Greetings and welcome to the MFA Financial Fourth Quarter 2025 Financial Results Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note that this conference is being recorded. I will now turn the conference over to our host, Hal Schwartz, General Counsel. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. The information discussed on this conference call today may contain or refer to forward-looking statements regarding MFA Financial, Inc., which reflect management's beliefs, expectations, and assumptions as to MFA's future performance and operations. When used, statements that are not historical in nature, including those containing words such as will, believe, expect, anticipate, estimate, should, could, would, or similar expressions are intended to identify forward-looking statements. All forward-looking statements speak only as of the date on which they are made. These types of statements are subject to various known and unknown risks, uncertainties, assumptions, and other factors, including those described in MFA's annual report on Form 10-K for the year end of December 31, 2024, and other reports that it may file from time to time with the Securities and Exchange Commission. These risks, uncertainties, and other factors could cause MFA's actual results to differ materially from those projected, expressed, or implied in any forward-looking statements it makes. For additional information regarding MFA's use of forward-looking statements, please see the relevant disclosure in the press release announcing MFA's fourth quarter and full year 2025 financial results. Thank you for your time. I would now like to turn this call over to MFA's CEO, Craig Knudsen.

Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's fourth quarter and year-end 2025 earnings call. With me today are Brian Wolfson, our President and Chief Investment Officer, Mike Roper, our CFO, and other members of our senior management team. I'll begin with some general remarks on 2025, touch on the macro and political landscapes, and will then provide an update on MFA's initiatives to foster earnings growth and increase ROEs. I will then turn the call over to Mike, followed by Brian, before we open up for questions. After three very difficult years for fixed-income investors, 2025 felt like an exit from a dark tunnel. The Bloomberg U.S. Aggregate Index was up 7.3% in 2025 after being down 7.1% for the prior three years, or just under 2.5% annually. Following a 100-basis point reduction in the Fed funds rate via three rate cuts in the last three months of 2024, we had to wait nine months until September of 2025 for the next rate cut, which was quickly followed by two more in October and December. Treasury rates also declined during the year, with two-year yields dropping 77 basis points and 10-year yields dropping by 39 basis points. More importantly, the 2-10 spread steepened from 32 basis points at the beginning of the year to 70 basis points at the end of the year. This positively sloped yield curve, while perhaps somewhat modest, is a welcome change from the environment we faced from 2022 to 2024. Additionally, volatility has declined. The move index began 2025 at just under 100, 98.8, before briefly spiking after Liberation Day in early April to almost 140 and then trended down for the succeeding months, ending the year at just under 64. Now, to put this in context, the move index was above 100 for almost the entirety of 2022, 2023, and 2024. The combination of lower rates, lower volatility, and a positively sloped yield curve are all favorable for the mortgage market and for our business. With recent developments in Washington, D.C., and a strong focus on housing affordability, it seems likely that government policy, while certainly never certain, will continue to be supportive for our markets. The recent initiative for the GSEs to buy $200 billion of agency MBS, the nomination of a new Fed chair with the expectation of further rate cuts later in 2026, and the repeated mantra of do no harm with respect to the mortgage market are all constructive for our market and for our business. We are excited as we start the year with these tailwinds at our back. In the fourth quarter of 2025, MFA continued to execute on our strategic initiatives to cap off a solid year of performance. Our total economic return in the fourth quarter was 3.1% and 9% for the full year of 2025. Total shareholder return for the year was 6%. During our last earnings call in November, I provided details on several strategic actions that we were initiating to increase earnings and grow ROEs over the coming year. I'm happy to report material progress on these fronts. While the results will take several quarters to be fully reflected in our financials, the building blocks are in place. As discussed on our last call, we have deployed over $100 million of excess cash into our target assets in order to reduce the cash drag on earnings. We acquired $1.9 billion of loans and securities in the fourth quarter, including $1.2 billion of agencies purchased early in the quarter, $443 million of non-QM loans, and Lima One also originated $226 million of new business purpose loans in Q4. We have highlighted the underappreciated optionality in our outstanding securization ladder for quite some time now. With a constructive rate environment and tight securization spreads, we believe we will have significant opportunity to call some of these deals and re-lever the underlying loans, reducing our cost of funds while also generating incremental cash to redeploy. We're also excited about the prospects for 2026 at Lima One. We hired 45 new salespeople in 2025. We are debuting a new wholesale channel, and we are relaunching multifamily lending in the first quarter of 2026. In addition, we have rolled out several best-in-class technology platforms and drive operational efficiencies at Lima. The results of these initiatives are not immediate, but we again feel that the building blocks are in place. A number of us visited Greenville in late January to attend Lima's annual meeting, and the energy and enthusiasm at Lima One is palpable. Growth at Lima One in 2026, we believe, will contribute materially to MFA's earnings. We continue to work diligently to resolve delinquent loans in the portfolio. This can be maddeningly time-consuming, but our team has been working out delinquent loans for over a decade, the majority of which, by the way, were purchased as non-performing loans. And our team is the best in the business at this and uniquely suited to the task. We resolved over $150 million of delinquent loans in the fourth quarter, unlocking substantial capital to be redeployed at mid-teen ROEs. We've made substantial progress in reducing G&A expenses, both at Lima and at MFA. 2025 G&A was $119 million, down from $132 million in 2024. Many of these actions take some time to be realized, depending on when in the year they occur and whether or not there are severance expenses associated with them. We're confident that we will continue to make progress on expense reductions in 2026. We began a program in the third quarter of 2025 to issue additional shares of our two preferred stock issues via an ATM and use the proceeds to repurchase our common stock at a significant discount to book. The stock buyback authorization expired at the end of last year, where our board has reauthorized this program, and we expect that we will continue to utilize these two programs when the trading window opens after we file our 10K. While this program is modest in size thus far, this is very accretive, and importantly, because we are issuing equity in the form of preferred stock, we are not shrinking our equity base despite repurchasing common stock. In the aggregate, we believe we are taking meaningful active measures to materially increase earnings in ROEs, and we expect to begin to see these results in 2026. And I'll now turn the call over to Mike to discuss the financial results. Thanks, Craig, and good morning, everyone.

At December 31st, GAAP book value was $13.20 per share, and economic book value was $13.75 per share, each up modestly from the end of September. For the quarter, MFA again paid a common dividend of $0.36 and delivered a total economic return of 3.1%. For the full year, MFA paid common dividends of $1.44 and delivered a total economic return of approximately 9%. We were happy to report in late January that approximately 40% of our 2025 common dividends were treated as a tax-deferred return of capital to our shareholders. This is the sixth straight year that a substantial portion of our common dividends were treated as a non-taxable distribution. This preferential tax treatment is the result of meticulous tax planning and a significant, fully reserved deferred tax asset that gives us additional flexibility to efficiently structure transactions to minimize or defer tax burdens for our shareholders. Though there can be no assurances about the tax treatment of future distributions, this favorable tax treatment has substantially increased the after-tax dividend yield realized by holders of our common stock. Switching back to our results. For the fourth quarter, MFA generated gap earnings of $54.3 million, or $0.42 per basic common share. Net interest income for the quarter was $55.5 million, a modest decline from $56.8 million in the third quarter, driven primarily by lower yields on our legacy RPL-NPL loan portfolio and interest reversals associated with increased non-accrual loans in our multifamily transitional loan portfolio. These declines were largely offset by higher interest income on both agency MBS and non-QM loans as a result of our significant asset purchases during the quarter. In the fourth quarter, we again improved our operational efficiency with further progress on our expense reduction initiatives. Quarterly G&A expenses totaled $27 million, a $2 million decline from approximately $29 million last quarter. For the full year, G&A expenses were $119.4 million versus $131.9 million in 2024, a decline of approximately 9.5% at the high end of the 7% to 10% reduction we had previewed earlier this year. We continue to make progress on additional initiatives that we expect will bring further reductions to our run rate expenses during 2026. Distributable earnings for the fourth quarter were approximately $27.8 million, or $0.27 cents per share, an increase from 20 cents per share in the third quarter. The increase was primarily attributable to nine cents of lower credit-related charges, which were partially offset by three cents of lower gains from sales of REO during the quarter. We continue to see progress from our efforts to grow our return on equity, and we expect our DE to reconverge with our common dividend in the back half of 2026. Moving to our capital. As Craig alluded to, during the quarter, we sold approximately 163,000 shares of our Series C preferred stock and approximately 53,000 shares of our Series B preferred stock for cumulative proceeds of approximately 5 million. We used these proceeds to repurchase approximately 540,000 shares of our common stock at a weighted average discount to our economic book value of approximately 33%. Given current market conditions and the trading level of our common stock, we expect to continue to issue preferred shares and repurchase our common shares as a way to enhance returns to our common shareholders. Finally, subsequent to quarter end, we estimate that our economic book value has increased by approximately 3% since I'd like to turn the call over to Brian. We'll discuss our investment portfolio and Lima One.

Thanks, Mike. We acquired nearly $2 billion of residential mortgage assets in the fourth quarter. As Craig mentioned, this included $1.2 billion of agency securities, $443 million of non-QM loans, and $226 million of business purpose loans originated by Lima One. We grew our agency book by over 50% to $3.3 billion during the quarter. Most of our investments were made in late October before spreads tightened significantly. We continue to focus on low pay-up spec pools that offer some prepay protection. Our agency portfolio is comprised mostly of five and a half purchases at par or at a slight discount to par. We've slowed purchases since the tightening that occurred in late 2025 and especially into the year after the President's directive to the GSE to buy mortgage bonds. That said, it still remains possible to generate a low double-digit ROE on levered agency investments and we may buy more depending on capital needs elsewhere in the business. Our non-QM whole loan portfolio remains our biggest asset class at $5.3 billion and we had another successful quarter sourcing, buying, managing, and securitizing non-QM loans. We acquired $443 million of new loans with an average coupon of 7.3% and an LTV just shy of 69. We remain laser-focused on credit quality. We buy loans from only select counterparties and still review every loan prior to acquisition. To Lima 1. Lima originated $226 million of new loans in the fourth quarter. This included $83 million of new construction loans, $48 million of rehab loans, $25 million of bridge loans, and $70 million of rental term loans. We continue to sell Lima's production of those longer-duration rental loans at a premium to third-party investors. This quarter, we sold $45 million, generating $1.4 million of gain-on-sale income. Lima as a whole produced $5.7 million of mortgage banking income. Although origination volume was lower in the fourth quarter due to seasonality, we continue to make progress, positioning Lima for growth. We are relaunching multifamily lending with an entirely new underwriting team, and our wholesale channel is now live. We've also made further investments in Lima's Salesforce and technology capabilities and expect all of these efforts to bear fruit. Moving to our credit performance, we made good progress throughout 2025, resolving non-performing loans on our balance sheet. The delinquency rate across our entire loan portfolio ended the year at just over 7%, down from 7.5% a year ago. We did see a 30 basis point increase during the fourth quarter, which was driven primarily by several defaults in our legacy multifamily portfolio. As a reminder, we have been actively managing the runoff of that book for the past two years, and as we start to approach the tail of that process, we expect that delinquency rate in the legacy portfolio to remain elevated, particularly as loans pay off and its overall size continues to decline. It's important to note that these assets are accounted for at fair value, and the remaining loans were held at a $42 million discount to par at year end. We will continue to work hard to wrap up the resolution of that book. Moving to our financing. We issued our 21st non-QM securitization in December, selling $424 million of bonds and an average cost of 5.26%. Securitization spreads have tightened in recent months and remain highly attractive for regular issuers such as ourselves. I'd once again like to thank many of our investors who have consistently supported our non-QM program and look forward to seeing some of you at the conference next week. As Craig highlighted earlier, given the recent movement in credit spreads, we continue to re-lever and look to re-lever some of our securitizations in the months ahead. We currently have $2.3 billion of currently callable securitized debt outstanding, which in some instances has materially delivered or delevered since issuance. We expect that calling and reissuing deals will be a significant source of liquidity for us in 2026 and will unlock appreciable equity to be deployed in our target asset in the months ahead. We'll turn the call over to the operator for questions.

Thank you. And at this time, we'll conduct our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star key. Please stand by while we pull for questions. Thank you. And your first question comes from Boza George with KBW. Please state your question.

Hey, guys. Good morning. Can you just talk about where you see the run rate ROE on your EAD, you know, once these loss provisions are through? And then can you remind us also, like, there's capital that's tied up with the delinquent loans, how much that's going to sort of contribute to that number as well?

Hey, Boz. Thanks for the question. One, it's kind of hard to predict, obviously, when exactly these credit losses will be realized. Brian alluded to in his remarks that we hold a multifamily transitional loan portfolio at a $42 million discount to par. And, you know, given the short duration of those assets, we expect that most of that is attributable to what's eventually going to flush as credit losses through our DE. I think if you think about sort of DE on a lossless basis or, you know, DE before credit charges, you know, I think this year it was in the 8% to 9% range. And I think as we get to the back half of next year, certainly closer to that 10, 10.5, 11 range is sort of the run rate. Obviously, we've done a lot of work, and as Craig alluded to both last time and this time, a number of initiatives take some time to flush through. But if you think about the dividend on our book value, it's, you know, as I mentioned in my prepared remarks, we expect the DE to reconverge with the level of the dividend in the back half.

Okay, great. That's helpful. And then can you just discuss, you know, the reentry into the multifamily market? Are you focusing on, you know, the different loan types or is the underwriting process different? Just here, can you just talk about, you know, the 2.0 version versus, you know, the older version?

Sure. So targeting, you know, up in quality a little bit and up in unit size and value size. So when you think about the prior instance, average loan amounts might have been between 3 and 10. Now we're sort of targeting between 5 and 25, so moving up a tier or two in quality. And sort of the idea behind the program is it's similar to the rental loans. It's an originate-to-sell model, so to sort of capture the origination fees and then capture some servicing fee on the back end. not necessarily to put on MFA's balance sheet.

Okay. Okay, great.

Thanks, both. And your next question comes from Doug Harder with UBS. Please state your question.

Thanks, and good morning. As you think about the deals that could potentially be called, how do you think about the returns you're generating on that capital today and where that could be redeployed into?

It's really, depending on the deal, right, we're still, we still could be generating a mid-teen type return on that deal. But in addition, we can unlock, you know, say incremental, whatever, 10 to 20 to 30 million dollars of liquidity sort of per deal that can then be reinvested at that, you know, at our target ROEs of, you know, sort of the mid-teens. So it really is, you think about it as the existing deal is 15, then add another, you know, 30 or $40 million of additional sort of equity that can be redeployed to earn another, you know, 15. So it's all sort of additive.

Got it. And how should we think about the sizing? I mean, you mentioned the large potential that could be called, you know, how should we think about timing and, you know, the magnitude that you guys could get done this year?

We could get done, you know, several deals in the coming quarters, which could unlock sort of, say, $50 to $100 million of capital that can then be redeployed. So it's a this-year activity.

Great. Appreciate it. Thank you.

Your next question comes from Matthew Erdner with Jones Trading. Please state your question.

Hey, good morning, guys. Thanks for taking the question. You know, as you guys went into agency during this quarter, you know, how should we think about capital allocation going forward, you know, as you guys do start to call some of these securities, you know, resolve some of the loans and just get capital back?

The expectation is, you know, given the tightening that we've seen in agencies, it would, you know, we will probably tend to target over time into the non-QM and BPL asset classes. you know, you can't just necessarily go out and buy, you know, a billion dollars in loans in a day. So initially you may see some investments, you know, increased in the agency portfolio, which would then sort of, you know, wind down over time and transfer into the non-QM and BPL space.

Got it. That's helpful. And then, you know, kind of switching gears to the rental product now, you know, what's come out of the administration, you know, the potential institutional ban, you know, What kind of clients are you guys dealing with, and would that have kind of any impact on your day-to-day?

You know, it's pretty unclear whether anything is going to happen, but we don't lend to the largest buyers of single-family homes to rent. So, you know, we do believe sort of whatever comes of this, theoretically, right, you know, could be an opportunity for the more, you know, mom and pops to absorb some more market share, which could be beneficial to Lima One from a lending perspective. But there's still, you know, it's very unclear what will come of this.

Right, right. That's helpful. Appreciate the comments, guys.

Thanks, Matthew. Your next question comes from Eric Hagen with BTIG. Please do your question.

Hey, thanks. Good morning. The move to issue preferred and buyback, the common, can you say which series of the preferred that you're issuing? And then more holistically, like, how do you think about the shape of the capital structure and, like, the right mix of preferred versus common right now?

Eric, thanks for the question. So during the quarter, we did about $160,000 of the C and about $50,000 of the B. And if you think about the issuance, we're selling more of the C pretty regularly. As far as the capital structure, you know, certainly there's room in the structure to add more preferred. But, you know, that market's been somewhat closed for a while now. But, you know, given this is an ATM program, it's easy to issue at the margin. But definitely if the market becomes more attractive, we'd be capable of adding additional preferred to the capital stack.

Got it. Okay, that's helpful. Well, following up on the re-securitization opportunity, I mean, how tight do non-QM spreads really need to be in order for you to see, like, a benefit? Is there a way to sensitize the opportunity relative to where non-QM spreads are currently? And does that opportunity necessarily go away if spreads are wider? Or is there still some capital that you can draw out of that portfolio, even if spreads are a little wider than they are today?

There's sort of two reasons the opportunity exists. One is that spreads are attractive in a lot of cases to reissue. However, just the natural delevering that occurs in the structure also creates opportunity. So, you know, it's just sort of an equation and, you know, spreads could, it probably still works if spreads are even 25, 30, 40, 50 wider, depending on the amount of delevering that has occurred in a deal. There might be, you know, one or two deals at the margin that are more attractive to do given that spreads are tighter. But, realistically, it doesn't change our strategy materially if there was a widening in spreads from here.

Got you. Thank you guys very much.

Thanks, Eric. Thank you. And a reminder to the audience, ask a question. Press star 1 to remove yourself from the queue. Press star 2. Your next question comes from Mikhail Goberman with Citizens JMP. Please state your question.

Hey, good morning, guys. Hope everyone's doing well. Just swing it back to Lima One real quick. What are you guys' expectations for margins holding up throughout the year, total volumes throughout the year, and how that sort of product mix is going to develop as you add in the wholesale and multifamily lending?

I mean, in terms of margins, we are seeing, you know, healthy spreads when you think about, you know, the potential issuance of RTL securitization versus where coupons are today on a short-term loan. So it might be, you know, sort of low five-handle costs of funds and rates on new loans are, you know, somewhere between, you know, 8% to 11%. So there's a very healthy spread there when you think about ROEs. When we look towards the loan sale pipeline of term loans, given the demand, given where spreads have gone, we've seen significant premiums. If you sort of look at where it was in the last quarter, sort of north of 103, we're sort of still seeing that type of execution today in the market, based upon a mid to high sixes coupon that's originated. So that continues to be attractive. When we think about sort of the volumes of this year, we would project sort of, you know, we think there's a lot of potential for growth given that, you know, we did sort of zero in the way of multifamily and didn't really have a wholesale channel in the prior year. So we think there is sort of, you know, opportunity for sort of incremental growth, and it could be material growth throughout the year. But these things are sort of just coming online in the first quarter, and it takes some time for them to get up to speed. So we do think it's more of a back half of the year where we see that incremental growth. So it's unclear what necessarily we'll see for the full year of 2026, but I think the run rate will be sort of materially higher in the back half.

Thank you very much. That's very helpful.

Thank you. Thank you, and there are no further questions at this time, so I'll now hand the floor back to Craig Knudsen for closing remarks.

All right. Thank you, everyone, for your interest in MFA Financial. We look forward to speaking with you again in May when we announce our first quarter results.

Thank you. This concludes today's call. All parts may disconnect.