November 3, 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 September 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

101,796,941 shares of the registrant’s common stock, $0.01 par value, were outstanding as of October 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 September 30, 2022 (Unaudited) and December 31, 2021	1

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

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

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

	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2022 and September 30, 2021	7

	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	18

	Note 4. Securities, at Fair Value	24

	Note 5. Other Assets	26

	Note 6. Financing Agreements	30

	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	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	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		99

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	September 30, 2022		December 31, 2021
	(Unaudited)
Assets:
Residential whole loans, net ($6,315,966 and $5,305,349 held at fair value, respectively) (1)(2)	$	8,194,049	$	7,913,000
Securities, at fair value (2)	227,407		256,685
Cash and cash equivalents	434,086		304,696
Restricted cash	167,310		99,751
Other assets (2)	496,994		565,556
Total Assets	$	9,519,846	$	9,139,688

Liabilities:
Financing agreements ($4,397,470 and $3,266,773 held at fair value, respectively)	$	7,289,440	$	6,378,782
Other liabilities	196,475		218,058
Total Liabilities	$	7,485,915	$	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; 101,797 and 108,138 shares issued and outstanding, respectively	1,018		1,082
Additional paid-in capital, in excess of par	3,681,784		3,775,482
Accumulated deficit	(1,680,129)		(1,279,484)
Accumulated other comprehensive income	31,068		45,578
Total Stockholders’ Equity	$	2,033,931	$	2,542,848
Total Liabilities and Stockholders’ Equity	$	9,519,846	$	9,139,688

(1)Includes approximately $4.4 billion and $3.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at September 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 September 30,				Nine Months Ended September 30,
(In Thousands, Except Per Share Amounts)	2022		2021		2022		2021
Interest Income:
Residential whole loans	$	114,415	$	79,602	$	316,235	$	213,156
Securities, at fair value	5,612		10,629		16,181		42,433
Other interest-earning assets	2,216		524		5,071		632
Cash and cash equivalent investments	1,629		126		2,055		239
Interest Income	$	123,872	$	90,881	$	339,542	$	256,460

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	67,636	$	25,135	$	159,806	$	72,827
Other interest expense	3,943		3,930		11,811		11,863
Interest Expense	$	71,579	$	29,065	$	171,617	$	84,690

Net Interest Income	$	52,293	$	61,816	$	167,925	$	171,770

(Provision)/Reversal of Provision for Credit Losses on Residential Whole Loans	$	(588)	$	9,709	$	1,106	$	41,326
Provision for Credit Losses on Other Assets	—		—		(28,579)		—
Net Interest Income after (Provision)/Reversal of Provision for Credit Losses	$	51,705	$	71,525	$	140,452	$	213,096

Other (Loss)/Income, net:
Net mark-to-market and other net (loss)/gain on residential whole loans measured at fair value	$	(291,875)	$	21,815	$	(796,664)	$	59,325
Gain on investment in Lima One common equity	—		38,933		—		38,933
Net gains on derivatives used for risk management purposes	111,816		2,085		253,721		1,028
Net mark-to-market on Securitized debt measured at fair value	98,858		857		247,548		8,254
Net gain on real estate owned	3,860		6,829		19,777		13,725
Lima One - origination, servicing and other fee income	12,372		9,638		37,539		9,638
Other, net	778		14,289		(10,076)		19,510
Other (Loss)/Income, net	$	(64,191)	$	94,446	$	(248,155)	$	150,413

Operating and Other Expense:
Compensation and benefits	$	21,063	$	16,210	$	59,679	$	33,533
Other general and administrative expense	8,812		8,659		28,016		23,338
Loan servicing, financing and other related costs	11,357		5,291		34,993		18,591
Amortization of intangible assets	1,300		3,300		7,900		3,300
Operating and Other Expense	$	42,532	$	33,460	$	130,588	$	78,762

Net (Loss)/Income	$	(55,018)	$	132,511	$	(238,291)	$	284,747
Less Preferred Stock Dividend Requirement	$	8,218	$	8,218	24,656		24,656
Net (Loss)/Income Available to Common Stock and Participating Securities	$	(63,236)	$	124,293	$	(262,947)	$	260,091

Basic (Loss)/Earnings per Common Share	$	(0.62)	$	1.12	$	(2.54)	$	2.33
Diluted (Loss)/Earnings per Common Share	$	(0.62)	$	1.08	$	(2.54)	$	2.28

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)	2022		2021		2022		2021
Net (loss)/income	$	(55,018)	$	132,511	$	(238,291)	$	284,747
Other Comprehensive (Loss):
Unrealized (losses) on securities available-for-sale	(5,851)		(8,029)		(15,765)		(21,473)



Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk	—		209		1,255		935

Other Comprehensive (Loss)	(5,851)		(7,820)		(14,510)		(20,538)
Comprehensive (loss)/income before preferred stock dividends	$	(60,869)	$	124,691	$	(252,801)	$	264,209
Dividends required on preferred stock	(8,218)		(8,218)		(24,656)		(24,656)
Comprehensive (Loss)/Income Available to Common Stock and Participating Securities	$	(69,087)	$	116,473	$	(277,457)	$	239,553

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, 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

Amount

Form: 10-Q

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