August 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 June 30, 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

101,793,274 shares of the registrant’s common stock, $0.01 par value, were outstanding as of July 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 June 30, 2022 (Unaudited) and December 31, 2021	1

	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 30, 2022 and June 30, 2021	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Six Months Ended June 30, 2022 and June 30, 2021	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 30, 2022 and June 30, 2021	4

	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30, 2022 and June 30, 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	23

	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. Segment Reporting	53

	Note 16. Subsequent Events	55

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	56

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	93

Item 4.	Controls and Procedures	98

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	99

Item 1A.	Risk Factors	99

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	99

Item 3.	Defaults Upon Senior Securities	100

Item 4.	Mine Safety Disclosures	100

Item 5.	Other Information	100

Item 6.	Exhibits	100

Signatures		102

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	June 30, 2022		December 31, 2021
	(Unaudited)
Assets:
Residential whole loans, net ($6,164,293 and $5,305,349 held at fair value, respectively) (1)(2)	$	8,190,581	$	7,913,000
Securities, at fair value (2)	245,613		256,685
Cash and cash equivalents	385,598		304,696
Restricted cash	159,745		99,751
Other assets (2)	498,089		565,556
Total Assets	$	9,479,626	$	9,139,688

Liabilities:
Financing agreements ($4,199,458 and $3,266,773 held at fair value, respectively)	$	7,132,366	$	6,378,782
Other liabilities	200,872		218,058
Total Liabilities	$	7,333,238	$	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; 101,793 and 108,138 shares issued and outstanding, respectively	1,018		1,082
Additional paid-in capital, in excess of par	3,679,078		3,775,482
Accumulated deficit	(1,570,817)		(1,279,484)
Accumulated other comprehensive income	36,919		45,578
Total Stockholders’ Equity	$	2,146,388	$	2,542,848
Total Liabilities and Stockholders’ Equity	$	9,479,626	$	9,139,688

(1)Includes approximately $3.9 billion and $3.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at June 30, 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 June 30,				Six Months Ended June 30,
(In Thousands, Except Per Share Amounts)	2022		2021		2022		2021
Interest Income:
Residential whole loans	$	102,354	$	69,016	$	201,820	$	133,554
Securities, at fair value	5,294		15,345		10,569		31,804
Other interest-earning assets	1,349		108		2,855		108
Cash and cash equivalent investments	324		59		426		113
Interest Income	$	109,321	$	84,528	$	215,670	$	165,579

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	52,805	$	21,640	$	92,170	$	47,691
Other interest expense	3,937		3,915		7,868		7,934
Interest Expense	$	56,742	$	25,555	$	100,038	$	55,625

Net Interest Income	$	52,579	$	58,973	$	115,632	$	109,954

(Provision)/Reversal of Provision for Credit Losses on Residential Whole Loans	$	(1,817)	$	8,867	$	1,694	$	31,617
Provision for Credit Losses on Other Assets	(28,579)		—		(28,579)		—
Net Interest Income after (Provision)/Reversal of Provision for Credit Losses	$	22,183	$	67,840	$	88,747	$	141,571

Other (Loss)/Income, net:
Net mark-to-market and other net (loss)/gain on residential whole loans measured at fair value	$	(216,414)	$	6,021	$	(504,789)	$	37,510

Net gains/(losses) on derivatives used for risk management purposes	47,804		(1,057)		141,905		(1,057)
Net mark-to-market on Securitized debt measured at fair value	84,573		(232)		148,690		(1,243)
Net gain on real estate owned	7,185		4,456		15,917		6,896

Lima One - origination, servicing and other fee income	10,673		—		25,167		—
Other, net	(10,269)		12,459		(10,854)		13,860
Other (Loss)/Income, net	$	(76,448)	$	21,647	$	(183,964)	$	55,966

Operating and Other Expense:
Compensation and benefits	$	19,060	$	8,886	$	38,616	$	17,323
Other general and administrative expense	10,507		7,887		19,204		14,679
Loan servicing, financing and other related costs	13,235		6,000		23,636		13,299
Amortization of intangible assets	3,300		—		6,600		—
Operating and Other Expense	$	46,102	$	22,773	$	88,056	$	45,301

Net (Loss)/Income	$	(100,367)	$	66,714	$	(183,273)	$	152,236
Less Preferred Stock Dividend Requirement	$	8,219	$	8,219	16,438		16,438
Net (Loss)/Income Available to Common Stock and Participating Securities	$	(108,586)	$	58,495	$	(199,711)	$	135,798

Basic (Loss)/Earnings per Common Share	$	(1.06)	$	0.53	$	(1.91)	$	1.21
Diluted (Loss)/Earnings per Common Share	$	(1.06)	$	0.53	$	(1.91)	$	1.20

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)	2022		2021		2022		2021
Net (loss)/income	$	(100,367)	$	66,714	$	(183,273)	$	152,236
Other Comprehensive (Loss):
Unrealized (losses) on securities available-for-sale	(4,937)		(9,589)		(9,914)		(13,444)



Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	—		491		1,255		726

Other Comprehensive (Loss)	(4,937)		(9,098)		(8,659)		(12,718)
Comprehensive (loss)/income before preferred stock dividends	$	(105,304)	$	57,616	$	(191,932)	$	139,518
Dividends required on preferred stock	(8,219)		(8,219)		(16,438)		(16,438)
Comprehensive (Loss)/Income Available to Common Stock and Participating Securities	$	(113,523)	$	49,397	$	(208,370)	$	123,080

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, 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 ($0.44 per share) (2)	—	—		—	—		—	—		—		(46,215)		—		(46,215)
Dividends declared on Series B Preferred Stock ($0.46875 per share)	—	—		—	—		—	—		—		(3,750)		—		(

Form: 10-Q

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