May 6, 2024 - 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, 2024

☐ 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)

_____________________________________________

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
8.875% Senior Notes due 2029	MFAN	New York Stock Exchange
9.00% Senior Notes due 2029	MFAO	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

102,082,499 shares of the registrant’s common stock, $0.01 par value, were outstanding as of April 30, 2024.

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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 , 202 4 (Unaudited) and December 31, 20 23	1

	Consolidated Statements of Operations (Unaudited) for the Three Months Ended March 31 , 202 4 and March 31 , 20 2 3	2

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three Months Ended March 31 , 202 4 and March 31 , 202 3	3

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three Months Ended March 31 , 202 4 and March 31 , 202 3	4

	Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31 , 202 4 and March 31 , 202 3	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	15

	Note 4. Securities, at Fair Value	20

	Note 5. Other Assets	24

	Note 6. Financing Agreements	28

	Note 7. Other Liabilities	33

	Note 8. Income Taxes	33

	Note 9. Commitments and Contingencies	35

	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	50

	Note 15. Segment Reporting	52

	Note 16. Subsequent Events	54

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

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	83

Item 4.	Controls and Procedures	87

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	87

Item 1A.	Risk Factors	87

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	88

Item 3.	Defaults Upon Senior Securities	88

Item 4.	Mine Safety Disclosures	88

Item 5.	Other Information	88

Item 6.	Exhibits	89

Signatures		90

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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	March 31, 2024		December 31, 2023
	(Unaudited)
Assets:
Residential whole loans, net ($7,653,907 and $7,511,508 held at fair value, respectively) (1)(2)	$	9,118,665	$	9,041,292
Securities, at fair value (2)	736,950		746,090
Cash and cash equivalents	306,266		318,000
Restricted cash	222,905		170,211
Other assets (2)	489,344		497,097
Total Assets	$	10,874,130	$	10,772,690

Liabilities:
Financing agreements ($4,641,438 and $4,633,660 held at fair value, respectively)	$	8,685,916	$	8,536,745
Other liabilities	304,027		336,030
Total Liabilities	$	8,989,943	$	8,872,775

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; 102,082 and 101,916 shares issued and outstanding, respectively	1,021		1,019
Additional paid-in capital, in excess of par	3,703,242		3,698,767
Accumulated deficit	(1,839,792)		(1,817,759)
Accumulated other comprehensive income	19,526		17,698
Total Stockholders’ Equity	$	1,884,187	$	1,899,915
Total Liabilities and Stockholders’ Equity	$	10,874,130	$	10,772,690

(1)Includes approximately $5.7 billion and $5.7 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at March 31, 2024 and December 31, 2023, 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)	2024		2023
Interest Income:
Residential whole loans	$	157,665	$	119,510
Securities, at fair value	12,992		7,308
Other interest-earning assets	1,163		2,351
Cash and cash equivalent investments	5,011		3,036
Interest Income	$	176,831	$	132,205

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	123,442	$	88,880
Other interest expense	5,575		3,956
Interest Expense	$	129,017	$	92,836

Net Interest Income	$	47,814	$	39,369

Reversal/(Provision) for Credit Losses on Residential Whole Loans	$	460	$	13
Reversal/(Provision) for Credit Losses on Other Assets	(1,109)		—
Net Interest Income after Reversal/(Provision) for Credit Losses	$	47,165	$	39,382

Other Income/(Loss), net:
Net gain/(loss) on residential whole loans measured at fair value through earnings	$	(11,513)	$	129,174
Impairment and other net gain/(loss) on securities and other portfolio investments	(4,776)		2,931
Net gain/(loss) on real estate owned	991		3,942
Net gain/(loss) on derivatives used for risk management purposes	49,941		(21,208)
Net gain/(loss) on securitized debt measured at fair value through earnings	(22,462)		(51,725)
Lima One - origination, servicing and other fee income	7,928		8,976
Net realized gain/(loss) on residential whole loans held at carrying value	418		—
Other, net	1,875		3,014
Other Income/(Loss), net	$	22,402	$	75,104

Operating and Other Expense:
Compensation and benefits	$	25,468	$	20,630
Other general and administrative expense	13,044		10,233
Loan servicing, financing and other related costs	7,042		9,539
Amortization of intangible assets	800		1,300
Operating and Other Expense	$	46,354	$	41,702

Net Income/(Loss)	$	23,213	$	72,784
Less Preferred Stock Dividend Requirement	$	8,219	$	8,219
Net Income/(Loss) Available to Common Stock and Participating Securities	$	14,994	$	64,565

Basic Earnings/(Loss) per Common Share	$	0.14	$	0.63
Diluted Earnings/(Loss) per Common Share	$	0.14	$	0.62

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)	2024		2023
Net income/(loss)	$	23,213	$	72,784
Other Comprehensive Income/(Loss):
Unrealized gains/(losses) on securities available-for-sale	1,828		(1,116)



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

Other Comprehensive Income/(Loss)	1,828		(1,116)
Comprehensive Income/(Loss) before preferred stock dividends	$	25,041	$	71,668
Dividends required on preferred stock	(8,219)		(8,219)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities	$	16,822	$	63,449

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, 2024
(In Thousands, Except Per Share Amounts)	Preferred Stock 7.50% Series B Cumulative Redeemable - Liquidation Preference $25.00 per Share			Preferred Stock 6.50% Series C Fixed-to-Floating Rate 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, 2023	8,000	$	80	11,000	$	110	101,916	$	1,019	$	3,698,767	$	(1,817,759)	$	17,698	$	1,899,915
Net income	—	—		—	—		—	—		—		23,213		—		23,213
Issuance of common stock, net of expenses	—	—		—	—		297	3		(20)		—		—		(17)
Repurchase of shares of common stock (1)	—	—		—	—		(131)	(1)		(1,491)		—		—		(1,492)
Equity based compensation expense	—	—		—	—		—	—		5,986		—		—		5,986
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—		—		(1,011)		—		(1,011)
Dividends declared on common stock ($0.35 per share)	—	—		—	—		—	—		—		(35,729)		—		(35,729)
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	—	—		—	—		—	—		—		(287)		—		(287)
Change in unrealized gains on securities, net	—	—		—	—		—	—		—		—		1,828		1,828


Balance at March 30, 2024	8,000	$	80	11,000	$	110	102,082	$	1,021	$	3,703,242	$	(1,839,792)	$	19,526	$	1,884,187

(1) For the three months ended March 31, 2024 includes approximately $1.5 million (129,949 shares) surrendered for tax purposes related to equity-based compensation awards.



	Three Months Ended March 31, 2023
	Preferred Stock 7.50% Series B Cumulative Redeemable - Liquidation Preference $25.00 per Share			Preferred Stock 6.50% Series C Fixed-to-Floating Rate 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, 2022	8,000	$	80	11,000	$	110	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	8,000	$	80	11,000	$	110	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 $0.6 million (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.

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MFA FINANCIAL, INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
	Three Months Ended March 31,
(In Thousands)	2024		2023
Cash Flows From Operating Activities:
Net income/(loss)	$	23,213	$	72,784
Adjustments to reconcile net income/(loss) to net cash provided by operating activities:
Net (gain)/loss on residential whole loans	11,095		(129,174)

Impairment and other net (gain)/loss on securities and other portfolio investments, net	4,112		(2,932)
Net gain on real estate owned	(735)		(3,936)
Accretion of purchase discounts and amortization of purchase premiums on residential whole loans and securities	(3,327)		(4,507)
Provision/(reversal of provision) for credit losses on residential whole loans and other assets	649		(4)
Net (gain)/loss on derivatives used for risk management purposes	(23,182)		42,879
Net (gain)/loss on securitized debt measured at fair value through earnings	20,169		48,846
Net margin received/(paid) for derivatives used for risk management purposes	(5,112)		(28,428)
Net other non-cash (gains)/losses included in net income	14,103		5,674
(Increase)/decrease in other assets	19,397		(20,010)
Increase/(decrease) in other liabilities	(6,915)		11,471
Net cash provided by/(used in) operating activities	$	53,467	$	(7,337)
Cash Flows From Investing Activities:
Purchases and origination of residential whole loans, loan related investments and capitalized advances	$	(761,214)	$	(459,012)
Proceeds from sales of residential whole loans	151,664		263,014
Principal payments on residential whole loans and loan related investments	402,354		321,626
Purchases of securities	—		(305,858)
Proceeds from sales of securities and other assets	—		—
Principal payments on securities	8,081		5,755
Proceeds from sales of real estate owned	24,217		33,968

Other investing activities	83,496		(6,926)
Net cash provided by/(used in) investing activities	$	(91,402)	$	(147,433)
Cash Flows From Financing Activities:
Principal payments on financing agreements with mark-to-market collateral provisions	$	(290,021)	$	(766,604)
Proceeds from borrowings under financing agreements with mark-to-market collateral provisions	438,616		640,498
Principal payments on other collateralized financing agreements	(576,135)		(415,443)
Proceeds from borrowings under other collateralized financing agreements	482,499		778,400
Payment made for other collateralized financing agreement related costs	(1,340)		(4,602)
Redemption of convertible senior notes	(39,831)		—
Proceeds from issuance of senior notes	110,626		—
Proceeds from issuances of common stock, net of expenses	(20)		17
Payments made for the repurchase of common stock	(1,491)		—
Dividends paid on preferred stock	(8,219)		(8,219)
Dividends paid on common stock and dividend equivalents	(35,789)		(35,769)
Net cash provided by/(used in) financing activities	$	78,895	$	188,278
Net increase/(decrease) in cash, cash equivalents and restricted cash	$	40,960	$	33,508
Cash, cash equivalents and restricted cash at beginning of period	$	488,211	$	494,081
Cash, cash equivalents and restricted cash at end of period	$	529,171	$	527,589

Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	122,746	$	87,057

Non-cash Investing and Financing Activities:
Transfer from residential whole loans to real estate owned

Form: 10-Q

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