MFA Financial, Inc. — 2023 Form 10-K
Reporting period: Fiscal year ended December 31, 2023. This is an annual filing, not a standalone fourth-quarter report. MFA is an internally managed mortgage REIT investing primarily in residential whole loans and, through Lima One, originating and servicing business-purpose loans.
Key financial and operating metrics
| Metric | 2023 | 2022 comparison |
|---|---|---|
| Total assets at year-end | $10.77 billion | $9.11 billion |
| Interest income | $605.6 million | $482.4 million |
| Interest expense | $429.1 million | $258.8 million |
| Net interest income | $176.5 million | $223.6 million |
| Net income / (loss) | $80.2 million | $(231.6) million |
| Net income / (loss) available to common stock and participating securities | $47.3 million; $0.46 per share | $(264.5) million; $(2.57) per share |
| Distributable Earnings, non-GAAP | $162.4 million; $1.59 per share | $190.7 million; $1.85 per share |
| Operating cash flow | $108.7 million | $355.3 million |
| Common dividends declared | $1.40 per share; $142.7 million | $1.67 per share; $171.4 million |
Net interest margin including swap carry was 2.90%, versus 2.52% in 2022; the comparable net interest spread including swaps was 2.05%, versus 1.74%. Reported net interest income excludes swap carry. GAAP book value per common share was $13.98, down from $14.87; non-GAAP economic book value was $14.57, down from $15.55. Management attributed the book-value declines primarily to dividends exceeding GAAP earnings.
At year-end, MFA held $9.0 billion of residential whole loans and $746.1 million of residential mortgage securities. Residential whole loans were approximately 84% of total assets. Cash and cash equivalents were $318.0 million, with another $170.2 million restricted. Financing agreements had a carrying value of $8.54 billion, including $4.75 billion of securitized debt. Debt-to-equity was 4.5x, while recourse leverage was 1.7x. MFA reported $2.4 billion of unused financing capacity and compliance with its financial covenants.
Changes versus 2022
- Net income recovered from a substantial loss to a profit, largely because fair-value results on residential whole loans improved: a $89.9 million gain in 2023 versus an $866.8 million loss in 2022. Results also reflected offsetting fair-value losses on securitized debt and substantially lower derivative gains.
- Net interest income fell $47.1 million as financing costs rose faster than asset income. Interest expense increased 65.8%; average residential-loan yield rose to 6.15% from 5.19%, while overall funding costs also increased materially.
- Residential whole loans and REO grew to $9.15 billion from $7.65 billion. MFA acquired approximately $3.0 billion of whole loans and added $456.7 million of Agency MBS.
- Management completed eight securitizations during 2023, issuing $1.8 billion of debt, and increased reliance on longer-term non-recourse, non-mark-to-market financing. Total debt-to-equity rose from 3.5x to 4.5x, while recourse leverage edged down from 1.8x to 1.7x.
- The common dividend declined from $1.67 to $1.40 per share. Distributable Earnings are a company-defined non-GAAP measure and should not be treated as equivalent to GAAP income or operating cash flow.
Outlook, commentary, risks and unusual items
- Outlook: MFA expects to continue pursuing residential whole-loan opportunities in 2024, subject to economic and market conditions, using securitizations, term warehouse facilities and repurchase agreements. The filing provides no numeric earnings or dividend guidance.
- Management commentary: Management described 2023 as challenging due to rate volatility, inflation, geopolitical uncertainty and changing recession and policy expectations. It emphasized liquidity, hedging and replacing floating-rate recourse financing with fixed-rate, non-recourse securitizations.
- Interest-rate and funding exposure: Short-term borrowing costs can reset faster than asset yields; uncommitted facilities may not renew, and falling collateral values can trigger margin calls or forced asset sales. The filing’s modeled 100-basis-point rate increase estimated a 1.17% decline in portfolio value and a 0.91% increase in net interest income; these are scenario estimates, not forecasts.
- Credit and valuation: The portfolio is concentrated in residential whole loans, with notable geographic exposure to California (27.1% of interest-bearing loan UPB) and Florida (12.6%). Whole-loan fair values rely substantially on Level 3 models and assumptions. Loans 90 or more days delinquent had $508.5 million of UPB at year-end; total whole-loan 60+ day delinquency was 6.6%, versus 8.1% in 2022.
- Other risks: Key exposures include borrower defaults, servicing and foreclosure delays, property values, prepayments, counterparty concentration, regulatory change, REIT qualification, and maintaining Investment Company Act exemptions. The company reported no material legal proceedings and no material unsettled loan-securitization repurchase claims requiring a reserve.
- Commitments and subsequent events: Unfunded Transitional-loan commitments totaled $585.8 million. After year-end, MFA completed a $192.5 million Transitional-loan securitization, issued $115 million of 8.875% senior notes due 2029, and repurchased additional convertible notes; $169.7 million of those notes remained outstanding as of February 21, 2024. The new senior notes add fixed cash interest obligations.
- Audit and unusual items: KPMG issued unqualified opinions on the financial statements and internal controls. The audit identified whole-loan fair-value measurement and the allowance for credit losses on certain loans as critical audit matters. Management eliminated qualitative adjustments to its credit-loss model during 2023; the allowance on loans held at carrying value fell to $20.5 million from $35.3 million, and MFA recorded an $8.9 million reversal of credit-loss provision.
Important facts for investors to verify
- Reconcile GAAP earnings, the $1.59 per-share Distributable Earnings figure and operating cash flow; assess whether recurring cash generation supports the common dividend.
- Review financing maturities, collateral haircuts, margin-call capacity, lender concentration and the terms of the new 2029 notes, alongside the shift toward securitization financing.
- Track whole-loan delinquencies, nonaccruals, foreclosure resolutions and credit losses, particularly in concentrated states and business-purpose loan categories.
- Assess the sensitivity of Level 3 loan valuations and credit-loss allowances to home prices, defaults, loss severities, prepayments and liquidation timelines.
- Confirm future dividend coverage and REIT taxable income: the company estimated 2023 REIT taxable income of $133.7 million, which can differ materially from GAAP earnings.