Core Insights - The article discusses the recent decline in BDC baby bonds and the potential advantages of MREIT baby bonds, which are comparable in duration and yield but avoid management fees of approximately 2.5% [1] Group 1: Investment Strategies - MREIT baby bonds are highlighted as an alternative investment option due to their comparable characteristics to BDCs while offering lower management costs [1] - The investing group Trade With Beta provides various services including frequent picks for mispriced preferred stocks and baby bonds, weekly reviews of over 1200 equities, and hedging strategies [1] Group 2: Analyst Disclosure - The article includes a disclosure indicating a beneficial long position in MFAO shares, emphasizing that the opinions expressed are those of the author and not influenced by compensation [1]

Core Viewpoint - MFA Financial, Inc. has successfully closed its fourth securitization of non-qualified residential mortgage loans in 2025, marking a significant milestone in its securitization efforts since its first issuance in 2020 [1] Group 1: Securitization Details - The transaction, named MFA 2025-NQM4, is the twentieth securitization of Non-QM loans by MFA [1] - This latest securitization brings MFA's total cumulative Non-QM securitization volume to $7.3 billion [1] Group 2: Company Capability - The company expresses satisfaction in its ability to source, acquire, securitize, and manage residential mortgage assets, highlighting its operational strengths in the market [1]

Core Insights - During market turbulence, investors often seek dividend-yielding stocks, which typically have high free cash flows and offer substantial dividends [1] Group 1: Company Ratings and Analyst Insights - MFA Financial, Inc. has a dividend yield of 15.00%, with UBS analyst Douglas Harter maintaining a Neutral rating and raising the price target from $10 to $10.5, while JMP Securities analyst Mikhail Goberman cut the price target from $12 to $11 [7] - AGNC Investment Corp. has a dividend yield of 14.63%, with UBS analyst Brock Vandervliet maintaining a Neutral rating and raising the price target from $9.5 to $9.75, while Keefe, Bruyette & Woods analyst Bose George increased the price target from $9.5 to $10 [7] - Annaly Capital Management, Inc. has a dividend yield of 13.31%, with UBS analyst Douglas Harter maintaining a Neutral rating and raising the price target from $20 to $21, while Keefe, Bruyette & Woods analyst Bose George increased the price target from $20.5 to $21.5 [7]

Core Insights - During market turbulence, investors often seek dividend-yielding stocks, which typically have high free cash flows and offer substantial dividends [1] Company Summaries MFA Financial, Inc. (NYSE:MFA) - Dividend Yield: 15.00% - UBS analyst Douglas Harter maintained a Neutral rating and raised the price target from $10 to $10.5 on September 3, 2025, with an accuracy rate of 68% [7] - JMP Securities analyst Mikhail Goberman maintained a Market Outperform rating and reduced the price target from $12 to $11 on July 17, 2025, with an accuracy rate of 76% [7] - Recent News: Announced a dividend of 36 cents per share on September 11 [7] AGNC Investment Corp. (NASDAQ:AGNC) - Dividend Yield: 14.63% - UBS analyst Brock Vandervliet maintained a Neutral rating and raised the price target from $9.5 to $9.75 on September 3, 2025, with an accuracy rate of 67% [7] - Keefe, Bruyette & Woods analyst Bose George maintained an Outperform rating and increased the price target from $9.5 to $10 on July 10, 2025, with an accuracy rate of 70% [7] - Recent News: Declared a monthly common stock dividend of 12 cents per share for September on September 11 [7] Annaly Capital Management, Inc. (NYSE:NLY) - Dividend Yield: 13.31% - UBS analyst Douglas Harter maintained a Neutral rating and raised the price target from $20 to $21 on September 3, 2025, with an accuracy rate of 68% [7] - Keefe, Bruyette & Woods analyst Bose George maintained an Outperform rating and increased the price target from $20.5 to $21.5 on July 25, 2025, with an accuracy rate of 70% [7] - Recent News: Announced a third-quarter common stock dividend of 70 cents per share on September 10 [7]

Core Insights - During market turbulence, investors often seek dividend-yielding stocks, which typically have high free cash flows and offer substantial dividends [1] Group 1: High-Yielding Stocks in Financial Sector - Dynex Capital, Inc. (DX) has a dividend yield of 16.28%. UBS analyst Doug Harter maintained a Neutral rating and raised the price target from $12.5 to $13 on September 3, 2025, with an accuracy rate of 62%. Keefe, Bruyette & Woods analyst Bose George maintained an Outperform rating and increased the price target from $12.5 to $13 on July 10, 2025, with an accuracy rate of 71%. Recent quarterly results were mixed [7] - MFA Financial, Inc. (MFA) has a dividend yield of 14.24%. UBS analyst Douglas Harter maintained a Neutral rating and raised the price target from $10 to $10.5 on September 3, 2025, with an accuracy rate of 71%. JMP Securities analyst Mikhail Goberman maintained a Market Outperform rating but lowered the price target from $12 to $11 on July 17, 2025, with an accuracy rate of 77%. A dividend of 36 cents per share was announced on September 11, 2025 [7] - AGNC Investment Corp. (AGNC) has a dividend yield of 14.13%. UBS analyst Brock Vandervliet maintained a Neutral rating and increased the price target from $9.5 to $9.75 on September 3, 2025, with an accuracy rate of 67%. Keefe, Bruyette & Woods analyst Bose George maintained an Outperform rating and raised the price target from $9.5 to $10 on July 10, 2025, with an accuracy rate of 71%. A monthly common stock dividend of 12 cents per share was declared for September [7]

Core Points - MFA Financial, Inc. has declared a regular quarterly cash dividend of $0.36 per share of common stock [1] - The dividend payment is scheduled for October 31, 2025, to stockholders of record as of September 30, 2025 [1] - MFA Financial, Inc. specializes in investing in residential mortgage loans, residential mortgage-backed securities, and other real estate assets [1]

Core Viewpoint - Small-cap companies are rapidly adopting AI technologies, leading to increased efficiency and potential profit growth, while currently being the cheapest sector in the market [2] Group 1: Small-Cap Dividend Stocks - BlackRock TCP Capital (TCPC) has a yield of 15.7% and invests in over 150 companies across 20 industries, but is currently facing restructuring due to credit issues [3] - TCPC is trading at an 18% discount to its net asset value (NAV), with a regular yield of 14% and an additional 1.7% from special dividends [4] - New Mountain Finance (NMFC) offers a 12.1% yield and is also trading at a 14% discount to NAV, focusing on U.S. upper-middle-market businesses [5][6] - NMFC's NAV has declined nearly 2% quarter-over-quarter, with markdowns in healthcare and consumer products, but its credit quality remains stable [8][9] - Kayne Anderson BDC (KBDC) has a yield of 12.6% and targets companies with $10 million to $75 million in EBITDA, with a focus on defensive industries [10] - KBDC has initiated a $100 million buyback program and has seen investments increase in Q3, despite a slight decline in NAV [12] Group 2: Income-Generating Investments - Mach Natural Resources LP (MNR) offers a 16.0% distribution and operates primarily in the Anadarko Basin, with a focus on natural gas [13] - MNR trades at approximately 3.5 times this year's EBITDAX estimates, which is below the average for comparable MLPs [14] - MFA Financial (MFA) has a yield of 14.4% and invests in residential mortgage loans and securities, with a recent 13% QoQ increase in origination fees [15][17] - MFA's distributable earnings are expected to drop significantly this year, but the market does not seem to be pricing in a dividend cut [18] - Armour Residential REIT (ARR) offers a high yield of 19.0% but has a history of dividend cuts, trading at about 90% of book value [19][21]

Company Overview - MFA Financial is a mortgage real estate investment trust (mREIT) that focuses on mortgage investments [1] - The company currently offers a high dividend yield of over 14%, attracting income investors [1] Investment Focus - The emphasis is on income investing through various financial instruments such as common shares, preferred shares, or bonds [1] - The company is positioned to appeal to investors looking for substantial income returns [1]

Group 1: Annaly Capital Management (NLY) - NLY has four preferred shares, with NLY-F and NLY-I showing materially negative yield to call, while NLY-G has a positive yield to call of 8.73%, which is lower than most baby bonds in the sector [2] - A new preferred share, NLY-J, has been issued with a fixed-rate coupon of 8.875%. The share is callable after five years, limiting upside if rates fall, while increasing interest rate risk if rates rise [3] - NLY-J's trading price has increased from $24.80 to $25.10, indicating a common trend for preferred shares to rise in the initial weeks after issuance [4] Group 2: MFA Financial (MFA) - MFA has two preferred shares and two baby bonds, with MFA-C showing a reasonable floating spread of 5.79% over 3-month LIBOR, resulting in a stripped yield of approximately 10.3% to 10.4% at a price of $24.23 [5][6] - MFA-B is a fixed-rate share with an 8.84% stripped yield at $21.58, but the potential upside is limited, making it less attractive compared to baby bonds [8] - Overall, MFA-C is slightly favored over MFA-B, but baby bonds are preferred if their prices dip modestly, as this can significantly impact yield to call and yield to maturity [9] Group 3: ARMOUR Residential REIT (ARR) - ARR was the worst-performing mortgage REIT last week, with shares dropping 4.6%, significantly worse than peers [13][14] - The price-to-NAV for ARR has decreased to a projected 0.92x, indicating a decline in market sentiment following a public offering announcement [14][16] - The public offering was made at about 98% of book value, which did not excite shareholders, contributing to the decline in share price [16]

PART I. FINANCIAL INFORMATION [Item 1. Financial Statements](index=3&type=section&id=Item%201.%20Financial%20Statements) MFA Financial, Inc.'s unaudited consolidated financial statements for Q2 2025 include balance sheets, income statements, and cash flows, with notes on accounting policies and asset specifics | Financial Highlight (In Thousands) | June 30, 2025 | December 31, 2024 | | :--- | :--- | :--- | | **Total Assets** | $11,674,687 | $11,409,604 | | Residential whole loans, net | $8,819,525 | $8,811,224 | | Securities, at fair value | $1,829,809 | $1,537,513 | | **Total Liabilities** | $9,852,560 | $9,567,812 | | Financing agreements | $9,505,802 | $9,155,461 | | **Total Stockholders' Equity** | $1,822,127 | $1,841,792 | | Statement of Operations (In Thousands) | Three Months Ended June 30, 2025 | Six Months Ended June 30, 2025 | | :--- | :--- | :--- | | Net Interest Income | $61,276 | $118,813 | | Other Income/(Loss), net | $12,250 | $36,762 | | Net Income/(Loss) | $33,184 | $74,360 | | Net Income Available to Common Stock | $22,624 | $55,581 | | **Diluted EPS** | **$0.21** | **$0.52** | [Note 1. Organization](index=10&type=section&id=Note%201.%20Organization) MFA Financial, Inc. operates as a Maryland REIT, distributing 90% of taxable income, and uses TRS for non-REIT activities - The Company operates as a **Real Estate Investment Trust (REIT)** and must distribute at least **90%** of its taxable income to shareholders[22](index=22&type=chunk) - The Company utilizes **Taxable REIT Subsidiaries (TRS)** to hold certain assets and conduct activities that a **REIT** cannot directly[22](index=22&type=chunk) [Note 3. Residential Whole Loans](index=21&type=section&id=Note%203.%20Residential%20Whole%20Loans) The residential whole loan portfolio totaled $8.8 billion, mainly Non-QM and Business Purpose loans, with credit loss allowance at $9.9 million | Loan Type | Held at Carrying Value (in thousands) | Held at Fair Value (in thousands) | Total (in thousands) | | :--- | :--- | :--- | :--- | | Non-QM loans | $657,760 | $4,187,992 | $4,845,752 | | Business purpose loans | $106,809 | $2,791,750 | $2,898,559 | | Legacy RPL/NPL loans | $436,270 | $597,435 | $1,033,705 | | **Total (Net of Allowance)** | **$1,190,890** | **$7,628,635** | **$8,819,525** | - The total allowance for **credit losses** on **residential whole loans** held at carrying value was **$9.9 million** as of June 30, 2025, a decrease from **$10.7 million** at December 31, 2024[89](index=89&type=chunk) - The delinquency rate (**60+ days past due**) for the total **residential whole loan** portfolio was **7.3%** of UPB as of June 30, 2025, a slight decrease from **7.5%** at year-end 2024[81](index=81&type=chunk)[83](index=83&type=chunk) [Note 4. Securities, at Fair Value](index=28&type=section&id=Note%204.%20Securities%2C%20at%20Fair%20Value) The securities portfolio grew to $1.83 billion, primarily Agency MBS, with Term Notes repaid and holdings in CRT and Non-Agency MBS | Security Type | Fair Value (June 30, 2025) | Fair Value (Dec 31, 2024) | | :--- | :--- | :--- | | Agency MBS | $1,746,072 | $1,392,635 | | Term Notes Backed by MSR Collateral | $0 | $54,588 | | CRT Securities | $61,246 | $67,642 | | Non-Agency MBS | $22,491 | $22,648 | | **Total Securities** | **$1,829,809** | **$1,537,513** | - During Q2 2025, the **Term Notes Backed by MSR Collateral** were repaid in full[101](index=101&type=chunk) - For the six months ended June 30, 2025, the company recognized a net gain of **$27.8 million** on securities and other portfolio investments, a significant reversal from the **$7.6 million** net loss in the same period of 2024[112](index=112&type=chunk) [Note 6. Financing Agreements](index=36&type=section&id=Note%206.%20Financing%20Agreements) Total financing agreements increased to $9.51 billion, primarily securitized debt and mark-to-market provisions, with a 4.68% weighted average funding cost | Financing Type | Balance (June 30, 2025) | Balance (Dec 31, 2024) | | :--- | :--- | :--- | | Agreements with mark-to-market collateral provisions | $3,160,692 | $2,600,050 | | Agreements with non-mark-to-market collateral provisions | $256,813 | $576,774 | | Securitized debt | $5,904,033 | $5,794,977 | | 8.875% Senior Notes due 2029 | $111,646 | $111,270 | | 9.00% Senior Notes due 2029 | $72,618 | $72,390 | | **Total Financing Agreements** | **$9,505,802** | **$9,155,461** | - The company's **weighted average cost of funding** for Q2 2025 was **4.68%**, including a **64 basis point** reduction from the net carry of **interest rate swaps**[138](index=138&type=chunk) - As of June 30, 2025, the company had financing agreements with **16 counterparties**, with the largest exposures to **Wells Fargo (8.69% of stockholders' equity)** and **Barclays (5.12% of stockholders' equity)**[150](index=150&type=chunk) [Note 10. Stockholders' Equity](index=44&type=section&id=Note%2010.%20Stockholders%27%20Equity) Stockholders' equity details preferred and common stock, with Series C preferred dividend now floating and common stock dividends at $0.36 per share - The dividend rate on the **Series C Preferred Stock** transitioned from a fixed **6.50%** to a floating rate after March 31, 2025, resulting in a higher dividend of **$0.61911 per share** for the second quarter[173](index=173&type=chunk)[174](index=174&type=chunk)[176](index=176&type=chunk) | Declaration Date | Record Date | Payment Date | Dividend Per Share | | :--- | :--- | :--- | :--- | | June 12, 2025 | June 30, 2025 | July 31, 2025 | $0.36 | | March 6, 2025 | March 31, 2025 | April 30, 2025 | $0.36 | - The company did not repurchase any shares of its **common stock** during the six months ended June 30, 2025. As of June 30, 2025, **$200 million** remained available under the **stock repurchase program**[184](index=184&type=chunk) [Note 15. Segment Reporting](index=58&type=section&id=Note%2015.%20Segment%20Reporting) The company operates two segments: Mortgage-Related Assets ($96.6M net income) and Lima One ($14.1M net income), with Corporate reporting a $36.4M net loss | Segment (Six Months Ended June 30, 2025) | Total Assets (in thousands) | Net Income/(Loss) (in thousands) | | :--- | :--- | :--- | | Mortgage-Related Assets | $8,176,258 | $96,583 | | Lima One | $3,153,196 | $14,137 | | Corporate | $345,233 | $(36,360) | | **Total** | **$11,674,687** | **$74,360** | - The **Lima One** segment includes the mortgage origination and servicing business, related assets, and associated economics[248](index=248&type=chunk) - The **Mortgage-Related Assets** segment comprises the remainder of the company's investments and their associated financing and hedging economics[250](index=250&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=63&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses financial performance, Q2 2025 GAAP EPS of $0.22, Distributable Earnings of $0.24, and reconciles non-GAAP measures - In Q2 2025, the company generated **GAAP EPS** of **$0.22** and non-GAAP **Distributable Earnings** of **$0.24 per basic common share**[267](index=267&type=chunk) - The company added **$876 million** of **target assets** in Q2 2025, including **$503 million** of **Non-QM loans** and **$242 million** of **Business purpose loans**[266](index=266&type=chunk) - **GAAP book value per common share** was **$13.12** and **Economic book value per common share** (a **non-GAAP measure**) was **$13.69** as of June 30, 2025[267](index=267&type=chunk)[278](index=278&type=chunk) [Results of Operations](index=73&type=section&id=Results%20of%20Operations) Financial results show Q2 2025 net income decreased QoQ to $22.6 million, while 6M 2025 net income increased YoY to $55.6 million - **QoQ Analysis (Q2'25 vs Q1'25):** **Net income** decreased by **$10.3 million**, mainly due to a **$12.3 million** decrease in **Other Income/(Loss), net**, partially offset by a **$3.7 million** increase in **Net Interest Income**[308](index=308&type=chunk)[309](index=309&type=chunk) - **YoY Analysis (6M'25 vs 6M'24):** **Net income** increased by **$6.9 million**, driven by a **$17.5 million** increase in **Net Interest Income** and a **$6.5 million** decrease in **Operating and Other Expense**, which was partially offset by a **$15.5 million** decrease in **Other Income/(Loss), net**[337](index=337&type=chunk)[338](index=338&type=chunk) [Reconciliation of GAAP and Non-GAAP Financial Measures](index=89&type=section&id=Reconciliation%20of%20GAAP%20and%20Non-GAAP%20Financial%20Measures) GAAP metrics are reconciled to non-GAAP measures, with Q2 2025 Distributable Earnings at $24.7 million and Economic Book Value at $13.69 per share | Metric (Q2 2025) | Per Share | Total (in millions) | | :--- | :--- | :--- | | GAAP Net Income (basic) | $0.22 | $22.4 | | Distributable Earnings (non-GAAP) | $0.24 | $24.7 | | Metric (as of June 30, 2025) | Per Share | | :--- | :--- | | GAAP Book Value | $13.12 | | Economic Book Value (non-GAAP) | $13.69 | [Liquidity and Capital Resources](index=91&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity includes $275.7 million in cash, with debt-to-equity at 5.2x and recourse leverage at 1.8x, maintaining compliance with all financial covenants - As of June 30, 2025, the company had **$275.7 million** of **cash and cash equivalents** and unused **financing capacity** of approximately **$4.0 billion**[381](index=381&type=chunk)[417](index=417&type=chunk) - The **debt-to-equity ratio** increased to **5.2x** at June 30, 2025, from **5.0x** at December 31, 2024. The **recourse leverage multiple** increased to **1.8x** from **1.7x**[387](index=387&type=chunk) - The company was in compliance with all **financial covenants** as of June 30, 2025[391](index=391&type=chunk) [Item 3. Quantitative and Qualitative Disclosures about Market Risk](index=94&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) The company details exposure to interest rate, credit, liquidity, and prepayment risks, using interest rate swaps, with a 100 bps rate increase impacting net portfolio value by 1.32% | Change in Interest Rates | Change in Estimated Net Portfolio Value (in thousands) | Percentage Change in Total Stockholders' Equity | | :--- | :--- | :--- | | +100 Basis Point Increase | $(156,402) | (8.58)% | | +50 Basis Point Increase | $(68,607) | (3.77)% | | -50 Basis Point Decrease | $49,418 | 2.71% | | -100 Basis Point Decrease | $79,648 | 4.37% | - The company is exposed to **credit risk** primarily through its **residential whole loans**. This risk is managed via **underwriting**, low LTV ratios, and acquiring **non-performing loans** at a discount[407](index=407&type=chunk)[408](index=408&type=chunk)[409](index=409&type=chunk) - **Liquidity risk** stems from financing long-maturity assets with shorter-term borrowings and the potential for **margin calls** if collateral values decline[416](index=416&type=chunk) [Item 4. Controls and Procedures](index=99&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes to internal control over financial reporting - The CEO and CFO concluded that the company's **disclosure controls and procedures** were effective as of June 30, 2025[421](index=421&type=chunk) - No material changes were made to the company's **internal control over financial reporting** during the quarter ended June 30, 2025[422](index=422&type=chunk) PART II. OTHER INFORMATION [Item 1. Legal Proceedings](index=99&type=section&id=Item%201.%20Legal%20Proceedings) There are no material pending legal proceedings involving the company or its assets - There are no **material pending legal proceedings** involving the company[424](index=424&type=chunk) [Item 1A. Risk Factors](index=99&type=page&id=Item%201A.%20Risk%20Factors) No material changes to risk factors were reported since the 2024 Annual Report on Form 10-K - No **material changes** to **risk factors** were reported since the **2024 Form 10-K**[425](index=425&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) The $200 million stock repurchase program, authorized in February 2024, had no activity in Q2 2025, leaving the full amount available - A **$200 million stock repurchase program** is in effect through the end of 2025[426](index=426&type=chunk) - No shares were repurchased during Q2 2025, leaving the full **$200 million** authorization available as of June 30, 2025[428](index=428&type=chunk)[429](index=429&type=chunk)