November 5, 2020 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

___________________________________________________________________________

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2020

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number: 1-13991

MFA FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

__________________________________________________________________

Maryland

13-3974868

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

350 Park Avenue, 20th Floor

New York

10022

(Address of principal executive offices)

(Zip Code)

(212) 207-6400

(Registrant’s telephone number, including area code)

_____________________________________________

Not Applicable

(Former name, former address and former fiscal year, if changed since last period)

____________________________________________________________________

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share	MFA	New York Stock Exchange
7.50% Series B Cumulative Redeemable Preferred Stock, par value $0.01 per share	MFA/PB	New York Stock Exchange
6.50% Series C Cumulative Redeemable Preferred Stock, par value $0.01 per share	MFA/PC	New York Stock Exchange
8.00% Senior Notes due 2042	MFO	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No x

453,333,220 shares of the registrant’s common stock, $0.01 par value, were outstanding as of October 29, 2020.

Table of Contents

MFA FINANCIAL, INC.

TABLE OF CONTENTS


		Page

PART I
FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019	1

	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2020 and September 30, 2019	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Nine Months Ended September 30, 2020 and September 30, 2019	4

	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2020 and September 30, 2019	6

	Notes to the Unaudited Consolidated Financial Statements	8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	90

Item 4.	Controls and Procedures	95

PART II
OTHER INFORMATION

Item 1.	Legal Proceedings	96

Item 1A.	Risk Factors	96

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	96

Item 3.	Defaults Upon Senior Securities	96

Item 4.	Mine Safety Disclosures	96

Item 5.	Other Information	97

Item 6.	Exhibits	97

Signatures		98

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	September 30, 2020		December 31, 2019
	(Unaudited)
Assets:
Residential whole loans:
Residential whole loans, at carrying value ($3,843,153 and $4,847,782 pledged as collateral, respectively) (1)	$	4,493,805	$	6,069,370
Residential whole loans, at fair value ($705,666 and $794,684 pledged as collateral, respectively) (1)	1,229,664		1,381,583
Allowance for credit losses on residential whole loans held at carrying value	(106,246)		(3,025)
Total residential whole loans, net	5,617,223		7,447,928
Residential mortgage securities, at fair value ($152,765 and $3,966,591 pledged as collateral, respectively)	152,765		3,983,519
Mortgage servicing rights (“MSR”) related assets ($252,183 and $1,217,002 pledged as collateral, respectively)	252,183		1,217,002
Cash and cash equivalents	884,171		70,629
Restricted cash	5,303		64,035
Other assets	571,614		784,251
Total Assets	$	7,483,259	$	13,567,364

Liabilities:
Financing agreements ($4,080,461 and $0 held at fair value, respectively)	$	4,851,121	$	10,031,606
Other liabilities	66,482		151,806
Total Liabilities	$	4,917,603	$	10,183,412

Commitments and contingencies (See Note 10)

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		—
Common stock, $0.01 par value; 874,300 and 886,950 shares authorized; 453,333 and 452,369 shares issued and outstanding, respectively	4,533		4,524
Additional paid-in capital, in excess of par	3,924,584		3,640,341
Accumulated deficit	(1,408,910)		(631,040)
Accumulated other comprehensive income	45,259		370,047
Total Stockholders’ Equity	$	2,565,656	$	3,383,952
Total Liabilities and Stockholders’ Equity	$	7,483,259	$	13,567,364

(1)Includes approximately $568.6 million and $186.4 million of Residential whole loans, at carrying value and $521.2 million and $567.4 million of Residential whole loans, at fair value transferred to consolidated variable interest entities (“VIEs”) at September 30, 2020 and December 31, 2019, respectively. Such assets can be used only to settle the obligations of each respective VIE.

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands, Except Per Share Amounts)	2020		2019		2020		2019
Interest Income:
Residential whole loans held at carrying value	$	54,393	$	64,226	$	207,306	$	171,725
Residential mortgage securities	2,329		60,639		51,678		211,676
MSR-related assets	6,241		15,274		30,189		38,232
Other interest-earning assets	3,017		1,679		9,089		4,272
Cash and cash equivalent investments	100		903		646		2,703
Interest Income	$	66,080	$	142,721	$	298,908	$	428,608

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	50,054	$	79,932	$	209,998	$	238,773
Other interest expense	5,910		5,891		17,716		11,120
Interest Expense	$	55,964	$	85,823	$	227,714	$	249,893

Net Interest Income	$	10,116	$	56,898	$	71,194	$	178,715

Reversal/(Provision) for credit and valuation losses on residential whole loans and other financial instruments	$	27,244	$	(347)	$	(38,090)	$	(1,538)
Net Interest Income after Provision for Credit and Valuation Losses	$	37,360	$	56,551	$	33,104	$	177,177

Other Income, net:
Impairment and other losses on securities available-for-sale and other assets	$	(221)	$	—	$	(424,966)	$	—
Net realized gain/(loss) on sales of residential mortgage securities and residential whole loans	48		17,708		(188,847)		50,027
Net unrealized gain/(loss) on residential mortgage securities measured at fair value through earnings	91		(695)		(13,432)		7,977
Net gain on residential whole loans measured at fair value through earnings	76,871		40,175		44,431		116,915
Loss on terminated swaps previously designated as hedges for accounting purposes	(7,177)		—		(57,034)		—
Other, net	7,498		5,241		2,370		(4,459)
Other Income/(Loss), net	$	77,110	$	62,429	$	(637,478)	$	170,460

Operating and Other Expense:
Compensation and benefits	$	11,657	$	7,920	$	29,134	$	24,315
Other general and administrative expense	6,611		5,022		18,656		15,601
Loan servicing, financing and other related costs	8,992		10,439		28,609		30,225
Costs associated with restructuring/forbearance agreement	—		—		44,434		$	—
Operating and Other Expense	$	27,260	$	23,381	$	120,833	$	70,141

Net Income/(Loss)	$	87,210	$	95,599	$	(725,207)	$	277,496
Less Preferred Stock Dividend Requirement	$	8,219	$	3,750	$	21,578	11,250
Net Income/(Loss) Available to Common Stock and Participating Securities	$	78,991	$	91,849	$	(746,785)	$	266,246

Basic Earnings/(Loss) per Common Share	$	0.17	$	0.20	$	(1.65)	$	0.59
Diluted Earnings/(Loss) per Common Share	$	0.17	$	0.20	$	(1.65)	$	0.58

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (UNAUDITED)
	Three Months Ended September 30,				Nine Months Ended September 30,
(In Thousands)	2020		2019		2020		2019
Net income/(loss)	$	87,210	$	95,599	$	(725,207)	$	277,496
Other Comprehensive Income/(Loss):
Unrealized gains on securities available-for-sale	15,082		5,483		408,585		50,085
Reclassification adjustment for MBS sales included in net income	(60)		(14,499)		(389,127)		(36,370)
Reclassification adjustment for impairments included in net income	—		—		(344,269)		—
Derivative hedging instrument fair value changes, net	—		(233)		(50,127)		(30,384)
Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	(22,652)		—		(22,652)		—
Reclassification adjustment for losses/(gains) related to hedging instruments included in net income	7,176		(685)		72,802		(1,769)
Other Comprehensive Income/(Loss)	(454)		(9,934)		(324,788)		(18,438)
Comprehensive income before preferred stock dividends	$	86,756	$	85,665	$	(1,049,995)	$	259,058
Dividends required on preferred stock	(8,219)		(3,750)		(21,578)		(11,250)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities	$	78,537	$	81,915	$	(1,071,573)	$	247,808

The accompanying notes are an integral part of the consolidated financial statements.

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
	Nine Months Ended September 30, 2020
(In Thousands, Except Per Share Amounts)	Preferred Stock 6.50% Series C Fixed-to-Floating Rate Cumulative Redeemable - Liquidation Preference $25.00 per Share			Preferred Stock 7.50% Series B Cumulative Redeemable - Liquidation Preference $25.00 per Share			Common Stock			Additional Paid-in Capital		Accumulated Deficit		Accumulated Other Comprehensive Income		Total
	Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2019	—	$	—	8,000	$	80	452,369	$	4,524	$	3,640,341	$	(631,040)	$	370,047	$	3,383,952
Cumulative effect adjustment on adoption of new accounting standard ASU 2016-13	—	—		—	—		—	—		—		(8,326)		—		(8,326)
Net loss	—	—		—	—		—	—		—		(908,995)		—		(908,995)
Issuance of Series C Preferred Stock, net of expenses	11,000	110		—	—		—	—		265,919		—		—		266,029
Issuance of common stock, net of expenses	—	—		—	—		1,106	7		680		—		—		687
Repurchase of shares of common stock (1)	—	—		—	—		(337)	—		(2,652)		—		—		(2,652)
Equity based compensation expense	—	—		—	—		—	—		1,266		—		—		1,266
Accrued dividends attributable to stock-based awards	—	—		—	—		—	—		1,059		—		—		1,059



Change in unrealized gains on MBS, net	—	—		—	—		—	—		—		—		(243,812)		(243,812)
Derivative hedging instrument fair value changes and amortization, net	—	—		—	—		—	—		—		—		(48,533)		(48,533)
Balance at March 31, 2020	11,000	$	110	8,000	$	80	453,138	$	4,531	$	3,906,613	$	(1,548,361)	$	77,702	$	2,440,675
Net income	—	—		—	—		—	—		—		96,578		—		96,578
Issuance of common stock, net of expenses	—	—		—	—		106	1		36		—		—		37

Equity based compensation expense	—	—		—	—		—	—		1,709		—		—		1,709




Change in unrealized gains on MBS, net	—	—		—	—		—	—		—		—		(96,021)		(96,021)
Derivative hedging instrument fair value changes and amortization, net	—	—		—	—		—	—		—		—		64,032		64,032
Warrants Issued	—	—		—	—		—	—		14,041		—		—		14,041
Balance at June 30, 2020	11,000	$	110	8,000	$	80	453,244	$	4,532	$	3,922,399	$	(1,451,783)	$	45,713	$	2,521,051
Net income	—	—		—	—		—	—		—		87,210		—		87,210
Issuance of common stock, net of expenses	—	—		—	—		89	1		—		—		—		1
Repurchase of shares of common stock (1)	—	—		—	—		—	—		—		—		—		—
Equity based compensation expense	—	—		—	—		—	—		2,266		—		—		2,266
Accrued dividends attributable to stock-based awards	—	—		—	—		—	—		(81)		—		—		(81)
Dividends declared on common stock ($0.05 per share)	—	—		—	—		—	—		—		(22,667)		—		(22,667)
Dividends declared on Series B Preferred Stock ($1.40625 per share) (2)	—	—		—	—		—	—		—		(11,250)		—		(11,250)
Dividends declared on Series C Preferred Stock ($0.93889 per share) (2)	—	—		—	—		—	—		—		(10,328)		—		(10,328)
Dividends attributable to dividend equivalents	—	—		—	—		—	—		—		(92)		—		(92)
Change in unrealized gains on MBS, net	—	—		—	—		—	—		—		—		15,022		15,022
Derivative hedging instrument fair value changes and amortization, net	—	—		—	—		—	—		—		—		7,176		7,176
Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	—	—		—	—		—	—		—		—		(22,652)		(22,652)
Balance at September 30, 2020	11,000	$	110	8,000	$	80	453,333	$	4,533	$	3,924,584	$	(1,408,910)

Form: 10-Q

Documents