November 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 September 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

440,926,797 shares of the registrant’s common stock, $0.01 par value, were outstanding as of October 28, 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 September 30, 2021 (Unaudited) and December 31, 2020	1

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

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

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

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

	Notes to the Unaudited Consolidated Financial Statements	8

	Note 1. Organization	8

	Note 2. Summary of Significant Accounting Policies	8

	Note 3. Residential Whole Loans	19

	Note 4. Securities, at Fair Value	26

	Note 5. Other Assets	31

	Note 6. Financing Agreements	34

	Note 7. Collateral Positions	39

	Note 8. Offsetting Assets and Liabilities	39

	Note 9. Other Liabilities	40

	Note 10. Commitments and Contingencies	40

	Note 11. Stockholders’ Equity	41

	Note 12. EPS Calculation	46

	Note 13. Equity Compensation and Other Benefit Plans	46

	Note 14. Fair Value of Financial Instruments	49

	Note 15. Use of Special Purpose Entities and Variable Interest Entities	55

	Note 16. Acquisition of Lima One Holdings , LLC	58

	Note 17. Subsequent Events	60

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	61

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	88

Item 4.	Controls and Procedures	93

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	94

Item 1A.	Risk Factors	94

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	94

Item 3.	Defaults Upon Senior Securities	94

Item 4.	Mine Safety Disclosures	94

Item 5.	Other Information	94

Item 6.	Exhibits	95

Signatures		97

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	September 30, 2021		December 31, 2020
	(Unaudited)
Assets:
Residential whole loans, net ($4,093,598 and $1,216,902 held at fair value, respectively) (1)(2)	$	7,081,462	$	5,325,401
Securities, at fair value (2)	283,037		399,999
Cash and cash equivalents	526,241		814,354
Restricted cash	55,507		7,165
Other assets (2)	541,603		385,381
Total Assets	$	8,487,850	$	6,932,300

Liabilities:
Financing agreements ($2,496,584 and $3,366,772 held at fair value, respectively)	$	5,550,808	$	4,336,976
Other liabilities	335,955		70,522
Total Liabilities	$	5,886,763	$	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; 440,927 and 451,714 shares issued and outstanding, respectively	4,409		4,517
Additional paid-in capital, in excess of par	3,807,237		3,848,129
Accumulated deficit	(1,267,504)		(1,405,327)
Accumulated other comprehensive income	56,755		77,293
Total Stockholders’ Equity	$	2,601,087	$	2,524,802
Total Liabilities and Stockholders’ Equity	$	8,487,850	$	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 September 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 September 30,				Nine Months Ended September 30,
(In Thousands, Except Per Share Amounts)	2021		2020		2021		2020
Interest Income:
Residential whole loans	$	79,602	$	70,948	$	213,156	$	261,819
Securities, at fair value	10,629		8,570		42,433		81,867
Other interest-earning assets	524		3,017		632		9,089
Cash and cash equivalent investments	126		100		239		646
Interest Income	$	90,881	$	82,635	$	256,460	$	353,421

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	25,135	$	50,054	$	72,827	$	209,998
Other interest expense	3,930		5,910		11,863		17,716
Interest Expense	$	29,065	$	55,964	$	84,690	$	227,714

Net Interest Income	$	61,816	$	26,671	$	171,770	$	125,707

Reversal/(Provision) for credit and valuation losses on residential whole loans and other financial instruments	$	9,709	$	27,244	$	41,326	$	(38,090)
Net Interest Income after Provision for Credit and Valuation Losses	$	71,525	$	53,915	$	213,096	$	87,617

Other Income, net:
Net gain/(loss) on residential whole loans measured at fair value through earnings	$	21,815	$	60,316	$	59,325	$	(10,082)
Gain on investment in Lima One common equity (Note 16)	38,933		—		38,933		—
Impairment and other gains and losses on securities available-for-sale and other assets	10,000		(221)		10,000		(424,966)
Lima One - origination, servicing and other fee income	9,643		—		9,643		—
Net gain/(loss) on real estate owned	6,829		4,503		13,725		293
Net realized gain/(loss) on sales of securities and residential whole loans	—		48		—		(188,847)
Loss on terminated swaps previously designated as hedges for accounting purposes	—		(7,177)		—		(57,034)
Other, net	7,226		3,086		18,787		(11,355)
Other Income/(Loss), net	$	94,446	$	60,555	$	150,413	$	(691,991)

Operating and Other Expense:
Compensation and benefits	$	16,210	$	11,657	$	33,533	$	29,134
Other general and administrative expense	8,659		6,611		23,338		18,656
Loan servicing, financing and other related costs	5,291		8,992		18,591		28,609
Amortization of intangible assets	3,300		—		3,300		—
Costs associated with restructuring/forbearance agreement	—		—		—		44,434
Operating and Other Expense	$	33,460	$	27,260	$	78,762	$	120,833

Net Income/(Loss)	$	132,511	$	87,210	$	284,747	$	(725,207)
Less Preferred Stock Dividend Requirement	$	8,218	$	8,219	24,656		21,578
Net Income/(Loss) Available to Common Stock and Participating Securities	$	124,293	$	78,991	$	260,091	$	(746,785)

Basic Earnings/(Loss) per Common Share	$	0.28	$	0.17	$	0.58	$	(1.65)
Diluted Earnings/(Loss) per Common Share	$	0.27	$	0.17	$	0.57	$	(1.65)

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 September 30,				Nine Months Ended September 30,
(In Thousands)	2021		2020		2021		2020
Net income/(loss)	$	132,511	$	87,210	$	284,747	$	(725,207)
Other Comprehensive (Loss):
Unrealized (losses)/gains on securities available-for-sale	(8,029)		15,082		(21,473)		408,585
Reclassification adjustment for securities sales included in net income	—		(60)		—		(389,127)
Reclassification adjustment for impairments included in net income	—		—		—		(344,269)
Derivative hedging instrument fair value changes, net	—		—		—		(50,127)
Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	209		(22,652)		935		(22,652)
Reclassification adjustment for losses related to hedging instruments included in net income	—		7,176		—		72,802
Other Comprehensive (Loss)	(7,820)		(454)		(20,538)		(324,788)
Comprehensive income/(loss) before preferred stock dividends	$	124,691	$	86,756	$	264,209	$	(1,049,995)
Dividends required on preferred stock	(8,218)		(8,219)		(24,656)		(21,578)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities	$	116,473	$	78,537	$	239,553	$	(1,071,573)

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)
	Nine Months Ended September 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)	—	—		—	—		—

Form: 10-Q

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