MFA Financial, Inc. Announces Fourth Quarter 2021 Financial Results

Rhea-AI Summary

MFA Financial reported a fourth quarter 2021 net income of $35.9 million, or $0.08 per share, with a GAAP book value of $4.78 and an economic book value of $5.15 per share. Net interest income rose 13% to $70.1 million, driven by successful asset acquisitions and record origination volumes at Lima One. The company completed $937 million in securitizations and repurchased 8.5 million shares. However, market volatility led to unrealized losses of approximately $42.6 million in residential whole loans. The total shareholder return for 2021 was 27.6%.

Positive

• Net income of $35.9 million for Q4 2021.
• Net interest income increased by 13% to $70.1 million.
• Completed three securitizations totaling $937 million.
• Repurchased 8.5 million shares at an average price of $4.42.

Negative

• Unrealized market value losses of $42.6 million on residential whole loans.
• Decline in GAAP and Economic book value on a quarterly basis.

NEW YORK, Feb. 23, 2022 /PRNewswire/ -- MFA Financial, Inc. (NYSE:MFA) today provided its financial results for the fourth quarter ended December 31, 2021.

Fourth Quarter 2021 financial results update:

• MFA generated fourth quarter net income of $35.9 million, or $0.08 per common share.
• GAAP book value at December 31, 2021 was $4.78 per common share, while Economic book value, a non-GAAP financial measure of MFA's financial position that adjusts GAAP book value by the amount of unrealized market value changes in residential whole loans and securitized debt held at carrying value for GAAP reporting, was $5.15 per common share at quarter-end.
• Net interest income increased on a sequential quarterly basis to $70.1 million, primarily driven by continued successful asset acquisitions and another record quarter for origination volumes at Lima One, resulting in a 13% increase in net interest income. In addition, during the quarter, we completed a securitization of $284.2 million of Single-Family Rental Loans, with a weighted average coupon of bonds sold of 2.15%, providing $103.1 million additional liquidity and longer term, non-recourse, non-mark-to-market financing. We also completed two securitizations of Agency Eligible Single-Family Rental loans totaling $652.9 million during the quarter. For the fourth quarter, the overall net interest spread generated by all of our interest-bearing assets was 2.98%, unchanged from the prior quarter.
• Loan acquisition activity of $1.4 billion reflects continued successful execution of our asset aggregation strategy, resulting in net portfolio growth for the quarter approaching $800 million. During the quarter we acquired, or committed to acquire, approximately $950 million of Non-QM loans. At Lima One, funded originations were more than $450 million (over $600 million maximum loan amount inclusive of undrawn amounts), reflecting record volumes for the second consecutive quarter. In addition, draws funded during the quarter on Rehabilitation loans were $45.7 million. For the full year, MFA acquired approximately $4.6 billion in residential whole loans (including draws on Rehabilitation loans), resulting in net portfolio growth of $2.6 billion.
• Interest rate volatility resulted in market value decreases in our residential whole loans that are measured at fair value through earnings of $42.6 million. These unrealized losses reflect a partial reversal of unrealized gains recorded in earlier quarters of 2021. On a full year basis we recorded unrealized gains on these loans of $16.2 million.
• Unrealized losses on residential whole loans were partially offset by a gain of approximately $24.0 million on a minority investment held in a residential whole loan origination company. This gain reflects an adjustment of the carrying value of our minority stake and includes the partial reversal of an impairment that was initially recorded in March of 2020. The adjustment was required after the investee company entered into a capital transaction with an unrelated third party. In addition, offsetting gains totaling $7.2 million were also recorded on economic hedge positions in short TBAs, interest rate swaps and securitized debt held at fair value through earnings.
• MFA paid a regular cash dividend for the fourth quarter of $0.11 per share of common stock on January 31, 2022. During the quarter, under our existing stock repurchase authorization we repurchased 8,495,265 shares of common stock at an average price of $4.42 per share. Subsequent to the end of the quarter through February 18, 2022, we repurchased an additional 7.9 million shares of common stock at an average price of $4.43, leaving approximately $45.5 million of remaining capacity under the authorization as of such date.

Commenting on the fourth quarter 2021 and full year 2021 results, Craig Knutson, MFA's CEO and President said, "We continued to execute on our plan to grow our loan portfolio and term out financing through securitization in the fourth quarter of 2021.  We acquired $1.4 billion of loans in the fourth quarter and grew our loan portfolio by nearly $800 million.  In addition, we completed three securitizations totaling $937 million.  For the full year 2021, we grew our loan portfolio by over $2.6 billion, or 48.6%, and completed eight securitizations totaling $2.6 billion. The acquisition of Lima One on July 1, 2021 generated almost immediate results as we added $1.0 billion of business purpose loans in the second half of the year.  Our net interest income for the fourth quarter was $70.1 million, a 13% increase from the third quarter, and an 83% increase from the fourth quarter of 2020.  We earned $0.08 per common share  in the fourth quarter.  Earnings were negatively impacted by market value decreases in our loan portfolio held at fair value, as the Fed signaled a sharp shift in monetary policy early in the fourth quarter resulting in negative investor sentiment and increased interest rate volatility.  Short rates, in particular, moved sharply higher and the yield curve flattened.  Our GAAP book value declined slightly (less than 1%) to $4.78 from $4.82, and our Economic book value declined 2% to $5.15 from $5.25, due primarily to declines in prices of loans held at carrying value." 

Mr. Knutson added, "Despite a challenging interest rate environment in the fourth quarter, MFA generated a GAAP economic return for the quarter of 1.5%, while our Economic book value economic return was 0.2%.  For the full year 2021, MFA's GAAP economic return was 13.8% and Economic book value economic return was 12.7%.  Finally, our total shareholder return for 2021 was 27.6%.  We repurchased 8.5 million shares of our common stock at an average price of $4.42 during the fourth quarter.  For the year 2021, we repurchased 20.1 million shares of our common stock at an average price of $4.26."

Mr. Knutson continued, "We also continued to take advantage of a strong housing market to  reduce our REO portfolio, selling 177 properties in the fourth quarter for aggregate proceeds of $53.9 million and generating $10.1 million of gains.  For the full year 2021, we sold 647 REO properties for aggregate proceeds of $187.9 million, generating gains of $23.5 million.  Our REO portfolio was $156.2 million at December 31, 2021, a 37.4% decrease since December 31, 2020." 

Q4 2021 Portfolio Activity

MFA's residential mortgage investment portfolio increased by $782.6 million during the fourth quarter, as we continued to successfully execute on our asset acquisition strategy.  Loan acquisitions included $946.1 million of Non-QM loans and $500.0 million of funded originations (including draws on Rehabilitation loans) of Business Purpose loans.

At December 31, 2021, our investments in residential whole loans totaled $7.9 billion.  Of this amount, $6.3 billion are Purchased Performing Loans, $525.0 million are Purchased Credit Deteriorated Loans and $1.1 billion are Purchased Non-performing Loans.  During the quarter, we recognized approximately $90.3 million of Interest Income on residential whole loans in our consolidated statements of operations, representing a yield of 5.08%.  Purchased Performing Loans generated a yield of 4.12%, Purchased Credit Deteriorated Loans generated a yield of 7.15% and Purchased Non-performing Loans generated a yield of 9.83%.  Continued success in acquiring purchased performing loans drove a sequential quarterly increase in interest income from our residential whole loan portfolio of approximately $10.7 million.  Overall delinquency rates across our residential whole loan portfolio declined compared to the prior quarter.  The dollar amount of  Purchased Performing Loans that were 60 or more days delinquent,  decreased by approximately 10% during the quarter, primarily due to lower Non-QM loan delinquencies.   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 December 31, 2021.   The percentage amount of Purchased Non-performing Loans that were 90 or more days delinquent decreased to 42.4% at December 31, 2021 from 42.5% at September 30, 2021.

For the fourth 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 December 31, 2021 was $39.4 million.  In addition, as of December 31, 2021, reserves for credit losses totaling approximately $205,000 were recorded related to undrawn commitments on loans held at carrying value.

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 fourth quarter, net losses of $42.6 million were recorded, primarily reflecting unrealized fair value changes in the underlying loans.  These losses were partially offset by $7.2 million of gains on derivative hedge positions in swaps and short TBAs, as well as on securitized debt held at fair value through earnings.

In addition, as of the end of the quarter, we held approximately $156 million of REO properties, which decreased from $179 million as of the end of the third 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.  For the quarter, REO related net gains were $9.1 million.

Lima One had a second consecutive quarter of record origination volumes, funding more than $450 million of business purpose loans with a maximum loan amount of $600 million, and generating approximately $13.0 million of net origination, servicing, and other fee income.

At the end of the fourth quarter, MFA held approximately $257 million of Securities, at fair value, including $154 million of MSR-related assets and $103 million of CRT securities.

During the fourth quarter we entered into interest rate swaps with a notional amount of $900.0 million.  At December 31, 2021, these swaps had a weighted average fixed pay interest rate of 1.01% and a weighted average variable receive interest rate of 0.05%.  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 December 31, 2021 was 1.32.

General and Administrative and other expenses

For the three months ended December 31, 2021, MFA's costs for compensation and benefits and other general and administrative expenses were $28.7 million.  Expenses this quarter include $13.7 million compensation and other general and administrative expenses recorded at Lima One.

Stock Repurchase Program

On November 2, 2020, MFA's Board of Directors authorized a stock repurchase program under which MFA may repurchase up to $250 million of its common stock through the end of 2022.  As indicated above, during the fourth quarter of 2021, the Company repurchased 8,495,265 shares of common stock at an average price of $4.42 per share. 

The following table presents MFA's asset allocation as of December 31, 2021, and the fourth 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 December 31, 2021		Purchased Performing Loans (1)		Purchased Credit Deteriorated Loans (2)		Purchased Non-Performing Loans		Securities, at fair value		Real Estate Owned		Other, net (3)		Total
(Dollars in Millions)
Fair Value/Carrying Value		$   6,316		$       525		$   1,072		$      257		$      156		$          595		$   8,921
Financing Agreements with Non-mark- to-market Collateral Provisions		(589)		(126)		(214)		—		(11)		—		(940)
Financing Agreements with Mark-to- market Collateral Provisions		(2,152)		(100)		(139)		(159)		(12)		—		(2,562)
Less Securitized Debt		(2,103)		(195)		(331)		—		(21)		—		(2,650)
Less Convertible Senior Notes		—		—		—		—		—		(226)		(226)
Net Equity Allocated		$   1,472		$       104		$      388		$        98		$      112		$          369		$   2,543
Debt/Net Equity Ratio (4)		3.3   x		4.0   x		1.8   x		1.6   x		0.4   x				2.5   x
For the Quarter Ended December 31, 2021
Yield on Average Interest Earning Assets (5)		4.12 %		7.15 %		9.83 %		26.28 %		N/A				5.37 %
Less Average Cost of  Funds (6)		(2.19)		(2.23)		(2.51)		(1.50)		(2.58)				(2.39)
Net Interest Rate Spread		1.93 %		4.92 %		7.32 %		24.78 %		(2.58) %				2.98 %

(1)	Includes $3.5 billion of Non-QM loans, $728.0 million of Rehabilitation loans, $949.8 million of Single-family rental loans, $102.0 million of Seasoned performing loans, and $1.1 billion of Agency eligible investor loans.  At December 31, 2021, the total fair value of these loans is estimated to be approximately $6.4 billion.
(2)	At December 31, 2021, the total fair value of these loans is estimated to be approximately $624.0 million.
(3)	Includes $304.7 million of cash and cash equivalents, $99.8 million of restricted cash, and $71.7 million of capital contributions made to loan origination partners, as well as other assets and other liabilities.
(4)	Total Debt/Net Equity ratio represents the sum of borrowings under our financing agreements noted above as a multiple of net equity allocated.
(5)	Yields reported on our interest earning assets are calculated based on the interest income recorded and the average amortized cost for the quarter of the respective asset.  At December 31, 2021, the amortized cost of our securities, at fair value, was $208.0 million.  In addition, the yield for residential whole loans at carrying value was 5.05%, net of three basis points of servicing fee expense incurred during the quarter.  For GAAP reporting purposes, such expenses are included in Loan servicing and other related operating expenses in our statement of operations.  Yield reported on Securities, at fair value, includes $8.1 million of accretion income recognized on the redemption at par of a MSR-related asset that had been held at amortized cost basis below par due to an impairment charge recorded in the first quarter of 2020.  Excluding this accretion, the yield reported would have been 11.37%.
(6)	Average cost of funds includes interest on financing agreements, Convertible Senior Notes and securitized debt.

The following table presents the activity for our residential mortgage asset portfolio for the three months ended December 31, 2021:

Table 2 - Investment Portfolio Activity Q4 2021

(In Millions)		September 30, 2021		Runoff (1)		Acquisitions (2)		Other (3)		December 31, 2021		Change
Residential whole loans and REO		$                      7,260		$         (601)		$               1,444		$          (34)		$                      8,069		$          809
Securities, at fair value		283		(26)		—		—		257		(26)
Totals		$                      7,543		$         (627)		$               1,444		$          (34)		$                      8,326		$          783

(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 Loans at December 31, 2021 and December 31, 2020:

Table 3 - Portfolio composition

		Held at Carrying Value				Held at Fair Value				Total
(Dollars in Thousands)		December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020		December 31, 2021		December 31, 2020
Purchased Performing Loans:
Non-QM loans		$  1,448,162		$ 2,357,185		$  2,013,369		$              —		$  3,461,531		$ 2,357,185
Rehabilitation loans		217,315		581,801		517,530		—		734,845		581,801
Single-family rental loans		331,808		446,374		619,415		—		951,223		446,374
Seasoned performing loans		102,041		136,264		—		—		102,041		136,264
Agency eligible investor loans		—		—		1,082,765		—		1,082,765		—
Total Purchased Performing Loans		$  2,099,326		$ 3,521,624		$  4,233,079		$              —		$  6,332,405		$ 3,521,624
Purchased Credit Deteriorated Loans		$     547,772		$    673,708		$               —		$              —		$     547,772		$    673,708
Allowance for Credit Losses		$      (39,447)		$     (86,833)		$               —		$              —		$      (39,447)		$     (86,833)
Purchased Non-Performing Loans		$               —		$              —		$  1,072,270		$ 1,216,902		$  1,072,270		$ 1,216,902
Total Residential Whole Loans		$  2,607,651		$ 4,108,499		$  5,305,349		$ 1,216,902		$  7,913,000		$ 5,325,401
Number of loans		9,361		13,112		14,734		5,622		24,095		18,734

Table 4 - Yields and average balances

		For the Three-Month Period Ended
(Dollars in Thousands)		December 31, 2021						September 30, 2021						December 31, 2020
		Interest		Average Balance		Average Yield		Interest		Average Balance		Average Yield		Interest		Average Balance		Average Yield
Purchased Performing Loans:
Non-QM loans		$  28,902		$  3,002,644		3.85 %		$ 23,891		$ 2,482,917		3.85 %		$  24,316		$  2,435,751		3.99 %
Rehabilitation loans		9,214		652,663		5.65 %		9,918		557,635		7.11 %		9,983		669,320		5.97 %
Single-family rental loans		10,684		828,183		5.16 %		9,497		659,046		5.76 %		6,193		470,197		5.27 %
Seasoned performing loans		1,423		106,065		5.37 %		1,728		114,102		6.06 %		1,993		143,926		5.54 %
Agency eligible investor loans		8,046		1,065,062		3.02 %		3,360		426,986		3.15 %		—		—		—   %
Total Purchased Performing Loans		58,269		5,654,617		4.12 %		48,394		4,240,686		4.56 %		42,485		3,719,194		4.57  %
Purchased Credit Deteriorated Loans		10,033		561,262		7.15 %		10,504		593,127		7.08 %		8,973		694,988		5.16 %
Purchased Non-Performing Loans		22,010		895,472		9.83 %		20,704		939,578		8.81 %		18,934		1,072,517		7.06 %
Total Residential whole loans		$  90,312		$  7,111,351		5.08 %		$ 79,602		$ 5,773,391		5.52 %		$  70,392		$  5,486,699		5.13 %

Table 5 - Net Interest Spread

		Quarter Ended
		December 31, 2021		September 30, 2021		December 31, 2020
Purchased Performing Loans
Net Yield (1)		4.12 %		4.56 %		4.57 %
Cost of Funding (2)		2.19 %		2.14 %		2.77 %
Net Interest Spread (3)		1.93 %		2.42 %		1.80 %
Purchased Credit Deteriorated Loans
Net Yield (1)		7.15 %		7.08 %		5.16 %
Cost of Funding (2)		2.23 %		2.18 %		3.02 %
Net Interest Spread (3)		4.92 %		4.90 %		2.14 %
Purchased Non-Performing Loans
Net Yield (1)		9.83 %		8.81 %		7.06 %
Cost of Funding (2)		2.51 %		2.43 %		3.57 %
Net Interest Spread (3)		7.32 %		6.38 %		3.49 %
Total Residential Whole Loans
Net Yield (1)		5.08 %		5.52 %		5.13 %
Cost of Funding (2)		2.23 %		2.20 %		2.97 %
Net Interest Spread (3)		2.85 %		3.32 %		2.16 %

(1)	Reflects annualized interest income on Residential whole loans divided by average amortized cost of Residential whole loans. Excludes servicing costs.
(2)	Reflects annualized interest expense divided by average balance of repurchase agreements, agreements with non-mark-to-market collateral provisions, and securitized debt.
(3)	the difference between the net yield on average Residential whole loans and average cost of funds on Residential whole loans.

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:

		For the Year Ended December 31, 2021
(Dollars In Thousands)		Non-QM Loans		Rehabilitation Loans (1)(2)		Single-family Rental Loans		Seasoned Performing 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
Current provision/(reversal)		(1,400)		(706)		(178)		(4)		(1,142)		(3,430)
Write-offs		—		(1,098)		(5)		—		(122)		(1,225)
Allowance for credit losses at December 31, 2021		$       8,289		$               6,881		$           1,451		$               46		$         22,780		$         39,447
		For the Year Ended December 31, 2020
(Dollars In Thousands)		Non-QM Loans		Rehabilitation Loans (1)(2)		Single-family Rental Loans		Seasoned Performing 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
Current provision/(reversal)		(5,599)		(3,837)		(1,107)		(43)		(7,997)		(18,583)
Write-offs		(86)		(425)		—		—		(319)		(830)
Allowance for credit losses at December 31, 2020		$       21,068		$           18,371		$           3,918		$              107		$          43,369		$          86,833

(1)	In connection with purchased Rehabilitation loans at carrying value, the Company had unfunded commitments of $18.5 million and $73.2 million as of December 31, 2021 and 2020, respectively, with an allowance for credit losses of $205,000 and $1.2 million at December 31, 2021 and 2020, respectively.  Such allowance is included in "Other liabilities" in the Company's consolidated balance sheets.
(2)	Includes $87.0 million and $143.4 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2021 and 2020, respectively.
(3)	Includes $57.4 million and $72.7 million of loans that were assessed for credit losses based on a collateral dependent methodology as of December 31, 2021 and 2020, respectively.
(4)	Of the $70.6 million of reserves recorded on adoption of ASU 2016-13, $8.3 million was recorded as an adjustment to stockholders' equity and $62.4 million was recorded as a "gross up" of the amortized cost basis of Purchased Credit Deteriorated Loans.

Table 7 - Credit related metrics/Residential Whole Loans

December 31, 2021
		Fair Value / Carrying Value		Unpaid Principal Balance ("UPB")		Weighted Average Coupon (1)		Weighted Average Term to Maturity (Months)		Weighted Average LTV Ratio (2)		Weighted Average Original FICO (3)		Aging by UPB
																Past Due Days
(Dollars In Thousands)														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 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
December 31, 2020
		Fair Value / Carrying Value		Unpaid Principal Balance ("UPB")		Weighted Average Coupon (1)		Weighted Average Term to Maturity (Months)		Weighted Average LTV Ratio (2)		Weighted Average  Original  FICO (3)		Aging by UPB
																Past Due Days
(Dollars In Thousands)														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 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 $137.3 million and $189.9 million at December 31, 2021 and 2020, 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 71% and 69% at December 31, 2021 and 2020, 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.

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:

		December 31, 2021
(Dollars In Thousands)		Carrying Value / 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
		December 31, 2020
(Dollars In Thousands)		Carrying Value / Fair Value		UPB		LTV (1)
Purchased Performing Loans
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 %
Agency eligible investor loans		—		—		—   %
Total Purchased Performing Loans		$               313,153		$               310,084
Purchased Credit Deteriorated Loans		$               119,621		$               145,028		86.7 %
Purchased Non-Performing Loans		$               571,729		$               625,621		86.8 %
Total Residential whole loans		$            1,004,503		$            1,080,733

(1)

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, an after repaired valuation was not obtained and the loan was underwritten based on an "as is" valuation.  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.

Webcast
MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Wednesday, February 23, 2022, at 10:00 a.m. (Eastern Time) to discuss its fourth 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-Looking Statements
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.

MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Per Share Amounts)		December 31, 2021		December 31, 2020
		(unaudited)
Assets:
Residential whole loans, net ($5,305,349 and $1,216,902 held at fair value, respectively) (1)		$    7,913,000		$    5,325,401
Securities, at fair value		256,685		399,999
Cash and cash equivalents		304,696		814,354
Restricted cash		99,751		7,165
Other assets		565,556		385,381
Total Assets		$    9,139,688		$    6,932,300
Liabilities:
Financing agreements ($3,266,773 and $3,366,772 held at fair value, respectively)		$    6,378,782		$    4,336,976
Other liabilities		218,058		70,522
Total Liabilities		$    6,596,840		$    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 and 874,300 shares authorized; 432,551 and 451,714 shares issued   and outstanding, respectively		4,326		4,517
Additional paid-in capital, in excess of par		3,772,238		3,848,129
Accumulated deficit		(1,279,484)		(1,405,327)
Accumulated other comprehensive income		45,578		77,293
Total Stockholders' Equity		$    2,542,848		$    2,524,802
Total Liabilities and Stockholders' Equity		$    9,139,688		$    6,932,300

(1)	Includes approximately $3.0 billion and $1.8 billion of Residential whole loans transferred to consolidated variable interest entities ("VIEs") at December 31, 2021 and December 31, 2020, respectively.  Such assets can be used only to settle the obligations of each respective VIE.

 

MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS
		Three Months Ended December 31,				Year Ended December 31,
(In Thousands, Except Per Share Amounts)		2021		2020		2021		2020
		(Unaudited)		(Unaudited)		(Unaudited)
Interest Income:
Residential whole loans		$             90,312		$             70,392		$           303,468		$           332,212
Securities, at fair value		14,257		8,227		56,690		90,094
Other interest-earning assets		1,168		761		1,800		9,850
Cash and cash equivalent investments		105		30		344		676
Interest Income		$           105,842		$             79,410		$           362,302		$           432,832
Interest Expense:
Asset-backed and other collateralized financing arrangements		$             31,770		$             32,041		$           104,597		$           242,039
Other interest expense		3,925		9,003		15,788		26,719
Interest Expense		$             35,695		$             41,044		$           120,385		$           268,758
Net Interest Income		$             70,147		$             38,366		$           241,917		$           164,074
Reversal/(Provision) for credit and valuation losses on residential   whole loans and other financial instruments		$               3,537		$             15,709		$             44,863		$            (22,381)
Net Interest Income after Provision for Credit and Valuation Losses		$             73,684		$             54,075		$           286,780		$           141,693
Other Income, net:
Net (loss)/gain on residential whole loans measured at fair value   through earnings		$           (42,589)		$             30,848		$             16,736		$             20,765
Gain on investment in Lima One common equity		—		—		38,933		—
Impairment and other gains and losses on securities available-for-sale   and other assets		23,956		(116)		33,956		(425,082)
Lima One - origination, servicing and other fee income		12,962		—		22,600		—
Net gain on real estate owned		9,113		5,098		22,838		5,391
Net realized loss on sales of securities and residential whole loans		—		—		—		(188,847)
Loss on terminated swaps previously designated as hedges for   accounting purposes		—		—		—		(57,034)
Other, net		11,249		(23,690)		30,040		(34,762)
Other Income/(Loss), net		$             14,691		$             12,140		$           165,103		$          (679,569)
Operating and Other Expense:
Compensation and benefits		$             20,284		$               1,908		$             53,817		$             31,042
Other general and administrative expense		8,391		6,727		31,729		25,666
Loan servicing, financing and other related costs		12,277		11,763		30,867		40,372
Amortization of intangible assets		3,300		—		6,600		—
Costs associated with restructuring/forbearance agreement		—		—		—		44,434
Operating and Other Expense		$             44,252		$             20,398		$           123,013		$           141,514
Net Income/(Loss)		$             44,123		$             45,817		$           328,870		$          (679,390)
Less Preferred Stock Dividend Requirement		$               8,219		$               8,218		$             32,875		$             29,796
Net Income/(Loss) Available to Common Stock and Participating Securities		$             35,904		$             37,599		$           295,995		$          (709,186)
Basic Earnings/(Loss) per Common Share		$                 0.08		$                 0.08		$                 0.67		$                (1.57)
Diluted Earnings/(Loss) per Common Share		$                 0.08		$                 0.08		$                 0.66		$                (1.57)

Reconciliation of GAAP Book Value per Common Share to non-GAAP Economic Book Value per Common Share

"Economic book value" is a non-GAAP financial measure of our financial position.  To calculate our Economic book value, our portfolios of Residential whole loans and securitized debt held at carrying value are adjusted to their fair value, rather than the carrying value that is required to be reported under the GAAP accounting model applied to these financial instruments.  These adjustments are also reflected in the table below in our end of period stockholders' equity.  Management considers that Economic book value provides investors with a useful supplemental measure to evaluate our financial position as it reflects the impact of fair value changes for all of our 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:

(In Millions, Except Per Share Amounts)		December 31, 2021		September 30, 2021		June 30, 2021		March 31, 2021		December 31, 2020
GAAP Total Stockholders' Equity		$        2,542.8		$         2,601.1		$   2,526.5		$     2,542.3		$        2,524.8
Preferred Stock, liquidation preference		(475.0)		(475.0)		(475.0)		(475.0)		(475.0)
GAAP Stockholders' Equity for book value per common share		2,067.8		2,126.1		2,051.5		2,067.3		2,049.8
Adjustments:
Fair value adjustment to Residential whole loans, at carrying value		153.5		198.8		206.2		203.0		173.9
Fair value adjustment to Securitized debt, at carrying value (1)		4.3		(8.0)		(8.9)		(3.6)		(5.1)
Stockholders' Equity including fair value adjustments to Residential   whole loans and Securitized debt held at carrying value (Economic   book value) (1)		$        2,225.6		$         2,316.9		$   2,248.8		$     2,266.7		$        2,218.6
GAAP book value per common share		$             4.78		$             4.82		$       4.65		$         4.63		$             4.54
Economic book value per common share (1)		$             5.15		$             5.25		$       5.10		$         5.08		$             4.91
Number of shares of common stock outstanding		432.6		440.9		440.8		446.1		451.7

(1)	Economic book value per common share for periods prior to December 31, 2021 have been restated to include the impact of fair value changes in securitized debt held at carrying value.

 

INVESTOR CONTACT:	InvestorRelations@mfafinancial.com
	212-207-6488
	www.mfafinancial.com
MEDIA CONTACT:	Abernathy MacGregor
	Tom Johnson
	212-371-5999

 

Category: Earnings

 

View original content:https://www.prnewswire.com/news-releases/mfa-financial-inc-announces-fourth-quarter-2021-financial-results-301487918.html

SOURCE MFA Financial, Inc.