MFA

• Market and Macroeconomic Conditions

  • Oil prices experienced high volatility during the quarter, falling from $118 per barrel at end-Q1 to below $100 for most of April, spiking back to $118 at end-April, and closing Q2 just below $73 per barrel.
  • Interest rate volatility decreased, but benchmark rates rose modestly; the 2-year Treasury yield increased 40bps, the 10-year yield rose 15bps, flattening the 2-10 yield spread from 52bps to 29bps.
  • The Fed's mid-June FOMC meeting had a more hawkish tone than markets expected, leading to expectations of a Federal funds rate increase later in 2026; the mortgage market remained constructive with modest spread tightening and well-bid securitization markets.

• Core Operational Achievements

  • The firm delivered stable results: economic book value ended Q2 at $13.20 per share (essentially unchanged from end-Q1), the $0.36 common dividend was maintained, and total economic return for the quarter was 2.6%.
  • Capital was prudently deployed to grow the balance sheet, with portfolio growth concentrated in agency MBS purchased at attractive spreads.
  • The firm significantly accelerated resolution of delinquent assets, resolving $200 million of previously delinquent loans during the quarter and lowering the 60+ day delinquency rate from 7.8% to 7.0% to convert unproductive assets back to earning capital.
  • Lima One's origination momentum continued: origination volume grew nearly 45% quarter-over-quarter, with prior investments in technology and sales team expansion now delivering results; delinquency rates on recent vintages are meaningfully better than older vintages, and the origination pipeline is at its highest level since 2024.
  • The firm completed exit from its former corporate headquarters, reducing the quarterly operating expense base; it also repurchased over 500,000 common shares at a discount to economic book value, funded largely by preferred stock issuance via the firm's ATM program.
  • Capital structure optimization was achieved via securitization activities: the firm completed its 24th non-QM securitization, sold ~$300 million of bonds at an average cost of just over 5.5%, and re-securitized $500 million of single-family rental loans to unlock $48 million in cash and financing capacity while reducing mark-to-market recourse leverage.

• G&A run rate is expected to average $26 to $27 million per quarter for the remainder of 2026, a $6 million per quarter reduction from the 2024 quarterly average, with most large one-time expense items now completed; minor additional savings are expected from company-wide AI initiatives through the end of the year.
• Realized credit losses from delinquent asset resolution are expected to remain elevated in Q3 2026, but will be lower than Q2 2026 levels, before moderating significantly by the end of 2026 and into the first half of 2027.
• Distributable earnings are expected to reconverge to the level of the common dividend once credit losses subside to normalized levels.
• The firm intends to continue growing agency MBS holdings and rolling the TBA position to generate drop income if market conditions remain favorable, and will adjust the size of the agency portfolio based on market prices and opportunities in other segments.
• Lima One is expected to deliver continued origination volume growth in Q3 2026, though the sequential growth rate is not expected to match the 44% jump from Q1 to Q2 due to typical seasonal factors.

MFA Financial's total investment portfolio ended Q2 2026 at $13 billion, 20% larger year-over-year and up from $12.5 billion at the end of Q1 2026. Breakdown by segment: 1. Non-QM Loans: The largest segment at $5.7 billion, accounting for ~43.8% of total portfolio value. The firm acquired $462 million of new non-QM loans this quarter with a 6.9% average coupon and 67% LTV, and credit default rate remains just over 4%. 2. Agency MBS: Grew to $4.1 billion this quarter, comprising ~31.5% of total portfolio value, after the firm purchased over $700 million of agency bonds and increased TBA positions by nearly $500 million. 3. Legacy Multifamily Transitional Loans: Shrunk to $360 million this quarter, accounting for just ~2.8% of total portfolio value, after resolving $65 million of delinquent loans; the portfolio is now less than half its size from one year prior. 4. Lima One Mortgage Banking: Generated $8.4 million in mortgage banking income in Q2 2026, with origination volume rising 44% quarter-over-quarter to $316 million ($220 million in short-term transitional loans, $96 million in 30-year rental loans). 5. Overall Financials: Q2 2026 GAAP net income was $46.8 million ($0.35 per basic common share); interest income was $59.6 million, up slightly from $59.2 million in Q1; distributable earnings (DE) was $12.2 million ($0.12 per share), while DE prior to realized credit losses was $36.7 million ($0.35 per share, up from $0.34 per share in Q1 2026); G&A expenses totaled $31.2 million, including $5 million in one-time accelerated depreciation for the former headquarters.

• Forward-looking statements about future performance, portfolio returns, and asset resolution are subject to material risks and uncertainties that could cause actual results to differ materially from projections, including macroeconomic volatility, changes to interest rates and Federal Reserve policy, changes to mortgage market spreads, and credit loss volatility associated with legacy nonperforming assets.
• High oil price volatility and geopolitical uncertainty create ongoing market instability that impacts asset valuations and investment returns.
• Legacy nonperforming and delinquent assets continue to generate elevated realized credit losses that reduce near-term distributable earnings, and create earnings uncertainty until full resolution is completed.
• Origination volume at Lima One is inherently lumpy, and growth may not proceed in a consistent linear fashion despite strong current pipeline trends.

Q: Analyst asks what the expected timeframe is for full resolution of the remaining legacy multifamily loan portfolio, and what the incremental annual earnings impact would be from redeploying the remaining $84 million in equity allocated to this segment. / A: Management expects full resolution of the entire remaining portfolio within a few quarters; most material credit losses will be recognized in the next quarter, as extended performing loans are given time for borrowers to refinance or sell, while delinquent loans will be resolved quickly via property acquisition and resale. If the full $84 million is redeployed into mid-teens ROE assets, it is expected to generate roughly $14 to $15 million in incremental annual earnings, with no elevated legacy credit losses going forward.

Q: Given current agency MBS spreads, how does management view the risk-reward profile for the segment, and where is the best risk-reward for incremental capital deployment? / A: Management still views agency MBS as attractive, with achievable mid-teens ROEs even after recent spread movement. The highest ROE opportunity for incremental capital is currently continued growth of Lima One origination, followed by non-QM lending which also delivers mid-teens ROEs. The firm will continue to deploy capital across all attractive areas, and will reallocate dynamically if relative returns or spreads change.

Q: What is the outlook for further operating expense reductions after the former headquarters exit, and how does management see Lima One product focus and Q3 2026 origination momentum shaping up? / A: Most large expense reduction initiatives are now complete, and the stated 26-27 million quarterly G&A run rate reflects this; management maintains a company-wide commitment to expense discipline, and expects minor additional savings from AI implementation through the end of the year. For Lima One, product focus has shifted to ground-up construction loans to align with current market opportunities for housing investors. Q3 2026 is expected to deliver continued origination growth, though the sequential increase will likely be smaller than the Q1-to-Q2 jump due to seasonal factors, even with strong current submission levels.