MFA Financial, Inc. (MFA) Q1 2026 Earnings Call Transcript

Non-QM Securitizations: Priced 2 non-QM securitizations in March, including a relever of 2 previous deals, unlocking additional capital and lowering borrowing costs.

Investment Portfolio Growth: Grew investment portfolio to $12.5 billion, adding $700 million of agencies, $471 million of non-QM loans, and $219 million of business purpose loans.

Lima One Contributions: Lima One originated $219 million of business purpose loans, including $145 million of transitional loans and $74 million of rental term loans. Mortgage banking income at Lima One rose by 34% from the previous quarter.

Market Conditions: Fixed income markets started strong but were impacted by geopolitical tensions, leading to higher rates and widened mortgage spreads.

Agency Portfolio Expansion: Agency portfolio grew to over $3.5 billion, with investments focusing on low pay-up spec pools and a $300 million TBA position established in late March.

Expense Reductions: Relocated corporate headquarters, achieving nearly $20 million per year in run-rate overhead savings versus 2024 levels.

Distributable Earnings: Introduced a new DE metric to provide a clearer view of earnings capacity, excluding realized credit losses on residential whole loans.

Capital Issuance Strategy: Issued additional shares of preferred stock to repurchase common shares at a discount, maintaining equity base while being accretive.

Lima One Expansion: Opened a wholesale channel and relaunched multifamily lending, expecting increased contributions to earnings.

Geopolitical Tensions: The onset of a war in Iran caused market volatility, spiked interest rates, and raised oil prices, leading to fears of inflation and adjustments in market expectations for rate cuts.

Market Volatility: Mortgage spreads widened significantly, contributing to a negative economic return of -1.2% for the company in Q1 2026.

Credit Losses: Realized credit losses on legacy multifamily portfolios and transitional loans are expected to accelerate in Q2 2026, impacting earnings.

Delinquent Loans: Delinquencies in the residential loan portfolio rose to 7.8%, driven by elevated defaults in the legacy multifamily book.

Interest Rate Risks: Higher rates and wider spreads led to net mark-to-market losses of $28.8 million in Q1 2026.

Operational Costs: Short-term noise in G&A expenses due to corporate headquarters relocation, including $2.4 million in accelerated noncash depreciation expense in Q1 and an additional $5 million expected in Q2.

Investment Portfolio Growth: We grew our investment portfolio to $12.5 billion in the first quarter adding almost $700 million of agencies, including TBAs, $471 million of non-QM loans and Lima One originated $219 million of business purpose loans.

Expense Reductions: We continue to pursue expense reductions, both at MFA and at Lima One. We have added an additional distributable earnings metric that we are introducing in response to requests from analysts and investors.

Non-QM Securitizations: We priced 2 non-QM securitizations in March. The second of these 2 non-QM securitizations was a relever of 2 previous deals, which is a good example of what we often refer to as an underappreciated source of optionality that our ability to call these deals as they season and pay down, enabling us to lower borrowing costs and unlock additional capital.

Preferred Stock Program: We began a program in the third quarter of last year to issue additional shares of our 2 outstanding preferred stock issues via an ATM and use the proceeds to repurchase common shares at a significant discount to book.

Corporate Headquarters Relocation: In February, we entered into a series of agreements to relocate our corporate headquarters to a new location here in New York without paying any early lease termination fees. We expect to realize run rate expense reductions of approximately $4 million per year related to the move.

Lima One's Business Purpose Loans: Lima One originated $219 million of business purpose loans during the first quarter. This included $145 million of new transitional loans and $74 million of rental term loans.

Distributable Earnings: We expect that our DE will begin to reconverge with the level of our common dividend later this year.

Credit Losses: We expect realized credit losses on the legacy transitional loan portfolio to accelerate meaningfully in the second quarter, before beginning to normalize as we move through the back half of 2026 and into the first half of 2027.

Economic Book Value: Subsequent to quarter end, we estimate that as of the close of business on Friday, our economic book value was approximately flat to the end of the first quarter.

Non-QM Loans: We expect this move to be accretive to our earnings moving forward.

Agency Portfolio: We expect to add to the portfolio depending on market conditions and excess investment capacity.

Lima One's Contribution: With the recent opening of our wholesale channel and the relaunch of multifamily lending underway, we expect Lima One's contribution to our earnings to grow from here.

Delinquency Rate: We look forward to recycling that capital back into income-producing assets as we move through the year.

Common Dividend: MFA again paid a common dividend of $0.36 and delivered a quarterly total economic return of negative 1.2%.

Share Repurchase Program: MFA began a program in the third quarter of last year to issue additional shares of its 2 outstanding preferred stock issues via an ATM and use the proceeds to repurchase common shares at a significant discount to book. This program is modest in size but very accretive. Importantly, because equity is issued in the form of preferred stock, the equity base is not shrinking despite repurchasing common stock.