Q4 2025 MFA Financial Inc Earnings Call

February 18, 2026

Speaker #1: Greetings and welcome to the MFA Financial 4th 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.

Operator: Greetings, and welcome to the MFA Financial Q4 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.

Speaker #1: If anyone should require operator assistance during the conference, please press *0 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.

Speaker #1: Thank you. You may begin.

Speaker #2: 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.

Hal Schwartz: 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.

Hal Schwartz: 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.

Speaker #2: 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.

Speaker #2: 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.

Speaker #2: 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.

Hal Schwartz: 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.

Speaker #2: 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.

Speaker #2: Thank you for your time. I would now like to turn this call over to MFA's CEO, Craig Knutson.

Speaker #3: Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's 4th 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.

Craig Knutson: Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's Q4 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 three very difficult years for fixed income investors, 2025 felt like an exit from a dark tunnel.

Speaker #3: 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.

Speaker #3: I will then turn the call over to Mike, followed by Bryan, before we open up for questions. After three very difficult years, we're fixed income investors, 2025 felt like an exit from a dark tunnel.

Speaker #3: The Bloomberg U.S. Aggregate Index was up 7.3% in 2025 after being down 7.1% for the prior three years. We're 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.

Craig Knutson: The Bloomberg US 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 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 2-10 spread steepened from 32 basis points at the beginning of the year to 70 basis points at the end of the year.

Speaker #3: This 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.

Speaker #3: 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.

Speaker #3: 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.

Craig Knutson: 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 198.8, 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, DC, 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.

Speaker #3: 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.

Speaker #3: 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 four-hour business.

Speaker #3: With recent developments in Washington, DC, 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.

Speaker #3: 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.

Craig Knutson: 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 about 2026 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%.

Speaker #3: We are excited about 2026 as we start the year with these tailwinds at our back. In the 4th Quarter of 2025, MFA continued to execute on our strategic initiatives to cap off a solid year of performance.

Speaker #3: Our total economic return in the 4th Quarter was 3.1% and 9% for the full year of 2025. Total shareholder return for the year was 6%.

Speaker #3: 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.

Craig Knutson: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: We acquired $1.9 billion of loans and securities in the 4th 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.

Speaker #3: We have highlighted the underappreciated optionality in our outstanding securitization ladder for quite some time now, with a constructive rate environment and tight securitization spreads; we believe we will have significant opportunity to call some of these deals and re-lever the underlying loans.

Craig Knutson: We have highlighted the underappreciated optionality in our outstanding securitization ladder for quite some time now. With a constructive rate environment and tight securitization spreads, we believe we will have significant opportunity to call some of these deals and relever 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 Q1 2026. In addition, we have rolled out several best-in-class technology platforms to enhance the borrower experience 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.

Speaker #3: 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.

Speaker #3: We are debuting a new wholesale channel, and we are relaunching multifamily lending in the 1st Quarter of 2026. In addition, we have rolled out several best-in-class technology platforms to enhance the borrower experience and drive operational efficiencies at Lima.

Speaker #3: 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.

Craig Knutson: 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 Q4, 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Craig Knutson: 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. Finally, our listeners will recall that we began a program in Q3 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 10-K.

Speaker #3: 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.

Speaker #3: We're confident that we will continue to make progress on expense reductions in 2026. Finally, our listeners will recall that we began a program in the 3rd 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.

Speaker #3: The stock buyback authorization expired at the end of last year, but 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 10-K.

Speaker #3: 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.

Craig Knutson: 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. I'll now turn the call over to Mike to discuss the financial results.

Speaker #3: 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.

Speaker #3: 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 Friday was $13.20 per share, and economic book value was $13.75 per share.

Mike Roper: 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 non-taxable distribution.

Speaker #3: Each of 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%.

Speaker #3: 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.

Speaker #3: This was the 6th 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.

Mike Roper: 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 Q4, 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 Q3, driven primarily by lower yields on our legacy RPLNPL loan portfolio and interest reversals associated with increased nonaccrual loans in our multifamily transitional loan portfolio.

Speaker #3: 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.

Speaker #3: Switching back to our results. For the 4th Quarter, MFA generated GAAP earnings of $54.3 million, or $42 cents per basic common share. Net interest income for the quarter was $55.5 million, a modest decline from $56.8 million in the 3rd 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.

Speaker #3: 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.

Mike Roper: 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.

Speaker #3: In the 4th 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.

Speaker #3: 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 percent reduction we had previewed earlier this year.

Speaker #3: 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 4th Quarter were approximately $27.8 million, or $27 cents per share, an increase from $0.20 per share in the 3rd Quarter.

Mike Roper: Distributable earnings for Q4 were approximately $27.8 million, or $0.27 per share, an increase from $0.20 per share in Q3. The increase was primarily attributable to $0.09 of lower credit-related charges, which were partially offset by $0.03 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.

Speaker #3: The increase was primarily attributable to $0.09 of lower credit-related charges, which were partially offset by $0.03 of lower gains from sales of REO during the quarter.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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%.

Mike Roper: 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 without sacrificing scale. Finally, subsequent to quarter end, we estimate that our economic book value has increased by approximately 3% since the end of the year. I'd now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One.

Speaker #3: 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 without sacrificing scale.

Speaker #3: Finally, subsequent to quarter-end, we estimate that our economic book value has increased by approximately 3% since the end of the year. I'd now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One.

Speaker #3: Thanks, Mike. We acquired nearly $2 billion of residential mortgage assets in the 4th 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.

Bryan Wulfsohn: Thanks, Mike. We acquired nearly $2 billion of residential mortgage assets in Q4. 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 payoff spec pools that offer some prepaid 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 directive to the GSEs to buy mortgage bonds.

Speaker #3: 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.

Speaker #3: We continue to focus on low payout spec pools that offer some prepay protection. Our agency portfolio is comprised mostly of 5.5s purchased at par, or at a slight discount to par.

Speaker #3: We've slowed purchases since the tightening that occurred in late 2025, and especially into the year after the President's directive to the GSEs to buy mortgage bonds.

Speaker #3: 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.

Bryan Wulfsohn: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: 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.

Bryan Wulfsohn: 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 Q4 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 sales force and technology capabilities and expect all of these efforts to bear fruit in 2026. Moving to our credit performance.

Speaker #3: 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.

Speaker #3: Lima, as a whole, produced $5.7 million of mortgage banking income. Although origination volume was lower in the 4th Quarter due to seasonality, we continue to make progress positioning Lima for growth.

Speaker #3: 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 in 2026.

Speaker #3: 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.

Bryan Wulfsohn: 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 Q4, 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 2 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.

Speaker #3: We did see a 30 basis point increase during the 4th 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: We will continue to work hard to wrap up the resolution of that book. Finally, moving to our financing. We issued our 21st non-QM securitization in December, selling $424 million of bonds.

Bryan Wulfsohn: We will continue to work hard to wrap up the resolution of that book. Finally, moving to our financing. We issued our 21st non-QM securitization in December, selling $424 million of bonds at an average cost of 5.26%. Securitization spreads have tightened in recent months and remain highly attractive for regular issuers such as ourselves. I 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 relever and look at-- to relever 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 deliver-- , delevered since issuance.

Speaker #3: And an average cost of $5.26%. Securitization spreads have tightened in recent months and remain highly attractive for regular issuers such as ourselves. Once again, I'd 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.

Speaker #3: 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.

Speaker #3: We currently have $2.3 billion of currently callable securitized debt outstanding, which in some instances has materially 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 assets in the months ahead.

Bryan Wulfsohn: 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 assets in the months ahead. And with that, we'll turn the call over to the operator for questions.

Speaker #3: And with that, we'll turn the call over to the operator for questions.

Speaker #1: 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 one on your telephone keypad.

Operator: 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 one on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star two 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 Bose George with KBW. Please state your question.

Speaker #1: A confirmation tone will indicate that your line is in the question queue. You may press star two if you would like to remove your question from the queue.

Speaker #1: For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Please stand by while we pull for questions.

Speaker #1: Thank you. And your first question comes from Boza George with KBW. Please state your question.

Speaker #2: Hey, guys. Good morning. Can you talk about—good morning. 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, 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 George: Hey, guys. Good morning. Can you talk about-

Bryan Wulfsohn: Good morning, Bose.

Bose George: Hey, good morning. Can you just talk about where you see the run rate ROE on your, on your EAD, you know, once these loss provisions are through? And then, like, 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?

Speaker #3: Hey, Boza. 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 Wulfsohn: Hey, 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, 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.

Mike Roper: Hey, 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, 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.

Speaker #3: Bryan alluded to in his remarks that we hold a 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.

Bryan Wulfsohn: 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, about 10.5%.

Speaker #3: I think if you think about sort of DE on a lossless basis or DE before credit charges, I think this year it was in the 8 to 9 percent range.

Mike Roper: 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, about 10.5%. 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.

Speaker #3: 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.

Speaker #3: 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.

Speaker #3: But if you think about the dividend on our book value, it's about 10 and a half percent. And as I mentioned in my prepared remarks, we expect the DE to reconverge with the level the dividend in the back half of 2026.

Bryan Wulfsohn: 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.

Speaker #2: Okay. Great. That's helpful. Thanks. And then can you just discuss the re-entry into the multifamily market? Are you focusing on—is it different loan types, or is the underwriting process different?

Bose George: Okay, great. That's helpful. Thanks. And then can you just discuss, you know, the re-entry into the multifamily market? Are you focusing on, is it different loan types, or is the underwriting process different? Just, yeah, can you just talk about, you know, the 2-point version versus, you know, the older version?

Speaker #2: Just, yeah, can you just talk about the 2.0 version versus the older version?

Speaker #3: 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 million.

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

Speaker #3: 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.

Speaker #3: 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.

Speaker #2: Okay. Okay. Great. Thank you.

Bose George: Okay. Okay, great. Thank you.

Speaker #4: Thanks, Boza.

Bryan Wulfsohn: Thanks, Bose.

Mike Roper: Thanks, Bose.

Speaker #1: Thank you. And your next question comes from Doug Harder with UBS. Please state your question.

Operator: Thank you. And your next question comes from Doug Harter with UBS. Please state your question.

Doug Harter: ... Thanks, and good morning. You know, as you think about the, the deals that are potential, you know, could potentially be called, you know, how do you think about the returns you're generating on that capital today and, you know, where that could be redeployed into?

Speaker #2: Thanks. And good morning. 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?

Speaker #3: 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.

Bryan Wulfsohn: 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, you know, say, incremental, whatever, $10 to 20 to 30 million 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's; 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.

Speaker #3: But in addition, we can unlock, say, incremental whatever, 10 to 20 to 30 million dollars of liquidity sort of per deal that can then be reinvested at that at our target ROEs of sort of the mid-teens.

Speaker #3: So, really, if you think about it, the existing deal is $15 million, then add another $30 or $40 million of additional sort of equity that can be redeployed to earn another $15 million.

Speaker #3: So it's all sort of additive.

Speaker #2: 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 the timing and the magnitude that you guys could get done this year?

Doug Harter: 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?

Speaker #3: So, I mean, realistically, we could get done several deals in the coming quarters, which could unlock, sort of, say, $50 to $100 million of capital that can then be redeployed.

Bryan Wulfsohn: So, I mean, realistically, we could get done, you know, several deals within 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.

Speaker #3: So, it's a this-year activity.

Speaker #2: Great. Appreciate it. Thank you.

Doug Harter: Great. Appreciate it. Thank you.

Speaker #1: Your next question comes from Matthew Erdner with Jones Trading. Please state your question.

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

Speaker #4: Hey, good morning, guys. Thanks for taking the question. 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?

Matthew Erdner: 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?

Bryan Wulfsohn: So the expectation is, you know, given the tightening that we've seen in agencies, but 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, $1 billion 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.

Speaker #3: So the expectation is, given the tightening that we've seen in agencies, we’ll probably tend to target, over time, into the 9QM and VPL asset classes.

Speaker #3: You can't just necessarily go out and buy a billion dollars in loans in a day. So initially, you may see some investments increase in the agency portfolio, which would then sort of wind down over time and transfer into the 9QM and VPL space.

Speaker #4: 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?

Matthew Erdner: 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?

Speaker #4: And would that have any kind of impact on your day-to-day?

Bryan Wulfsohn: 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.

Speaker #3: It's pretty unclear. Whether anything's 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.

Speaker #3: But there's still it's very unclear what will come of this.

Speaker #4: Right. Right. That's helpful. Appreciate the comments, guys.

Matthew Erdner: Right. Right. That's helpful. Appreciate the comments, guys.

Speaker #5: Thanks, Matthew.

Doug Harter: Thanks, Matthew.

Craig Knutson: Thanks, Matthew.

Speaker #1: Your next question comes from Eric Hagan with BTIG. Please state your question.

Operator: Your next question comes from Eric Hagen with BTIG. Please state your question.

Speaker #2: 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, how do you think about the shape of the capital structure and the right mix of preferred versus common?

Eric Hagen: 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?

Speaker #2: Right now?

Speaker #3: Yeah, 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.

Mike Roper: Yeah. Hey, 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, you know, we'd be capable of adding additional preferred to the capital stack.

Speaker #3: As far as the capital structure, certainly, there's room in the structure to add more preferred. But that market's been somewhat closed for a while now.

Speaker #3: 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.

Speaker #2: 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 a benefit?

Eric Hagen: Got it. Okay, that's helpful. 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?

Speaker #2: 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?

Speaker #2: 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?

Speaker #3: So 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 deleveraging that occurs in the structure is also creates opportunity.

Bryan Wulfsohn: So 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 the opportunity. So, you know, it 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 relatively, it doesn't change our strategy materially if there was a widening in spreads from here.

Speaker #3: 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 deleveraging that has occurred in a deal.

Speaker #3: There might be 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.

Speaker #2: Right. Gotcha. Thank you, guys, very much.

Eric Hagen: ... Right. Gotcha. Thank you, guys, very much.

Speaker #4: Thanks, sir.

Bryan Wulfsohn: Thanks, Eric. Thanks, Eric.

Speaker #5: Thanks, Eric.

Speaker #1: Thank you. And a reminder to the audience: to ask a question, press star one; to remove yourself from the queue, press star two. Your next question comes from Mikhail Goberman with Citizens JMP.

Operator: Thank you, and a reminder to the audience, to ask a question, press star one. To remove yourself from the queue, press star two. Your next question comes from Mikhail Goberman with Citizens JMP. Please state your question.

Speaker #1: Please state your question.

Speaker #6: Hey, good morning, guys. Hope everyone’s doing well. Just swinging 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?

Mikhail Goberman: 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 gonna develop as you add in the wholesale and multifamily lending? Thank you.

Speaker #6: Thank you.

Speaker #3: Yeah, I mean, in terms of margins, we are seeing healthy spreads when you think about the potential issuance of RTL securitization versus where coupons are today on the short-term loans.

Bryan Wulfsohn: Yeah. I mean, in terms of margins, we are seeing, you know, healthy spreads, when you think about our, you know, the potential issuance of RTL securitization versus where coupons are today on a short-term loan. So might be, you know, sort of low five-handle cost of funds and rates on new loans are, you know, 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 term loans, given the demand, given where spreads have gone, we've seen significant premiums.

Speaker #3: So it might be sort of low five-handle cost of funds and rates on new loans are somewhere between 8 to 11 percent. So there's a very healthy spread there when you think about ROEs.

Speaker #3: 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 still seeing that type of execution today in the market based upon a mid to high sixes coupon that's originated.

Bryan Wulfsohn: 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 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, you know, opportunity for sort of incremental growth, and it could be material growth throughout the year.

Speaker #3: 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 zero in the way of multifamily and didn't really have a wholesale channel in the prior year.

Speaker #3: So we think there was 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.

Bryan Wulfsohn: But these things are sort of just coming online in Q1, 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.

Speaker #3: 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 actually we'll see for the full year, 2026.

Speaker #3: But I think the run rate will be sort of materially higher in the back half.

Speaker #6: Thank you very much. That's very helpful.

Mikhail Goberman: Thank you very much. That's very helpful.

Speaker #5: All right. Thank you.

Bryan Wulfsohn: Thank you. Thank you. Thank you.

Craig Knutson: Thank you. Thank you. Thank you.

Speaker #3: Thank you.

Speaker #1: 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.

Operator: 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.

Speaker #4: 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.

Bryan Wulfsohn: 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 Q1 results.

Craig Knutson: 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 Q1 results.

Operator: Thank you. This concludes today's call. All parties may disconnect.

Q4 2025 MFA Financial Inc Earnings Call

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