MFA Financial, Inc. (NYSE:MFA) today provided its financial results for the third quarter ended September 30, 2020.

Third Quarter 2020 financial results update:

• MFA generated third quarter net income of $79.0 million, or $0.17 per common share.
• GAAP book value at September 30, 2020 was $4.61 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 held at carrying value for GAAP reporting, was $4.92 per common share at quarter-end.
• Earnings and changes in book value during the quarter were driven by continued improvements in the values of residential mortgage assets. In particular, values of our various types of residential whole loans increased appreciably during the period. Income from residential whole loans at fair value included $58.9 million of market value gains. Changes in the fair value of loans held on our balance at carrying value drove the increase in Economic book value, which has increased in excess of 20% since March 31, 2020.
• We continued to make significant progress on initiatives to lower the cost of financing our investments with more durable forms of borrowing. We completed a $390.0 million securitization transaction of Non-QM assets in early September, which generated $92.7 million of additional liquidity and lowered the funding costs for the associated assets by approximately 165 basis points. In addition, following the end of the quarter, we completed a $570 million Non-QM securitization transaction in late October, which generated $125.1 million of additional liquidity and lowered the funding costs for the associated assets by approximately 179 basis points.
• Subsequent to the end of the third quarter we repaid in full, without penalty or yield maintenance, the remaining principal balance of $481,250,000 under the 11% senior secured term loan that we obtained from Apollo and Athene on June 26, 2020.
• MFA paid its previously declared cash dividend of $0.05 per share of common stock on October 30, 2020. On September 30, 2020 the Company paid its previously declared preferred stock dividends on its Series B and Series C preferred stock.
• MFA's Board of Directors has authorized a share repurchase for up to $250 million of the Company's common stock.
• Following the completion of the second Non-QM securitization, the repayment of the loan from Apollo and Athene and the payment of the dividend to common stockholders on October 30, 2020, MFA's cash totaled approximately $641.1 million.

Commenting on the third quarter 2020 results, Craig Knutson, MFA's CEO and President said, "MFA's third quarter financial results were the beginning of what we hope is a return to normal in this tumultuous year of 2020. Strong housing metrics combined with a continued tightening in credit spreads contributed materially to our third quarter earnings and also to book value, particularly our Economic book value, which was up over 10% in the quarter. We reinstated dividends on both our Series B and Series C Preferred Stock, paid all accrued but previously unpaid dividends on July 31st and resumed normal dividend payments on September 30th. We also paid a $0.05 dividend on our common stock on October 30th to stockholders of record on September 30, 2020."

Mr. Knutson added, "We have made substantial progress on multiple initiatives since June 30th that we believe should have a significant positive impact on our results in the fourth quarter and into 2021. Recall that we ended the second quarter after exiting forbearance on June 26th having restructured our funding liabilities to include $2 billion of non-mark-to-market term financing and a $500 million senior secured term loan. While this financing was critical in fortifying our balance sheet at the time, the cost of this debt was predictably expensive. We have completed two Non-QM securitizations aggregating over $960 million (the second of which closed last week), which substantially lowers our cost of financing while preserving the non-recourse, non-mark-to-market and term elements of these borrowings. In addition, through the additional liquidity generated from these transactions together with liquidity generated by our portfolio, we have also fully paid off the $500 million senior secured term loan. This loan had a scheduled amortization payment of $18.75 million on September 30, and we paid off the balance during October."

Q3 2020 Portfolio Activity

MFA's residential mortgage investment portfolio decreased by $308.0 million during the third quarter, primarily due to portfolio run-off. Acquisition of new investments continued to be limited, with $39.7 million of Non-QM loans purchased during the quarter.

At September 30, 2020, the net carrying value of our investments in residential whole loans totaled $5.6 billion. Of this amount, $4.4 billion is recorded at carrying value and $1.2 billion is recorded at fair value on our consolidated balance sheet. Loans held at carrying value generated an overall yield of 4.63% during the quarter, with purchased performing loans generating a yield of 4.58% and purchased credit deteriorated loans generating a yield of 4.89%. Yields on Loans held at carrying value declined compared to the prior quarter, primarily due to an increase in non-accrual loans in our Non-QM loan portfolio. Loans that become more than 90 days delinquent during the period are placed on non-accrual status and any previously recognized interest income is reversed. The amount of Non-QM loans that were more than 90 days delinquent, measured as a percentage of the unpaid principal balance, increased during the quarter and was 6.7% at September 30, 2020, compared to 0.9% at June 30, 2020. In addition, the amount of purchased credit deteriorated loans that were more than 90 days delinquent, measured as a percentage of the unpaid principal balance, increased during the quarter and was 18.2% at September 30, 2020, compared to 15.3% at June 30, 2020. Delinquency levels for our Rehabilitation loans improved from the prior quarter, with loans that were more than 60 days delinquent totaling $143.4 million, a decline of $38.5 million from June 30, 2020.

For the third quarter, a reversal of the provision for credit losses of $30.5 million was recorded on residential whole loans held at carrying value, primarily reflecting an adjustment to management's estimates related to future rates of unemployment and lower loan balances. The total allowance for credit losses recorded on residential whole loans held at carrying value at September 30, 2020 was $106.2 million. In addition, as of September 30, 2020, reserves for credit losses totaling approximately $1.6 million were recorded related to undrawn commitments on loans held at carrying value.

Net gains for the quarter on residential whole loans measured at fair value through earnings were $76.9 million, including unrealized gains in the fair value of the underlying loans of $58.9 million, and $18.0 million of coupon interest payments and other gains realized during the quarter. The percentage amount of fair value loans that were more than 90 days delinquent marginally increased to 49.0% at September 30, 2020 from 48.8% at June 30, 2020.

In addition, as of the end of the quarter, we held approximately $299 million of REO properties, which has decreased from $349 million as of the end of the second quarter as foreclosure activity slowed, while asset sales continued. MFA's proactive asset management team has been able to shorten liquidation timelines and increase property sale proceeds, leading to improved outcomes and better returns.

During the quarter, the Company disposed of approximately $116,000 of Legacy Non-Agency MBS, realizing net gains of $48,000. With these sales, MFA has exited its remaining Legacy Non-Agency MBS.

At the end of the third quarter, MFA held approximately $53.8 million of RPL/NPL MBS. In addition, our investments in MSR-related assets totaled $252.2 million at September 30, 2020. Our investments in CRT securities totaled $96.3 million at September 30, 2020.

General and Administrative and other expenses

For the three months ended September 30, 2020, MFA's costs for compensation and benefits and other general and administrative expenses were $18.3 million, or an annualized 2.90% of average stockholders' equity for the quarter ended September 30, 2020. Compensation related expenses for the quarter were elevated as a result of a $3.6 million provision for severance related expenses associated with a workforce reduction.

Stock Repurchase Program

On November 2, 2020, MFA's Board of Directors authorized a share repurchase program under which MFA may repurchase up to $250 million of its common stock through the end of 2022. The Board's authorization replaces the authorization under MFA's existing stock repurchase program that was adopted in December 2013, which authorized the company to repurchase up to 10 million shares of common stock and under which approximately 6.6 million shares remained available for repurchase.

The stock repurchase program does not require the purchase of any minimum number of shares. The timing and extent to which MFA repurchases its shares will depend upon, among other things, market conditions, share price, liquidity, regulatory requirements and other factors, and repurchases may be commenced or suspended at any time without prior notice. Acquisitions under the share repurchase program may be made in the open market, through privately negotiated transactions or block trades or other means, in accordance with applicable securities laws.

MFA expects to fund the share repurchases from current cash balances and future investment portfolio run-off. The Company currently has approximately 453.3 million shares of common stock outstanding.