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, 2021 or ☐ 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 registra ...

Second Quarter 2021 Earnings Presentation Forward looking statements When used in this presentation or other written or oral communications, statements which are not historical in nature, including those containing words such as "will," "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "could," "would," "may," the negative of these words or similar expressions, are intended to identify "forward-looking statements" within the meaning of Section 27A of the Securities Act o ...

MFA Financial, Inc. (MFO) Q2 2021 Earnings Conference Call August 5, 2021 10:00 AM ET Company Participants Hal Schwartz - Senior Vice President of General Counsel and Secretary Craig Knutson - President and Chief Executive Officer Steve Yarad - Chief Financial Officer Bryan Wulfsohn - Co-Chief Investment Officer Gudmundur Kristjansson - Co-Chief Investment Officer Conference Call Participants Mike Smith - KBW Eric Hagen - BTIG Operator Ladies and gentlemen, thank you for standing by, and welcome to the MFA ...

[PART I. FINANCIAL INFORMATION](index=2&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section presents MFA Financial, Inc.'s unaudited consolidated financial statements and management's discussion and analysis for the period ended June 30, 2021 [Item 1. Financial Statements](index=2&type=section&id=Item%201.%20Financial%20Statements) This section presents the unaudited consolidated financial statements of MFA Financial, Inc. for the period ended June 30, 2021, including balance sheets, statements of operations, comprehensive income, changes in stockholders' equity, and cash flows, along with detailed notes explaining the company's organization, significant accounting policies, and specific financial instrument details [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets%20as%20of%20June%2030%2C%202021%20(Unaudited)%20and%20December%2031%2C%202020) This section provides a comparative overview of the company's financial position, detailing assets, liabilities, and stockholders' equity at June 30, 2021, and December 31, 2020 Consolidated Balance Sheet Highlights (June 30, 2021 vs. December 31, 2020) | Category | June 30, 2021 (Thousands) | December 31, 2020 (Thousands) | Change (Thousands) | % Change | |:---|:---|:---|:---|:---| | **Assets:** ||||| | Residential whole loans, net | $5,550,979 | $5,325,401 | $225,578 | 4.24% | | Securities, at fair value | $302,835 | $399,999 | $(97,164) | -24.29% | | Cash and cash equivalents | $906,409 | $814,354 | $92,055 | 11.30% | | Total Assets | $7,208,409 | $6,932,300 | $276,109 | 3.98% | | **Liabilities:** ||||| | Financing agreements | $4,428,791 | $4,336,976 | $91,815 | 2.12% | | Other liabilities | $253,081 | $70,522 | $182,559 | 258.86% | | Total Liabilities | $4,681,872 | $4,407,498 | $274,374 | 6.22% | | **Stockholders' Equity:** ||||| | Total Stockholders' Equity | $2,526,537 | $2,524,802 | $1,735 | 0.07% | [Consolidated Statements of Operations](index=4&type=section&id=Consolidated%20Statements%20of%20Operations%20(Unaudited)%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202021%20and%20June%2030%2C%202020) This section presents the company's unaudited financial performance, including interest income, expenses, net income, and earnings per share for the three and six months ended June 30, 2021 and 2020 Consolidated Statements of Operations Highlights (Three Months Ended June 30) | Metric | 2021 (Thousands) | 2020 (Thousands) | Change (Thousands) | % Change | |:---|:---|:---|:---|:---| | Interest Income | $84,528 | $102,778 | $(18,250) | -17.76% | | Interest Expense | $25,555 | $87,991 | $(62,436) | -71.00% | | Net Interest Income | $58,973 | $14,787 | $44,186 | 298.82% | | Reversal/(Provision) for credit and valuation losses | $8,867 | $85,377 | $(76,510) | -89.62% | | Other Income/(Loss), net | $21,647 | $60,947 | $(39,300) | -64.48% | | Operating and Other Expense | $22,773 | $64,533 | $(41,760) | -64.71% | | Net Income/(Loss) | $66,714 | $96,578 | $(29,864) | -30.92% | | Net Income/(Loss) Available to Common Stock | $58,495 | $88,434 | $(29,939) | -33.85% | | Basic Earnings/(Loss) per Common Share | $0.13 | $0.19 | $(0.06) | -31.58% | | Diluted Earnings/(Loss) per Common Share | $0.13 | $0.19 | $(0.06) | -31.58% | Consolidated Statements of Operations Highlights (Six Months Ended June 30) | Metric | 2021 (Thousands) | 2020 (Thousands) | Change (Thousands) | % Change | |:---|:---|:---|:---|:---| | Interest Income | $165,579 | $270,787 | $(105,208) | -38.85% | | Interest Expense | $55,625 | $171,750 | $(116,125) | -67.61% | | Net Interest Income | $109,954 | $99,037 | $10,917 | 11.02% | | Reversal/(Provision) for credit and valuation losses | $31,617 | $(65,334) | $96,951 | -148.39% | | Other Income/(Loss), net | $55,966 | $(752,365) | $808,331 | -107.44% | | Operating and Other Expense | $45,301 | $93,755 | $(48,454) | -51.68% | | Net Income/(Loss) | $152,236 | $(812,417) | $963,700 | -118.62% | | Net Income/(Loss) Available to Common Stock | $135,798 | $(825,776) | $961,574 | -116.44% | | Basic Earnings/(Loss) per Common Share | $0.30 | $(1.82) | $2.12 | -116.48% | | Diluted Earnings/(Loss) per Common Share | $0.30 | $(1.82) | $2.12 | -116.48% | [Consolidated Statements of Comprehensive Income/(Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Comprehensive%20Income%2F(Loss)%20(Unaudited)%20for%20the%20Three%20and%20Six%20Months%20Ended%20June%2030%2C%202021%20and%20June%2030%2C%202020) This section outlines the company's comprehensive income or loss, including net income and other comprehensive income components, for the three and six months ended June 30, 2021 and 2020 Consolidated Statements of Comprehensive Income/(Loss) Highlights (Six Months Ended June 30) | Metric | 2021 (Thousands) | 2020 (Thousands) | Change (Thousands) | % Change | |:---|:---|:---|:---|:---| | Net income/(loss) | $152,236 | $(812,417) | $964,653 | -118.74% | | Other Comprehensive (Loss) | $(12,718) | $(324,334) | $311,616 | -96.08% | | Comprehensive income/(loss) before preferred stock dividends | $139,518 | $(1,136,751) | $1,276,269 | -112.27% | | Comprehensive Income/(Loss) Available to Common Stock | $123,080 | $(1,150,110) | $1,273,190 | -110.70% | [Consolidated Statements of Changes in Stockholders' Equity](index=6&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Stockholders'%20Equity%20(Unaudited)%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202021%20and%20June%2030%2C%202020) This section details the changes in the company's stockholders' equity, including net income, stock issuances, repurchases, and dividends, for the six months ended June 30, 2021 and 2020 Changes in Stockholders' Equity (Six Months Ended June 30, 2021) | Item | Amount (Thousands) | |:---|:---| | Balance at December 31, 2020 | $2,524,802 | | Net Income | $152,236 | | Issuance of common stock, net of expenses | $780 | | Repurchase of shares of common stock | $(48,877) | | Equity based compensation expense | $4,427 | | Dividends declared on common stock | $(77,602) | | Dividends declared on Preferred Stock | $(16,438) | | Change in unrealized gains on MBS, net | $(13,444) | | Changes in fair value of financing agreements at fair value due to changes in instrument-specific credit risk | $726 | | Balance at June 30, 2021 | $2,526,537 | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows%20(Unaudited)%20for%20the%20Six%20Months%20Ended%20June%2030%2C%202021%20and%20June%2030%2C%202020) This section presents the company's cash inflows and outflows from operating, investing, and financing activities for the six months ended June 30, 2021 and 2020 Consolidated Statements of Cash Flows Highlights (Six Months Ended June 30) | Category | 2021 (Thousands) | 2020 (Thousands) | Change (Thousands) | |:---|:---|:---|:---| | Net cash provided by operating activities | $96,596 | $56,644 | $39,952 | | Net cash provided by investing activities | $39,494 | $5,405,435 | $(5,365,941) | | Net cash used in financing activities | $(42,361) | $(4,922,891) | $4,880,530 | | Net increase in cash, cash equivalents and restricted cash | $93,729 | $539,188 | $(445,459) | | Cash, cash equivalents and restricted cash at end of period | $915,248 | $673,852 | $241,396 | [Notes to the Unaudited Consolidated Financial Statements](index=10&type=section&id=Notes%20to%20the%20Unaudited%20Consolidated%20Financial%20Statements) This section provides detailed explanations and disclosures supporting the unaudited consolidated financial statements, covering accounting policies, financial instruments, and other relevant information [Note 1. Organization](index=10&type=section&id=Note%201.%20Organization) This note describes MFA Financial, Inc.'s corporate structure, its election as a REIT, and the role of its taxable REIT subsidiaries - MFA Financial, Inc. was incorporated in Maryland on July 24, 1997, and began operations on April 10, 1998. The Company has elected to be treated as a real estate investment trust ("REIT") for U.S. federal income tax purposes, requiring it to distribute at least **90%** of its annual REIT taxable income to stockholders. Certain subsidiaries are treated as taxable REIT subsidiaries ("TRS") to hold assets and engage in activities not permitted directly by the REIT[28](index=28&type=chunk) [Note 2. Summary of Significant Accounting Policies](index=10&type=section&id=Note%202.%20Summary%20of%20Significant%20Accounting%20Policies) This note outlines the key accounting principles and methods used in preparing the interim financial statements, including those for loan valuation, derivatives, and income taxes - The interim unaudited consolidated financial statements are prepared in accordance with SEC rules and GAAP, requiring management to make significant estimates and assumptions, particularly for impairment, valuation allowances, and loss allowances on residential whole loans and securities. The Company manages its business as one operating segment: investing in residential mortgage assets on a leveraged basis[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - Starting in Q2 2021, the Company elected the fair value option for all new loan purchases, simplifying reporting. Previously, this option was primarily used for Purchased Non-performing Loans. Loans acquired before Q2 2021 are not retroactively adjusted to fair value[33](index=33&type=chunk) - The Company uses various derivative instruments, primarily Swaps and TBA securities, to economically hedge exposure to market risks like interest rate and prepayment risk. All Swaps were terminated in Q1 2020 due to market turmoil from COVID-19, but TBA short positions were initiated in Q2 2021 to hedge Agency eligible investor loans[75](index=75&type=chunk)[76](index=76&type=chunk)[78](index=78&type=chunk) - The Company has elected to be taxed as a REIT, requiring distribution of at least **90%** of REIT taxable income. TRS subsidiaries are subject to corporate income taxes, and their net taxable income is generally not included in REIT taxable income until distributed. No provision for current or deferred income taxes has been made for the REIT, but a valuation allowance for deferred tax assets related to TRS net taxable losses was recognized[72](index=72&type=chunk)[73](index=73&type=chunk) [Note 3. Residential Whole Loans](index=21&type=section&id=Note%203.%20Residential%20Whole%20Loans) This note provides detailed information on the company's residential whole loan portfolio, including accounting models, credit loss allowances, and interest income - As of June 30, 2021, residential whole loans totaled **$5.55 billion**, up from **$5.33 billion** at December 31, 2020. The Company began electing the fair value option for all loan purchases in Q2 2021, a change from prior periods where it was typically only elected for Purchased Non-performing Loans[87](index=87&type=chunk)[88](index=88&type=chunk) Residential Whole Loans by Accounting Model (June 30, 2021 vs. December 31, 2020) | Category | June 30, 2021 (Thousands) | December 31, 2020 (Thousands) | % Change | |:---|:---|:---|:---| | **Held at Carrying Value:** |||| | Purchased Performing Loans | $2,861,228 | $3,521,624 | -18.75% | | Purchased Credit Deteriorated Loans | $609,157 | $673,708 | -9.58% | | Allowance for Credit Losses | $(54,261) | $(86,833) | -37.50% | | **Held at Fair Value:** |||| | Purchased Performing Loans | $966,404 | $0 | N/A | | Purchased Non-Performing Loans | $1,168,451 | $1,216,902 | -3.98% | | **Total Residential Whole Loans** | **$5,550,979** | **$5,325,401** | **4.24%** | | Number of loans | 18,592 | 18,734 | -0.76% | Allowance for Credit Losses Roll-Forward (Six Months Ended June 30, 2021) | Category | Allowance at Dec 31, 2020 (Thousands) | Current provision/(reversal) (Thousands) | Write-offs (Thousands) | Allowance at Jun 30, 2021 (Thousands) | |:---|:---|:---|:---|:---| | Non-QM loans | $21,068 | $(8,939) | $(37) | $12,092 | | Rehabilitation loans | $18,371 | $(5,509) | $(1,258) | $11,604 | | Single-family rental loans | $3,918 | $(1,558) | $0 | $2,360 | | Seasoned performing loans | $107 | $(50) | $0 | $57 | | Purchased Credit Deteriorated Loans | $43,369 | $(14,899) | $(322) | $28,148 | | **Totals** | **$86,833** | **$(30,955)** | **$(1,617)** | **$54,261** | - The Company recorded a reversal of provision for credit losses of **$31.6 million** for the six months ended June 30, 2021, compared to a provision of **$65.3 million** in the prior year, primarily due to lower loan balances and updated macro-economic assumptions[98](index=98&type=chunk) Interest Income on Residential Whole Loans (Six Months Ended June 30) | Category | 2021 (Thousands) | 2020 (Thousands) | Change (Thousands) | % Change | |:---|:---|:---|:---|:---| | **Held at Carrying Value:** ||||| | Purchased Performing Loans | $73,024 | $134,432 | $(61,408) | -45.68% | | Purchased Credit Deteriorated Loans | $19,593 | $18,481 | $1,112 | 6.02% | | **Held at Fair Value:** ||||| | Purchased Performing Loans | $2,908 | $0 | $2,908 | N/A | | Purchased Non-Performing Loans | $38,029 | $37,959 | $70 | 0.18% | | **Total Residential Whole Loans** | **$133,554** | **$190,872** | **$(57,318)** | **-30.03%** | [Note 4. Securities, at Fair Value](index=30&type=section&id=Note%204.%20Securities%2C%20at%20Fair%20Value) This note details the company's securities portfolio, primarily MSR-related assets and CRT securities, held at fair value, and their contribution to interest income - The Company's securities at fair value primarily consist of MSR-related assets and CRT securities. As of June 30, 2021, MSR-related assets totaled **$196.5 million** (down from **$239.0 million** at Dec 31, 2020) and CRT securities totaled **$106.3 million** (up from **$104.2 million** at Dec 31, 2020). The Company sold all Legacy Non-Agency MBS and substantially reduced other Non-Agency MBS holdings in 2020, with remaining holdings reduced to zero by June 30, 2021[108](index=108&type=chunk)[110](index=110&type=chunk)[113](index=113&type=chunk)[115](index=115&type=chunk)[117](index=117&type=chunk) Securities, at Fair Value (June 30, 2021 vs. December 31, 2020) | Category | June 30, 2021 (Thousands) | December 31, 2020 (Thousands) | % Change | |:---|:---|:---|:---| | MSR-Related Assets (Fair Value) | $196,549 | $238,999 | -17.76% | | CRT Securities (Fair Value) | $106,285 | $104,234 | 1.97% | | RPL/NPL MBS (Fair Value) | $0 | $53,946 | -100.00% | | **Total Securities, at Fair Value** | **$302,835** | **$399,999** | **-24.29%** | - For the six months ended June 30, 2021, interest income from securities at fair value decreased by **$41.5 million** to **$31.8 million**, primarily due to lower average invested amounts from portfolio sales in 2020. However, the net yield increased to **23.33%** from **5.63%** in the prior year, driven by **$8.4 million** in accretion income from the redemption of an MSR-related asset and **$8.1 million** from a Non-Agency MBS redemption[351](index=351&type=chunk) [Note 5. Other Assets](index=35&type=section&id=Note%205.%20Other%20Assets) This note describes other significant assets, including Real Estate Owned (REO), capital contributions to loan origination partners, and derivative instruments used for hedging Other Assets Components (June 30, 2021 vs. December 31, 2020) | Category | June 30, 2021 (Thousands) | December 31, 2020 (Thousands) | % Change | |:---|:---|:---|:---| | REO | $204,762 | $249,699 | -17.99% | | Capital contributions to loan origination partners | $81,512 | $47,148 | 72.89% | | Lease right-of-use asset | $38,137 | $758 | 4931.27% | | Total Other Assets | $439,347 | $385,381 | 13.99% | - The Company had **766 REO properties** with an aggregate carrying value of **$204.8 million** at June 30, 2021, a decrease from **946 properties** valued at **$249.7 million** at December 31, 2020. Formal foreclosure proceedings were in process for **$144.9 million** of residential whole loans held at carrying value and **$405.2 million** of residential whole loans held at fair value[134](index=134&type=chunk)[135](index=135&type=chunk) - The Company made capital contributions to loan origination partners, including **$49.7 million** in common equity and **$100.4 million** in preferred equity. No impairment charges were recorded on these investments for the three and six months ended June 30, 2021, compared to **$7.1 million** and **$65.2 million** in the prior year period, respectively[139](index=139&type=chunk) - The Company unwound all **$4.1 billion** of Swap hedging transactions in Q1 2020 due to COVID-19 market turmoil. In Q2 2021, the Company began taking short positions in TBA securities to economically hedge interest rate and other market risks from Agency eligible investor loans, recording a net loss of **$1.1 million** on these positions[141](index=141&type=chunk)[146](index=146&type=chunk) [Note 6. Financing Agreements](index=38&type=section&id=Note%206.%20Financing%20Agreements) This note provides details on the company's financing arrangements, including collateralized debt, securitized debt, and convertible senior notes, and their associated terms Financing Agreements (June 30, 2021 vs. December 31, 2020) | Category | June 30, 2021 (Thousands) | December 31, 2020 (Thousands) | % Change | |:---|:---|:---|:---| | **At Fair Value:** |||| | Agreements with non-mark-to-market collateral provisions | $795,341 | $1,159,213 | -31.40% | | Agreements with mark-to-market collateral provisions | $858,066 | $1,338,077 | -35.87% | | Securitized debt | $640,696 | $869,482 | -26.31% | | **At Carrying Value:** |||| | Securitized debt | $1,405,685 | $645,027 | 117.93% | | Agreements with mark-to-market collateral provisions | $503,191 | $0 | N/A | | Convertible senior notes | $225,812 | $225,177 | 0.28% | | **Total Financing Agreements** | **$4,428,791** | **$4,336,976** | **2.12%** | - The Company entered into new asset-backed financing arrangements and renegotiated existing ones in Q2 2020, electing the fair value option for these to simplify accounting. This included a **$1.65 billion** non-mark-to-market term loan facility and non-mark-to-market facilities for Rehabilitation loans[148](index=148&type=chunk)[150](index=150&type=chunk)[151](index=151&type=chunk) - The Company redeemed all outstanding Senior Notes on January 6, 2021, which bore interest at **8.00%** per year. Convertible Senior Notes, issued in June 2019, bear interest at **6.25%** and mature in June 2024, convertible into common stock at **$7.95 per share**[161](index=161&type=chunk)[163](index=163&type=chunk) Pledged Collateral for Financing Arrangements (June 30, 2021) | Asset Category | Non-Mark-to-Market (Thousands) | Mark-to-Market (Thousands) | Securitized (Thousands) | Total (Thousands) | |:---|:---|:---|:---|:---| | Residential whole loans, at carrying value | $916,778 | $682,947 | $1,808,332 | $3,408,057 | | Residential whole loans, at fair value | $413,804 | $1,016,692 | $484,586 | $1,915,082 | | Other assets: REO | $17,765 | $34,801 | $38,432 | $90,998 | | **Total Pledged Assets** | **$1,348,347** | **$1,734,440** | **$2,331,350** | **$5,414,137** | [Note 7. Collateral Positions](index=43&type=section&id=Note%207.%20Collateral%20Positions) This note describes the assets pledged as collateral for the company's financing arrangements and derivative hedging instruments - The Company pledges securities or cash as collateral for financing arrangements and receives collateral for reverse repurchase agreements. The total fair value of assets pledged as collateral for borrowings and derivative hedging instruments was **$3.5 billion** at June 30, 2021, down from **$4.2 billion** at December 31, 2020[169](index=169&type=chunk)[170](index=170&type=chunk) [Note 8. Offsetting Assets and Liabilities](index=43&type=section&id=Note%208.%20Offsetting%20Assets%20and%20Liabilities) This note explains the company's presentation of repurchase agreements and other financial instruments on a gross basis in its consolidated balance sheets - The Company presents all balances associated with repurchase agreements on a gross basis in its consolidated balance sheets. Financial instruments pledged against financing arrangements totaled **$3.4 billion** at June 30, 2021, and restricted cash is reported separately[171](index=171&type=chunk)[172](index=172&type=chunk) [Note 9. Other Liabilities](index=44&type=section&id=Note%209.%20Other%20Liabilities) This note details various other liabilities, including payables for loan purchases, dividends, lease liabilities, and accrued expenses Other Liabilities Components (June 30, 2021 vs. December 31, 2020) | Category | June 30, 2021 (Thousands) | December 31, 2020 (Thousands) | % Change | |:---|:---|:---|:---| | Payable for unsettled residential whole loans purchases | $131,275 | $0 | N/A | | Dividends and dividend equivalents payable | $44,236 | $34,016 | 30.05% | | Lease liability | $41,680 | $636 | 6453.46% | | Accrued interest payable | $6,406 | $11,116 | -42.37% | | Accrued expenses and other | $29,484 | $24,754 | 19.11% | | **Total Other Liabilities** | **$253,081** | **$70,522** | **258.86%** | [Note 10. Commitments and Contingencies](index=44&type=section&id=Note%2010.%20Commitments%20and%20Contingencies) This note outlines the company's contractual obligations, such as lease agreements and unfunded loan commitments - The Company relocated its corporate headquarters in April 2021, incurring aggregate lease expense of **$1.8 million** for the six months ended June 30, 2021. Future minimum rental payments under the new 15-year lease total **$72.88 million**[175](index=175&type=chunk)[176](index=176&type=chunk)[177](index=177&type=chunk) - The Company had unfunded commitments of **$89.7 million** for purchased Rehabilitation loans and agreed to purchase **$131.3 million** of residential whole loans at fair value, with a corresponding liability recorded in Other Liabilities[179](index=179&type=chunk)[180](index=180&type=chunk) [Note 11. Stockholders' Equity](index=45&type=section&id=Note%2011.%20Stockholders'%20Equity) This note provides information on the company's preferred and common stock, dividend declarations, share repurchase programs, and accumulated other comprehensive income - The Company has two series of preferred stock: **7.50% Series B Cumulative Redeemable Preferred Stock** and **6.50% Series C Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock**. Dividends on Series B and C Preferred Stock were **$0.46875** and **$0.40625 per share**, respectively, for each of the two quarters ended June 30, 2021[181](index=181&type=chunk)[183](index=183&type=chunk)[184](index=184&type=chunk)[188](index=188&type=chunk) - Common stock dividends declared were **$0.10 per share** for Q2 2021 and **$0.075 per share** for Q1 2021. The Company issued **197,588 shares** of common stock through its DRSPP for **$794,979** net proceeds during the six months ended June 30, 2021[189](index=189&type=chunk)[191](index=191&type=chunk) - The Board authorized a **$250 million** share repurchase program through the end of 2022. During the six months ended June 30, 2021, the Company repurchased **11,606,229 shares** for **$48.1 million** at an average cost of **$4.14 per share**. Approximately **$117.7 million** remained available for repurchase[194](index=194&type=chunk)[196](index=196&type=chunk)[422](index=422&type=chunk) Changes in Accumulated Other Comprehensive Income/(Loss) (Six Months Ended June 30, 2021) | Component | Balance at Dec 31, 2020 (Thousands) | Net OCI during the period (Thousands) | Balance at Jun 30, 2021 (Thousands) | |:---|:---|:---|:---| | Net Unrealized Gain/(Loss) on AFS Securities | $79,607 | $(13,444) | $66,163 | | Net Unrealized Gain/(Loss) on Swaps | $0 | $0 | $0 | | Net Unrealized Gain/(Loss) on Financing Agreements | $(2,314) | $726 | $(1,588) | | **Total AOCI** | **$77,293** | **$(12,718)** | **$64,575** | [Note 12. EPS Calculation](index=50&type=section&id=Note%2012.%20EPS%20Calculation) This note details the calculation of basic and diluted earnings per common share, including the treatment of convertible securities EPS Calculation (Six Months Ended June 30) | Metric | 2021 (Thousands, except per share) | 2020 (Thousands, except per share) | |:---|:---|:---| | Net income/(loss) to common stockholders - basic | $135,319 | $(825,776) | | Basic weighted average common shares outstanding | 446,307 | 453,092 | | **Basic Earnings/(Loss) per Common Share** | **$0.30** | **$(1.82)** | | Net income/(loss) to common stockholders - diluted | $143,142 | $(825,776) | | Diluted weighted average common shares outstanding | 475,227 | 453,092 | | **Diluted Earnings/(Loss) per Common Share** | **$0.30** | **$(1.82)** | - For the six months ended June 30, 2021, Convertible Senior Notes were dilutive and included in diluted EPS calculation using the 'if-converted' method. Approximately **4.8 million** equity instruments were anti-dilutive and excluded from diluted EPS[203](index=203&type=chunk)[204](index=204&type=chunk) [Note 13. Equity Compensation and Other Benefit Plans](index=50&type=section&id=Note%2013.%20Equity%20Compensation%20and%20Other%20Benefit%20Plans) This note describes the company's equity compensation plans, deferred compensation arrangements, and 401(k) savings plan - The Company's Equity Compensation Plan allows for grants of stock options, restricted stock, RSUs, and dividend equivalent rights. As of June 30, 2021, approximately **11.8 million shares** remained available for grant. Unrecognized compensation expense related to RSUs was **$11.3 million**, expected to be recognized over **2.0 years**[206](index=206&type=chunk)[207](index=207&type=chunk)[208](index=208&type=chunk) Equity-Based Compensation Expense (Six Months Ended June 30) | Category | 2021 (Thousands) | 2020 (Thousands) | |:---|:---|:---| | RSUs | $4,432 | $2,827 | | **Total** | **$4,432** | **$2,827** | - The Company sponsors deferred compensation plans for senior officers and non-employee directors, with a total liability of **$2.5 million** at June 30, 2021. The Company also sponsors a 401(k) Savings Plan, matching **100%** of the first **3%** and **50%** of the next **2%** of eligible compensation, with matching contributions of **$250,000** for the six months ended June 30, 2021[212](index=212&type=chunk)[214](index=214&type=chunk)[215](index=215&type=chunk) [Note 14. Fair Value of Financial Instruments](index=52&type=section&id=Note%2014.%20Fair%20Value%20of%20Financial%20Instruments) This note explains the fair value hierarchy and valuation methodologies used for the company's financial instruments, including key unobservable inputs for Level 3 assets - The Company categorizes fair value measurements into a three-level hierarchy based on input observability. Residential whole loans at fair value are classified as Level 3, while securities at fair value (MSR-related assets, other residential mortgage securities) and securitized debt are generally classified as Level 2. Financing agreements can be Level 2 or 3 depending on collateral provisions and reset frequency[216](index=216&type=chunk)[217](index=217&type=chunk)[218](index=218&type=chunk)[219](index=219&type=chunk)[220](index=220&type=chunk)[222](index=222&type=chunk)[223](index=223&type=chunk)[224](index=224&type=chunk)[225](index=225&type=chunk) Fair Value Hierarchy of Financial Instruments (June 30, 2021) | Category | Level 1 (Thousands) | Level 2 (Thousands) | Level 3 (Thousands) | Total (Thousands) | |:---|:---|:---|:---|:---| | **Assets:** ||||| | Residential whole loans, at fair value | $0 | $0 | $2,134,855 | $2,134,855 | | Securities, at fair value | $0 | $302,835 | $0 | $302,835 | | **Liabilities:** ||||| | Agreements with non-mark-to-market collateral provisions | $0 | $0 | $795,341 | $795,341 | | Agreements with mark-to-market collateral provisions | $0 | $0 | $858,066 | $858,066 | | Securitized debt | $0 | $640,696 | $0 | $640,696 | - For Level 3 residential whole loans, fair value is determined using discounted cash flow or liquidation models, with key unobservable inputs including discount rates (**3.5%-8.0%**), prepayment rates (**0.0%-43.9%**), default rates (**0.0%-49.1%**), loss severity (**0.0%-100.0%**), and annual change in home prices (**4.3%-12.1%**). Changes in these assumptions can significantly impact fair value[235](index=235&type=chunk)[237](index=237&type=chunk)[238](index=238&type=chunk) [Note 15. Use of Special Purpose Entities and Variable Interest Entities](index=59&type=section&id=Note%2015.%20Use%20of%20Special%20Purpose%20Entities%20and%20Variable%20Interest%20Entities) This note describes the company's use of SPEs and VIEs for financing transactions, particularly loan securitizations, and their consolidation impact - The Company uses Special Purpose Entities (SPEs) to facilitate financing transactions, particularly loan securitizations, to obtain improved financing terms and non-recourse financing. These SPEs are consolidated as Variable Interest Entities (VIEs) because the Company has both the power to direct their economic performance and the right to receive benefits or absorb losses[241](index=241&type=chunk)[242](index=242&type=chunk)[243](index=243&type=chunk)[248](index=248&type=chunk) - As of June 30, 2021, securitized loans of approximately **$2.3 billion** and REO of **$38.4 million** are included in the Company's consolidated balance sheets due to these transactions. The aggregate carrying value of Senior Bonds issued by consolidated VIEs was **$2.0 billion**, with no recourse to the Company's general credit[247](index=247&type=chunk) [Note 16. Subsequent Events](index=62&type=section&id=Note%2016.%20Subsequent%20Events) This note discloses significant events occurring after the reporting period, specifically the acquisition of Lima One Holdings, LLC - On July 1, 2021, the Company completed the acquisition of all outstanding ownership interests in Lima One Holdings, LLC, the parent company of Lima One Capital, LLC. This acquisition is expected to be accretive to overall profitability and increase the amount of business purpose loans on the balance sheet, though general and administrative expenses are also expected to rise[251](index=251&type=chunk)[277](index=277&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=63&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section provides a detailed analysis of MFA Financial, Inc.'s financial condition and results of operations, highlighting key factors influencing performance, portfolio activity, and strategic initiatives - MFA Financial, Inc. is a specialty finance company investing in residential mortgage assets on a leveraged basis, including residential whole loans, MBS, MSR-related assets, and other real estate assets. The company also originates and services business purpose loans through subsidiaries[258](index=258&type=chunk) - At June 30, 2021, total assets were approximately **$7.2 billion**, with residential whole loans comprising **77%** (**$5.6 billion**) and securities at fair value (MSR-related assets and CRT securities) making up **4%** (**$302.8 million**)[259](index=259&type=chunk) - The company's financial results are significantly affected by net interest income, market value of assets, financing availability, economic conditions, and credit performance of credit-sensitive assets. GAAP results are also impacted by market volatility and fair value changes of certain financial instruments[260](index=260&type=chunk) - For the six months ended June 30, 2021, net income available to common stock and participating securities was **$135.8 million** (**$0.30 EPS**), a significant improvement from a net loss of **$825.8 million** (**$-1.82 EPS**) in the prior year, driven by higher Other income, a reversal of credit loss provisions, and increased net interest income[335](index=335&type=chunk) - Net interest income increased by **$10.9 million** (**11.02%**) to **$110.0 million** for the six months ended June 30, 2021, primarily due to lower financing costs and higher yields on residential whole loans, despite lower average invested balances in securities[337](index=337&type=chunk) - The Company recorded a reversal of provision for credit losses on residential whole loans held at carrying value of **$31.6 million** for the six months ended June 30, 2021, compared to a provision of **$65.3 million** in the prior year, reflecting updated macro-economic assumptions and lower loan balances[353](index=353&type=chunk) - Other Income/(Loss), net, increased by **$808.3 million** to **$56.0 million** for the six months ended June 30, 2021, compared to a **$752.4 million** loss in the prior year, which was heavily impacted by asset disposals, impairment losses, and swap termination losses due to COVID-19 market disruptions[354](index=354&type=chunk) - Operating and Other Expense decreased by **$48.5 million** (**51.68%**) to **$45.3 million** for the six months ended June 30, 2021, mainly due to the absence of **$44.4 million** in professional services and other costs incurred in the prior year for negotiating forbearance arrangements[355](index=355&type=chunk) Selected Financial Ratios (Six Months Ended June 30) | Ratio | June 30, 2021 | June 30, 2020 | |:---|:---|:---| | Return on Average Total Assets | 4.01 % | (15.11)% | | Return on Average Total Stockholders' Equity | 12.06 % | (55.26)% | | Total Average Stockholders' Equity to Total Average Assets | 37.24 % | 26.90 % | | Dividend Payout Ratio | 0.58 | — | | Leverage Multiple | 1.8 | 2.0 | | Book Value per Share of Common Stock | $4.65 | $4.51 | | Economic Book Value per Share of Common Stock | $5.12 | $4.46 | [Business/General](index=64&type=section&id=Business%2FGeneral) This section provides an overview of MFA Financial, Inc.'s business model as a specialty finance company investing in residential mortgage assets and its operational drivers - MFA Financial, Inc. is a specialty finance company that invests in and finances residential mortgage assets, including residential whole loans, MBS, MSR-related assets, and other real estate assets. It also originates and services business purpose loans through subsidiaries[258](index=258&type=chunk) - At June 30, 2021, residential whole loans constituted **77%** (**$5.6 billion**) of total assets, comprising Purchased Performing Loans (**68%**), Purchased Credit Deteriorated Loans, and Purchased Non-performing Loans. Securities at fair value, including MSR-related assets and CRT securities, represented **4%** (**$302.8 million**) of total assets[259](index=259&type=chunk) - The company's operations are affected by net interest income, asset market values, financing availability, economic conditions, and credit performance. Increases in interest rates can raise borrowing costs, reduce asset values, and increase derivative hedging instrument values, while decreases have the opposite effects[260](index=260&type=chunk)[261](index=261&type=chunk) [Recent Market Conditions and Our Strategy](index=66&type=section&id=Recent%20Market%20Conditions%20and%20Our%20Strategy) This section discusses the impact of current market conditions on the company's residential mortgage asset portfolio, strategic initiatives, and recent financial performance - The residential mortgage asset portfolio grew to approximately **$6.1 billion** at June 30, 2021, from **$5.8 billion** at March 31, 2021, driven by acquisitions of residential whole loans and REO, partially offset by runoff[268](index=268&type=chunk)[269](index=269&type=chunk) - For Q2 2021, residential whole loans generated **$69.0 million** in interest income with an effective yield of **5.48%**. Net gains of **$6.0 million** were recognized on fair value residential whole loans. The net yield on Securities, at fair value, was **24.57%**, significantly higher than **8.20%** in Q2 2020, primarily due to **$8.4 million** in accretion income from an MSR-related asset redemption[271](index=271&type=chunk)[273](index=273&type=chunk) - The Company recorded an **$8.9 million** reversal of provision for credit losses on residential whole loans in Q2 2021, reflecting lower loan balances and updated macro-economic forecasts. Total allowance for credit losses was **$54.3 million** at June 30, 2021[274](index=274&type=chunk) - The Company executed two securitization transactions in Q2 2021, totaling **$395.1 million** of Non-QM loans and **$473.2 million** of re-performing loans, which lowered funding rates by **203** and **85 basis points**, respectively, and generated **$88.6 million** in additional liquidity[275](index=275&type=chunk) - GAAP book value per common share increased to **$4.65** at June 30, 2021, from **$4.63** at March 31, 2021. Economic book value per common share rose to **$5.12** from **$5.09**, reflecting stable asset prices and GAAP earnings exceeding dividends[276](index=276&type=chunk) - Post-quarter, on July 1, 2021, the Company completed the acquisition of Lima One Holdings, LLC, expected to be accretive to profitability and increase business purpose loans, though general and administrative expenses are anticipated to rise[277](index=277&type=chunk) [Information About Our Assets](index=68&type=section&id=Information%20About%20Our%20Assets) This section provides detailed information on the company's asset allocation, including residential whole loans and securities, and their respective characteristics Asset Allocation and Net Equity (June 30, 2021) | Category | Fair Value/Carrying Value (Millions) | Net Equity Allocated (Millions) | Debt/Net Equity Ratio | |:---|:---|:---|:---| | Purchased Performing Loans | $3,802 | $926 | 3.1x | | Purchased Credit Deteriorated Loans | $581 | $108 | 4.4x | | Purchased Non-Performing Loans | $1,168 | $406 | 1.9x | | Securities, at fair value | $303 | $125 | 1.4x | | Real Estate Owned | $205 | $161 | 0.3x | | Other, net | $1,027 | $801 | N/A | | **Totals** | **$7,086** | **$2,527** | **1.8x** | Residential Whole Loans Contractual Maturities (June 30, 2021) | Maturity Period | Purchased Performing Loans (Thousands) | Purchased Credit Deteriorated Loans (Thousands) | Purchased Non-Performing Loans (Thousands) | |:---|:---|:---|:---| | Within one year | $374,991 | $1,093 | $4,501 | | Over one to five years | $84,551 | $3,212 | $3,224 | | Over five years | $3,236,815 | $604,852 | $1,160,726 | | **Total Residential Whole Loans** | **$3,696,357** | **$609,157** | **$1,168,451** | Securities, at Fair Value (June 30, 2021) | Category | Fair Value (Thousands) | Amortized Cost (Thousands) | Weighted Average Yield | Weighted Average Time to Maturity | |:---|:---|:---|:---|:---| | MSR-Related Assets | $196,549 | $147,239 | 12.67 % | 6.3 years | | CRT Securities | $106,285 | $87,729 | 10.31 % | 19.2 years | | RPL/NPL MBS | $0 | $0 | — % | N/A | [Tax Considerations](index=70&type=section&id=Tax%20Considerations) This section explains the tax implications of the company's REIT status and the differences between GAAP net income and REIT taxable income - Estimated taxable income for the six months ended June 30, 2021, was approximately **$50.1 million**. The Company has until October 15, 2021, to declare any undistributed 2020 REIT taxable income[290](index=290&type=chunk) - Key differences between GAAP net income and REIT taxable income include fair value accounting (generally not used for tax), impairment recognition (not until asset is written-off or sold for tax), capital loss recognition (only to the extent of capital gains for tax), and tax hedge gains/losses amortization. Securitization transactions can be treated as sales for tax purposes, leading to gain/loss recognition not reflected in GAAP[291](index=291&type=chunk)[292](index=292&type=chunk)[293](index=293&type=chunk)[294](index=294&type=chunk)[295](index=295&type=chunk) - Net income from TRS subsidiaries is included in consolidated GAAP net income but generally not in REIT taxable income until distributed to the REIT, except for foreign domiciled TRS subsidiaries whose income is included as if distributed[296](index=296&type=chunk) [Regulatory Developments](index=72&type=section&id=Regulatory%20Developments) This section discusses the impact of regulatory changes, including the Dodd-Frank Act, Investment Company Act, and COVID-19 relief measures, on the company's operations - The Dodd-Frank Act and subsequent regulations, including those from the CFPB, impose underwriting, servicing, and compensation standards on the mortgage industry, and risk retention requirements for securitizations. These are expected to increase economic and compliance costs[298](index=298&type=chunk)[299](index=299&type=chunk) - The SEC's review of Section 3(c)(5)(C) of the Investment Company Act could impact companies acquiring mortgages. Discussions on restructuring the U.S. housing finance system and the operations of Fannie Mae and Freddie Mac, including recent Supreme Court rulings and FHFA leadership changes, create uncertainty for the mortgage markets[300](index=300&type=chunk)[301](index=301&type=chunk)[302](index=302&type=chunk) - COVID-19 relief measures, such as the CARES Act and CDC eviction moratoriums, have provided forbearance options and halted evictions, potentially impacting mortgage loan cash flows. These measures have been extended multiple times, with ongoing uncertainty about future extensions and their effects[303](index=303&type=chunk)[304](index=304&type=chunk)[305](index=305&type=chunk)[306](index=306&type=chunk) [Results of Operations](index=75&type=section&id=Results%20of%20Operations) This section analyzes the company's financial performance, including net income, net interest income, and other income and expenses, for the reported periods - For Q2 2021, net income available to common stock decreased to **$58.5 million** (**$0.13 EPS**) from **$88.4 million** (**$0.19 EPS**) in Q2 2020, primarily due to lower credit loss reversal and Other income, partially offset by higher net interest income and lower operating expenses. The prior year included significant balance sheet stabilization actions post-COVID-19 market disruptions[308](index=308&type=chunk) - Net interest income for Q2 2021 increased by **$44.2 million** (**298.82%**) to **$59.0 million**, with net interest spread and margin at **3.02%** and **3.86%** respectively, up from **(0.88)%** and **0.81%** in Q2 2020. This was driven by lower financing rates and higher yields on residential whole loans[310](index=310&type=chunk) Net Interest Income Analysis (Three Months Ended June 30) | Category | 2021 Average Balance (Thousands) | 2021 Interest (Thousands) | 2021 Average Yield/Cost | 2020 Average Balance (Thousands) | 2020 Interest (Thousands) | 2020 Average Yield/Cost | |:---|:---|:---|:---|:---|:---|:---| | Residential whole loans | $5,036,675 | $69,016 | 5.48 % | $6,526,612 | $84,837 | 5.20 % | | Securities, at fair value | $249,813 | $15,345 | 24.57 % | $717,783 | $14,716 | 8.20 % | | Total interest-earning assets | $6,137,182 | $84,528 | 5.51 % | $7,741,416 | $102,778 | 5.31 % | | Collateralized financing agreements | $2,062,052 | $13,563 | 2.60 % | $4,736,610 | $75,928 | 6.34 % | | Securitized debt | $1,773,472 | $8,077 | 1.80 % | $538,220 | $5,393 | 3.96 % | | Total interest-bearing liabilities | $4,061,126 | $25,555 | 2.49 % | $5,623,312 | $87,991 | 6.19 % | | **Net Interest Income** | | **$58,973** | **3.02 %** | | **$14,787** | **(0.88)%** | - Interest income on residential whole loans decreased by **$15.8 million** (**18.6%**) in Q2 2021 due to a **$1.5 billion** decrease in average balance, partially offset by a yield increase to **5.48%**. Interest income on securities at fair value increased by **$629,000**, driven by a higher net yield of **24.57%** due to accretion income from an MSR-related asset redemption[324](index=324&type=chunk)[325](index=325&type=chunk) - Interest expense for Q2 2021 decreased by **$62.4 million** (**71.0%**) to **$25.6 million**, reflecting lower average repurchase agreement borrowings and decreased financing rates (**2.49%** vs. **6.19%** in Q2 2020). The redemption of Senior Notes in Q1 2021 also contributed to lower interest expense[326](index=326&type=chunk)[327](index=327&type=chunk) Other Income/(Loss), net (Three Months Ended June 30) | Category | 2021 (Thousands) | 2020 (Thousands) | |:---|:---|:---| | Net gain on residential whole loans measured at fair value through earnings | $6,021 | $4,910 | | Transfer from OCI of loss on swaps previously designated as hedges | $0 | $(49,857) | | Impairment and other losses on securities available-for-sale and other assets | $0 | $(5,094) | | Net unrealized gain on securities, at fair value measured at fair value through earnings | $1,374 | $64,438 | | Net realized gain on sales of securities, at fair value | $0 | $49,485 | | Net gain/(loss) on real estate owned | $5,125 | $(4,199) | | **Total Other Income/(Loss), net** | **$21,647** | **$60,947** | [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=93&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section details MFA Financial, Inc.'s exposure to various market risks, including interest rate risk, credit risk, credit spread risk, liquidity risk, and prepayment risk - The Company is exposed to interest rate risk, where changes in interest rates can affect net interest income and the fair value of assets and liabilities. Borrowing costs on financing agreements typically change faster than asset yields. Historically, Swaps were used to mitigate this, but since Q1 2020, short positions in TBA securities are used for hedging[381](index=381&type=chunk)[382](index=382&type=chunk)[387](index=387&type=chunk) - The fair value of residential whole loans is sensitive to underlying real estate collateral value, borrower delinquency, and interest rates. Non-performing loans show little interest rate sensitivity, while performing and re-performing loans exhibit positive duration[384](index=384&type=chunk)[385](index=385&type=chunk)[386](index=386&type=chunk) Interest Rate Shock Table (June 30, 2021) | Change in Interest Rates | Estimated Value of Assets (Thousands) | Estimated Value of Securitized and Other Fixed Rate Debt (Thousands) | Estimated Value of Financial Instruments (Thousands) | Percentage Change in Estimated Net Interest Income | Percentage Change in Portfolio Value | |:---|:---|:---|:---|:---|:---| | +100 Basis Point Increase | $6,955,740 | $80,458 | $7,036,198 | 4.92 % | (1.33)% | | + 50 Basis Point Increase | $7,050,716 | $39,041 | $7,089,757 | 2.79 % | (0.58)% | | Actual at June 30, 2021 | $7,132,204 | $(1,217) | $7,130,987 | — % | — % | | - 50 Basis Point Decrease | $7,200,206 | $(40,315) | $7,159,891 | (2.60)% | 0.41 % | | -100 Basis Point Decrease | $7,254,720 | $(78,255) | $7,176,465 | (4.77)% | 0.64 % | - The Company faces credit risk from residential whole loans (Purchased Non-performing, Purchased Credit Deteriorated, and Purchased Performing Loans) and CRT securities. Risk mitigation includes discounted purchase prices, sound underwriting, and sub-servicer oversight[396](index=396&type=chunk)[397](index=397&type=chunk)[398](index=398&type=chunk)[404](index=404&type=chunk) - Liquidity risk arises from financing long-maturity assets with shorter-term borrowings, primarily repurchase agreements. Margin calls, especially during market disruptions, can adversely impact liquidity. At June 30, 2021, the Company had **$906.4 million** in cash and cash equivalents and **$150.8 million** in unencumbered residential whole loans[406](index=406&type=chunk)[407](index=407&type=chunk)[408](index=408&type=chunk) - Prepayment risk affects interest income, particularly for assets purchased at a premium, where increased prepayment rates accelerate premium amortization. Conversely, decreased prepayments can slow capital redeployment to higher-yielding investments[409](index=409&type=chunk)[410](index=410&type=chunk) [Item 4. Controls and Procedures](index=91&type=section&id=Item%204.%20Controls%20and%20Procedures) This section confirms the effectiveness of MFA Financial, Inc.'s disclosure controls and procedures as of June 30, 2021, and reports no material changes in internal control over financial reporting - Management, under the direction of the CEO and CFO, concluded that the Company's disclosure controls and procedures were effective as of June 30, 2021, ensuring timely and accurate reporting of information required under the Exchange Act[411](index=411&type=chunk)[412](index=412&type=chunk) - There have been no changes in the Company's internal control over financial reporting during the quarter ended June 30, 2021, that materially affected, or are reasonably likely to materially affect, its internal control over financial reporting[413](index=413&type=chunk) [PART II. OTHER INFORMATION](index=99&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides additional disclosures beyond financial statements, covering legal proceedings, risk factors, equity sales, and other required information [Item 1. Legal Proceedings](index=99&type=section&id=Item%201.%20Legal%20Proceedings) This section states that MFA Financial, Inc. is not currently involved in any material pending legal proceedings - There are no material pending legal proceedings to which the Company is a party or any of its assets are subject[416](index=416&type=chunk) [Item 1A. Risk Factors](index=99&type=section&id=Item%201A.%20Risk%20Factors) This section supplements the risk factors from the 2020 Form 10-K, specifically addressing the risks associated with the recent acquisition of Lima One Holdings, LLC - The Company is supplementing its existing risk factors with an additional risk related to the acquisition of Lima One Holdings, LLC. The long-term success of the acquisition depends on the ability to combine businesses effectively and realize anticipated growth, particularly in the business purpose loan portfolio[417](index=417&type=chunk)[418](index=418&type=chunk)[419](index=419&type=chunk) - Risks include the potential for not successfully combining the businesses, leading to unrealized benefits or longer realization times, unforeseen expenses, and diversion of management attention from day-to-day operations[419](index=419&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=99&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) This section details the Company's share repurchase program and any unregistered sales of equity securities, including shares repurchased during the second quarter of 2021 - The Company's Board authorized a **$250 million** share repurchase program through the end of 2022. During the six months ended June 30, 2021, the Company repurchased **11,606,229 shares** of common stock for approximately **$48.1 million** at an average cost of **$4.14 per share**. As of June 30, 2021, **$117.7 million** remained available for future repurchases[420](index=420&type=chunk)[421](index=421&type=chunk)[422](index=422&type=chunk) Common Stock Repurchases (Q2 2021) | Month | Total Number of Shares Purchased | Weighted Average Price Paid Per Share | |:---|:---|:---| | April 1-30, 2021 | 4,832,218 | $4.19 | | May 1-31, 2021 | 827,333 | $4.21 | | June 1-30, 2021 | 0 | $0 | | **Total Shares Repurchased** | **5,659,551** | **$4.19** | [Item 3. Defaults Upon Senior Securities](index=100&type=section&id=Item%203.%20Defaults%20Upon%20Senior%20Securities) This section confirms that there have been no defaults upon senior securities - None[425](index=425&type=chunk) [Item 4. Mine Safety Disclosures](index=100&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section states that there are no mine safety disclosures to report - None[426](index=426&type=chunk) [Item 5. Other Information](index=100&type=section&id=Item%205.%20Other%20Information) This section indicates that there is no other information to disclose - None[427](index=427&type=chunk) [Item 6. Exhibits](index=100&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed as part of the Quarterly Report, including certifications, interactive data files, and other agreements - The report includes certifications from the CEO and CFO (pursuant to 18 U.S.C. Section 1350 and Section 302/906 of Sarbanes-Oxley Act of 2002) and Interactive Data Files (iXBRL) for financial statements[431](index=431&type=chunk)[432](index=432&type=chunk) [Signatures](index=102&type=section&id=Signatures) This section contains the required signatures for the Quarterly Report on Form 10-Q - The report is signed by Stephen D. Yarad, Chief Financial Officer and Chief Accounting Officer, on behalf of MFA FINANCIAL, INC. on August 5, 2021[434](index=434&type=chunk)

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, 2021 or ☐ 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 a ...

MFA Financial, Inc. (NYSE:MFA) Q1 2021 Earnings Conference Call May 6, 2021 10:00 AM ET Company Participants Harold Schwartz - SVP, General Counsel & Secretary Craig Knutson - President, CEO & Director Stephen Yarad - CFO & CAO Gudmundur Kristjansson - SVP & Co-CIO Bryan Wulfsohn - SVP & Co-CIO Conference Call Participants Steven Delaney - JMP Securities Operator Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial, Inc. First Quarter Earnings 2021 Conference Call. [Operator Ins ...

Financial Performance - GAAP earnings were $0.08 per common share[3] - GAAP book value decreased by 1.5% to $4.54, while Economic Book Value (EBV) remained unchanged at $4.92[3] - Warrant transactions lowered GAAP book value by $0.18 and EBV by $0.19, representing a 3.9% decrease[3] - Share repurchases of 14.1 million shares were $0.03 accretive to GAAP book value and $0.04 accretive to EBV[3, 10] Portfolio Composition and Financing - 93% of the investment portfolio consisted of residential whole loans as of December 31, 2020[5] - $111 million in loan purchases were made in Q4[5] - 67% of asset-backed financing arrangements were on non-mark-to-market terms as of December 31, 2020[6] - Total weighted average financing cost decreased from 4.3% on September 30, 2020, to 3.1% on December 31, 2020, and further to 2.9% after the senior note redemption in early January[6] Securitization Activities - MFRA 2020-NQM2 securitization ($570 million) closed in October 2020, with $405.4 million AAA's sold at a 1.34% yield, representing 93.8% of UPB[8] - MFRA 2020-NQM3 securitization ($381 million) closed in December 2020, with $264.5 million AAA's sold at a 0.98% yield, representing 94.2% of UPB[8]

Part I [Business](index=6&type=section&id=Item%201.%20Business) MFA Financial, an internally-managed REIT, significantly reshaped its residential mortgage asset portfolio in 2020 towards whole loans and adopted more durable financing strategies in response to COVID-19 market disruption and extensive regulatory oversight - MFA Financial operates as an internally-managed REIT, investing on a leveraged basis in residential mortgage assets, including whole loans, mortgage-backed securities (MBS), and MSR-related assets[21](index=21&type=chunk)[27](index=27&type=chunk) - In response to the COVID-19 pandemic's market disruption in 2020, the company significantly changed its asset composition, selling all Agency and Legacy Non-Agency MBS and reducing investments in MSR-related assets and CRT securities[22](index=22&type=chunk)[26](index=26&type=chunk) Portfolio Composition Change (2019 vs. 2020) | Asset Class | % of Assets (Dec 31, 2020) | % of Assets (Dec 31, 2019) | | :--- | :--- | :--- | | Residential whole loans | 77% | 55% | | Residential mortgage securities | 2% | 29% | | MSR-related assets | 3% | 9% | - The company's financing strategy shifted in 2020 to rely more heavily on durable, non-mark-to-market financing, such as term loan facilities and securitizations, to reduce exposure to margin calls[36](index=36&type=chunk) - The business is subject to extensive regulation, including the Dodd-Frank Act, and recent pandemic-related legislation like the CARES Act, which introduced homeowner protections such as forbearance and foreclosure moratoriums[42](index=42&type=chunk)[43](index=43&type=chunk)[47](index=47&type=chunk) [Risk Factors](index=12&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including ongoing COVID-19 impacts, credit and prepayment risks from its whole loan portfolio, leverage-related challenges, market volatility, liquidity concerns, and regulatory and interest rate changes affecting REIT status and profitability - The COVID-19 pandemic has adversely affected and is likely to continue to affect the company's business, financial condition, and operations due to market volatility, potential for increased loan delinquencies, and uncertain economic conditions[64](index=64&type=chunk)[66](index=66&type=chunk) - The company's investment portfolio, which is heavily concentrated in residential whole loans (**77% of total assets**), is subject to significant credit risk from borrower defaults, particularly during economic downturns[73](index=73&type=chunk)[74](index=74&type=chunk) - The use of leverage, primarily through repurchase agreements, exposes the company to risks of increased borrowing costs, margin calls during market declines, and potential termination of financing lines, which could force asset sales under adverse conditions[107](index=107&type=chunk)[109](index=109&type=chunk) - Failure to maintain qualification as a REIT would subject the company to corporate income tax, substantially reducing cash available for distribution to stockholders and potentially leading to delisting from the NYSE[153](index=153&type=chunk)[155](index=155&type=chunk) - The planned discontinuation of LIBOR after 2021 and transition to alternative reference rates like SOFR introduces uncertainty and potential basis risk that could adversely affect the profitability of its assets, liabilities, and hedges[113](index=113&type=chunk)[114](index=114&type=chunk) [Unresolved Staff Comments](index=44&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports that it has no unresolved staff comments from the Securities and Exchange Commission - None[202](index=202&type=chunk) [Properties](index=44&type=section&id=Item%202.%20Properties) The company leases its corporate headquarters in New York, NY, extending its current lease through June 2021 while executing a new 15-year lease for a new headquarters with relocation expected in Q1 2021 - The company leases its corporate headquarters in New York, NY, with the current lease extended through **June 30, 2021**, and the expense for this lease was approximately **$2.9 million** for the year ended December 31, 2020[203](index=203&type=chunk) - A new **15-year lease** for new office space in New York has been executed, with an expected relocation in **Q1 2021**, and the estimated annual rental expense for the new space is approximately **$4.6 million**[204](index=204&type=chunk) [Legal Proceedings](index=44&type=section&id=Item%203.%20Legal%20Proceedings) The company reports that it is not a party to any material legal proceedings, nor are any of its assets subject to such proceedings - There are no material legal proceedings to which the company is a party or to which any of its assets are subject[205](index=205&type=chunk) [Mine Safety Disclosures](index=44&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This section is not applicable to the company's business - Not applicable[206](index=206&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=45&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) The company's NYSE-listed common and preferred stocks saw a significant dividend reduction in 2020, alongside the authorization and partial execution of a $250 million share repurchase program, while no shares were sold through its ATM program Common Stock Dividends Declared (per share) | Year | Dividend per Share | | :--- | :--- | | 2020 | $0.125 | | 2019 | $0.80 | - A new share repurchase program was authorized on **November 2, 2020**, for up to **$250 million** of common stock through the end of 2022[214](index=214&type=chunk) 2020 Share and Warrant Repurchases | Security | Shares/Warrants Repurchased | Total Cost | | :--- | :--- | :--- | | Common Stock | 14,085,678 | ~$50.8 million | | Warrants | 17,593,576 | $33.7 million | - The company did not sell any shares through its At-the-Market (ATM) Program during 2020, with approximately **$390.0 million** remaining available for future offerings[223](index=223&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) MFA Financial reported a significant net loss in 2020 due to COVID-19 market disruption, asset sales, and impairment charges, leading to a reshaped portfolio focused on residential whole loans, increased financing costs, and a decline in GAAP book value per share, while adopting CECL and prioritizing liquidity Year-over-Year Performance Comparison | Metric | 2020 | 2019 | | :--- | :--- | :--- | | Net (Loss)/Income | ($709.2 million) | $363.1 million | | (Loss)/Earnings per Share | ($1.57) | $0.80 | | GAAP Book Value per Share | $4.54 | $7.04 | - The significant net loss in 2020 was primarily due to asset sales at a loss, impairment charges on securities and MSR-related assets, and higher financing costs resulting from market disruption caused by the COVID-19 pandemic[273](index=273&type=chunk) Residential Mortgage Asset Portfolio Activity (2020, in Millions) | | Dec 31, 2019 | Runoff | Acquisitions | Sales | Other | Dec 31, 2020 | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | Residential whole loans and REO | $7,860 | $(1,920) | $1,345 | $(1,780) | $70 | $5,575 | | MSR-related assets | $1,217 | $(77) | $4 | $(683) | $(222) | $239 | | Residential mortgage securities | $3,984 | $(558) | $160 | $(3,000) | $(425) | $161 | | **Totals** | **$13,061** | **$(2,555)** | **$1,509** | **$(5,463)** | **$(577)** | **$5,975** | - The company adopted the new CECL accounting standard on **January 1, 2020**, and recorded a provision for credit losses of **$13.4 million** on residential whole loans held at carrying value for the year[245](index=245&type=chunk)[297](index=297&type=chunk) - Net interest income decreased by **63.7%** to **$90.6 million** in 2020 from **$249.4 million** in 2019, driven by lower average balances of interest-earning assets due to portfolio sales and higher funding costs[276](index=276&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=71&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company manages significant market risks including interest rate sensitivity, concentrated credit risk in residential whole loans, and liquidity risk through stable financing and strong cash positions, while also addressing prepayment risk affecting asset yields Interest Rate Sensitivity Analysis (as of Dec 31, 2020) | Change in Interest Rates | % Change in Net Interest Income | % Change in Portfolio Value | | :--- | :--- | :--- | | +100 Basis Points | +6.27% | -1.76% | | +50 Basis Points | +3.10% | -0.80% | | -50 Basis Points | -3.87% | +0.63% | | -100 Basis Points | -8.03% | +1.09% | - The company's primary credit risk exposure is concentrated in its residential whole loan portfolio, which is underwritten to mitigate loss through low LTVs for performing loans and significant purchase discounts for non-performing loans[354](index=354&type=chunk)[355](index=355&type=chunk)[356](index=356&type=chunk) Top 5 Geographic Concentrations of Residential Whole Loans (by UPB) | Property Location | Percent of Interest-Bearing UPB | | :--- | :--- | | California | 35.1% | | Florida | 13.4% | | New York | 7.9% | | New Jersey | 5.4% | | Texas | 3.1% | - Liquidity risk, stemming from financing long-term assets with short-term borrowings, is managed by increasing the use of non-recourse financing (securitizations) and maintaining access to **$814.4 million** in cash and cash equivalents as of year-end 2020[365](index=365&type=chunk)[367](index=367&type=chunk) [Financial Statements and Supplementary Data](index=77&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements and KPMG LLP's independent auditor's report, which highlights critical audit matters related to the allowance for credit losses and valuation of residential whole loans due to significant judgment and estimates Consolidated Balance Sheet Highlights (in Thousands) | | Dec 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total Residential Whole Loans, net | $5,325,401 | $7,447,928 | | Total Assets | $6,932,300 | $13,568,170 | | Total Liabilities | $4,407,498 | $10,184,218 | | Total Stockholders' Equity | $2,524,802 | $3,383,952 | Consolidated Statement of Operations Highlights (in Thousands) | | 2020 | 2019 | | :--- | :--- | :--- | | Net Interest Income | $90,626 | $249,370 | | Other (Loss)/Income, net | ($606,121) | $225,857 | | Net (Loss)/Income | ($679,390) | $378,117 | - The independent auditor's report from KPMG LLP identified two critical audit matters: the assessment of the allowance for credit losses on residential whole loans held at carrying value, and the valuation of residential whole loans carried at fair value, due to the high degree of subjective and complex judgment required[380](index=380&type=chunk)[383](index=383&type=chunk)[387](index=387&type=chunk) - The company adopted the new credit loss accounting standard (ASU 2016-13 / CECL) on **January 1, 2020**, resulting in a cumulative-effect adjustment that increased the allowance for credit losses on Purchased Performing Loans by approximately **$8.3 million**[481](index=481&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=149&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure - None[719](index=719&type=chunk) [Controls and Procedures](index=149&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management, including the CEO and CFO, concluded that the company's disclosure controls and internal control over financial reporting were effective as of December 31, 2020, a conclusion affirmed by KPMG LLP's unqualified opinion, with no material changes identified in Q4 2020 - The CEO and CFO concluded that the company's disclosure controls and procedures were effective as of **December 31, 2020**[721](index=721&type=chunk) - Management assessed internal control over financial reporting using the **2013 COSO framework** and concluded it was effective as of **December 31, 2020**[724](index=724&type=chunk) - The independent registered public accounting firm, KPMG LLP, issued an unqualified opinion on the effectiveness of the company's internal control over financial reporting[725](index=725&type=chunk)[728](index=728&type=chunk) - There were no changes in internal control over financial reporting during the fourth quarter of 2020 that materially affected, or are reasonably likely to materially affect, these controls[726](index=726&type=chunk) [Other Information](index=152&type=section&id=Item%209B.%20Other%20Information) The company executed amended employment agreements with its CEO and Co-CIOs, effective January 1, 2021, outlining base salaries, performance-based bonuses tied to ROAE and individual metrics, annual RSU grants, and severance provisions - Amended and restated employment agreements were executed with the CEO and two Co-CIOs, effective **January 1, 2021**[735](index=735&type=chunk) Executive Compensation Structure | Executive | Position | Base Salary (USD) | Target Annual Bonus (USD) | | :--- | :--- | :--- | :--- | | Craig L. Knutson | CEO & President | $800,000 | $2,000,000 | | G. Kristjansson | Co-CIO & SVP | $400,000 | $950,000 | | Bryan Wulfsohn | Co-CIO & SVP | $400,000 | $950,000 | - The annual bonus is comprised of two components: **75%** based on the company's adjusted Return on Average Equity (ROAE) and **25%** based on individual performance, company performance, and risk management (IRM Bonus)[739](index=739&type=chunk)[740](index=740&type=chunk)[744](index=744&type=chunk) - Executives receive annual grants of time-based and performance-based Restricted Stock Units (RSUs), with performance metrics tied to absolute and relative Total Shareholder Return (TSR) over a three-year period[747](index=747&type=chunk)[752](index=752&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=156&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information regarding the company's directors, executive officers, corporate governance, and compliance with Section 16(a) of the 1934 Act is incorporated by reference from the company's definitive proxy statement, which is expected to be filed in April 2021 - Information required by this item is incorporated by reference from the company's definitive proxy statement to be filed in connection with its 2021 Annual Meeting of Stockholders[768](index=768&type=chunk)[769](index=769&type=chunk)[770](index=770&type=chunk) [Executive Compensation](index=156&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation and related matters is incorporated by reference from the company's definitive proxy statement to be filed in April 2021 - Information required by this item is incorporated by reference from the company's definitive proxy statement[772](index=772&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=157&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) Information on security ownership by beneficial owners and management, including equity compensation plan details, is incorporated by reference from the definitive proxy statement, with 3,452,629 securities outstanding and 14,273,190 available for future issuance as of December 31, 2020 - Information regarding security ownership is incorporated by reference from the company's definitive proxy statement[773](index=773&type=chunk) Equity Compensation Plan Information (as of Dec 31, 2020) | | Number of Securities | | :--- | :--- | | To be issued upon exercise of outstanding rights | 3,452,629 | | Remaining available for future issuance | 14,273,190 | [Certain Relationships and Related Transactions and Director Independence](index=157&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%20and%20Director%20Independence) Information regarding related party transactions and director independence is incorporated by reference from the company's definitive proxy statement to be filed in April 2021 - Information required by this item is incorporated by reference from the company's definitive proxy statement[777](index=777&type=chunk) [Principal Accountant Fees and Services](index=157&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) Information regarding principal accountant fees and services, along with the Audit Committee's pre-approval policies, is incorporated by reference from the company's definitive proxy statement to be filed in April 2021 - Information required by this item is incorporated by reference from the company's definitive proxy statement[778](index=778&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=158&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section provides an index of exhibits filed with the Form 10-K, including consolidated financial statements, the independent auditor's report, corporate governance documents, material contracts, and Sarbanes-Oxley certifications, many of which are incorporated by reference - This section includes the consolidated financial statements and the independent auditor's report[781](index=781&type=chunk) - An index of exhibits is provided, listing corporate governance documents, debt instruments, material contracts, and executive compensation plans, many are incorporated by reference[785](index=785&type=chunk) - Certifications by the CEO and CFO pursuant to Sections **302** and **906** of the Sarbanes-Oxley Act of 2002 are filed as exhibits[816](index=816&type=chunk)[817](index=817&type=chunk) [Form 10-K Summary](index=163&type=section&id=Item%2016.%20Form%2010-K%20Summary) The company has not provided a summary for its Form 10-K - None[826](index=826&type=chunk)

MFA Financial, Inc. (NYSE:MFA) Q4 2020 Earnings Conference Call February 23, 2021 10:00 AM ET Company Participants Harold Schwartz - SVP of General Counsel and Secretary Craig Knutson - CEO and President Stephen Yarad - CFO Bryan Wulfsohn - Co-CIO Gudmundur Kristjansson - Co-CIO Conference Call Participants Eric Hagen - BTIG Steve Delaney - JMP Securities Operator Ladies and gentlemen, thank you for standing by, and welcome to the MFA Financial Inc. Fourth Quarter Earnings Conference Call. [Operator Instruc ...

Third Quarter 2020 Earnings Presentation Forward looking statements When used in this press release or other written or oral communications, statements which are not historical in nature, including those containing words such as "will," "believe," "expect," "anticipate," "estimate," "plan," "continue," "intend," "should," "could," "would," "may," the negative of these words or similar expressions, are intended to identify "forward-looking statements" within the meaning of Section 27A of the Securities Act o ...