On November 7, 2023, MFA Financial Inc. (MFA, Financial) announced its financial results for the third quarter of 2023. Despite a challenging quarter marked by a nearly 80 basis point climb in the 10-year Treasury yield, the company managed to generate distributable earnings in excess of its dividend and continued to execute its business plan.
Company Performance and Challenges
According to Craig Knutson, MFA’s CEO and President, the third quarter was particularly challenging for fixed-income investors and the mortgage industry due to the spike in interest rates. However, MFA managed to generate distributable earnings in excess of its dividend and continued to execute its business plan. The company originated over $800 million of loans at an average coupon of approximately 10% and purchased $152 million of Agency MBS at some of the widest spreads seen since the 2008 financial crisis. These investments propelled MFA's net interest spread higher to 2.17% and its net interest margin to 3.02%.
“With the 10-year Treasury yield climbing nearly 80 bps, the third quarter was exceptionally challenging for fixed-income investors and particularly for the mortgage industry. While our book value was negatively impacted by the spike in interest rates, we again generated distributable earnings in excess of our dividend and continued to execute our business plan of adding higher-yielding assets while keeping our cost of funds relatively stable. Lima One originated a record $671 million of new loans during the quarter. Overall, we acquired or originated over $800 million of loans at an average coupon of approximately 10%. We also purchased $152 million of Agency MBS at some of the widest spreads seen since the 2008 financial crisis. These investments propelled our net interest spread higher to 2.17% and our net interest margin to 3.02%.” - Craig Knutson, MFA’s CEO and President
Financial Highlights
The company's financial results for the third quarter of 2023 show a net equity allocated of $1,849 million and a debt/net equity ratio of 4.3x. The yield on average interest-earning assets was 6.35%, while the average cost of funds was 4.18%, resulting in a net interest rate spread of 2.17%.
Future Outlook
Despite the challenging market conditions, MFA Financial Inc. remains committed to its business plan and continues to focus on strong underwriting, credit performance, and more durable forms of financing. The company also plans to protect its balance sheet from further rate volatility by maintaining a substantial cash position and adding longer duration swaps.
Explore the complete 8-K earnings release (here) from MFA Financial Inc for further details.
