Greetings, and welcome to the MFA Financial Fourth Quarter 2025 Financial Results Conference Call. [Operator Instructions] 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 ended 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 Knutson.

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 Bryan Wulfsohn, 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 Bryan, before we open up for questions. After 3 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 3 years or just under 2.5% annually. Following a 100 basis point reduction in the Fed funds rate via 3 rate cuts in the last 3 months of 2024, we had to wait 9 months until September of 2025 for the next rate cut, which was quickly followed by 2 more in October and December. Treasury rates also declined during the year, with 2-year yields dropping 77 basis points and 10-year yields dropping by 39 basis points. More importantly, the 210 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…

Thanks, Craig, and good morning, everyone. At December 31, 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 nontaxable 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 deferred tax burden 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 GAAP 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 nonaccrual 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…

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 5.5% purchased 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 directed to the GSEs 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. Turning to Lima One. 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…

[Operator Instructions] And your first question comes from Bose George with KBW.

Can you just talk about where you see the run rate ROE on your EAD 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?

Bose, thanks for the question. So I guess a few things. One, it's kind of hard to predict, obviously, when exactly these credit losses will be realized. Bryan alluded to in his remarks that we hold the multifamily transitional loan portfolio at a $42 million discount to par. And 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 loss less basis or DE before credit charges, 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 about 10.5%. And as I mentioned in my prepared remarks, we expect the DE to reconverge with the level of the dividend in the back half of 2026.

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

Sure. So we're sort of targeting 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 2 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, Bose.

And your next question comes from Doug Harter with UBS.

As you think about the deals that are potential -- 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?

So in terms of -- 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, say, incremental whatever, $10 million to $20 million to $30 million of liquidity sort of per deal that can then be reinvested at that -- at our target ROEs of sort of the mid-teens. So it really is -- you think about it as the existing deal is $15 million, then add another $30 million or $40 million of additional sort of equity that could be redeployed to earn another $15 million. 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. How should we think about timing and the magnitude that you guys could get done this year?

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

Your next question comes from Matthew Erdner with JonesTrading.

As you guys went into agency during this quarter, how should we think about capital allocation going forward as you guys do start to call some of these securities, resolve some of the loans and just get capital back?

So the expectation is, given the tightening that we've seen in agencies, it would -- we will probably tend to target over time into the non-QM and BPL asset classes. You can't just necessarily go out and buy $1 billion in loans in a day. So initially, you may see some investments increased in the agency portfolio, which would then sort of wind down over time and transfer into the non-QM and BPL space.

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

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 we do believe sort of whatever comes of this, theoretically, right, could be an opportunity for the more mom-and-pops to absorb some more market share, which could be beneficial to Lima One from a lending perspective. But there's still -- 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.

The move to issue preferred and buy back 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?

Yes. 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, certainly, there's room in the structure to add more preferred. But that market has been somewhat closed for a while now. But 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. Following up on the resecuritization 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?

So there's sort of 2 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 is also creates the opportunity. So it's just sort of an equation and 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 1 or 2 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.

Right. Got you.

Thanks, Eric.

Thanks, Eric.

[Operator Instructions] Your next question comes from Mikhail Goberman with Citizens JMP.

I hope everyone is 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?

Yes. I mean in terms of margins; we are seeing healthy spreads when you think about our -- the potential issuance of RTL securitization versus where coupons are today on the short-term loan. So it might be sort of low 5 handle cost of funds and rates on new loans are somewhere between 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 the 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 6s 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 -- we think there's a lot of potential for growth given that we did sort of 0 in the way of multifamily and didn't really have a wholesale channel in the prior year. So we think there is sort of 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 is where we see that incremental growth. So it's unclear what necessarily we'll see for the full year 2026, but I think the run rate will be sort of materially higher in the back half.

That's very helpful.

Thank you.

Thank you.

Thank you. And there are no further questions at this time. So I'll now hand the floor back to Craig Knutson 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 parties may disconnect.