August 3, 2023 - 10-Q: Quarterly report pursuant to Section 13 or 15(d)

Table of Contents

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, 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

101,915,797 shares of the registrant’s common stock, $0.01 par value, were outstanding as of July 28, 2023.

Table of Contents

MFA FINANCIAL, INC.

TABLE OF CONTENTS


		Page

PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of June 3 0 , 2023 (Unaudited) and December 31, 2022	1

	Consolidated Statements of Operations (Unaudited) for the Three and Six Months Ended June 3 0 , 2023 and June 3 0 , 2022	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Six Months Ended June 3 0 , 2023 and June 3 0 , 2022	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Six Months Ended June 3 0 , 2023 and June 3 0 , 2022	4

	Consolidated Statements of Cash Flows (Unaudited) for the Six Months Ended June 30 , 2023 and June 3 0 , 2022	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	16

	Note 4. Securities, at Fair Value	22

	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



Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	59

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	91

Item 4.	Controls and Procedures	96

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	97

Item 1A.	Risk Factors	97

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	97

Item 3.	Defaults Upon Senior Securities	97

Item 4.	Mine Safety Disclosures	97

Item 5.	Other Information	97

Item 6.	Exhibits	97

Signatures		99

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	June 30, 2023		December 31, 2022
	(Unaudited)
Assets:
Residential whole loans, net ($6,500,033 and $5,727,524 held at fair value, respectively) (1)(2)	$	8,139,786	$	7,518,739
Securities, at fair value (2)	594,294		333,364
Cash and cash equivalents	329,391		334,183
Restricted cash	174,005		159,898
Other assets (2)	498,755		766,221
Total Assets	$	9,736,231	$	9,112,405

Liabilities:
Financing agreements ($4,116,746 and $3,898,744 held at fair value, respectively)	$	7,568,177	$	6,812,086
Other liabilities	223,285		311,470
Total Liabilities	$	7,791,462	$	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; 101,916 and 101,802 shares issued and outstanding, respectively	1,019		1,018
Additional paid-in capital, in excess of par	3,691,233		3,684,291
Accumulated deficit	(1,761,093)		(1,717,991)
Accumulated other comprehensive income	13,420		21,341
Total Stockholders’ Equity	$	1,944,769	$	1,988,849
Total Liabilities and Stockholders’ Equity	$	9,736,231	$	9,112,405

(1)Includes approximately $4.8 billion and $4.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at June 30, 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.

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED)
	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands, Except Per Share Amounts)	2023		2022		2023		2022
Interest Income:
Residential whole loans	$	128,048	$	102,354	$	247,558	$	201,820
Securities, at fair value	9,948		5,294		17,256		10,569
Other interest-earning assets	2,622		1,349		4,973		2,855
Cash and cash equivalent investments	3,732		324		6,768		426
Interest Income	$	144,350	$	109,321	$	276,555	$	215,670

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	95,884	$	52,805	$	184,764	$	92,170
Other interest expense	3,961		3,937		7,917		7,868
Interest Expense	$	99,845	$	56,742	$	192,681	$	100,038

Net Interest Income	$	44,505	$	52,579	$	83,874	$	115,632

(Provision)/Reversal of Provision for Credit Losses on Residential Whole Loans	$	(294)	$	(1,817)	$	(281)	$	1,694
Provision for Credit Losses on Other Assets	—		(28,579)		—		(28,579)
Net Interest Income after Provision for Credit Losses	$	44,211	$	22,183	$	83,593	$	88,747

Other (Loss)/Income, net:
Net loss on residential whole loans measured at fair value through earnings	$	(130,703)	$	(218,181)	$	(1,529)	$	(506,116)
Impairment and other net loss on securities and other portfolio investments	(4,569)		(12,046)		(1,638)		(15,747)
Net gain on real estate owned	2,153		7,185		6,095		15,917
Net gain on derivatives used for risk management purposes	60,451		47,804		39,243		141,905
Net gain/(loss) on securitized debt measured at fair value through earnings	27,394		84,573		(24,331)		148,690
Lima One - origination, servicing and other fee income	11,477		10,673		20,453		25,167
Other, net	5,496		3,544		8,668		6,220
Other (Loss)/Income, net	$	(28,301)	$	(76,448)	$	46,961	$	(183,964)

Operating and Other Expense:
Compensation and benefits	$	21,771	$	19,060	$	42,401	$	38,616
Other general and administrative expense	11,169		10,507		21,560		19,204
Loan servicing, financing and other related costs	7,598		13,235		17,137		23,636
Amortization of intangible assets	1,300		3,300		2,600		6,600
Operating and Other Expense	$	41,838	$	46,102	$	83,698	$	88,056

Net (Loss)/Income	$	(25,928)	$	(100,367)	$	46,856	$	(183,273)
Less Preferred Stock Dividend Requirement	$	8,218	$	8,219	$	16,437	$	16,438
Net (Loss)/Income Available to Common Stock and Participating Securities	$	(34,146)	$	(108,586)	$	30,419	$	(199,711)

Basic (Loss)/Earnings per Common Share	$	(0.34)	$	(1.06)	$	0.30	$	(1.91)
Diluted (Loss)/Earnings per Common Share	$	(0.34)	$	(1.06)	$	0.29	$	(1.91)

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

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME/(LOSS) (UNAUDITED)
	Three Months Ended June 30,				Six Months Ended June 30,
(In Thousands)	2023		2022		2023		2022
Net income/(loss)	$	(25,928)	$	(100,367)	$	46,856	$	(183,273)
Other Comprehensive Income/(Loss):
Unrealized losses on securities available-for-sale	(6,805)		(4,937)		(7,921)		(9,914)



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

Other Comprehensive (Loss)	(6,805)		(4,937)		(7,921)		(8,659)
Comprehensive income/(loss) before preferred stock dividends	$	(32,733)	$	(105,304)	$	38,935	$	(191,932)
Dividends required on preferred stock	(8,218)		(8,219)		(16,437)		(16,438)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities	$	(40,951)	$	(113,523)	$	22,498	$	(208,370)

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

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
	Six Months Ended June 30, 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
Net loss	—	—		—	—		—	—		—		(25,928)		—		(25,928)
Issuance of common stock, net of expenses	—	—		—	—		4	—		16		—		—		16
Repurchase of shares of common stock (1)	—	—		—	—		—	—		—		—		—		—
Equity based compensation expense	—	—		—	—		—	—		3,932		—		—		3,932
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—		—		(1,044)		—		(1,044)
Dividends declared on common stock ($0.35 per share)	—	—		—	—		—	—		—		(35,671)		—		(35,671)
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	—	—		—	—		—	—		—		(118)		—		(118)
Change in unrealized gains on securities, net	—	—		—	—		—	—		—		—		(6,805)		(6,805)


Balance at June 30, 2023	11,000	$	110	8,000	$	80	101,916	$	1,019	$	3,691,233	$	(1,761,093)	$	13,420	$	1,944,769

(1) For the six months ended June 30, 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.

Table of Contents


MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (UNAUDITED)
				Six Months Ended June 30, 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	—

Form: 10-Q

Documents