8-K
Mfa Financial, Inc. (MFA)
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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): November 5, 2021
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 November 5, 2021, announcing its financial results for the quarter ended September 30, 2021, which is attached hereto as Exhibit 99.1. In addition, in conjunction with the announcement of its financial results, MFA issued additional information relating to its 2021 third quarter financial results. Such additional information is attached to this report as Exhibit 99.2.
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 and additional information contain 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 November 5, 2021, announcing MFA’s financial results for the quarter ended September 30, 2021. |
|---|---|
| 99.2 | Additional information relating to the financial results of MFA for the quarter ended September 30, 2021. |
| --- | --- |
| 104 | Cover Page Interactive Data File (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: November 5, 2021
EXHIBIT INDEX
| Exhibit<br> No. | Description |
|---|---|
| 99.1 | Press Release, dated November 5, 2021 announcing MFA Financial Inc.’s financial results for the quarter ended September 30,<br>2021. |
| --- | --- |
| 99.2 | Additional information relating to the financial results of MFA Financial, Inc. for the quarter ended September 30, 2021. |
| --- | --- |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL). |
| --- | --- |
Exhibit 99.1
MFA
FINANCIAL, INC.
One Vanderbilt Ave
New York, New York 10017
| PRESS RELEASE | FOR IMMEDIATE RELEASE | |
|---|---|---|
| November 5, 2021 | 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 Third Quarter 2021 Financial Results
$2.0 billion in asset acquisitions continues to drive higher net interest income
Earnings of $0.28 per basic common share, resulting in strong book value growth
Significant contribution from Lima One acquisition
NEW YORK - MFA Financial, Inc. (NYSE:MFA**)** today provided its financial results for the third quarter ended September 30, 2021.
Third Quarter 2021 financial results update:
| • | MFA generated third quarter net income of $124.3 million, or $0.28 per basic common share ($0.27 per diluted<br>common share), including $43.9 million or $0.10 per common share of purchase accounting related gains recorded on closing of the Lima<br>One acquisition. |
|---|---|
| • | GAAP book value at September 30, 2021 was $4.82 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 held at carrying value for GAAP reporting, was $5.27 per common share at quarter-end. |
| --- | --- |
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| • | Completed the acquisition of Lima One Capital, a leading nationwide originator and servicer of business<br>purpose loans (BPLs) on July 1, 2021. Lima One’s financial results are consolidated into MFA’s results from that date.<br>In connection with the closing of the transaction, we recorded purchase accounting related gains totaling $38.9 million as accounting<br>standards require that we reflect our previously recorded investment in Lima One common equity at the fair value implied by the transaction.<br>Further, we recorded a $5.0 million gain to reverse a prior impairment of our investment in Lima One preferred equity that was repaid<br>concurrent with transaction closing. In addition to these purchase accounting related gains, origination, servicing and other investment<br>activity related to Lima One meaningfully contributed to our consolidated net income for the quarter. |
|---|---|
| • | Net interest income increased on a sequential quarterly basis to $61.8 million<br>as asset acquisitions and higher net interest spreads resulted in a 15% increase in net interest income from our portfolio of residential<br>whole loans. In addition, during the quarter, we completed a securitization of $289.3 million of Non-QM Loans, with a weighted average<br>coupon of bonds sold of 1.23%, lowering the funding rate of the underlying assets by more than 100 basis points.<br> For the third quarter, the net interest spread generated by our residential whole loan portfolio<br>increased to 3.32%, while the overall net interest spread generated by all of our interest bearing assets was 2.98%, almost unchanged<br>from the prior quarter. |
| --- | --- |
| • | Loan acquisition activity of $2.0 billion is the highest quarterly total in our history, including approximately<br>$695 million of Non-QM and $485 million of Business Purpose loans. In addition, we purchased over $820 million of “Agency eligible<br>investor loans”, which are residential mortgage loans on investor properties that conform to the standards for purchase by a federally<br>chartered corporation, such as the Federal National Mortgage Association (“Fannie Mae”) or the Federal Home Loan Mortgage<br>Corporation (“Freddie Mac”). This purchase activity exceeded portfolio run-off, resulting in net loan portfolio growth of<br>approximately $1.5 billion. |
| --- | --- |
| • | Subsequent to the end of the quarter, we completed our first securitization of $312.3 million of Agency<br>eligible investor loans. |
| --- | --- |
| • | MFA paid a regular cash dividend for the third quarter of $0.10 per share of common stock on October 29,<br>2021. |
| --- | --- |
Commenting on the third quarter 2021 results, Craig Knutson, MFA’s CEO and President said, “We are very pleased with our third quarter results and activity. MFA acquired $2 billion of loans during the third quarter, the highest quarterly total in our history, and grew our loan portfolio by $1.5 billion after runoff. We earned $0.28 per common share, which was bolstered by gains of $43.9 million associated with our acquisition of Lima One as well as by increased net interest income. Our book value increased by 3.7% to $4.82 per share (economic book value increased by 2.9% to $5.27) and we generated an economic return for the quarter of 5.8% (GAAP) and 4.9% (Economic Book Value). Net interest income on our loan portfolio increased by 15% from $48 million to $55 million, driven by increased loan purchases and by continued interest expense reductions due to securitizations. Finally, on July 1, 2021, we completed the acquisition of Lima One Capital, a leading nationwide originator and servicer of business purpose loans (BPLs). MFA’s financial statements for the third quarter reflect consolidation of Lima One.”
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Mr. Knutson added, “Our third quarter results were driven by strong portfolio performance, with improving mortgage credit leading to a release of CECL reserves of $9.7 million. On the liability side, we continue to execute on our plan to reduce funding costs through securitizations. We completed a Non-QM securitization in August and subsequent to quarter end, our first Agency eligible investor loan securitization in October. These transactions deliver a meaningful benefit by terming out non-mark-to-market financing while significantly reducing borrowing costs and also generating more liquidity. We expect to execute additional securitizations in the fourth quarter.”
Mr. Knutson continued, “We also took advantage of a strong housing market to continue to reduce our REO portfolio, selling 151 properties for aggregate proceeds of $45.4 million and generating $7.3 million of gains.”
Q3 2021 Portfolio Activity
MFA’s residential mortgage investment portfolio increased by $1.5 billion during the third quarter, as record high loan purchase activity significantly exceeded portfolio run-off. Loan acquisitions were nearly double the prior two quarters combined, with $820.2 million of Agency eligible investor loans, $694.5 million of Non-QM loans and $485.1 million of Business Purpose loans acquired during the quarter.
At September 30, 2021, our investments in residential whole loans totaled $7.1 billion. Of this amount, $5.4 billion are Purchased Performing Loans, $551.2 million are Purchased Credit Deteriorated Loans and $1.1 billion are Purchased Non-performing Loans. During the quarter, we recognized approximately $79.6 million of Interest Income on residential whole loans in our consolidated statements of operations, representing a yield of 5.52%. Purchased Performing Loans generated a yield of 4.56%, Purchased Credit Deteriorated Loans generated a yield of 7.08% and Purchased Non-performing Loans generated a yield of 8.81%. Overall loan portfolio yields were four bps higher than the prior quarter. Significant acquisitions of purchased performing loans drove a sequential quarter increase in interest income from our residential whole loan portfolio of approximately $10.6 million. Overall delinquency rates across our residential whole loan portfolio declined compared to the prior quarter. The amount of Non-QM loans that were 60 or more days delinquent, measured as a percentage of the unpaid principal balance, decreased during the quarter and was 5.3% at September 30, 2021, compared to 7.8% at June 30, 2021. 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, increased slightly during the quarter and was 18.3% at September 30, 2021, compared to 18.0% at June 30, 2021. Delinquency levels for our Rehabilitation loans decreased from the prior quarter, with loans that were 60 or more days delinquent totaling $107.1 million, compared to $120.4 million at June 30, 2021. The percentage amount of Purchased Non-performing Loans that were 90 or more days delinquent decreased to 42.5% at September 30, 2021 from 43.7% at June 30, 2021.
For the third quarter, a reversal of the provision for credit losses of $9.7 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 September 30, 2021 was $44.1 million. In addition, as of September 30, 2021, reserves for credit losses totaling approximately $355,000 were recorded related to undrawn commitments on loans held at carrying value.
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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 third quarter, net gains of $21.8 million were recorded, primarily reflecting unrealized fair value changes in the underlying loans.
In addition, as of the end of the quarter, we held approximately $179 million of REO properties, which decreased from $205 million as of the end of the second quarter. MFA’s proactive asset management team continues to take advantage of current market conditions and has been able to shorten liquidation timelines and increase property sale proceeds, leading to improved outcomes and better returns.
At the end of the third quarter, MFA held approximately $283 million of Securities, at fair value, including $178 million of MSR-related assets and $105 million of CRT securities.
General and Administrative and other expenses
For the three months ended September 30, 2021, MFA’s costs for compensation and benefits and other general and administrative expenses were $24.9 million. Expenses this quarter include $10.4 million compensation and other general and administrative expenses recorded at Lima One.
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The following table presents MFA’s asset allocation as of September 30, 2021, and the third quarter 2021 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<br> September 30, 2021 | Purchased Credit Deteriorated Loans (2) | Purchased<br> <br><br>Non-<br><br>Performing <br><br>Loans | Securities,<br> <br><br>at fair value | Real<br> Estate <br><br>Owned | Other, net (3) | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ( in Millions) | ||||||||||||||||||||
| Fair Value/Carrying<br> Value | 5,389 | $ | 551 | $ | 1,141 | $ | 283 | $ | 179 | $ | 772 | $ | 8,315 | |||||||
| Payable<br> for Unsettled Purchases | (163 | ) | — | — | — | — | — | (163 | ) | |||||||||||
| Financing<br> Agreements with non-mark-to-market collateral provisions | (486 | ) | (130 | ) | (223 | ) | — | (9 | ) | — | (848 | ) | ||||||||
| Financing<br> Agreements with mark-to-market collateral provisions | (2,006 | ) | (102 | ) | (139 | ) | (172 | ) | (12 | ) | — | (2,431 | ) | |||||||
| Less<br> Securitized Debt | (1,446 | ) | (209 | ) | (368 | ) | — | (23 | ) | — | (2,046 | ) | ||||||||
| Less<br> Convertible Senior Notes | — | — | — | — | — | (226 | ) | (226 | ) | |||||||||||
| Net<br> Equity Allocated | 1,288 | $ | 110 | $ | 411 | $ | 111 | $ | 135 | $ | 546 | $ | 2,601 | |||||||
| Debt/Net<br> Equity Ratio (4) | 3.2 x | 4.0 x | 1.8 x | 1.5 x | 0.3 | x | 2.2 | x | ||||||||||||
| For<br> the Quarter Ended September 30, 2021 | ||||||||||||||||||||
| Yield<br> on Average Interest Earning Assets (5) | 4.56 | % | 7.08 | % | 8.81 | % | 18.78 | % | N/A | 5.38 | % | |||||||||
| Less Average<br> Cost of Funds (6) | (2.14 | ) | (2.18 | ) | (2.43 | ) | (1.61 | ) | (2.49 | ) | (2.40 | ) | ||||||||
| Net<br> Interest Rate Spread | 2.42 | % | 4.90 | % | 6.38 | % | 17.17 | % | (2.49 | )% | 2.98 | % |
All values are in US Dollars.
| (1) | Includes $2.8 billion of Non-QM loans, $587.5 million of Rehabilitation loans, $739.4 million of Single-familyrental loans, $110.1 million of Seasoned performing loans, and $1.1 billion of Agency eligible investor loans. At September 30, 2021,the total fair value of these loans is estimated to be approximately $5.5 billion. |
|---|---|
| (2) | At September 30, 2021, the total fair value of these loans is estimated to be approximately $661.9 million. |
| --- | --- |
| (3) | Includes $526.2 million of cash and cash equivalents, $55.5 million of restricted cash, and $53.5 millionof 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. |
| --- | --- |
| (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 September 30, 2021, the amortized cost of our securities,at fair value, was $222.7 million. In addition, the yield for residential whole loans at carrying value was 5.48%,net of four basis points of servicing fee expense incurred during the quarter. For GAAP reportingpurposes, such expenses are included in Loan servicing and other related operating expenses in our statement of operations. Yield reportedon Securities, at fair value, includes $4.0 million of accretion income recognized on the redemption at par of a MSR-related assetthat had been held at amortized cost basis below par due to an impairment charge recorded in the first quarter of 2020. Excluding thisaccretion, the yield reported would have been 11.63%. |
| --- | --- |
| (6) | Average cost of funds includes interest on financing agreements, Convertible Senior Notes and securitizeddebt. |
| --- | --- |
5
The following table presents the activity for our residential mortgage asset portfolio for the three months ended September 30, 2021:
Table 2 - Investment Portfolio Activity Q32021
| (In Millions) | June 30,<br> 2021 | Runoff (1) | Acquisitions | Other (2) | September 30,<br> 2021 | Change | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Residential<br> whole loans and REO | $ | 5,756 | $ | (544 | ) | $ | 2,001 | $ | 47 | $ | 7,260 | $ | 1,504 | |
| Securities,<br> at fair value | 303 | (20 | ) | — | — | 283 | (20 | ) | ||||||
| Totals | $ | 6,059 | $ | (564 | ) | $ | 2,001 | $ | 47 | $ | 7,543 | $ | 1,484 | |
| (1) | Primarily includes principal repayments and sales of REO. | |||||||||||||
| --- | --- | |||||||||||||
| (2) | Primarily includes changes in fair value, draws on previously originated Rehabilitation loans, andchanges in the allowance for credit losses. | |||||||||||||
| --- | --- |
The following tables present information on our investments in residential whole loans.
Residential Whole Loansat September 30, 2021 and December 31, 2020:
Table 3 - Portfolio composition
| Held at Carrying Value | Held at Fair Value | Total | ||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars In Thousands) | September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | September 30, 2021 | December 31, 2020 | ||||||||||
| Purchased Performing Loans: | ||||||||||||||||
| Non-QM loans | $ | 1,683,025 | $ | 2,357,185 | $ | 1,152,547 | $ | — | $ | 2,835,572 | $ | 2,357,185 | ||||
| Rehabilitation loans | 294,622 | 581,801 | 301,602 | — | 596,224 | 581,801 | ||||||||||
| Single-family rental loans | 368,927 | 446,374 | 372,135 | — | 741,062 | 446,374 | ||||||||||
| Seasoned performing loans | 110,162 | 136,264 | — | — | 110,162 | 136,264 | ||||||||||
| Agency eligible investor loans | — | — | 1,126,477 | — | 1,126,477 | — | ||||||||||
| Total Purchased Performing Loans | $ | 2,456,736 | $ | 3,521,624 | $ | 2,952,761 | $ | — | $ | 5,409,497 | $ | 3,521,624 | ||||
| Purchased Credit Deteriorated Loans | $ | 575,230 | $ | 673,708 | $ | — | $ | — | $ | 575,230 | $ | 673,708 | ||||
| Allowance for Credit Losses | $ | (44,102 | ) | $ | (86,833 | ) | $ | — | $ | — | $ | (44,102 | ) | $ | (86,833 | ) |
| Purchased Non-Performing Loans | $ | — | $ | — | $ | 1,140,837 | $ | 1,216,902 | $ | 1,140,837 | $ | 1,216,902 | ||||
| Total Residential Whole Loans | $ | 2,987,864 | $ | 4,108,499 | $ | 4,093,598 | $ | 1,216,902 | $ | 7,081,462 | $ | 5,325,401 | ||||
| Number of loans | 10,361 | 13,112 | 12,307 | 5,622 | 22,668 | 18,734 |
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Table 4 - Yields and average balances
| For<br> the Three-Month Period Ended | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars in Thousands) | September 30,<br> 2021 | June 30,<br> 2021 | September 30,<br> 2020 | ||||||||||||||||||
| Interest | Average<br><br><br> Balance | Average<br><br><br> Yield | Interest | Average<br><br><br> Balance | Average<br><br><br> Yield | Interest | Average<br><br><br> Balance | Average<br><br><br> Yield | |||||||||||||
| Purchased Performing Loans: | |||||||||||||||||||||
| Non-QM loans | $ | 23,891 | $ | 2,482,917 | 3.85 | % | $ | 21,968 | $ | 2,327,256 | 3.78 | % | $ | 25,884 | $ | 2,534,967 | 4.08 | % | |||
| Rehabilitation loans | 9,918 | 557,635 | 7.11 | % | 7,329 | 454,939 | 6.44 | % | 10,863 | 802,661 | 5.41 | % | |||||||||
| Single-family rental loans | 9,497 | 659,046 | 5.76 | % | 6,906 | 479,233 | 5.76 | % | 6,917 | 489,536 | 5.65 | % | |||||||||
| Seasoned performing loans | 1,728 | 114,102 | 6.06 | % | 1,540 | 125,056 | 4.93 | % | 1,945 | 153,002 | 5.08 | % | |||||||||
| Agency eligible<br> investor loans | 3,360 | 426,986 | 3.15 | % | 262 | 32,114 | 3.26 | % | — | — | — | % | |||||||||
| Total Purchased Performing Loans | 48,394 | 4,240,686 | 4.56 | % | 38,005 | 3,418,598 | 4.45 | % | 45,609 | 3,980,166 | 4.58 | % | |||||||||
| Purchased<br> Credit Deteriorated Loans | 10,504 | 593,127 | 7.08 | % | 11,303 | 630,217 | 7.17 | % | 8,784 | 718,958 | 4.89 | % | |||||||||
| Purchased<br> Non-Performing Loans | 20,704 | 939,578 | 8.81 | % | 19,708 | 987,860 | 7.98 | % | 16,555 | 1,105,101 | 5.99 | % | |||||||||
| Total<br> Residential whole loans | $ | 79,602 | $ | 5,773,391 | 5.52 | % | $ | 69,016 | $ | 5,036,675 | 5.48 | % | $ | 70,948 | $ | 5,804,225 | 4.89 | % |
Table 5 - Net Interest Spread
| For the Three-Month Period Ended | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| September 30,<br><br> 2021 | June 30, <br><br>2021 | September 30,<br><br> 2020 | |||||||
| Purchased Performing Loans | |||||||||
| Net Yield (1) | 4.56 | % | 4.45 | % | 4.58 | % | |||
| Cost of Funding (2) | 2.14 | % | 2.09 | % | 3.42 | % | |||
| Net Interest Spread (3) | 2.42 | % | 2.36 | % | 1.16 | % | |||
| Purchased Credit Deteriorated Loans | |||||||||
| Net Yield (1) | 7.08 | % | 7.17 | % | 4.89 | % | |||
| Cost of Funding (2) | 2.18 | % | 2.39 | % | 3.22 | % | |||
| Net Interest Spread (3) | 4.90 | % | 4.78 | % | 1.67 | % | |||
| Purchased Non-Performing Loans | |||||||||
| Net Yield (1) | 8.81 | % | 7.98 | % | 5.99 | % | |||
| Cost of Funding (2) | 2.43 | % | 2.71 | % | 3.78 | % | |||
| Net Interest Spread (3) | 6.38 | % | 5.27 | % | 2.21 | % | |||
| Total Residential Whole Loans | |||||||||
| Net Yield (1) | 5.52 | % | 5.48 | % | 4.89 | % | |||
| Cost of Funding (2) | 2.20 | % | 2.25 | % | 3.47 | % | |||
| Net Interest Spread (3) | 3.32 | % | 3.23 | % | 1.42 | % | |||
| (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. During the quarter ended September 30, 2020, we transferredfrom AOCI to earnings approximately $7.2 million of losses on Swaps that had been previously designated as hedges for accountingpurposes as we had assessed that the underlying transactions were no longer probable of occurring. | ||||||||
| --- | --- | ||||||||
| (3) | Reflects the difference between the net yield on average Residential whole loans and average cost offunds on Residential whole loans. | ||||||||
| --- | --- |
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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:
| Nine Months Ended September 30, 2021 | ||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| (Dollars In Thousands) | Non-QM<br> Loans | Rehabilitation Loans (1)(2) | Single-family<br> Rental Loans | Seasoned<br> Performing<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 | ||||||
| Current provision/(reversal) | (2,416 | ) | (1,809 | ) | (386 | ) | (9 | ) | (3,963 | ) | (8,583 | ) | ||||||
| Write-offs | (37 | ) | (255 | ) | — | — | (108 | ) | (400 | ) | ||||||||
| Allowance for credit losses at June 30, 2021 | $ | 12,092 | $ | 11,604 | $ | 2,360 | $ | 57 | $ | 28,148 | $ | 54,261 | ||||||
| Current provision/(reversal) | (2,403 | ) | (2,526 | ) | (670 | ) | (7 | ) | (4,020 | ) | (9,626 | ) | ||||||
| Write-offs | — | (393 | ) | (56 | ) | — | (84 | ) | (533 | ) | ||||||||
| Allowance for credit losses at September 30, 2021 | $ | 9,689 | $ | 8,685 | $ | 1,634 | $ | 50 | $ | 24,044 | $ | 44,102 | ||||||
| Nine Months Ended September 30, 2020 | ||||||||||||||||||
| --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- | --- |
| (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, 2019 | $ | 388 | $ | 2,331 | $ | 62 | $ | — | $ | 244 | $ | 3,025 | ||||||
| Transition adjustment on adoption of ASU 2016-13 (4) | 6,904 | 517 | 754 | 19 | 62,361 | 70,555 | ||||||||||||
| Current provision | 26,358 | 33,213 | 6,615 | 230 | 8,481 | 74,897 | ||||||||||||
| Write-offs | — | (428 | ) | — | — | (219 | ) | (647 | ) | |||||||||
| Valuation adjustment on loans held for sale | 70,181 | — | — | — | — | 70,181 | ||||||||||||
| Allowance for credit and valuation losses at March 31, 2020 | $ | 103,831 | $ | 35,633 | $ | 7,431 | $ | 249 | $ | 70,867 | $ | 218,011 | ||||||
| Current provision/(reversal) | (2,297 | ) | (5,213 | ) | (500 | ) | (25 | ) | (2,579 | ) | (10,614 | ) | ||||||
| Write-offs | — | (420 | ) | — | — | (207 | ) | (627 | ) | |||||||||
| Valuation adjustment on loans held for sale | (70,181 | ) | — | — | — | — | (70,181 | ) | ||||||||||
| Allowance for credit losses at June 30, 2020 | $ | 31,353 | $ | 30,000 | $ | 6,931 | $ | 224 | $ | 68,081 | $ | 136,589 | ||||||
| Current provision/(reversal) | (4,568 | ) | (7,140 | ) | (1,906 | ) | (74 | ) | (16,374 | ) | (30,062 | ) | ||||||
| Write-offs | (32 | ) | (227 | ) | — | — | (22 | ) | (281 | ) | ||||||||
| Allowance for credit losses at September 30, 2020 | $ | 26,753 | $ | 22,633 | $ | 5,025 | $ | 150 | $ | 51,685 | $ | 106,246 | ||||||
| (1) | In connection with purchased Rehabilitation loans at carrying value, we had unfunded commitments of$29.2 million and $73.2 million as of September 30, 2021 and 2020, respectively, with an allowance for credit losses of $355,000and $1.6 million at September 30, 2021 and 2020, respectively. Such allowance is included in “Other liabilities” in ourconsolidated balance sheets. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (2) | Includes $94.9 million and $143.4 million of loans that were assessed for credit losses basedon a collateral dependent methodology as of September 30, 2021 and 2020, respectively. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (3) | Includes $57.4 million and $72.7 million of loans that were assessed for credit losses based ona collateral dependent methodology as of September 30, 2021 and 2020, respectively. | |||||||||||||||||
| --- | --- | |||||||||||||||||
| (4) | Of the $70.6 million of reserves recorded on adoption of ASU 2016-13, $8.3 million was recorded asan adjustment to stockholders’ equity and $62.4 million was recorded as a “gross up” of the amortized cost basis ofPurchased Credit Deteriorated Loans. | |||||||||||||||||
| --- | --- |
8
Table 7 - Credit related metrics/Residential Whole Loans
September 30, 2021
| Weighted | Aging by UPB | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fair Value / | Unpaid Principal | Weighted | Average Term to | Weighted | Weighted Average | Past Due Days | ||||||||||||||||
| (Dollars In Thousands) | Carrying Value | Balance (“UPB”) | Average<br><br> <br>Coupon (1) | Maturity (Months) | Average<br><br> <br>LTV Ratio (2) | Original FICO (3) | Current | 30-59 | 60-89 | 90+ | ||||||||||||
| Purchased Performing Loans: | ||||||||||||||||||||||
| Non-QM loans | $ | 2,825,883 | $ | 2,737,998 | 5.36 | % | 350 | 64 | % | 725 | $ | 2,526,620 | $ | 65,991 | $ | 18,902 | $ | 126,485 | ||||
| Rehabilitation loans | 587,539 | 594,366 | 7.27 | 8 | 66 | 726 | 469,292 | 17,939 | 3,432 | 103,703 | ||||||||||||
| Single-family rental loans | 739,428 | 717,552 | 5.69 | 330 | 70 | 731 | 690,822 | 1,834 | 1,033 | 23,863 | ||||||||||||
| Seasoned performing loans | 110,112 | 120,444 | 2.86 | 164 | 38 | 722 | 109,331 | 1,095 | 616 | 9,402 | ||||||||||||
| Agency eligible investor loans (4) | 963,462 | 936,748 | 3.40 | 356 | 62 | 767 | 933,633 | 2,818 | 297 | — | ||||||||||||
| Total Purchased Performing Loans | 5,226,424 | $ | 5,107,108 | 5.21 | % | 304 | ||||||||||||||||
| Purchased Credit Deteriorated Loans | $ | 551,186 | $ | 674,367 | 4.55 | % | 284 | 69 | % | N/A | 481,330 | 50,991 | 18,857 | 123,189 | ||||||||
| Purchased Non-Performing Loans | $ | 1,140,837 | $ | 1,137,666 | 4.88 | % | 285 | 74 | % | N/A | $ | 517,924 | $ | 94,139 | $ | 39,605 | $ | 485,998 | ||||
| Residential whole loans, total or weighted average | $ | 6,918,447 | $ | 6,919,141 | 5.10 | % | 299 |
December 31, 2020
| Weighted | Aging by UPB | |||||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Fair Value / | Unpaid Principal | Weighted Average | Average Term to | Weighted Average | Weighted Average | Past Due Days | ||||||||||||||||
| (Dollars In Thousands) | Carrying Value | Balance (“UPB”) | Coupon (1) | Maturity (Months) | LTV Ratio (2) | Original FICO (3) | Current | 30-59 | 60-89 | 90+ | ||||||||||||
| Purchased Performing Loans: | ||||||||||||||||||||||
| Non-QM loans | $ | 2,336,117 | $ | 2,294,086 | 5.84 | % | 351 | 64 | % | 712 | $ | 2,042,405 | $ | 71,303 | $ | 35,697 | $ | 144,681 | ||||
| Rehabilitation loans | 563,430 | 581,801 | 7.29 | 3 | 63 | 719 | 390,706 | 29,315 | 25,433 | 136,347 | ||||||||||||
| Single-family rental loans | 442,456 | 442,208 | 6.32 | 324 | 70 | 730 | 411,377 | 6,691 | 3,907 | 20,233 | ||||||||||||
| Seasoned performing loans | 136,157 | 149,004 | 3.30 | 171 | 40 | 723 | 136,778 | 2,248 | 1,155 | 8,823 | ||||||||||||
| Total Purchased Performing Loans | 3,478,160 | $ | 3,467,099 | 6.04 | % | 281 | ||||||||||||||||
| Purchased Credit Deteriorated Loans | 630,339 | $ | 782,319 | 4.46 | % | 287 | 76 | N/A | 544,803 | 65,791 | 26,697 | 145,028 | ||||||||||
| Purchased Non-Performing Loans | 1,216,902 | $ | 1,282,093 | 4.87 | % | 290 | 80 | N/A | 497,299 | 104,993 | 54,180 | 625,621 | ||||||||||
| Residential whole loans, total or weighted average | $ | 5,325,401 | $ | 5,531,511 | 5.54 | % | 284 | |||||||||||||||
| (1) | Weighted average is calculated based on the interest bearing principal balance of each loan withinthe related category. For loans acquired with servicing rights released by the seller, interest rates included in the calculation do notreflect loan servicing fees. For loans acquired with servicing rights retained by the seller, interest rates included in the calculationare net of servicing fees. | |||||||||||||||||||||
| --- | --- | |||||||||||||||||||||
| (2) | 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, totaling $142.7million and $189.9 million at September 30, 2021 and December 31, 2020, respectively, an after repaired valuation was not obtainedand the loan was underwritten based on an “as is” valuation. The weighted average LTV of these loans based on the currentunpaid principal balance and the valuation obtained during underwriting, is 70% and 69% at September 30, 2021 and December 31,2020, respectively. Excluded from the calculation of weighted average LTV are certain low value loans secured by vacant lots, for whichthe LTV ratio is not meaningful. | |||||||||||||||||||||
| --- | --- |
9
| (3) | Excludes loans for which no Fair Isaac Corporation (“FICO”) score is available. |
|---|---|
| (4) | Excluded from the table above are approximately $163.0 million of Residential whole loans, at fairvalue for which the closing of the purchase transaction had not occurred as of September 30, 2021. |
| --- | --- |
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:
| September 30, 2021 | |||||||
|---|---|---|---|---|---|---|---|
| (Dollars In Thousands) | Carrying Value / Fair Value | UPB | LTV (1) | ||||
| Residential whole loans, at carrying value | |||||||
| Purchased credit deteriorated loans | $ | 100,905 | $ | 123,189 | 79.8 | % | |
| Non-QM loans | $ | 121,741 | $ | 119,572 | 64.5 | % | |
| Rehabilitation loans | $ | 101,012 | $ | 101,012 | 68.6 | % | |
| Single-family rental loans | $ | 22,767 | $ | 22,771 | 73.6 | % | |
| Seasoned performing loans | $ | 8,671 | $ | 9,402 | 51.3 | % | |
| Total Residential whole loans, at carrying value | $ | 355,096 | $ | 375,946 | |||
| Residential whole loans, at fair value | |||||||
| Purchased non-performing loans | $ | 484,510 | $ | 485,998 | 81.2 | % | |
| Purchased performing loans | $ | 10,391 | $ | 10,696 | 62.7 | % | |
| Total Residential whole loans, at fair value | $ | 494,901 | $ | 496,694 | |||
| December 31, 2020 | |||||||
| --- | --- | --- | --- | --- | --- | --- | --- |
| (Dollars In Thousands) | Carrying Value / Fair Value | UPB | LTV (1) | ||||
| Residential whole loans, at carrying value | |||||||
| Purchased credit deteriorated loans | $ | 119,621 | $ | 145,028 | 86.7 | % | |
| Non-QM loans | $ | 148,387 | $ | 144,681 | 65.9 | % | |
| Rehabilitation loans | $ | 136,347 | $ | 136,347 | 65.8 | % | |
| Single-family rental loans | $ | 20,388 | $ | 20,233 | 72.7 | % | |
| Seasoned performing loans | $ | 8,031 | $ | 8,823 | 55.1 | % | |
| Total Residential whole loans, at carrying value | $ | 432,774 | $ | 455,112 | |||
| Residential whole loans, at fair value | |||||||
| Purchased non-performing loans | $ | 571,729 | $ | 625,621 | 86.8 | % | |
| Purchased performing loans | $ | — | $ | — | — | % | |
| Total Residential whole loans, at fair value | $ | 571,729 | $ | 625,621 | |||
| (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
Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Friday, November 5, 2021, at 10:00 a.m. (Eastern Time) to discuss its third quarter 2021 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.
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: risks related to the COVID-19 pandemic, including the pandemic’s effect on the general economy and our business, financial position and results of operations (including, among other potential effects, increased delinquencies and greater than expected losses in our whole loan portfolio); 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.
11
MFA FINANCIAL, INC.
CONSOLIDATED BALANCE SHEETS
| (In Thousands Except Per Share Amounts) | September 30,<br><br>2021 | December 31,<br><br>2020 | |||
|---|---|---|---|---|---|
| (Unaudited) | |||||
| Assets: | |||||
| Residential whole loans, net ($4,093,598 and $1,216,902 held at fair value, respectively) (1) | $ | 7,081,462 | $ | 5,325,401 | |
| Securities, at fair value | 283,037 | 399,999 | |||
| Cash and cash equivalents | 526,241 | 814,354 | |||
| Restricted cash | 55,507 | 7,165 | |||
| Other assets | 541,603 | 385,381 | |||
| Total Assets | 8,487,850 | 6,932,300 | |||
| Liabilities: | |||||
| Financing agreements ($2,496,584 and $3,366,772 held at fair value, respectively) | 5,550,808 | 4,336,976 | |||
| Other liabilities | 335,955 | 70,522 | |||
| Total Liabilities | 5,886,763 | 4,407,498 | |||
| 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<br> and 874,300 shares authorized; 440,927 and 451,714 shares issued<br><br> <br>and outstanding, respectively | 4,409 | 4,517 | |||
| Additional paid-in capital, in excess of par | 3,807,237 | 3,848,129 | |||
| Accumulated deficit | (1,267,504 | ) | (1,405,327) | ||
| Accumulated other comprehensive income | 56,755 | 77,293 | |||
| Total Stockholders’ Equity | 2,601,087 | 2,524,802 | |||
| Total Liabilities and Stockholders’ Equity | 8,487,850 | 6,932,300 | |||
| (1) | Includes approximately $2.3 billion and $1.8 billion of Residential whole loans transferred to consolidatedvariable interest entities (“VIEs”) at September 30, 2021 and December 31, 2020, respectively. Such assets can beused only to settle the obligations of each respective VIE. | ||||
| --- | --- |
12
MFA FINANCIAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
| Three Months Ended<br><br> <br>September 30, | Nine Months Ended<br><br> <br>September 30, | |||||||
|---|---|---|---|---|---|---|---|---|
| (In Thousands, Except Per Share Amounts) | 2021 | 2020 | 2021 | 2020 | ||||
| **** | (Unaudited) | |||||||
| Interest Income: | ||||||||
| Residential whole loans | $ | 79,602 | $ | 70,948 | $ | 213,156 | $ | 261,819 |
| Securities, at fair value | 10,629 | 8,570 | 42,433 | 81,867 | ||||
| Other interest-earning assets | 524 | 3,017 | 632 | 9,089 | ||||
| Cash and cash equivalent investments | 126 | 100 | 239 | 646 | ||||
| Interest Income | $ | 90,881 | $ | 82,635 | $ | 256,460 | $ | 353,421 |
| Interest Expense: | ||||||||
| Asset-backed and other collateralized financing arrangements | $ | 25,135 | $ | 50,054 | $ | 72,827 | $ | 209,998 |
| Other interest expense | 3,930 | 5,910 | 11,863 | 17,716 | ||||
| Interest Expense | $ | 29,065 | $ | 55,964 | $ | 84,690 | $ | 227,714 |
| Net Interest Income | $ | 61,816 | $ | 26,671 | $ | 171,770 | $ | 125,707 |
| Reversal/(Provision) for credit and valuation losses on residential whole loans and other financial instruments | $ | 9,709 | $ | 27,244 | $ | 41,326 | $ | (38,090) |
| Net Interest Income after Provision for Credit and Valuation Losses | $ | 71,525 | $ | 53,915 | $ | 213,096 | $ | 87,617 |
| Other Income, net: | ||||||||
| Net gain/(loss) on residential whole loans measured at fair value through earnings | $ | 21,815 | $ | 60,316 | $ | 59,325 | $ | (10,082) |
| Gain on investment in Lima One common equity | 38,933 | — | 38,933 | — | ||||
| Impairment and other gains and losses on securities available-for-sale and other assets | 10,000 | (221) | 10,000 | (424,966) | ||||
| Lima One - origination, servicing and other fee income | 9,643 | — | 9,643 | — | ||||
| Net gain/(loss) on real estate owned | 6,829 | 4,503 | 13,725 | 293 | ||||
| Net realized gain/(loss) on sales of securities and residential whole loans | — | 48 | — | (188,847) | ||||
| Loss on terminated swaps previously designated as hedges for accounting purposes | — | (7,177) | — | (57,034) | ||||
| Other, net | 7,226 | 3,086 | 18,787 | (11,355) | ||||
| Other Income/(Loss), net | $ | 94,446 | $ | 60,555 | $ | 150,413 | $ | (691,991) |
| Operating and Other Expense: | ||||||||
| Compensation and benefits | $ | 16,210 | $ | 11,657 | $ | 33,533 | $ | 29,134 |
| Other general and administrative expense | 8,659 | 6,611 | 23,338 | 18,656 | ||||
| Loan servicing, financing and other related costs | 5,291 | 8,992 | 18,591 | 28,609 | ||||
| Amortization of intangible assets | 3,300 | — | 3,300 | — | ||||
| Costs associated with restructuring/forbearance agreement | — | — | — | 44,434 | ||||
| Operating and Other Expense | $ | 33,460 | $ | 27,260 | $ | 78,762 | $ | 120,833 |
| Net Income/(Loss) | $ | 132,511 | $ | 87,210 | $ | 284,747 | $ | (725,207) |
| Less Preferred Stock Dividend Requirement | $ | 8,218 | $ | 8,219 | 24,656 | 21,578 | ||
| Net Income/(Loss) Available to Common Stock and Participating Securities | $ | 124,293 | $ | 78,991 | $ | 260,091 | $ | (746,785) |
| Basic Earnings/(Loss) per Common Share | $ | 0.28 | $ | 0.17 | $ | 0.58 | $ | (1.65) |
| Diluted Earnings/(Loss) per Common Share | 0.27 | 0.17 | 0.57 | $ | (1.65) |
13
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 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 loans. This adjustment is also reflected in our end of period stockholders’ equity in the table below. 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 assets, 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 for the quarterly periods below:
| (In Millions, Except Per Share Amounts) | September 30, 2021 | June 30, 2021 | March 31, 2021 | December 31, 2020 | September 30, 2020 | |||||
|---|---|---|---|---|---|---|---|---|---|---|
| GAAP Total Stockholders’ Equity | $ | 2,601.1 | $ | 2,526.5 | $ | 2,542.3 | $ | 2,524.8 | $ | 2,565.7 |
| Preferred Stock, liquidation preference | (475.0) | (475.0) | (475.0) | (475.0) | (475.0) | |||||
| GAAP Stockholders’ Equity for book value per common share | 2,126.1 | 2,051.5 | 2,067.3 | 2,049.8 | 2,090.7 | |||||
| Adjustments: | ||||||||||
| Fair value adjustment to Residential whole loans, at carrying value | 198.8 | 206.2 | 203.0 | 173.9 | 141.1 | |||||
| Stockholders’ Equity including fair value adjustment to Residential whole loans, at carrying value (Economic book value) | $ | 2,324.9 | $ | 2,257.7 | $ | 2,270.3 | $ | 2,223.7 | $ | 2,231.8 |
| GAAP book value per common share | $ | 4.82 | $ | 4.65 | $ | 4.63 | $ | 4.54 | $ | 4.61 |
| Economic book value per common share | $ | 5.27 | $ | 5.12 | $ | 5.09 | $ | 4.92 | $ | 4.92 |
| Number of shares of common stock outstanding | 440.9 | 440.8 | 446.1 | 451.7 | 453.3 |
14
Exhibit 99.2
Third Quarter 2021 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 : risks related to the COVID - 19 pandemic, including the pandemic’s effect on the general economy and our business, financial position and results of operations (including, among other potential effects, increased delinquencies and greater than expected losses in our whole loan portfolio) ; 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 .
Executive summary 3 • Q 3 2021 financial results • Integration of Lima One • Continued execution of securitizations • Corporate responsibility
2021 third quarter financial results 4 • GAAP earnings of $ 124 . 3 million or $ 0 . 28 per basic common share • Includes gains of $ 43 . 9 million or $ 0 . 10 per share related to Lima One acquisition • Net interest income on residential whole loans increased by 15 % from $ 48 million to $ 55 million • Paid $ 0 . 10 dividend to common shareholders on October 29 , 2021 • Book value growth • GAAP book value up $ 0 . 17 , or 3 . 7 % , to $ 4 . 82 per common share • Economic book value (EBV) up $ 0 . 15 , or 2 . 9 % , to $ 5 . 27 per common share • Economic return of 5 . 8 % (GAAP) and 4 . 9 % (EBV) for third quarter • Leverage ratio of 2 . 2 : 1 as of September 30 , 2021
2021 third quarter financial results (cont’d) • Asset acquisitions of $ 2 . 0 billion of loans in third quarter • Highest quarterly loan purchase volume in MFA’s history • Loan portfolio increased by $ 1 . 5 billion to $ 7 billion after portfolio runoff • MFA’s loan portfolio has grown by 33 % in 2021 from $ 5 . 3 billion at 12 / 31 / 20 • Loan purchases include $ 820 million of Agency eligible investor loans, $ 695 million of Non - QM loans and $ 485 million of business purpose loans • Net interest income increased 5 % to $ 61 . 8 million for Q 3 vs Q 2 • Took advantage of strong housing market to liquidate REO properties • Sold $ 45 million of REO properties for a net gain of $ 7 . 3 million • REO portfolio is $ 179 million as of 9 / 30 / 21 5
6 • Record quarter for asset acquisitions, with net loan portfolio growth of $1.5 billion: • $2.0 billion loan purchases • $820 million Agency Eligible Investor loans, $695 million Non - QM, and $485 million BPLs • At 9/30/21, 54% of our asset backed financing arrangements are on non mark - to - market terms • Total weighted average financing cost at 9/30/21 of 2.2% versus 2.3% at 6/30/21. Securitizations continue to lower borrowing costs with termed - out non - recourse and non - mark - to market debt. Amounts in the pie charts are in billions as of 9/30/21 (1) Business Purpose Loans comprise $0.6 billion of Rehabilitation Loans and $0.7 billion of Single Family Rental Loans at 9/ 30/ 21. (2) The Fair Value option was elected on these loans at acquisition as they were more than 60 days delinquent. At 9/30/21, ap pro ximate ly 54% o f this portfolio was less than 60 days delinquent. (3) PCD or Purchased Credit Deteriorated loans were purchased at a discount (typically as re - performing loans) that reflected, a t least in part, the prior credit performance of underlying borrower. Investment portfolio and asset based financing composition
Integration of Lima One 7 MFA closed the purchase of Lima One, a leading nationwide originator and servicer of business purpose loans, on July 1 , 2021 . • Loans held on Lima One’s balance sheet on July 1 and all Q 3 originations now included in MFA’s portfolio at fair value • Reliable source of substantial loan production - over $ 400 million of origination in the third quarter • Lima One’s financials now consolidated in MFA’s results • Goodwill of $ 62 million and intangible assets of $ 28 million recognized at closing • Improved financing (including securitizations) and access to capital expected to enhance Lima One profitability
Securitizations 8 • MFA 2021 - NQM 2 ( $ 289 million) priced August 12 , 2021 • MFA’s fifth NQM securitization since September 2020 • $ 210 million AAA’s sold at 1 . 00 % yield • Bonds sold represent 96 % of UPB with blended cost of debt of 1 . 23 % • MFA 2021 - AEINV 1 ( $ 312 million) priced October 13 , 2021 • MFA’s first Agency eligible investor loan securitization • Additional securitizations expected in Q 4 • SFR loans, Non - QM loans and Agency eligible investor loans
Corporate responsibility 9 The call for companies to address environmental, social and governance issues continues to grow . Increasingly, the investment community is taking ESG into consideration in their investment decisions . • MFA considers environmental, social and governance matters in our business operations . • We have demonstrated a commitment to our community, support environmental responsibility, governed our business with integrity and worked hard to support and enable our talented workforce . Recently, MFA added a Corporate Responsibility section to our website to highlight our efforts and policies to support these important ESG principles .
Strong earnings reflects portfolio growth and impacts from Lima One acquisition Summary Income Statement Q3 2021 $ in mm Q2 2021 $ in mm Net Interest Income: Loans (1) 55.2 48.2 Securities (2) 9.9 14.5 Other interest earning assets and interest bearing liabilities (3.3 ) (3.7 ) Net Interest Income $ 61.8 $ 59.0 Net reversal of provision for credit losses 9.7 8.9 Net reversal of provision for credit losses $ 9.7 $ 8.9 Other Income, net: Net MTM and other net gains on loans measured at fair value (1) 21.8 6.0 Purchase accounting related gain on investment in Lima One common equity 38.9 — Impairment and other gains and losses on securities available - for - sale and other assets 10.0 — Lima One - origination, servicing and other fee income 9.6 — REO related net gains 6.8 4.5 Other miscellaneous net investment income 7.3 11.1 Other Income, net: $ 94.4 $ 21.6 Operating and Other Expenses (30.1 ) (22.8 ) Amortization of intangible assets (3.3 ) — Preferred dividends (8.2 ) (8.2 ) Net Income Available to Common Shareholders $ 124.3 $ 58.5 Earnings Per Basic Common Share $ 0.28 $ 0.13 • Net interest income increased to $61.8 million: • Overall 5% increase compared to Q2 • Loan net interest income increased 15% reflecting portfolio growth and ongoing impact of securitizations • CECL reserve release of $9.7 million, reflecting the impact of lower balances and assumption changes • Other income includes: • $38.9 million of gains recorded in connection with Lima purchase accounting and $10.0 million gains from reversal of prior period impairments • Continued strong loan portfolio performance • Lima One origination, servicing and related investment activities meaningfully contributed to consolidated MFA earnings • Continued successful REO liquidations • Higher Operating and other expenses primarily reflects impact of Lima One acquisition 10 (1) Starting in Q2 2021 interest income on loans held at fair value is presented within net interest income. Amounts shown in Net MTM and other net gains on loans measured at fair value primarily reflect loan market value changes. (2) Includes CRT securities and MSR - related assets. Key items impacting results:
Strong economic fundamentals support mortgage credit 11 18% 4.8% 0.47% 1.1mm Source: Zillow Source: NY FED Source: BLS Source: Zillow
Non - QM investments • The pace of origination remains elevated as the rates available to Non - QM borrowers became more attractive • We purchased or committed to purchase over $695 million of Non - QM loans in the third quarter of 2021, which is our highest Non - QM quarterly purchase volume since Q1 2020 • We closed on a fifth securitization of Non - QM loans on 8/16/2021 • Over 50% of our borrowing is funded with Non - MTM leverage • We expect to continue to execute programmatic securitizations should market conditions warrant, materially lowering our cost of funds Portfolio Statistics (9/30/21) WA LTV 64.4% Total UPB (in millions) $2,738.0 WA FICO 725 WA Coupon 5.58% Avg Balance $468,354 Hybrid ARM’s 50% Fixed Rate 50% 60+Days DQ 5.3% 3 - Month CPR 39% Top 2 States CA 56% FL 17% 12
Non - QM portfolio performance • Steady improvement since the initial pandemic delinquency wave • Many of our borrowers are self - employed and run small businesses • Approximately 30% of the delinquent borrowers have made a payment in the recent month • Low LTVs significantly reduce expected losses • The level of borrowers currently receiving COVID assistance has effectively dropped to zero June - 20 Sep - 20 Dec - 20 Mar - 21 June - 21 Sep - 21 Loan Count 5,947 5,656 5,405 5,442 5,390 5,846 Total UPB ($ millions) 2,501.5 2,397.2 2,294.1 2,289.8 2,363.3 2,738.0 % Current 97.2 % 88.2 % 89.0 % 88.0 % 89.5 % 92.3 % % 30 Days 1.0 % 3.0 % 3.1 % 4.1 % 2.7 % 2.4 % % 60+ Days 1.8 % 8.8 % 7.9 % 7.9 % 7.8 % 5.3 % LTV 63.6 % 63.6 % 63.8 % 63.5 % 63.6 % 64.4 % % COVID - 19 Impact 31.5 % 32.0 % 31.5 % 28.9 % 26.0 % 18.1 % % Active Deferral 30.6 % 0.1 % — % — % — % — % % Active Forbearance 0.6 % 2.2 % 2.8 % 0.1 % 0.1 % — % 13
Agency eligible investor loans • A recent letter from the FHFA and Treasury suspended the 7% cap on Fannie Mae and Freddie Mac investor loan purchases • The suspension will limit the size of this opportunity going forward • The dislocation in the market allowed us to purchase over $1 billion of loans at attractive levels • We successfully executed our first securitization of Agency eligible investor loans in October 14 Portfolio Statistics (9/30/21) WA LTV 61.9% Total UPB (in millions) $1,082.1 WA FICO 767 WA Coupon 3.40% Avg Balance $389,662 Hybrid ARM’s 0% Fixed Rate 100% 60+Days DQ 0% Top 2 States CA 42% NY 11%
RPL portfolio delinquency characteristics as of 9/30/2021 • 81% of our RPL portfolio is less than 60 days delinquent as of 9/30/2021 • On average, 29% of the 60+ days delinquent loans are making payments • Prepay speeds have steadily increased as borrowers have more opportunities to refinance • 28% of the RPL portfolio has been granted forbearance plans related to the COVID pandemic ▪ Although borrowers have received forbearance plans, many continue to make payments and are contractually current 15
• Measured by UPB at purchase, 38% (or approximately 4,200) of loans that were non - performing at purchase are either performing or have paid in full as of September 2021. • 75% of MFA modified loans are either performing today or have paid in full. Performance of Non - Performing (1) loans purchased before 9/30/20 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 9/30/2021 Performing (2) /PIF 36 % 29 % 30 % 41 % 50 % 37 % 38 % Liquidation/REO 56 % 60 % 63 % 43 % 34 % 35 % 48 % Non - Performing 8 % 11 % 7 % 16 % 16 % 28 % 14 % Total 100 % 100 % 100 % 100 % 100 % 100 % 100 % 1 Non - Performing at purchase defined as greater than or equal to 60 days delinquent 2 Performing as of 9/30/2021 defined as less than 60 days delinquent or made a full P&I payment in September 2021 • 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. • 48% 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 quarter, we sold almost 3 times more properties than the number of loans converted to REO. 16
Business purpose loans – Lima One 17 • We completed the acquisitions of Lima One, a leading nationwide originator and servicer of business purpose loans (BPLs), on July 1st. • Lima One originated over $ 400 million ( 1 ) in the third quarter, a 34 % increase from the second quarter and a record quarter for the company . Fourth quarter is off to a strong start with approximately $ 170 million of originations in October . • Origination on track to exceed earlier expectations. Expect full year origination for 2021 to be between $1.4 billion and $1.5 billion. • $10.6 million of income from Lima One’s origination and servicing activities in the quarter, representing an annualized return on allocated equity of approximately 30%. • Overall integration with MFA including initiatives to improve financing of Lima’s operations and on balance sheet assets are progressing well. • Added $600 million of BPL financing facilities in the quarter to support the growth of our BPL strategy. Significantly expanded our ability to finance a broad range of BPL assets while reducing cost. • Expect to close another business purpose rental loan securitization in the fourth quarter. (1) Origination amounts are based on the maximum loan amount, which includes amounts initially funded plus any committe d, but undrawn amounts .
Business purpose loans – Rehabilitation loans • The Fix and Flip portfolio grew by $162 million to $594 million UPB at September 30, 2021. A 37% increase over second quarter 2021 • Loan acquisition activity increased significantly: • We acquired $229 million UPB ($347 million max loan amount) in the third quarter • Further, we have added over $65 million UPB (over $95 million max loan amount) so far in the fourth quarter • Average yield of 7.11% in the third quarter. A 67bp increase vs. second quarter. Portfolio Statistics (9/30/21) UPB (in millions) $594 Undrawn commitments (millions) $185 Maximum Loan Amount (millions) $780 WA ARV - LTV* 66% WA As - Is/Purch. LTV** 71% WA FICO 726 WA Loan Age (months) 14 WA Passthrough Rate 7.33% 3 mth Repayment Rate (CPR) 55% 60+ Days DQ 18% 60+ Days DQ UPB (millions) $107 * 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 18 • 60+ day delinquency decreased $13 million to $107 million in the third quarter. 60+ day delinquency as a percentage of UPB decreased by 10% to 18% at the end of the quarter: • Active asset management, low initial LTV’s and annual national HPA of over 15% have led to acceptable outcomes. • Seriously delinquent loans continue to decline as a meaningful amount pays off in full or cures. • We have collected approximately $5.6 million 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: • Third quarter yield: 5.76% • 60+ day delinquency rate decreased 1.4% to 3.5% • Three month prepayment rate of 31% • SFR portfolio grew by 39% in the third quarter: • We acquired $251 million in the third quarter • The acquisition of Lima One has meaningfully increased the pace of SFR loan portfolio growth • Further, we have added over $70 million to date in the fourth quarter SFR Portfolio Statistics (9/30/21) UPB (millions) $717 WA LTV 70 % WA FICO 732 WA DSCR* 1.53x WA Coupon 5.91% WA Loan Age (months) 14 Hybrid ARM’s 35% 3rd Quarter Yield 5.76% 3mth Prepayment Rate (CPR) 31% 60+ Days DQ 3.5% *WA DSCR: Weighted average debt service coverage ratio 19 • We expect to close another rental loan securitization in the fourth quarter • Large portion of our SFR financing is non - mark - to - market and/or through securitization : • 54 % of SFR financing was non - mark - to - market at the end of the third quarter • 34 % of SFR financing was through securitizations at the end of the third quarter • We expect to continue to programmatically execute securitizations to efficiently finance our SFR loans
Summary • Strong third quarter 2021 results : • $ 0 . 28 EPS and 4 % book value growth • Best loan investment quarter in MFA’s history • Robust growth in loan portfolio and in net interest income • Securitization strategy execution continues • Over $ 2 billion in 2021 with several more deals expected • Lima One results now consolidated • Meaningful contribution to net income in Q 3 • Lima One loan production is at all - time high • Strong housing fundamentals have positive implications for mortgage credit and the performance of our portfolio 20
Additional Information
22 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 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 loans . This adjustment is also reflected in our end of period stockholders’ equity in the table below . 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 assets, 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 2020 . (In Millions, Except Per Share Amounts) 9/30/21 6/30/21 3/31/21 12/31/20 9/30/20 6/30/20 3/31/20 GAAP Total Stockholders’ Equity $ 2,601.1 $ 2,526.5 $ 2,542.3 $ 2,524.8 $ 2,565.7 $ 2,521.1 $ 2,440.7 Preferred Stock, liquidation preference (475.0 ) (475.0 ) (475.0 ) (475.0 ) (475.0 ) (475.0 ) (475.0 ) GAAP Stockholders’ Equity for book value per common share $ 2,126.1 $ 2,051.5 $ 2,067.3 $ 2,049.8 $ 2,090.7 $ 2,046.1 $ 1,965.7 Adjustments: Fair value adjustment to Residential whole loans, at carrying value 198.8 206.2 203.0 173.9 141.1 (25.3 ) (113.5 ) Stockholders’ Equity including fair value adjustment to Residential whole loans, at carrying value (Economic book value) $ 2,324.9 $ 2,257.7 $ 2,270.3 $ 2,223.7 $ 2,231.8 $ 2,020.8 $ 1,852.2 GAAP book value per common share $ 4.82 $ 4.65 $ 4.63 $ 4.54 $ 4.61 $ 4.51 $ 4.34 Economic book value per common share $ 5.27 $ 5.12 $ 5.09 $ 4.92 $ 4.92 $ 4.46 $ 4.09 Number of shares of common stock outstanding 440.9 440.8 446.1 451.7 453.3 453.2 453.1
23 GAAP Economic Book value per common share as of 6/30/21 $4.65 $5.12 Net income available to common shareholders 0.28 0.28 Common stock dividends declared (0.10) (0.10) Fair value changes attributable to residential mortgage securities and MSR term notes, and other (0.01) (0.01) Change in fair value of residential whole loans reported at carrying value under GAAP — (0.02) Book value per common share as of 9/30/21 $4.82 $5.27 Book value increase reflects excess of earnings over dividends distributed
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 $10.2 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 24 Three Months Ended September 30, 2021 (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 $12,092 $11,604 $2,360 $57 $28,148 $54,261 Current period provision (2,403) (2,526) (670) (7) (4,020) (9,626) Write - offs — (393) (56) — (84) (533) Allowance for credit losses at end of period $9,689 $8,685 $1,634 $50 $24,044 $44,102 Implied loss rate as a percentage of UPB 59 bps 295 bps 45 bps 4 bps 357 bps 143 bps 1. In connection with purchased Rehabilitation loans at carrying value, the Company had unfunded commitments of $ 29 . 2 million, with a separately recorded liability for expected losses of $ 0 . 4 million .