MFA Financial(US:MFA)2025-08-06 17:11PART I. FINANCIAL INFORMATION Item 1. Financial Statements 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 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 shareholders22 - The Company utilizes Taxable REIT Subsidiaries (TRS) to hold certain assets and conduct activities that a REIT cannot directly22 Note 3. Residential Whole Loans 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, 202489 - 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 20248183 Note 4. Securities, at Fair Value 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 full101 - 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 2024112 Note 6. Financing Agreements 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 swaps138 - 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 Note 10. Stockholders' Equity 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 quarter173174176 | 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 program184 Note 15. Segment Reporting 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 economics248 - The Mortgage-Related Assets segment comprises the remainder of the company's investments and their associated financing and hedging economics250 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 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 share267 - The company added $876 million of target assets in Q2 2025, including $503 million of Non-QM loans and $242 million of Business purpose loans266 - 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, 2025267278 Results of Operations 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 Income308309 - 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), net337338 Reconciliation of GAAP and Non-GAAP Financial Measures 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 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 billion381417 - 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 1.7x387 - The company was in compliance with all financial covenants as of June 30, 2025391 Item 3. Quantitative and Qualitative Disclosures about Market Risk 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 discount407408409 - Liquidity risk stems from financing long-maturity assets with shorter-term borrowings and the potential for margin calls if collateral values decline416 Item 4. Controls and Procedures 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, 2025421 - No material changes were made to the company's internal control over financial reporting during the quarter ended June 30, 2025422 PART II. OTHER INFORMATION Item 1. Legal Proceedings There are no material pending legal proceedings involving the company or its assets - There are no material pending legal proceedings involving the company424 Item 1A. Risk Factors 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-K425 Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 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 2025426 - No shares were repurchased during Q2 2025, leaving the full $200 million authorization available as of June 30, 2025428429