November 7, 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 September 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 October 31, 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 September 30, 2023 (Unaudited) and December 31, 2022	1

	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30, 2023 and September 30, 2022	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and Nine Months Ended September 30, 2023 and September 30, 2022	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30, 2023 and September 30, 2022	4

	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30, 2023 and September 30, 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	17

	Note 4. Securities, at Fair Value	23

	Note 5. Other Assets	27

	Note 6. Financing Agreements	31

	Note 7. Other Liabilities	37

	Note 8. Income Taxes	38

	Note 9. Commitments and Contingencies	40

	Note 10. Stockholders’ Equity	40

	Note 11. EPS Calculation	44

	Note 12. Equity Compensation and Other Benefit Plans	44

	Note 13. Fair Value of Financial Instruments	46

	Note 14. Use of Special Purpose Entities and Variable Interest Entities	53

	Note 15. Segment Reporting	55

	Note 16. Subsequent Events	60

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	61

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, Use of Proceeds, and Issuer Purchases of Equity Securities	99

Item 3.	Defaults Upon Senior Securities	99

Item 4.	Mine Safety Disclosures	99

Item 5.	Other Information	99

Item 6.	Exhibits	99

Signatures		101

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	September 30, 2023		December 31, 2022
	(Unaudited)
Assets:
Residential whole loans, net ($6,846,570 and $5,727,524 held at fair value, respectively) (1)(2)	$	8,424,216	$	7,518,739
Securities, at fair value (2)	723,959		333,364
Cash and cash equivalents	300,089		334,183
Restricted cash	153,449		159,898
Other assets (2)	503,087		766,221
Total Assets	$	10,104,800	$	9,112,405

Liabilities:
Financing agreements ($4,438,676 and $3,898,744 held at fair value, respectively)	$	8,037,973	$	6,812,086
Other liabilities	218,311		311,470
Total Liabilities	$	8,256,284	$	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	3,695,406		3,684,291
Accumulated deficit	(1,862,452)		(1,717,991)
Accumulated other comprehensive income	14,353		21,341
Total Stockholders’ Equity	$	1,848,516	$	1,988,849
Total Liabilities and Stockholders’ Equity	$	10,104,800	$	9,112,405

(1)Includes approximately $5.1 billion and $4.0 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at September 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.

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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)	2023		2022		2023		2022
Interest Income:
Residential whole loans	$	140,538	$	114,415	$	388,096	$	316,235
Securities, at fair value	11,945		5,612		29,201		16,181
Other interest-earning assets	2,587		2,216		7,560		5,071
Cash and cash equivalent investments	4,095		1,629		10,863		2,055
Interest Income	$	159,165	$	123,872	$	435,720	$	339,542

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	109,088	$	67,636	$	293,852	$	159,806
Other interest expense	3,936		3,943		11,853		11,811
Interest Expense	$	113,024	$	71,579	$	305,705	$	171,617

Net Interest Income	$	46,141	$	52,293	$	130,015	$	167,925

Reversal of Provision/(Provision) for Credit Losses on Residential Whole Loans	$	1,258	$	(588)	$	977	$	1,106
Provision for Credit Losses on Other Assets	—		—		—		(28,579)
Net Interest Income after Provision for Credit Losses	$	47,399	$	51,705	$	130,992	$	140,452

Other (Loss)/Income, net:
Net loss on residential whole loans measured at fair value through earnings	$	(132,894)	$	(291,818)	$	(134,423)	$	(797,934)
Impairment and other net loss on securities and other portfolio investments	(14,161)		(411)		(15,799)		(16,159)
Net gain on real estate owned	2,409		3,861		8,504		19,777
Net gain on derivatives used for risk management purposes	34,860		111,816		74,103		253,721
Net gain on securitized debt measured at fair value through earnings	36,431		98,858		12,100		247,548
Lima One - origination, servicing and other fee income	12,109		12,372		32,562		37,539
Other, net	1,854		1,131		10,522		7,353
Other Loss, net	$	(59,392)	$	(64,191)	$	(12,431)	$	(248,155)

Operating and Other Expense:
Compensation and benefits	$	24,051	$	21,063	$	66,452	$	59,679
Other general and administrative expense	10,605		8,812		32,165		28,016
Loan servicing, financing and other related costs	8,989		11,357		26,126		34,993
Amortization of intangible assets	800		1,300		3,400		7,900
Operating and Other Expense	$	44,445	$	42,532	$	128,143	$	130,588

Net (Loss)/Income	$	(56,438)	$	(55,018)	$	(9,582)	$	(238,291)
Less Preferred Stock Dividend Requirement	$	8,219	$	8,218	$	24,656	$	24,656
Net (Loss)/Income Available to Common Stock and Participating Securities	$	(64,657)	$	(63,236)	$	(34,238)	$	(262,947)

Basic (Loss)/Earnings per Common Share	$	(0.64)	$	(0.62)	$	(0.34)	$	(2.54)
Diluted (Loss)/Earnings per Common Share	$	(0.64)	$	(0.62)	$	(0.34)	$	(2.54)

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)	2023		2022		2023		2022
Net loss	$	(56,438)	$	(55,018)	$	(9,582)	$	(238,291)
Other Comprehensive Income/(Loss):
Unrealized gains/(losses) on securities available-for-sale	933		(5,851)		(6,988)		(15,765)



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

Other Comprehensive Income/(Loss)	933		(5,851)		(6,988)		(14,510)
Comprehensive loss before preferred stock dividends	$	(55,505)	$	(60,869)	$	(16,570)	$	(252,801)
Dividends required on preferred stock	(8,219)		(8,218)		(24,656)		(24,656)
Comprehensive Loss Available to Common Stock and Participating Securities	$	(63,724)	$	(69,087)	$	(41,226)	$	(277,457)

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, 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

Form: 10-Q

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