MFA Financial(MFA) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Financial Statements This section presents the unaudited consolidated financial statements, detailing a net loss of $55.0 million for Q3 2022 and changes in assets and equity Consolidated Balance Sheet Summary (Unaudited) | (In Thousands) | September 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $9,519,846 | $9,139,688 | | Residential whole loans, net | $8,194,049 | $7,913,000 | | Cash and cash equivalents | $434,086 | $304,696 | | Total Liabilities | $7,485,915 | $6,596,840 | | Financing agreements | $7,289,440 | $6,378,782 | | Total Stockholders' Equity | $2,033,931 | $2,542,848 | Consolidated Statements of Operations Summary (Unaudited) | (In Thousands, Except Per Share) | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Net Interest Income | $52,293 | $61,816 | $167,925 | $171,770 | | Other (Loss)/Income, net | ($64,191) | $94,446 | ($248,155) | $150,413 | | Net (Loss)/Income | ($55,018) | $132,511 | ($238,291) | $284,747 | | Basic (Loss)/Earnings per Share | ($0.62) | $1.12 | ($2.54) | $2.33 | | Diluted (Loss)/Earnings per Share | ($0.62) | $1.08 | ($2.54) | $2.28 | Note 3. Residential Whole Loans The residential whole loan portfolio increased to $8.2 billion, primarily comprising performing, non-performing, and credit-deteriorated loans Residential Whole Loan Portfolio Breakdown (As of Sep 30, 2022) | Loan Category | Held at Carrying Value (In Thousands) | Held at Fair Value (In Thousands) | Total (In Thousands) | | :--- | :--- | :--- | :--- | | Purchased Performing Loans | $1,434,596 | $5,468,403 | $6,902,999 | | Purchased Credit Deteriorated Loans | $480,679 | $0 | $480,679 | | Purchased Non-Performing Loans | $0 | $847,563 | $847,563 | | Allowance for Credit Losses | ($37,192) | $0 | ($37,192) | | Total Residential Whole Loans | $1,878,083 | $6,315,966 | $8,194,049 | - The allowance for credit losses on residential whole loans held at carrying value decreased from $39.4 million at the end of 2021 to $37.2 million as of September 30, 2022[91] Note 4. Securities, at Fair Value The company's securities portfolio at fair value decreased to $227.4 million, primarily consisting of MSR-related assets and CRT securities Securities Portfolio Summary | (In Millions) | Fair Value (Sep 30, 2022) | Fair Value (Dec 31, 2021) | | :--- | :--- | :--- | | Term Notes Backed by MSR-Related Collateral | $148.2 | $153.8 | | CRT Securities | $79.2 | $102.9 | | Total Securities, at Fair Value | $227.4 | $256.7 | - During the nine months ended September 30, 2022, the company sold CRT securities for approximately $15.7 million, realizing gains of $84,000[109] No securities were sold in the same period of 2021 Note 6. Financing Agreements Total financing agreements increased to $7.3 billion, with a weighted average cost of funding rising to 3.60% as of September 30, 2022 Financing Agreements Breakdown (As of Sep 30, 2022) | Financing Type | Fair Value / Carrying Value (In Thousands) | Weighted Average Cost of Funding | | :--- | :--- | :--- | | Agreements with mark-to-market collateral provisions | $2,124,791 | 4.22% | | Agreements with non-mark-to-market collateral provisions | $1,104,849 | 5.46% | | Securitized debt | $3,832,311 | 3.00% | | Convertible senior notes | $227,489 | 6.94% | | Total Financing agreements | $7,289,440 | 3.60% | - The company had financing agreements with 12 counterparties at September 30, 2022 The largest counterparty exposures as a percentage of stockholders' equity were with Barclays Bank (15.7%), Wells Fargo (11.8%), and Credit Suisse (9.2%)[144] Note 10. Stockholders' Equity This note details stockholders' equity, including preferred and common stock dividends, and the company's stock repurchase program activities - On March 11, 2022, the Board authorized a new stock repurchase program for up to $250 million of its common stock through the end of 2023, replacing a prior authorization[174] - During the nine months ended September 30, 2022, the company repurchased 6,476,746 shares of common stock at a total cost of approximately $102.1 million[177] No shares were repurchased in Q3 2022 - As of September 30, 2022, the company was permitted to purchase an additional $202.5 million of its common stock under the March 2022 Repurchase Authorization[177] Note 15. Segment Reporting The company operates through Mortgage-Related Assets and Lima One segments, both reporting net losses in Q3 2022, alongside corporate activities Segment Net Loss for Q3 2022 (In Thousands) | Segment | Net Interest Income | Total Other (Loss)/Income, net | Net Loss | | :--- | :--- | :--- | :--- | | Mortgage-Related Assets | $42,626 | ($54,717) | ($18,674) | | Lima One | $12,027 | ($8,258) | ($12,805) | | Corporate | ($2,360) | ($1,216) | ($23,539) | | Total | $52,293 | ($64,191) | ($55,018) | - Total assets for the Mortgage-Related Assets segment were $6.6 billion, while the Lima One segment had total assets of $2.4 billion as of September 30, 2022[242] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q3 2022 as a challenging period due to rising interest rates, resulting in a net loss and a decline in book value - The third quarter of 2022 was characterized as an "extremely challenging period" for fixed income and mortgage investors due to further increases in interest rates and wider mortgage and credit spreads[265] - The company's strategic response included prioritizing liquidity, managing hedging activities, and completing additional loan securitizations to reduce reliance on financing with recourse mark-to-market provisions[265] Q3 2022 Key Financial Metrics | Metric | Q3 2022 | Q2 2022 | | :--- | :--- | :--- | | Net Loss per Common Share | ($0.62) | ($1.06) | | Distributable Earnings per Common Share (Non-GAAP) | $0.28 | $0.46 | | GAAP Book Value per Common Share | $15.31 | $16.42 | | Economic Book Value per Common Share (Non-GAAP) | $15.82 | $17.25 | - During Q3 2022, the company completed three securitizations with a total unpaid principal balance of $893.1 million to secure longer-term, non-recourse, non-mark-to-market financing[272] Quantitative and Qualitative Disclosures about Market Risk This section details the company's market risks, including interest rate, credit, liquidity, and prepayment risks, and their potential impact on the portfolio Interest Rate Sensitivity Analysis (Shock Table) | Change in Interest Rates | Estimated % Change in Net Interest Income | Estimated % Change in Portfolio Value | | :--- | :--- | :--- | | +100 Basis Points | 1.58% | (1.18)% | | +50 Basis Points | 0.68% | (0.53)% | | Actual at Sep 30, 2022 | — | — | | -50 Basis Points | (0.16)% | 0.40% | | -100 Basis Points | (1.88)% | 0.68% | - The company's primary credit risk relates to its residential whole loans The portfolio's top five state concentrations by unpaid principal balance are California (33.5%), Florida (11.0%), New York (5.7%), Texas (5.3%), and Georgia (4.2%)[421][427] - Liquidity risk arises from financing long-maturity assets with shorter-term borrowings As of September 30, 2022, the company had $434.1 million of cash and cash equivalents and $39.2 million of unencumbered residential whole loans to manage this risk[431][433] Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2022 - The Chief Executive Officer and Chief Financial Officer concluded that the company's disclosure controls and procedures were effective as of September 30, 2022[437] - No changes in internal control over financial reporting occurred during the quarter that materially affected, or are reasonably likely to materially affect, its internal control[438] PART II. OTHER INFORMATION Legal Proceedings The company reports that there are no material pending legal proceedings to which it is a party or to which its assets are subject - There are no material pending legal proceedings involving the company[441] Risk Factors The company states there have been no material changes from the risk factors previously disclosed in its Annual Report on Form 10-K for the year ended December 31, 2021 - No material changes from the risk factors set forth in the 2021 Form 10-K have been identified[442] Unregistered Sales of Equity Securities and Use of Proceeds This section details the company's stock repurchase activities, including a new $250 million program and shares repurchased during the period - A stock repurchase program of up to $250 million was authorized by the Board on March 11, 2022[443] - During the nine months ended September 30, 2022, the company repurchased 6,476,746 shares for approximately $102.1 million[445][446] No share repurchase activity occurred in the third quarter of 2022 - As of September 30, 2022, $202.5 million remained available for future repurchases under the program[445]