thousands, Except Per Share Amounts) | March 31,<br><br> 2022 | December 31,<br><br> 2021 | September 30,<br><br> 2021 | June 30, <br><br>2021 | March 31, <br><br>2021 | ||||||||||
| GAAP Net (loss)/income used in the calculation of Basic EPS | $ | (91,266 | ) | $ | 35,734 | $ | 123,858 | $ | 58,290 | $ | 77,029 | ||||
| Adjustments: | |||||||||||||||
| Unrealized gains and losses on: | |||||||||||||||
| Residential whole loans held at fair value | 287,935 | 42,564 | (20,494 | ) | (6,226 | ) | (32,088 | ) | |||||||
| Securities held at fair value | 2,934 | 364 | (494 | ) | (1,374 | ) | (100 | ) | |||||||
| Interest rate swaps | (80,753 | ) | (71 | ) | — | — | — | ||||||||
| Securitized debt held at fair value | (62,855 | ) | (6,137 | ) | (857 | ) | 232 | (7,629 | ) | ||||||
| Investments in loan origination partners | 780 | (23,956 | ) | (48,933 | ) | — | — | ||||||||
| Expense items: | |||||||||||||||
| Amortization of intangible assets | 3,300 | 3,300 | 3,300 | — | — | ||||||||||
| Equity based compensation | 2,645 | 2,306 | 2,306 | 2,744 | 1,688 | ||||||||||
| Deferred taxes | — | — | — | — | — | ||||||||||
| Securitization-related transaction costs | 3,233 | 5,178 | — | — | 2 | ||||||||||
| Total adjustments | 157,219 | 23,548 | (65,172 | ) | (4,624 | ) | (38,127 | ) | |||||||
| Distributable earnings | $ | 65,953 | $ | 59,282 | $ | 58,686 | $ | 53,666 | $ | 38,902 | |||||
| GAAP (loss)/earnings per basic common share | $ | (0.86 | ) | $ | 0.33 | $ | 1.12 | $ | 0.53 | $ | 0.68 | ||||
| Distributable earnings per basic common share | $ | 0.62 | $ | 0.54 | $ | 0.53 | $ | 0.49 | $ | 0.34 | |||||
| Weighted average common shares for basic earnings per share | 106,568 | 109,468 | 110,222 | 110,383 | 112,784 |
15
Reconciliation of GAAP Book Value per Common Share to non-GAAP EconomicBook 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 residential mortgage investments and certain associated financing arrangements, 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) | March 31,<br><br> 2022 | December 31,<br><br> 2021 | September 30, <br><br>2021 | June 30, <br><br>2021 | March 31,<br><br> 2021 | ||||||||||
| GAAP Total Stockholders’ Equity | $ | 2,349.0 | $ | 2,542.8 | $ | 2,601.1 | $ | 2,526.5 | $ | 2,542.3 | |||||
| Preferred Stock, liquidation preference | (475.0 | ) | (475.0 | ) | (475.0 | ) | (475.0 | ) | (475.0 | ) | |||||
| GAAP Stockholders’ Equity for book value per common share | 1,874.0 | 2,067.8 | 2,126.1 | 2,051.5 | 2,067.3 | ||||||||||
| Adjustments: | |||||||||||||||
| Fair value adjustment to Residential whole loans, at carrying value | 54.0 | 153.5 | 198.8 | 206.2 | 203.0 | ||||||||||
| Fair value adjustment to Securitized debt, at carrying value (1) | 47.7 | 4.3 | (8.0 | ) | (8.9 | ) | (3.6 | ) | |||||||
| Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value) (1) | $ | 1,975.7 | $ | 2,225.6 | $ | 2,316.9 | $ | 2,248.8 | $ | 2,266.7 | |||||
| GAAP book value per common share | $ | 17.84 | $ | 19.12 | $ | 19.29 | $ | 18.62 | $ | 18.54 | |||||
| Economic book value per common share (1) | $ | 18.81 | $ | 20.58 | $ | 21.02 | $ | 20.41 | $ | 20.32 | |||||
| Number of shares of common stock outstanding | 105.0 | 108.1 | 110.2 | 110.2 | 111.5 | ||||||||||
| (1) | Economic book value per common share for periods prior to December 31, 2021 have been restated to includethe impact of fair value changes in securitized debt held at carrying value. | ||||||||||||||
| --- | --- |
16
Exhibit 99.2
First Quarter 2022 Earnings Presentation
Forward looking statements 2 When used in this presentation or other written or oral communications, statements which 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 27 A of the Securities Act of 1933 , as amended, and Section 21 E 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 our business, financial condition, liquidity, results of operations, plans and objectives . Statements regarding the following subjects, among others, may be forward - looking : changes in interest rates and the market (i . e . , fair) value of MFA’s residential whole loans, MBS and other assets ; 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 MFA’s portfolio and could require MFA to reinvest the proceeds received by it as a result of such prepayments in investments with lower coupons, while a decrease in which could result in an increase in the interest rate duration of certain investments in MFA’s portfolio making their valuation more sensitive to changes in interest rates and could result in lower forecasted cash flows ; credit risks underlying MFA’s assets, including changes in the default rates and management’s assumptions regarding default rates on the mortgage loans in MFA’s residential whole loan portfolio ; MFA’s ability to borrow to finance its assets and the terms, including the cost, maturity and other terms, of any such borrowings ; implementation of or changes in government regulations or programs affecting MFA’s business ; MFA’s estimates regarding taxable income, the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by MFA to accrete the market discount on residential whole loans and the extent of prepayments, realized losses and changes in the composition of MFA’s residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and 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 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 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 ; 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 ; targeted or expected returns on MFA’s investments in recently - originated loans, the performance of which is, similar to MFA’s other mortgage loan investments, subject to, among other things, differences in prepayment risk, credit risk and financing cost associated with such investments ; risks associated with MFA’s 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, including changes in business conditions and the general economy and risks associated with the integration and ongoing operation of Lima One Holdings, LLC (including, without limitation, unanticipated expenditures relating to or liabilities arising from the transaction and/or the inability to obtain, or delays in obtaining, expected benefits (including expected growth in loan origination volumes) from the transaction) . These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that MFA files with the SEC, could cause MFA’s actual results to differ materially from those projected in any forward - looking statements it makes . All forward - looking statements are based on beliefs, assumptions and expectations of MFA’s future performance, taking into account all information currently available . Readers 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 .
2022 first quarter financial results 3 • GAAP loss of $ ( 91 . 1 ) million or $ ( 0 . 86 ) per basic common share • Distributable Earnings 1 of $ 66 . 0 million, or $ 0 . 62 basic per common share • Net interest income of $ 63 . 1 million . Higher loan interest income was largely offset by higher financing costs . Securities net interest income $ 9 . 0 million lower as the prior period included the redemption of an MSR bond . • $ 288 . 4 million of net losses on residential whole loans at fair value, partially offset by $ 158 . 2 million of gains on derivative hedge positions and securitized debt held at fair value • $ 14 . 5 million of origination, servicing and other fee income at Lima One • Paid $ 0 . 11 dividend to common shareholders on April 29 , 2022 • Dramatic rate sell - off impacted book value : • GAAP book value down $ 1 . 28 , or 6 . 7 % , to $ 17 . 84 per common share • Economic book value (EBV) 1 down $ 1 . 77 , or 8 . 6 % , to $ 18 . 81 per common share • Leverage ratio of 3 . 1 x as of March 31 , 2022 . Recourse leverage of 1 . 9 x 1. Distributable Earnings and Economic book value are Non - GAAP measures. Refer to slides 7 and 16 respectively for further inf ormation regarding the calculation of these measures.
2022 first quarter financial results (cont’d) • Acquired $ 1 . 2 billion of loans in the quarter • Tapered asset acquisitions of purchased loans, particularly Non - QM loans • Loan portfolio increased by approximately $ 330 million to $ 8 . 4 billion after portfolio runoff • Q 1 loan acquisitions include over $ 600 million of Non - QM loans and $ 590 million of funded Business Purpose loan originations and draws at Lima One • Completed two Non - QM securitizations during the quarter with UPB of bonds sold of $ 514 million . In April, two securitizations of Business Purpose loans with UPB of bonds sold of $ 463 million . • Cash increased by more than $ 100 million to $ 411 million at quarter end • Continued to take advantage of strong housing market to liquidate REO properties • Sold $ 41 . 5 million of REO properties for a net gain of $ 8 . 7 million • REO portfolio is $ 146 million as of 3 / 31 / 22 • Repurchased 3 . 2 million shares in first quarter at an average price of $ 17 . 15 per share 4
5 • Net loan portfolio growth of $330 million: • $1.2 billion loan purchases and originations • Over $600 million Non - QM loan purchases, and $590 million funded BPL originations and draws • At 3/31/22, 57% of our asset based financing arrangements are on non mark - to - market terms • Approximately 80% of our asset based financing is fixed rate or economically hedged with swaps • Total weighted average financing cost at 3/31/22 of 2.6% versus 2.3% at 12/31/21 Amounts in the pie charts are in billions as of 3/31/22 1. Business Purpose Loans comprise $0.9 billion of Rehabilitation Loans and $1.1 billion of Single Family Rental Loans at 3/3 1/2 2. 2. The Fair Value option was elected on these loans at acquisition as they were more than 60 days delinquent. At 3/31/22, app rox imately 54% of this portfolio was less than 60 days delinquent. 3. PCD or Purchased Credit Deteriorated loans were generally purchased at a discount (typically as re - performing loans) that ref lected, at least in part, the prior credit performance of underlying borrower. Investment portfolio and asset based financing composition 5
GAAP earnings reflect market value changes driven by the rising rate environment Summary Income Statement Q1 2022 $ in mm Q4 2021 $ in mm Net Interest Income: Loans 60.8 59.2 Securities (1) 4.6 13.6 Other interest earning assets and interest bearing liabilities (2.3) (2.7) Net Interest Income $ 63.1 $ 70.1 Net reversal of provision for credit losses 3.5 3.5 Other Income, net: Net MTM and other net (loss)/gain on loans measured at fair value (288.4) (42.6) Net gains on derivatives used for risk management purposes 94.1 0.4 Net MTM on securitized debt measured at fair value 64.1 6.8 Lima One - origination, servicing and other fee income 14.5 13.0 REO related net gains 8.7 9.1 Impairment and other gains and losses on securities available - for - sale and other assets — 24.0 Other miscellaneous net investment income (0.5) 4.1 Other Income, net: $ (107.5) $ 14.8 Operating and other expenses (38.7) (41.0) Amortization of intangible assets (3.3) (3.3) Preferred dividends (8.2) (8.2) Net Income Available to Common Shareholders $ (91.1) $ 35.9 Earnings Per Basic Common Share $ (0.86) $ 0.33 • Net interest income decreased to $63.1 million: • Prior period included $8.2 million impact of early redemption of a MSR note • Higher loan interest income largely offset by higher financing costs • Other income includes: • $288.4 million of losses on residential whole loans at fair value, partially offset by $158.2 million of gains on hedging derivatives and securitized debt accounted for at fair value through earnings • Higher origination, servicing and other fee income at Lima One reflecting another record quarter for originations • Continued successful REO liquidations • Operating and other expenses declined, primarily reflecting lower compensation related costs and lower securitization related expenses 1. Includes CRT securities and MSR - related assets. Key items impacting results: 6
Introduction of Distributable Earnings 7 • Distributable Earnings is a Non - GAAP financial measure that adjusts GAAP net (loss)/income by removing unrealized gains and losses, primarily on residential mortgage investments, associated financing liabilities and hedges that are, in each case, accounted for at fair value through earnings. In addition, adjustments are also made for certain expense items. • Distributable Earnings is one of the factors our Board of Directors considers when evaluating MFA’s dividend distributions (In Millions, Except Per Share Amounts) Q1 2022 $ in mm Q4 2021 $ in mm GAAP Net (loss)/income used in the calculation of basic EPS $ (91.3) $ 35.7 Adjustments: Unrealized gains and losses on: Residential whole loans held at fair value 287.9 42.6 Securities held at fair value 2.9 0.4 Interest rate swaps (80.8) (0.1) Securitized debt held at fair value (62.9) (6.1) Investments in loan origination partners 0.8 (24.0) Expense items: Amortization of intangible assets 3.3 3.3 Equity based compensation 2.6 2.3 Securitization - related transaction costs 3.2 5.2 Total adjustments $ 157.2 $ 23.5 Distributable earnings $ 66.0 $ 59.3 GAAP (loss)/earnings per basic common share $ (0.86) $ 0.33 Distributable earnings per basic common share $ 0.62 $ 0.54 Weighted average common shares for basic earnings per share 106.6 109.5
Economic fundamentals have supported mortgage credit 8 20.6% 3.6% 0.46% 0.72 mm Source: Zillow Source: NY FED Source: BLS Source: Zillow
Non - QM investments • Purchased or committed to purchase over $600 million of Non - QM loans in the first quarter of 2022 • Challenging quarter for credit spreads • Completed two securitizations in the quarter totaling $514 million UPB of bonds sold. Expect to continue to use securitization to finance asset purchases • Portfolio credit performance continues to improve with 60+ days delinquencies down to 3.3% Portfolio Statistics (3/31/22) Total UPB (millions) $3,671 Avg Balance $507,035 WA LTV 65% WA FICO 733 WA Coupon 5.08% Hybrid ARM’s 30% Fixed Rate 70% Purchase 51% Cash - Out Refinance 38% 3 - Month CPR 25% Top 2 States CA 60% FL 14% 9 Sep - 20 Dec - 20 Mar - 21 June - 21 Sep - 21 Dec - 21 Mar - 22 Loan Count 5,656 5,405 5,442 5,390 5,846 6,706 7,240 Total UPB ($ millions) 2,397 2,294 2,290 2,363 2,738 3,361 3,671 % Current 88.2 % 89.0 % 88.0 % 89.5 % 92.3 % 94.2 % 93.5 % % 30 Days 3.0 % 3.1 % 4.1 % 2.7 % 2.4 % 2.3 % 3.3 % % 60+ Days 8.8 % 7.9 % 7.9 % 7.8 % 5.3 % 3.5 % 3.3 % LTV 64 % 64 % 63 % 64 % 64 % 66 % 65 % % COVID - 19 Impact 32.0 % 31.5 % 28.9 % 26.0 % 18.1 % 12.5 % 10.0 % % Active Deferral 0.1 % — % — % — % — % — % — % % Active Forbearance 2.2 % 2.8 % 0.1 % 0.1 % — % — % — %
RPL portfolio 1 delinquency characteristics • 81% of our RPL portfolio is less than 60 days delinquent as of 3/31/2022 • On average, 34% of the 60+ days delinquent loans are making payments • Portfolio LTV has fallen to 62% due to significant home price appreciation and principal repayments • Seasoned stable portfolio with an average loan age of 16 years 10 1. Includes Purchased Credit Deteriorated (PCD) and certain other loans that were purchased as re - performing loans, but were not classified as PCD loans for accounting purposes.
• Measured by UPB at purchase, 39% (or approximately 4,200) of loans that were non - performing at purchase are either performing or have paid in full as of March 2022 • 76% of MFA modified loans are either performing today or have paid in full Performance of Non - Performing 1 loans Acquisition Year 2014 2015 2016 2017 2018 2019 Total Loan Count 743 2,353 1,007 3,124 1,848 1,264 10,339 UPB Purchased (in millions) 161.3 619.6 280.2 704.7 497.3 227.3 2,490.4 Status 3/31/2022 Performing 2 /PIF 38 % 29 % 31 % 41 % 51 % 38 % 39 % Liquidation/REO 55 % 61 % 62 % 46 % 36 % 38 % 49 % Non - Performing 7 % 10 % 7 % 13 % 13 % 24 % 12 % Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % • Through diligent asset management we continue to improve outcomes for our NPL portfolio by returning loans to performing or paid - in - full status, and through other forms of resolution • 49% of our NPL portfolio has liquidated or reverted to REO. We continue to aggressively liquidate REO properties as the market conditions are favorable. Over the last 12 months we sold $179 million of properties for a net gain of $30 million. 1. Non - Performing at purchase defined as greater than or equal to 60 days delinquent 2. Performing as of 3/31/2022 defined as less than 60 days delinquent or made a full P&I payment in March 2022 11
Business purpose loans – Lima One 12 1. Origination amounts are based on the maximum loan amount, which includes amounts initially funded plus any committed, but und rawn amounts. 2. Includes loan origination fair value gains, origination and other fee income, less G&A expenses. • Lima One originated over $660 million 1 in the first quarter, a modest increase from the fourth quarter and a record quarter for the company. Approximately $200 million of originations in April. • Lima One continues to originate high yielding, high quality business purpose loans for MFA’s balance sheet ◦ Has originated over $1.6 billion 1 of BPLs since we closed our acquisition on July 1, 2021 ◦ Current origination pipeline has a weighted average coupon of over 7% ◦ Expect Lima One to originate over $2 billion in 2022 • Adjusted rapidly to rising rates by increasing origination coupons. Weighted average coupon on origination pipeline has increased by over 100bp since the end of last year. • Completed our third single family rental loan securitization and our first fix and flip securitization in April, both consisting of 100% Lima One originated loans ◦ Established securitization programs for both rental and fix and flip loans ◦ Securitized $780 million of Lima One originated loans in the last six months • $ 4 million net contribution 2 from Lima One’s origination and servicing activities in the quarter, representing an annualized return on allocated equity of approximately 10 %
Business purpose loans – Rehabilitation loans • The Fix and Flip portfolio grew by over $150 million to $887 million UPB at March 31, 2022. A 21% increase over fourth quarter 2021. • Loan acquisition activity remains elevated • We acquired $212 million UPB ($336 million max loan amount) in the first quarter • We completed our first Fix and Flip securitization in April 2022 ◦ $265 million of assets were securitized ◦ Bonds sold represent 90% of assets securitized ◦ 100% of loans were originated by Lima One ◦ 5Yr maturity with a 2Yr reinvestment period. Allows for funding of new loans into securitization for 2Yrs ◦ Weighted average coupon of bonds sold was 5.22% Portfolio Statistics (3/31/22) UPB (millions) $887 Undrawn commitments (millions) $355 Maximum Loan Amount (millions) $1,242 WA ARV - LTV* 67% WA As - Is/Purch. LTV** 72% WA FICO 740 WA Loan Age (months) 8 First Quarter Yield 7.30% 3 mth Repayment Rate (CPR) 52% 60+ Days DQ 10% 60+ Days DQ UPB (millions) $89 * WA ARV - LTV: Weighted average after repair loan to value at origination **WA As - Is/Purch. LTV: Weighted average As - Is value or purchase value (when available) at origination 13 • 60+ day delinquency decreased by $19 million to $89 million in the first quarter of 2022. 60+ day delinquency as a percentage of UPB decreased from 15% to 10% at the end of the quarter. • Active asset management, low initial LTVs and annual national HPA of over 15% have led to acceptable outcomes • Meaningful amounts continue to pay off in full or cure. Almost all 60+ were originated prior to April 2020. • Collected approximately $7.6mm in default interest and extension fees since inception across our fix and flip loans
Business purpose loans – Single Family Rental Loans • The SFR portfolio continues to exhibit strong performance, delivering attractive yields and good credit performance • First quarter yield: 5.20% • 60+ day delinquency rate decreased from 2.6% to 1.8% • Three month prepayment rate of 22% • SFR portfolio grew by 27% in the first quarter • We acquired $293 million in the first quarter • The acquisition of Lima One has meaningfully increased the pace of SFR loan portfolio growth SFR Portfolio Statistics (3/31/22) UPB (millions) $1,169 WA LTV 70% WA FICO 735 WA DSCR* 1.53x WA Coupon 5.36% WA Loan Age (months) 10 Hybrid ARM’s 24% First Quarter Yield 5.20% 3mth Prepayment Rate (CPR) 22% 60+ Days DQ 1.8% *WA DSCR: Weighted average debt service coverage ratio 14 • We completed our third rental loan securitization in April 2022 • $ 258 million of loans were securitized • Bonds sold represent 87 % of loan UPB • Weighted average coupon of bonds sold was 4 % • The amount of SFR financing that is non - mark - to - market increased after we completed our third rental loan securitization in April • Post April securitization, approximately 70 % of SFR financing is non - mark - to - market • We expect to continue to execute securitizations to efficiently finance our SFR loans
Summary 15 • First quarter 2022 results reflect the challenging interest rate environment • Increased cash position by over $ 100 million to approximately $ 410 million at quarter - end and continued to maintain relatively low leverage • Completed two securitizations of Non - QM loans during the quarter and two securitizations of Business Purpose loans in April • Third consecutive record quarter for loan originations at Lima One • Continued strong housing market despite affordability issues due to higher rates • Further sequential growth in loan interest income and portfolio
Additional Information
• MFA Board of Directors authorized a new $ 250 million share repurchase program in March 2022 for repurchases through the end of 2023 • Adopted 10 b 5 - 1 plan in March 2022 • 10 b 5 - 1 plan permits share repurchases during closed window periods • Share repurchases in Q 1 2022 of 3 . 2 million shares at an average price of $ 17 . 15 (including commissions) • Subsequent to the end of the quarter through April 29 , 2022 , we repurchased an additional 2 . 8 million shares of common stock at an average price of $ 14 . 48 per share, leaving approximately $ 209 . 7 million of remaining capacity under the existing authorization 17 MFA share repurchase program
18 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, as well as certain non - cash expenses and securitization - related transaction costs . Management believes that the adjustments made to GAAP earnings result in the removal of ( i ) income or expenses that are driven by changes in market valuations and 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 . The following table provides a reconciliation of GAAP net (loss)/income used in the calculation of basic EPS to our non - GAAP Distributable earnings for the quarterly periods presented . (In Millions, Except Per Share Amounts) Q1 2022 $ in mm Q4 2021 $ in mm Q3 2021 $ in mm Q2 2021 $ in mm Q1 2021 $ in mm GAAP Net (loss)/income used in the calculation of basic EPS $ (91.3) $ 35.7 $ 123.9 $ 58.3 $ 77.0 Adjustments: Unrealized gains and losses on: Residential whole loans held at fair value 287.9 42.6 (20.5) (6.2) (32.1) Securities held at fair value 2.9 0.4 (0.5) (1.4) (0.1) Interest rate swaps (80.8) (0.1) — — — Securitized debt held at fair value (62.9) (6.1) (0.9) 0.2 (7.6) Investments in loan origination partners 0.8 (24.0) (48.9) — — Expense items: Amortization of intangible assets 3.3 3.3 3.3 — — Equity based compensation 2.6 2.3 2.3 2.7 1.7 Securitization - related transaction costs 3.2 5.2 — — — Total adjustments $ 157.2 $ 23.5 $ (65.2) $ (4.6) $ (38.1) Distributable earnings $ 66.0 $ 59.3 $ 58.7 $ 53.7 $ 38.9 GAAP (loss)/earnings per basic common share $ (0.86) $ 0.33 $ 1.12 $ 0.53 $ 0.68 Distributable earnings per basic common share $ 0.62 $ 0.54 $ 0.53 $ 0.49 $ 0.34 Weighted average common shares for basic earnings per share 106.6 109.5 110.2 110.4 112.8
19 Reconciliation of GAAP book value to Economic book value “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 ( 1 ) 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 residential mortgage investments and certain associated financing arrangements, 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 GAAP book value per common share to our non - GAAP Economic book value per common share as of the end of each quarter since Q 1 2021 . (In Millions, Except Per Share Amounts) 3/31/22 12/31/21 9/30/21 6/30/21 3/31/21 GAAP Total Stockholders’ Equity $ 2,349.0 $ 2,542.8 $ 2,601.1 $ 2,526.5 $ 2,542.3 Preferred Stock, liquidation preference (475.0) (475.0) (475.0) (475.0) (475.0) GAAP Stockholders’ Equity for book value per common share $ 1,874.0 $ 2,067.8 $ 2,126.1 $ 2,051.5 $ 2,067.3 Adjustments: Fair value adjustment to Residential whole loans, at carrying value 54.0 153.5 198.8 206.2 203.0 Fair value adjustment to Securitized debt, at carrying value (1) 47.7 4.3 (8.0) (8.9) (3.6) Stockholders’ Equity including fair value adjustments to Residential whole loans and Securitized debt held at carrying value (Economic book value ) (1) $ 1,975.7 $ 2,225.6 $ 2,316.9 $ 2,248.8 $ 2,266.7 GAAP book value per common share $ 17.84 $ 19.12 $ 19.29 $ 18.62 $ 18.54 Economic book value per common share (1) $ 18.81 $ 20.58 $ 21.02 $ 20.41 $ 20.32 Number of shares of common stock outstanding 105.0 108.1 110.2 110.2 111.5 1. Economic book value per common share for periods prior to December 31, 2021 have been restated to include the impact of fa ir value changes of securitized debt held at carrying value.
20 GAAP Economic Book value per common share as of 12/31/21 $19.12 $20.58 Net income available to common shareholders (0.86) (0.86) Common stock dividends declared (0.44) (0.44) Impact of share repurchases 0.02 0.05 Credit risk related changes in fair value for financing agreements at fair value 0.02 0.02 Fair value changes attributable to residential mortgage securities and MSR term notes, and other (0.02) (0.02) Change in fair value of residential whole loans reported at carrying value under GAAP — (0.94) Change in fair value of securitized debt at carrying value under GAAP — 0.42 Book value per common share as of 03/31/22 $17.84 $18.81 Book value impacted primarily by rising rates and spread widening
Allowance for credit losses - Loans held at carrying value • Allowance for credit losses for residential whole loans held at carrying value decreased during the quarter by $4.0 million, primarily due to lower loan balances and adjustments to certain macro - economic and loan prepayment speed assumptions used in our credit loss forecasts • Changes in credit loss allowances are recorded in periodic GAAP earnings • Ongoing CECL accounting does not impact calculation of Economic book value 21 Three Months Ended March 31, 2022 (Amounts In Thousands) Non - QM Loans Rehabilitation Loans 1 Single - family Rental Loans Seasoned Performing Loans Purchased Credit Deteriorated Loans Totals Allowance for credit losses at beginning of period $8,289 $6,881 $1,451 $46 $22,780 $39,447 Current period provision (909) (1,460) (122) (1) (975) (3,467) Write - offs (51) (219) (27) — (226) (523) Allowance for credit losses at end of period $7,329 $5,202 $1,302 $45 $21,579 $35,457 Implied loss rate as a percentage of UPB 59 bps 337 bps 47 bps 4 bps 353 bps 149 bps 1. In connection with purchased Rehabilitation loans at carrying value, the Company had unfunded commitments of $ 12 . 9 million, with a separately recorded liability for expected losses of $ 156 , 000 .