May 4, 2023 - 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, 2023

☐ 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

101,912,357 shares of the registrant’s common stock, $0.01 par value, were outstanding as of April 27, 2023.

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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, 2023 (Unaudited) and December 31, 2022	1

	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31, 2023 and March 31, 2022	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three Months Ended March 31, 2023 and March 31, 2022	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2023 and March 31, 2022	4

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2023 and March 31, 2022	5

	Notes to the Unaudited Consolidated Financial Statements	6

	Note 1. Organization	6

	Note 2. Summary of Significant Accounting Policies	6

	Note 3. Residential Whole Loans	16

	Note 4. Securities, at Fair Value	21

	Note 5. Other Assets	25

	Note 6. Financing Agreements	28

	Note 7. Other Liabilities	33

	Note 8. Income Taxes	34

	Note 9. Commitments and Contingencies	36

	Note 10. Stockholders’ Equity	36

	Note 11. EPS Calculation	40

	Note 12. Equity Compensation and Other Benefit Plans	40

	Note 13. Fair Value of Financial Instruments	42

	Note 14. Use of Special Purpose Entities and Variable Interest Entities	49

	Note 15. Segment Reporting	51



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	55

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	85

Item 4.	Controls and Procedures	90

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	91

Item 1A.	Risk Factors	91

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	91

Item 3.	Defaults Upon Senior Securities	92

Item 4.	Mine Safety Disclosures	92

Item 5.	Other Information	92

Item 6.	Exhibits	92

Signatures		94

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	March 31, 2023		December 31, 2022
	(Unaudited)
Assets:
Residential whole loans, net ($6,074,232 and $5,727,524 held at fair value, respectively) (1)(2)	$	7,794,250	$	7,518,739
Securities, at fair value (2)	504,639		333,364
Cash and cash equivalents	362,452		334,183
Restricted cash	165,137		159,898
Other assets (2)	485,129		766,221
Total Assets	$	9,311,607	$	9,112,405

Liabilities:
Financing agreements ($4,147,712 and $3,898,744 held at fair value, respectively)	$	7,101,318	$	6,812,086
Other liabilities	191,683		311,470
Total Liabilities	$	7,293,001	$	7,123,556

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; 101,912 and 101,802 shares issued and outstanding, respectively	1,019		1,018
Additional paid-in capital, in excess of par	3,687,285		3,684,291
Accumulated deficit	(1,690,113)		(1,717,991)
Accumulated other comprehensive income	20,225		21,341
Total Stockholders’ Equity	$	2,018,606	$	1,988,849
Total Liabilities and Stockholders’ Equity	$	9,311,607	$	9,112,405

(1)Includes approximately $4.6 billion and $4.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at March 31, 2023 and December 31, 2022, 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)	2023		2022
Interest Income:
Residential whole loans	$	119,510	$	99,466
Securities, at fair value	7,308		5,275
Other interest-earning assets	2,351		1,506
Cash and cash equivalent investments	3,036		102
Interest Income	$	132,205	$	106,349

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	88,880	$	39,365
Other interest expense	3,956		3,931
Interest Expense	$	92,836	$	43,296

Net Interest Income	$	39,369	$	63,053

Reversal of Provision for Credit Losses on Residential Whole Loans	$	13	$	3,511

Net Interest Income after Reversal of Provision for Credit Losses	$	39,382	$	66,564

Other Income/(Loss), net:
Net gain/(loss) on residential whole loans measured at fair value through earnings	$	129,174	$	(287,935)
Impairment and other net gain/(loss) on securities and other portfolio investments	2,931		(3,701)
Net gain on real estate owned	3,942		8,732
Net (loss)/gain on derivatives used for risk management purposes	(21,208)		94,101
Net (loss)/gain on securitized debt measured at fair value through earnings	(51,725)		64,117
Lima One - origination, servicing and other fee income	8,976		14,494
Other, net	3,172		2,676
Other Income/(Loss), net	$	75,262	$	(107,516)

Operating and Other Expense:
Compensation and benefits	$	20,630	$	19,556
Other general and administrative expense	10,391		8,697
Loan servicing, financing and other related costs	9,539		10,401
Amortization of intangible assets	1,300		3,300
Operating and Other Expense	$	41,860	$	41,954

Net Income/(Loss)	$	72,784	$	(82,906)
Less Preferred Stock Dividend Requirement	$	8,219	$	8,219
Net Income/(Loss) Available to Common Stock and Participating Securities	$	64,565	$	(91,125)

Basic Earnings/(Loss) per Common Share	$	0.63	$	(0.86)
Diluted Earnings/(Loss) per Common Share	$	0.62	$	(0.86)

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)	2023		2022
Net income/(loss)	$	72,784	$	(82,906)
Other Comprehensive Income/(Loss):
Unrealized losses on securities available-for-sale	(1,116)		(4,977)



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

Other Comprehensive (Loss)	(1,116)		(3,722)
Comprehensive income/(loss) before preferred stock dividends	$	71,668	$	(86,628)
Dividends required on preferred stock	(8,219)		(8,219)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities	$	63,449	$	(94,847)

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, 2023
(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, 2022	11,000	$	110	8,000	$	80	101,802	$	1,018	$	3,684,291	$	(1,717,991)	$	21,341	$	1,988,849
Net income	—	—		—	—		—	—		—		72,784		—		72,784
Issuance of common stock, net of expenses	—	—		—	—		168	1		17		—		—		18
Repurchase of shares of common stock (1)	—	—		—	—		(58)	—		(599)		—		—		(599)
Equity based compensation expense	—	—		—	—		—	—		3,019		—		—		3,019
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—		557		(932)		—		(375)
Dividends declared on common stock ($0.35 per share)	—	—		—	—		—	—		—		(35,669)		—		(35,669)
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	—	—		—	—		—	—		—		(86)		—		(86)
Change in unrealized gains on securities, net	—	—		—	—		—	—		—		—		(1,116)		(1,116)


Balance at March 31, 2023	11,000	$	110	8,000	$	80	101,912	$	1,019	$	3,687,285	$	(1,690,113)	$	20,225	$	2,018,606

(1) For the three months ended March 31, 2023 includes approximately $600,000 (58,505 shares) surrendered for tax purposes related to equity-based compensation awards.

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


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
				Three Months Ended March 31, 2022
	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, 2021	11,000	$	110	8,000	$	80	108,138	$	1,082	$	3,775,482	$	(1,279,484)	$	45,578	$	2,542,848

Net loss	—	—		—	—		—	—		—		(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 ($0.440 per share)	—	—		—	—		—	—		—		(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 losses 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	—	—		—	—

Form: 10-Q

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