MFA Financial, Inc. Q2 FY2025 earnings call

• Market turmoil occurred in the second quarter with treasury volatility, but cooler heads prevailed later. Equity markets continued to rise.
• Portfolio delivered 1.5% economic return for Q2, GAAP earnings were $33.2 million or $0.22 per basic common share. Net interest income grew to $61.3 million, driven by higher-yielding assets and nonrecurring discount accretion.
• Resolved nonperforming loans: reduced 60-plus day delinquency to 7.3% and lowered nonaccrual loans by $33.6 million. Sold $24 million of delinquent transitional loans and expect more sales in H2.
• Sourced $876 million of loans/securities in Q2, issued 18th non-QM securitization. Lima One originated $217 million business purpose loans, hired 15 new loan officers.

In the second quarter, MFA Financial's total economic return was 1.5%, with a year-to-date return of 3.4%. GAAP book value at June 30 was $13.12 per share, and economic book value was $13.69 per share, each down about 1% from the end of March. Distributable earnings for the quarter were $0.24 per share, negatively affected by credit losses on certain business purpose loans; absent these losses, distributable earnings would have been $0.35 per share. The company sourced $876 million of loans and securities across target asset classes, including $503 million of non-QM loans, $131 million of Agency MBS, and $217 million of business purpose loans at Lima One. Overall leverage at the end of the quarter was 5.2x, and recourse leverage was 1.8x.

• Expect distributable earnings (DE) to reconverge with common dividend in the first half of 2026.
• Recourse leverage is 1.8x with capacity to increase leverage.
• View current Agency MBS spread levels as opportunistic; would redeploy to other credit assets if spreads narrow.

• Market volatility and interest rate changes could impact portfolio value.
• Credit losses on business purpose loans were an issue in Q2.
• Execution risk in rental and transitional loans related to tariffs and input costs.

Q: Where do you see the economic return for the portfolio?

A: The economic earnings power is close to the 10% dividend yield on book value, and there's potential to increase leverage as recourse leverage is 1.8x with dry powder.

Q: Could you comment on the 15 new loan officers hired at Lima One?

A: Focus is on West and Midwest, goal is to grow to closer to 80 loan officers, with expectation of growth in origination volume and profitability in H2.

Q: Would you deemphasize agency MBS in a flatter curve environment and redeploy capital?

A: Yes, current spread levels in Agency MBS are opportunistic; would redeploy to other credit assets if spreads narrow