May 4, 2022 - 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 March 31, 2022

☐ 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 Fixed-to-Floating Rate 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

102,455,065 shares of the registrant’s common stock, $0.01 par value, were outstanding as of April 28, 2022.

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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 March 31, 2022 (Unaudited) and December 31, 2021	1

	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2022 and March 31, 2021	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three Months Ended March 31, 2022 and March 31, 2021	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2022 and March 31, 2021	4

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2022 and March 31, 2021	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	17

	Note 4. Securities, at Fair Value	22

	Note 5. Other Assets	25

	Note 6. Financing Agreements	29

	Note 7. Other Liabilities	35

	Note 8. Income Taxes	36

	Note 9. Commitments and Contingencies	38

	Note 10. Stockholders’ Equity	38

	Note 11. EPS Calculation	42

	Note 12. Equity Compensation and Other Benefit Plans	42

	Note 13. Fair Value of Financial Instruments	44

	Note 14. Use of Special Purpose Entities and Variable Interest Entities	51

	Note 15. Subsequent Events	53

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	54

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	76

Item 4.	Controls and Procedures	81

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	82

Item 1A.	Risk Factors	82

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	82

Item 3.	Defaults Upon Senior Securities	83

Item 4.	Mine Safety Disclosures	83

Item 5.	Other Information	83

Item 6.	Exhibits	84

Signatures		86

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	March 31, 2022		December 31, 2021
	(Unaudited)
Assets:
Residential whole loans, net ($5,977,315 and $5,305,349 held at fair value, respectively) (1)(2)	$	8,261,905	$	7,913,000
Securities, at fair value (2)	250,171		256,685
Cash and cash equivalents	410,939		304,696
Restricted cash	144,600		99,751
Other assets (2)	857,343		565,556
Total Assets	$	9,924,958	$	9,139,688

Liabilities:
Financing agreements ($3,804,906 and $3,266,773 held at fair value, respectively)	$	7,028,211	$	6,378,782
Other liabilities	547,792		218,058
Total Liabilities	$	7,576,003	$	6,596,840

Commitments and contingencies (See Note 9)

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; 105,036 and 108,138 shares issued and outstanding, respectively	1,050		1,082
Additional paid-in capital, in excess of par	3,722,974		3,775,482
Accumulated deficit	(1,417,115)		(1,279,484)
Accumulated other comprehensive income	41,856		45,578
Total Stockholders’ Equity	$	2,348,955	$	2,542,848
Total Liabilities and Stockholders’ Equity	$	9,924,958	$	9,139,688

(1)Includes approximately $3.2 billion and $3.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at March 31, 2022 and December 31, 2021, 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 March 31,
(In Thousands, Except Per Share Amounts)	2022		2021
Interest Income:
Residential whole loans	$	99,466	$	64,538
Securities, at fair value	5,275		16,459
Other interest-earning assets	1,506		—
Cash and cash equivalent investments	102		54
Interest Income	$	106,349	$	81,051

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	39,365	$	26,050
Other interest expense	3,931		4,020
Interest Expense	$	43,296	$	30,070

Net Interest Income	$	63,053	$	50,981

Reversal of Provision for Credit Losses on Residential Whole Loans	$	3,511	$	22,750
Net Interest Income after Reversal of Provision for Credit Losses	$	66,564	$	73,731

Other Income, net:
Net mark-to-market and other net (loss)/gain on residential whole loans measured at fair value	$	(288,375)	$	31,490

Net gains on derivatives used for risk management purposes	94,101		—
Net mark-to-market on Securitized debt measured at fair value	64,117		(1,011)
Net gain on real estate owned	8,732		2,440

Lima One - origination, servicing and other fee income	14,494		—
Other, net	(585)		1,400
Other (Loss)/Income, net	$	(107,516)	$	34,319

Operating and Other Expense:
Compensation and benefits	$	19,556	$	8,437
Other general and administrative expense	8,697		6,792
Loan servicing, financing and other related costs	10,401		7,299
Amortization of intangible assets	3,300		—

Operating and Other Expense	$	41,954	$	22,528

Net (Loss)/Income	$	(82,906)	$	85,522
Less Preferred Stock Dividend Requirement	$	8,219	$	8,219
Net (Loss)/Income Available to Common Stock and Participating Securities	$	(91,125)	$	77,303

Basic (Loss)/Earnings per Common Share	$	(0.86)	$	0.68
Diluted (Loss)/Earnings per Common Share	$	(0.86)	$	0.67

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 March 31,
(In Thousands)	2022		2021
Net (loss)/income	$	(82,906)	$	85,522
Other Comprehensive (Loss):
Unrealized (losses) on securities available-for-sale	(4,977)		(3,855)



Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	1,255		235

Other Comprehensive (Loss)	(3,722)		(3,620)
Comprehensive (loss)/income before preferred stock dividends	$	(86,628)	$	81,902
Dividends required on preferred stock	(8,219)		(8,219)
Comprehensive (Loss)/Income Available to Common Stock and Participating Securities	$	(94,847)	$	73,683

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)
	Three Months Ended March 31, 2022
(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, 2021	11,000	$	110	8,000	$	80	108,138	$	1,082	$	3,775,482	$	(1,279,484)	$	45,578	$	2,542,848
Net Income	—	—		—	—		—	—		—		(82,906)		—		(82,906)
Issuance of common stock, net of expenses	—	—		—	—		150	1		485		—		—		486
Repurchase of shares of common stock (1)	—	—		—	—		(3,252)	(33)		(55,709)		—		—		(55,742)
Equity based compensation expense	—	—		—	—		—	—		2,642		—		—		2,642
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—		74		(150)		—		(76)
Dividends declared on common stock ($0.110 per share) (2)	—	—		—	—		—	—		—		(46,215)		—		(46,215)
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	—	—		—	—		—	—		—		(141)		—		(141)
Change in unrealized gains on securities, net	—	—		—	—		—	—		—		—		(4,977)		(4,977)

Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	—	—		—	—		—	—		—		—		1,255		1,255
Balance at March 31, 2022	11,000	$	110	8,000	$	80	105,036	$	1,050	$	3,722,974	$	(1,417,115)	$	41,856	$	2,348,955

(1) For the three months ended March 31, 2022 includes approximately $1.0 million (56,690 shares) surrendered for tax purposes related to equity-based compensation awards.

(2) Based on the number of shares held by stockholders at the record date and before giving effect to the Company’s 1 for 4 reverse stock split effected on April 4, 2022.

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)
				Three Months Ended March 31, 2021
	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
(In Thousands, Except Per Share Amounts)	Shares	Amount		Shares	Amount		Shares	Amount
Balance at December 31, 2020	11,000	$	110	8,000	$	80	112,929	$	1,129	$	3,851,517	$	(1,405,327)	$	77,293	$	2,524,802

Net Income	—	—		—	—		—	—		—		85,522		—		85,522
Issuance of common stock, net of expenses	—	—		—	—		139	1		381		—		—		382
Repurchase of shares of common stock (1)	—	—		—	—		(1,540)	(15)		(25,121)		—		—		(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) (2)	—	—		—	—		—	—		—		(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 losses on securities, 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	111,528	$	1,115	$	3,828,952	$	(1,361,664)	$	73,673	$	2,542,266

(1) For the three months ended March 31, 2021, includes approximately $799,000 (53,281 shares) surrendered for tax purposes related to equity-based compensation awards

(2) Based on the number of shares held by stockholders at the record date and before giving effect to the Company’s 1 for 4 reverse stock split effected on April 4, 2022.

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

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MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	Three Months Ended March 31,
(In Thousands)	2022		2021

Cash Flows From Operating Activities:
Net (loss)/income	$	(82,906)	$	85,522
Adjustments to reconcile net income to net cash provided by operating activities:
(Gains)/losses on residential whole loans and real estate owned, net	277,273		(35,893)
(Gains)/losses on securities, net	2,921		(100)


Accretion of purchase discounts and amortization of purchase premiums on residential whole loans and securities, and amortization of terminated hedging instruments	(4,135)		(9,645)
(Reversal of provision)/provision for credit and valuation losses on residential whole loans and other financial instruments	(4,038)		(23,967)
Net other non-cash (gains)/losses included in net income	(134,618)		5,212
(Increase)/Decrease in other assets	78,454		(1,939)
Increase/(Decrease) in other liabilities	609		4,975
Net cash provided by operating activities	$	133,560	$	24,165

Cash Flows From Investing Activities:
Purchases of residential whole loans, loan related investments and capitalized advances	$	(1,192,437)	$	(184,707)
Proceeds from sales of residential whole loans, and residential whole loan repurchases	—		—
Principal payments on residential whole loans and loan related investments	567,114

Form: 10-Q

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