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    MFA
    Earnings call· Jun 2026(Q2 FY26)

    MFA FINANCIAL Q2 FY26 earnings call MFA

    Aug 5, 2026 Source

    Executive summary

    MFA Financial Q2 FY26 — Strong Portfolio Growth and Delinquency Resolution

    MFA Financial delivered a solid second quarter, marked by significant portfolio growth and accelerated resolution of delinquent assets, particularly in the legacy multifamily book. While realized credit losses impacted distributable earnings, the company is actively redeploying capital into higher-ROE assets and seeing strong momentum in its Lima One origination platform. Management expects earnings power to become increasingly visible as credit losses normalize.

    Highlights

    5

    • Investment portfolio grew to approximately $13 billion, up from $12.5 billion in Q1 FY26 and 20% larger year-over-year.

    • Resolved approximately $200 million of previously delinquent loans, reducing the 60+ day delinquency rate from 7.8% to 7.0%.

    • Lima One origination volume increased by 44% quarter-over-quarter to $316 million, with a strong pipeline.

    • Reduced run-rate G&A expenses to $26 million-$27 million per quarter, a decline of over $6 million from the 2024 quarterly average.

    • Repurchased over 500,000 shares of common stock at a significant discount to economic book value.

    Concerns

    3

    • Distributable Earnings (DE) declined to $12.2 million, or $0.12 per share, primarily due to $24.5 million of realized credit losses.

    • Realized credit losses are expected to remain elevated in Q3 FY26, though below Q2 levels.

    • Economic book value decreased by approximately 2% subsequent to quarter-end due to higher market interest rates and wider spreads.

    Guidance & targets

    5
    CategoryTargetConfidence
    Realized credit losses
    remain elevated in the third quarter, though below the level in Q2, before moderating significantly
    high materiality
    Medium
    Distributable Earnings (DE) convergence with common dividend
    begin to reconverge with the level of our common dividend
    high materiality
    Medium
    Run rate G&A expenses
    average approximately $26 to $27 million per quarter
    medium materiality
    High
    Resolution of remaining multifamily loans
    probably a few quarters away from resolving the portfolio
    high materiality
    Medium
    Material credit losses from multifamily loans
    really here in the next quarter
    high materiality
    High

    Operational metrics

    23
    Total economic return
    2.6%
    Q2 FY26

    MFA again paid a common dividend of $0.36 and delivered a quarterly total economic return of 2.6%.

    Net interest income
    $59.6Mup from $59.2M in Q1 FY26
    Q2 FY26

    Net interest income, including TVA dollar roll income, for the quarter was $59.6 million, a modest increase from $59.2 million in the first quarter.

    Lima One Mortgage Banking Income
    $8.4Mrose
    Q2 FY26

    Lima One Mortgage Banking Income rose to $8.4 million in connection with the significant growth and origination that Craig referenced earlier.

    G&A expenses
    $31.2M
    Q2 FY26

    G&A expenses totaled $31.2 million, including approximately $5 million of accelerated non-cash depreciation expense associated with our former corporate headquarters.

    Run rate G&A expenses
    $26M-$27Mdecline of more than $6M a quarter from 2024 quarterly average of $33M
    per quarter

    Those assets are now fully depreciated, and we expect run rate G&A to average approximately $26 to $27 million per quarter over the remainder of the year. This run rate reflects the cumulative impact of our expense reduction initiatives and a decline of more than $6 million a quarter from the 2024 quarterly average of $33 million.

    Distributable Earnings (DE)
    $12.2Mdecline
    Q2 FY26

    DE for the quarter was $12.2 million, or $0.12 per share. The decline in our DE was driven by $24.5 million of realized credit losses on fair value loans.

    Realized credit losses on fair value loans
    $24.5M
    Q2 FY26

    The decline in our DE was driven by $24.5 million of realized credit losses on fair value loans, as we resolved approximately $200 million of previously delinquent assets during the quarter.

    Distributable Earnings (DE) prior to realized credit losses
    $36.7Mup from $0.34 per share last quarter
    Q2 FY26

    GE prior to realized credit losses, the new metric we introduced last quarter, was $36.7 million or $0.35 per share, up from $0.34 per share last quarter.

    Distributable Earnings (DE) prior to realized credit losses (excluding Q1 one-time item)
    $0.04up ~14% sequentially
    Q2 FY26

    Excluding that one-time item in the first quarter, DE prior to realized credit losses improved by $0.04 per share, or approximately 14% sequentially, which we believe highlights the improving earnings power of the portfolio.

    Non-recurring benefit from early lease termination
    ~$0.03
    Q1 FY26

    As a reminder, our Q1 results included approximately 3 cents of non-recurring benefit related to the early termination of the lease for our former corporate headquarters.

    Non-QM loan acquisitions
    $462M
    Q2 FY26

    We acquired $462 million of non-QM loans with an average coupon of 6.9% and an LTV of 67%.

    Non-QM securitization bonds sold
    $300M
    Q2 FY26

    We issued our 24th non-QM securitization during the quarter, selling nearly $300 million of bonds at an average cost of just over 5.5%. The loans in that deal carry a weighted average coupon of 6.75%.

    Single-family rental loans re-securitized
    >$500M
    Q2 FY26

    Separately, we re-securitized over $500 million of single-family rental loans after calling three prior issuances, unlocking $48 million of cash and financing capacity while reducing mark-to-market recourse leverage.

    Agency bonds purchased
    >$700M
    Q2 FY26

    During the quarter we purchased over 700 million of agency bonds and grew that book to 4.1 billion.

    TBA position increase
    nearly $500M
    Q2 FY26

    although we did further increase our TBA position nearly 500 million.

    Legacy multifamily delinquent loans resolved
    $65M
    Q2 FY26

    In particular, we continued to shrink our legacy multifamily book, resolving $65 million of delinquent loans and reducing the portfolio to $360 million.

    Legacy multifamily portfolio size
    $360Mless than half the size of the portfolio from a year ago
    Q2 FY26

    reducing the portfolio to $360 million. 60 million, less than half the size of the portfolio from a year ago. Multifamily transitional loans now comprises just 2% of our investment portfolio.

    Target assets added
    $1.6B
    Q2 FY26

    We added $1.6 billion of our target assets at expected ROEs in the mid-teens

    Potential additional annual earnings from redeploying multifamily equity
    $14M-$15M
    annual

    Thinking about the $84 million deployed at, you know, like a mid-teens ROE, you're talking about a marginal, call it $14, $15 million a year of additional earnings.

    Agency spreads widening
    8 to 10 bps
    per quarter

    we still see agencies are attractive given spreads of wide and say, you know, 8 to 10 bps a quarter.

    Agency portfolio ROE
    mid-teens
    current

    Still think it's sort of mid-teens ROEs are achievable.

    Lima One origination ROE
    very high
    current

    double-digit type coupons, finance that say 6% to 7% offers a very good spread and very high ROEs.

    Non-QM portfolio ROE
    mid-teens
    current

    non-QM continues to be attractive as well. So that's which ROEs are really in the mid-teens there too.

    Industry KPIs

    4
    MetricValueDetails
    Disposition volume$200MUSD
    Investment volume closed$462MUSD
    Leasing bookings volume signed$316MUSD
    Ffo core ffo normalized ffo per share$0.12USD

    Risks & headwinds

    3
    Elevated Realized Credit LossesQ3 FY26, moderating significantly into end of FY26 and H1 FY27

    $24.5 million in Q2 FY26

    Mitigation: Redeploying capital into new mid-teen ROE assets, reducing servicing, legal, and other carrying costs, and reducing the uncertainty of future earnings by resolving non-performing loans.

    Decrease in Economic Book Valuesubsequent to Q2 FY26 quarter end

    approximately 2% decrease

    Mitigation: Not explicitly stated, but implied by focus on attractive spreads and high ROE assets.

    Seasonality in Lima One OriginationQ3 FY26

    not sure it's going to be the same jump that we saw from Q1 to Q2

    Mitigation: Strong pipeline and continuous improvement efforts at Lima One.

    What to watch in Q3 FY26

    4

    Realized Credit Losses

    Q3 FY26
    Current$24.5 million in Q2 FY26
    TargetBelow Q2 level, moderating

    Why it matters

    Critical for the reconvergence of Distributable Earnings with the common dividend.

    We currently expect realized credit losses to remain elevated in the third quarter, though below the level in Q2, before moderating significantly as we move into the end of the year and into the first half of 2027.

    Q&A highlights

    3

    What is the timeframe for resolving the remaining multifamily loans, and what is the potential earnings impact (EAD) of redeploying the $84 million equity remaining in that piece?

    Management expects to resolve the remaining multifamily portfolio within a few quarters, with material credit losses anticipated in the next quarter. Redeploying the $84 million equity at mid-teen ROEs could generate an additional $14 million to $15 million in annual earnings.

    “We believe that really we're probably a few quarters away from resolving the portfolio... the material losses credit losses are really here in the next quarter.”

    asked by Buzz George (KBW) · answered by Unknown Speaker

    2 min read6 chapters

    Detailed Narrative

    01

    Macroeconomic Environment and Market Conditions

    The second quarter saw continued macroeconomic volatility🌐, with oil prices fluctuating significantly and Treasury yields rising modestly, leading to a material flattening of the yield curve. The Fed's tone became more hawkish, with expectations for a Fed funds rate increase later in the year due to elevated inflation and strong payroll numbers. Despite this, the mortgage market remained constructive, experiencing modest spread tightening and well-bid securitization markets.

    02

    Strategic Portfolio Growth and Composition

    MFA Financial prudently deployed capital, growing its investment portfolio to approximately $13 billion, a 20% increase year-over-year. This growth was concentrated in agency MBS, which now comprise nearly a third of the portfolio at $4.1 billion, offering attractive spreads and liquidity. The non-QM portfolio remains the largest asset class at $5.7 billion, with $462 million of new acquisitions at an average coupon of 6.9% and LTV of 67%.

    03

    Accelerated Delinquency Resolution

    A defining effort of the quarter was the significant acceleration in resolving delinquent assets. The company resolved approximately $200 million of previously delinquent loans, leading to an 80 basis point reduction in the 60+ day delinquency rate, from 7.8% to 7.0%. The legacy multifamily book was notably reduced by $65 million to $360 million, now representing only 2% of the investment portfolio, with further resolution expected in the coming quarters⏳.

    04

    Lima One's Re-accelerated Momentum

    Lima One, MFA's origination franchise, continued to build momentum with origination volume up nearly 45% from the first quarter to $316 million, comprising $220 million in short-term transitional loans and $96 million in 30-year rental loans. This growth reflects the payoff from prior investments in technology and salesforce expansion, with the origination pipeline reaching levels not seen since 2024 and recent vintages showing improved credit performance.

    05

    Expense Base Optimization

    The company completed the exit of its former corporate headquarters and continued to drive down its expense base. G&A expenses for the quarter included $5 million of accelerated non-cash depreciation, but the expected run-rate G&A is projected to average $26 million to $27 million per quarter for the remainder of the year, representing a significant reduction of over $6 million per quarter compared to the 2024 average.

    06

    Capital Allocation and Shareholder Returns

    MFA maintained a stable economic book value at $13.20 per share and declared a $0.36 common dividend, delivering a total economic return of 2.6%. The company also repurchased over 500,000 shares of common stock at a significant discount to economic book value, funded largely by preferred stock issuance. Capital was unlocked through re-securitizing over $500 million of single-family rental loans, providing $48 million in cash and financing capacity.

    AI-generated summary of the company’s earnings call. Not investment advice.