November 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 September 30, 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

102,082,561 shares of the registrant’s common stock, $0.01 par value, were outstanding as of October 31, 2024.

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MFA FINANCIAL, INC.

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PART I. FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 3 0 , 202 4 (Unaudited) and December 31, 20 23	3

	Consolidated Statements of Operations (Unaudited) for the Three and Nine Months Ended September 30 , 202 4 and September 30 , 20 2 3	4

	Consolidated Statements of Comprehensive Income/(Loss) (Unaudited) for the Three and N ine Months Ended September 30 , 202 4 and September 30 , 202 3	5

	Consolidated Statements of Changes in Stockholders’ Equity (Unaudited) for the Three and Nine Months Ended September 30 , 202 4 and September 30 , 202 3	6

	Consolidated Statements of Cash Flows (Unaudited) for the Nine Months Ended September 30 , 202 4 and September 30 , 202 3	8

	Notes to the Unaudited Consolidated Financial Statements	9

	Note 1. Organization	9

	Note 2. Summary of Significant Accounting Policies	9

	Note 3. Residential Whole Loans	18

	Note 4. Securities, at Fair Value	26

	Note 5. Other Assets	29

	Note 6. Financing Agreements	34

	Note 7. Other Liabilities	39

	Note 8. Income Taxes	39

	Note 9. Commitments and Contingencies	41

	Note 10. Stockholders’ Equity	42

	Note 11. EPS Calculation	46

	Note 12. Equity Compensation and Other Benefit Plans	46

	Note 13. Fair Value of Financial Instruments	48

	Note 14. Use of Special Purpose Entities and Variable Interest Entities	55

	Note 15. Segment Reporting	57

	Note 16. Subsequent Events	61

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	62

Item 3.	Quantitative and Qualitative Disclosures about Market Risk	91

Item 4.	Controls and Procedures	95

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	95

Item 1A.	Risk Factors	95

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	96

Item 6.	Exhibits	96

Signatures		98


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MFA FINANCIAL, INC. CONSOLIDATED BALANCE SHEETS
(In Thousands Except Per Share Amounts)	September 30, 2024		December 31, 2023
	(Unaudited)
Assets:
Residential whole loans, net ($7,674,741 and $7,511,508 held at fair value, respectively) (1)(2)	$	9,027,371	$	9,041,292
Securities, at fair value (2)	1,140,036		746,090
Cash and cash equivalents	305,560		318,000
Restricted cash	197,348		170,211
Other assets (2)	489,531		497,097
Total Assets	$	11,159,846	$	10,772,690

Liabilities:
Financing agreements ($5,097,002 and $4,633,660 held at fair value, respectively)	$	8,922,502	$	8,536,745
Other liabilities	356,876		336,030
Total Liabilities	$	9,279,378	$	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; 102,083 and 101,916 shares issued and outstanding, respectively	1,021		1,019
Additional paid-in capital, in excess of par	3,709,534		3,698,767
Accumulated deficit	(1,840,399)		(1,817,759)
Accumulated other comprehensive income	10,122		17,698
Total Stockholders’ Equity	$	1,880,468	$	1,899,915
Total Liabilities and Stockholders’ Equity	$	11,159,846	$	10,772,690

(1)Includes approximately $6.3 billion and $5.7 billion of Residential whole loans transferred to consolidated variable interest entities (“VIEs”) at September 30, 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 September 30,				Nine Months Ended September 30,
(In Thousands, Except Per Share Amounts)	2024		2023		2024		2023
Interest Income:
Residential whole loans	$	157,406	$	140,538	$	480,788	$	388,096
Securities, at fair value	14,742		11,945		41,363		29,201
Other interest-earning assets	4,001		2,587		6,341		7,560
Cash and cash equivalent investments	5,825		4,095		17,144		10,863
Interest Income	$	181,974	$	159,165	$	545,636	$	435,720

Interest Expense:
Asset-backed and other collateralized financing arrangements	$	126,833	$	109,088	$	377,030	$	293,852
Other interest expense	4,516		3,936		16,678		11,853
Interest Expense	$	131,349	$	113,024	$	393,708	$	305,705

Net Interest Income	$	50,625	$	46,141	$	151,928	$	130,015

Reversal/(Provision) for Credit Losses on Residential Whole Loans	$	1,942	$	1,258	$	3,481	$	977
Reversal/(Provision) for Credit Losses on Other Assets	—		—		(1,135)		—
Net Interest Income after Reversal/(Provision) for Credit Losses	$	52,567	$	47,399	$	154,274	$	130,992

Other Income/(Loss), net:
Net gain/(loss) on residential whole loans measured at fair value through earnings	$	143,416	$	(132,894)	$	148,333	$	(134,423)
Impairment and other net gain/(loss) on securities and other portfolio investments	22,928		(14,161)		15,310		(15,799)
Net gain/(loss) on real estate owned	241		2,409		3,112		8,504
Net gain/(loss) on derivatives used for risk management purposes	(56,818)		34,860		9,210		74,103
Net gain/(loss) on securitized debt measured at fair value through earnings	(75,273)		36,431		(108,377)		12,100
Lima One mortgage banking income	8,921		12,109		24,468		32,562
Net realized gain/(loss) on residential whole loans held at carrying value	—		—		418		—
Other, net	(3,131)		1,418		61		9,924
Other Income/(Loss), net	$	40,284	$	(59,828)	$	92,535	$	(13,029)

Operating and Other Expense:
Compensation and benefits	$	22,417	$	24,051	$	69,632	$	66,452
Other general and administrative expense	11,430		10,075		34,260		31,272
Loan servicing, financing and other related costs	8,503		8,989		24,262		26,126
Amortization of intangible assets	800		800		2,400		3,400
Operating and Other Expense	$	43,150	$	43,915	$	130,554	$	127,250

Income/(loss) before income taxes	$	49,701	$	(56,344)	$	116,255	$	(9,287)
Provision for/(benefit from) income taxes	1,518		94		2,913		295
Net Income/(Loss)	$	48,183	$	(56,438)	$	113,342	$	(9,582)
Less Preferred Stock Dividend Requirement	$	8,219	$	8,219	$	24,656	$	24,656
Net Income/(Loss) Available to Common Stock and Participating Securities	$	39,964	$	(64,657)	$	88,686	$	(34,238)

Basic Earnings/(Loss) per Common Share	$	0.38	$	(0.64)	$	0.85	$	(0.34)
Diluted Earnings/(Loss) per Common Share	$	0.37	$	(0.64)	$	0.83	$	(0.34)

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)	2024		2023		2024		2023
Net income/(loss)	$	48,183	$	(56,438)	$	113,342	$	(9,582)
Other Comprehensive Income/(Loss):
Unrealized gains/(losses) on securities available-for-sale	(202)		933		2,410		(6,988)
Reclassification adjustment for securities sales included in net income	(7,328)		—		(9,986)		—




Other Comprehensive Income/(Loss)	(7,530)		933		(7,576)		(6,988)
Comprehensive Income/(Loss) before preferred stock dividends	$	40,653	$	(55,505)	$	105,766	$	(16,570)
Dividends required on preferred stock	(8,219)		(8,219)		(24,656)		(24,656)
Comprehensive Income/(Loss) Available to Common Stock and Participating Securities	$	32,434	$	(63,724)	$	81,110	$	(41,226)

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, 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 31, 2024	8,000	$	80	11,000	$	110	102,082	$	1,021	$	3,703,242	$	(1,839,792)	$	19,526	$	1,884,187
Net income	—	—		—	—		—	—		—		41,946		—		41,946
Issuance of common stock, net of expenses	—	—		—	—		1	—		(18)		—		—		(18)

Equity based compensation expense	—	—		—	—		—	—		4,662		—		—		4,662
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—		—		(1,395)		—		(1,395)
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	—	—		—	—		—	—		—		(318)		—		(318)
Change in unrealized gains on securities, net	—	—		—	—		—	—		—		—		(1,874)		(1,874)

Balance at June 30, 2024	8,000	$	80	11,000	$	110	102,083	$	1,021	$	3,707,886	$	(1,843,507)	$	17,652	$	1,883,242
Net income	—	—		—	—		—	—				48,183		—		48,183
Issuance of common stock, net of expenses	—	—		—	—		—			(20)		—		—		(20)

Equity based compensation expense	—	—		—	—		—			1,668		—		—		1,668
Change in accrued dividends attributable to stock-based awards	—	—		—	—		—	—				(836)		—		(836)
Dividends declared on common stock ($0.35 per share)	—	—		—	—		—	—				(35,729)		—		(

Form: 10-Q

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