August 5, 2021 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

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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 June 30, 2021

☐ 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.)

One Vanderbilt Ave., 48th Floor

New York

10017

(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

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

440,812,067 shares of the registrant’s common stock, $0.01 par value, were outstanding as of July 29, 2021.

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MFA FINANCIAL, INC.

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		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 30, 2021 (Unaudited) and December 31, 2020	1

	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2021 and June 30, 2020	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Six Months Ended June 30, 2021 and June 30, 2020	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Six Months Ended June 30, 2021 and June 30, 2020	4

	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2021 and June 30, 2020	6

	Notes to the Unaudited Consolidated Financial Statements	7

	Note 1. Organization	7

	Note 2. Summary of Significant Accounting Policies	7

	Note 3. Residential Whole Loans	18

	Note 4. Securities, at Fair Value	25

	Note 5. Other Assets	30

	Note 6. Financing Agreements	33

	Note 7. Collateral Positions	38

	Note 8. Offsetting Assets and Liabilities	38

	Note 9. Other Liabilities	39

	Note 10. Commitments and Contingencies	39

	Note 11. Stockholders’ Equity	40

	Note 12. EPS Calculation	45

	Note 13. Equity Compensation and Other Benefit Plans	45

	Note 14. Fair Value of Financial Instruments	47

	Note 15. Use of Special Purpose Entities and Variable Interest Entities	54

	Note 16. Subsequent Events	57

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	58

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	86

Item 4.	Controls and Procedures	91

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	92

Item 1A.	Risk Factors	92

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	92

Item 3.	Defaults Upon Senior Securities	93

Item 4.	Mine Safety Disclosures	93

Item 5.	Other Information	93

Item 6.	Exhibits	93

Signatures		95

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	June 30, 2021		December 31, 2020
	(Unaudited)
Assets:
Residential whole loans, net ($2,134,855 and $1,216,902 held at fair value, respectively) (1)(2)	$	5,550,979	$	5,325,401
Securities, at fair value (2)	302,835		399,999
Cash and cash equivalents	906,409		814,354
Restricted cash	8,839		7,165
Other assets (2)	439,347		385,381
Total Assets	$	7,208,409	$	6,932,300

Liabilities:
Financing agreements ($2,294,103 and $3,366,772 held at fair value, respectively)	$	4,428,791	$	4,336,976
Other liabilities	253,081		70,522
Total Liabilities	$	4,681,872	$	4,407,498

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		110
Common stock, $0.01 par value; 874,300 and 874,300 shares authorized; 440,812 and 451,714 shares issued and outstanding, respectively	4,408		4,517
Additional paid-in capital, in excess of par	3,804,830		3,848,129
Accumulated deficit	(1,347,466)		(1,405,327)
Accumulated other comprehensive income	64,575		77,293
Total Stockholders’ Equity	$	2,526,537	$	2,524,802
Total Liabilities and Stockholders’ Equity	$	7,208,409	$	6,932,300

(1)Includes approximately $2.3 billion and $1.8 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at June 30, 2021 and December 31, 2020, respectively. Such assets can be used only to settle the obligations of each respective VIE.

(2)See Note 6 for information regarding the Company’s pledged assets.

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

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MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands, Except Per Share Amounts)	2021		2020		2021		2020
Interest Income:
Residential whole loans	$	69,016	$	84,837	$	133,554	$	190,872
Securities, at fair value	15,345		14,716		31,804		73,297
Other interest-earning assets	108		3,165		108		6,072
Cash and cash equivalent investments	59		60		113		546
Interest Income	$	84,528	$	102,778	$	165,579	$	270,787

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	21,640	$	82,085	$	47,691	$	159,945
Other interest expense	3,915		5,906		7,934		11,805
Interest Expense	$	25,555	$	87,991	$	55,625	$	171,750

Net Interest Income	$	58,973	$	14,787	$	109,954	$	99,037

Reversal/(Provision) for credit and valuation losses on residential whole loans	$	8,867	$	85,377	$	31,617	$	(65,334)
Net Interest Income after Provision for Credit and Valuation Losses	$	67,840	$	100,164	$	141,571	$	33,703

Other Income, net:
Impairment and other losses on securities available-for-sale and other assets	$	—	$	(5,094)	$	—	$	(424,745)
Net realized gain/(loss) on sales of securities and residential whole loans	—		49,485		—		(188,895)
Net unrealized gain/(loss) on securities measured at fair value through earnings	1,374		64,438		1,475		(13,523)
Net gain/(loss) on residential whole loans measured at fair value through earnings	6,021		4,910		37,510		(70,399)
Loss on terminated swaps previously designated as hedges for accounting purposes	—		(49,857)		—		(49,857)
Net gain/(loss) on real estate owned	5,125		(4,199)		7,885		(5,684)
Other, net	9,127		1,264		9,096		738
Other Income/(Loss), net	$	21,647	$	60,947	$	55,966	$	(752,365)

Operating and Other Expense:
Compensation and benefits	$	8,886	$	8,578	$	17,323	$	17,477
Other general and administrative expense	7,887		7,652		14,679		12,227
Loan servicing, financing and other related costs	6,000		8,337		13,299		19,617
Costs associated with restructuring/forbearance agreement	—		39,966		—		$	44,434
Operating and Other Expense	$	22,773	$	64,533	$	45,301	$	93,755

Net Income/(Loss)	$	66,714	$	96,578	$	152,236	$	(812,417)
Less Preferred Stock Dividend Requirement	$	8,219	$	8,144	$	16,438	13,359
Net Income/(Loss) Available to Common Stock and Participating Securities	$	58,495	$	88,434	$	135,798	$	(825,776)

Basic Earnings/(Loss) per Common Share	$	0.13	$	0.19	$	0.30	$	(1.82)
Diluted Earnings/(Loss) per Common Share	$	0.13	$	0.19	$	0.30	$	(1.82)

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

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MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (UNAUDITED)
	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2021		2020		2021		2020
Net income/(loss)	$	66,714	$	96,578	$	152,236	$	(812,417)
Other Comprehensive (Loss):
Unrealized (losses)/gains on securities available-for-sale	(9,589)		48,715		(13,444)		393,503
Reclassification adjustment for securities sales included in net income	—		(144,736)		—		(389,067)
Reclassification adjustment for impairments included in net income	—		—		—		(344,269)
Derivative hedging instrument fair value changes, net	—		—		—		(50,126)
Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	491		—		726		—
Reclassification adjustment for losses related to hedging instruments included in net income	—		64,032		—		65,625
Other Comprehensive (Loss)	(9,098)		(31,989)		(12,718)		(324,334)
Comprehensive income/(loss) before preferred stock dividends	$	57,616	$	64,589	$	139,518	$	(1,136,751)
Dividends required on preferred stock	(8,219)		(8,144)		(16,438)		(13,359)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities	$	49,397	$	56,445	$	123,080	$	(1,150,110)

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

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MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
	Six Months Ended June 30, 2021
(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, 2020	11,000	$	110	8,000	$	80	451,714	$	4,517	$	3,848,129	$	(1,405,327)	$	77,293	$	2,524,802
Net Income	—	—		—	—		—	—		—		85,522		—		85,522
Issuance of common stock, net of expenses	—	—		—	—		559	6		376		—		—		382
Repurchase of shares of common stock (1)	—	—		—	—		(6,159)	(62)		(25,074)		—		—		(25,136)
Equity based compensation expense	—	—		—	—		—	—		1,686		—		—		1,686
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—		489		—		—		489
Dividends declared on common stock ($0.075 per share)	—	—		—	—		—	—		—		(33,521)		—		(33,521)
Dividends declared on Series B Preferred Stock ($0.46875 per share)	—	—		—	—		—	—		—		(3,750)		—		(3,750)
Dividends declared on Series C Preferred Stock ($0.40625 per share)	—			—	—		—	—		—		(4,468)		—		(4,468)
Dividends attributable to dividend equivalents	—	—		—	—		—	—		—		(120)		—		(120)
Change in unrealized gains on MBS, net	—	—		—	—		—	—		—		—		(3,855)		(3,855)

Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	—	—		—	—		—	—		—		—		235		235
Balance at March 31, 2021	11,000	$	110	8,000	$	80	446,114	$	4,461	$	3,825,606	$	(1,361,664)	$	73,673	$	2,542,266
Net income	—	—		—	—		—	—		—		66,714		—		66,714
Issuance of common stock, net of expenses	—	—		—	—		358	4		394		—		—		398
Repurchase of shares of common stock (1)	—	—		—	—		(5,660)	(57)		(23,684)		—		—		(23,741)
Equity based compensation expense	—	—		—	—		—	—		2,741		—		—		2,741
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—		(227)		(61)		—		(288)
Dividends declared on common stock ($0.10 per share)	—	—		—	—		—	—		—		(44,081)		—		(44,081)
Dividends declared on Series B Preferred Stock ($0.46875 per share)	—	—		—	—		—	—		—		(3,750)		—		(3,750)
Dividends declared on Series C Preferred Stock ($0.40625 per share)	—	—		—	—		—	—		—		(4,469)		—		(4,469)
Dividends attributable to dividend equivalents	—	—		—	—		—	—		—		(155)		—		(155)
Change in unrealized gains on MBS, net	—	—		—

Form: 10-Q

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