Operator: Greetings, and welcome to the MFA Financial First Quarter 2026 Financial Results. [Operator Instructions]. As a reminder, this conference is being recorded. I would now like to turn the call over to Hal Schwartz, General Counsel, to begin. Thank you.

Harold 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 the year ended December 31, 2025, 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 first quarter 2026 results. Thank you for your time. I would now like to turn this call over to MFA’s CEO, Craig Knutson.

Craig Knutson: Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial’s First Quarter 2026 Earnings Call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer; Mike Roper, our Chief Financial Officer; and other members of our senior management team. I will offer some general remarks on the macro economic and political landscape and will then provide an update on MFA’s business initiatives and portfolio activities. Then I’ll turn the call over to Mike, followed by Bryan before we open up the call for questions. Moving to market conditions in the first quarter of 2026, it was very much a tale of two market environments. Fixed income markets began the year with a continuation of strong investor demand and low volatility that we experienced in the second half of 2025.

The economy continued to exhibit resiliency and the labor market seemed to stabilize, particularly with a surprisingly robust January nonfarm payroll print in early February. Mortgages performed particularly well, aided also by a directive for the GSEs to purchase $200 billion of agency mortgage-backed securities in early January. Unfortunately, the party ended abruptly with the onset of a war in Iran, which spiked volatility, pushed rates sharply higher and dramatically raised oil prices. Higher energy prices renewed fears of inflation and markets adjusted expectations for fewer or even no rate cuts later this year. Mortgage spreads widened significantly against this backdrop and contributed to an economic return for MFA in the first quarter of negative 1.2%.

However, despite the market volatility and heightened geopolitical tension, markets remained open and orderly. We priced 2 non-QM securitizations in March. And while spreads were modestly wider, the market function normally. This is a testament to the expansion, maturity and depth of these markets over the last 4 years. The second of these 2 non-QM securitizations was a relever of 2 previous deals, which is a good example of what we often refer to as an underappreciated source of optionality that our ability to call these deals as they season and pay down, enabling us to lower borrowing costs and unlock additional capital. We grew our investment portfolio to $12.5 billion in the first quarter adding almost $700 million of agencies, including TBAs, $471 million of non-QM loans and Lima One originated $219 million of business purpose loans.

Our asset management team continues to work diligently to resolve delinquent loans in the portfolio. This can be madly time-consuming, but our team has been working out delinquent loans for over a decade the majority of which were purchased as nonperforming loans, and they’re the best in the business at this and uniquely suited to the task. Finally, our listeners will recall that we began a program in the third quarter of last year to issue additional shares of our 2 outstanding preferred stock issues via an ATM and use the proceeds to repurchase common shares at a significant discount to book. 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.

Finally, we continue to pursue expense reductions, both at MFA and at Lima One, which Mike will discuss shortly. I will note that we have added an additional distributable earnings metric that we are introducing in response to requests from analysts and investors, distributable earnings prior to realized credit losses and Mike will describe this in more detail shortly. We believe that this new DE metric offers a useful representation of how we think about the earnings power of the portfolio. And for those of you that follow commercial mortgage REITs, this should be a very familiar concept. Taken together, MFA has a diversified business strategy that includes multiple attractive target asset classes with a robust ability to source these assets, a reliable and proven ability to obtain durable nonrecourse leverage to generate attractive ROEs, a highly confident in-house asset management capability, a keen focus on expense management and a demonstrated responsible capital issuance philosophy.

And I’ll now turn the call over to Mike to discuss our financial results.

Michael Roper: Thanks, Craig, and good morning, everyone. At March 31, GAAP book value was $12.70 per share and economic book value was $13.22 per share, each down approximately 3.8% from the end of 2025. MFA again paid a common dividend of $0.36 and delivered a quarterly total economic return of negative 1.2%. For the first quarter, MFA generated a GAAP loss of approximately $1 million or $0.11 per basic common share. Our GAAP results for the quarter were adversely impacted by net mark-to-market losses on the portfolio of approximately $28.8 million driven by higher rates and wider spreads on March 31. Net interest income for the quarter was $59.2 million, an increase from $55.5 million in the fourth quarter driven by rate cuts late last year and growth in our investment portfolio.

These benefits were partially offset by interest income reversals totaling $3.5 million associated with loans moving to nonaccrual status in our transitional loan portfolio during the quarter. On the G&A front, we’re happy to report that we again made significant progress with our cost reduction initiatives. In February, we entered into a series of agreements to relocate our corporate headquarters to a new location here in New York without paying any early lease termination fees. As a result of these agreements, we expect some short-term noise in our reported G&A, including $2.4 million of accelerated noncash depreciation expense recognized this quarter an additional $5 million expected in the second quarter. Following these accelerated noncash charges, we expect to realize run rate expense reductions of approximately $4 million per year related to the move or nearly $40 million in total over the remaining term of our prior lease.

Including the expected savings from the relocation we now estimate that our expense reduction initiatives have achieved nearly $20 million per year of run rate overhead savings versus 2024 levels. Moving to our DE Distributable earnings for the first quarter were approximately $31.1 million or $0.30 per share, up from $0.27 per share in the fourth quarter. The increase was primarily attributable to a $0.03 benefit associated with the lease modification and approximately $0.02 of higher mortgage banking income at Lima One. These benefits were partially offset by an aggregate $0.02 charge related to higher carrying costs on REO and higher realized credit losses on our fair value loans. We remain focused on growing ROEs, and we continue to expect that our DE will begin to reconverge with the level of our common dividend later this year.

As Craig mentioned earlier, this quarter, we are introducing an additional non-GAAP measure, which further adjusts our distributable earnings to exclude realized credit losses on our residential whole loans held at fair value. We’re providing this new disclosure to give additional context around our distributable earnings as credit losses on our legacy multifamily portfolio continued to flow through our DE. As we’ve noted on prior calls, because resolving NPLs doesn’t impact our DE until long after the loan has been marked down on our GAAP results and book value, these losses can potentially obscure the current earnings power of the portfolio. While credit losses are a normal and recurring part of investing in credit assets, we expect that the resolution of the legacy multifamily portfolio and improvements in processes and underwriting more broadly at Lima One should result in significantly lower loss rates across more recent vintages of origination.

As a result, we believe this new metric, alongside our reported GAAP results and our existing DE disclosure can give investors a clearer view of the underlying earnings capacity of our investment portfolio as we work through the resolution of these troubled legacy assets. While the timing of loan resolutions and result in credit charges can be difficult to reliably forecast, we expect realized credit losses on the legacy transitional loan portfolio to accelerate meaningfully in the second quarter, before beginning to normalize as we move through the back half of 2026 and into the first half of 2027. As a result, we expect that the difference between DE and this new supplemental DE measure will narrow considerably over time. and we anticipate reassessing the usefulness of this new measure as the runoff transitional portfolio continues to wind down.

Finally, subsequent to quarter end, we estimate that as of the close of business on Friday, our economic book value was approximately flat to the end of the first quarter. I’d now like to turn the call over to Bryan, who will discuss our investment portfolio and Lima One.

Bryan Wulfsohn: Thanks, Mike. We acquired over $1 billion of residential mortgage assets in the first quarter. This included $471 million of non-QM loans, nearly $400 million of agency securities in addition to $300 million of TBAs and $219 million of business purpose loans originated by Lima One. Non-QM remains our largest asset class. During the quarter, we grew our non-QM book to $5.5 billion. We added $471 million of new loans with an average coupon of 7% and an LTV of 68%. Although our portfolio has grown significantly in recent years, along with the broader non-QM industry, we remain highly focused on credit quality and continue to review every loan prior to acquisition. Credit performance in our non-QM book remained strong with a default rate just above 4%.

During the quarter, we issued 2 securitizations. First, in early March, we issued our 22nd non-QM deal, selling $326 million of bonds at an average coupon of 5.12%. The newly originated loans in that deal carry an average coupon above 7%. Later in March, we resecuritized over $400 million of fees on non-QM loans that had been in 2 deals we issued several years ago. This relever unlocked approximately $40 million of cash and additional financing capacity. We expect this move to be accretive to our earnings moving forward. During the quarter, we continued to grow our agency portfolio, which now exceeds $3.5 billion in size. Our investments this quarter continue to focus on low pay-up spec pools. After the escalation in the Middle East unleashed to broader sell-off, spreads widened by nearly 40 basis points from the tights, and we took advantage of the volatility establishing a $300 million TBA position in late March.

Since quarter end, spreads have tightened about 10 basis points. We expect to add to the portfolio depending on market conditions and excess investment capacity. Turning to Lima One. Lima originated $219 million of business purpose loans during the first quarter. This included $145 million of new transitional loans and $74 million of rental term loans. We continue to sell the longer-duration rental loans at a premium to third-party investors. This quarter, we sold $81 million, generating $2.7 million of gain on sale income. Mortgage banking income at Lima One rose to $7.7 million, an increase of 34% from the fourth quarter. During the quarter, Lima’s monthly submissions and origination pipeline reached their highest level since 2024. With the recent opening of our wholesale channel and the relaunch of multifamily lending underway, we expect Lima One’s contribution to our earnings to grow from here.

Lastly, touching on our credit performance. During the quarter, delinquencies rose in our residential loan portfolio to 7.8%. The increase was driven primarily by elevated default activity in our legacy multifamily book which, as a reminder, has been in runoff mode for the past 2 years. We’ve made further progress shrinking that multifamily book and resolving nonperforming loans since quarter end, and our delinquency rate has already fallen back to 7.3%. We look forward to recycling that capital back into income-producing assets as we move through the year. In summary, Q1 was a productive quarter for our investment platform. We grew the portfolio. We executed 2 non-QM securitizations, saw strong momentum at Lima One and continue to move our credit borrowings towards non-mark-to-market financing.

We believe the current environment positions us well for the year ahead. And with that, we’ll turn the call over to the operator for questions.

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Operator: [Operator Instructions]. Your first question comes from Bose George with KBW.

Bose George: Actually, how much capital was tied up in the remaining multifamily transitional portfolio at quarter end? And just your guidance on the convergence between the EAD and the dividend sort of include the redeployment of that as well?

Michael Roper: Yes, to answer your second question first. The forward guidance on DE reconverging by the end of the year does include anticipated pay downs of some of the troubled assets and redeploying into our target assets. To answer your question on how much capital is locked in that multifamily book, it’s just over $100 million, $101 million at the end of the quarter.

Bose George: Okay. Great. And then on the expenses, so after the second quarter when — and that sort of noise is over with the depreciation, what’s kind of a decent run rate for expenses going forward?

Michael Roper: Yes. So I think there’s always a little bit of noise from quarter-to-quarter in our G&A for various reasons. So for example, this quarter, we had about $4 million of accelerated noncash stock-based comp charges which is consistent with the first quarter of the past few years and then the 2.4 of the accelerated depreciation. So if you sort of take this quarter and sort of normalize for those one timers and then it’s about $0.01 a quarter for the — or $1 million a quarter for the lease changes. I think that’s a pretty good start for the run rate of G&A.

Bose George: Okay. And one — and each 1Q will have that noncash comp piece that kind of bumps it up a little bit.

Michael Roper: Yes, exactly. So the accounting rules require us to expense awards made to retirement-eligible employees on the grant date instead of over the 3-year service period.

Operator: Your next question comes from Marissa Lobo with UBS.

Ameeta Lobo Nelson: On the Agency MBS portfolio, how should we think about it? Is it ultimately something that you’re going to rotate back into non-QM and BPL or is this a strategic reweighting in the portfolio?

Bryan Wulfsohn: Yes. I would think we’ll most likely have some exposure, but the level of exposure will be wound down a bit, depending on the attractiveness on the credit side. So as Lima does grow their production, you could expect that agency portfolio as we received paydowns and we could also sell bonds to help fund the growth at Lima One in addition to non-QM purchases as well.

Ameeta Lobo Nelson: Okay. Great. And for Lima One, what is its posture on AI and automation with servicing underwriting? I mean, is there a cost target that you’re willing to share for ’26, ’27 there?

Bryan Wulfsohn: I know we were trying to reduce G&A there by sort of 10-plus percent and we were — we’re sort of on the way of doing that. We had some efficiencies gains in Q1. We are utilizing AI down there, utilizing the Claude and Anthropic’s AI infrastructure to help accelerate those moves. It’s unclear at what point if there was an exact percentage of cost reductions we can say AI will accrue to the business. But it’s one of those things that we’re exploring and will be sort of ongoing benefits as we utilize the AI code and agents down there.

Operator: Your next question comes from Matthew Erdner with JonesTrading.

Matthew Erdner: Like you touched on the multifamily, is there anything that specifically drove the delinquencies to increase quarter-over-quarter significantly?

Bryan Wulfsohn: Well, the whole portfolio is really — the loan structure was the 3-year with sort of 2-year extensions. So they’re all really coming up on maturity and have been extended. So at this point, there might be some where the borrower has been out trying to get refinancing and they realize they can’t get the same amount of proceeds that they borrowed initially. So then they’re — they sort of call it a day, and we have to deal with the property or work out a mutual resolution. But really, I think it’s the fact that they’re sort of towards the end of the life, you’re going to see more delinquencies in certain cases where the borrower isn’t been able to refi or sell the property timely.

Matthew Erdner: Got it. And then as it relates to that, should we expect you guys to kind of bring some of these properties in, stabilize and then sell? Or are you guys going to look for them to kind of just hit the market, go out, see what they can get and then move on from the asset?

Bryan Wulfsohn: I mean it’s really a case-by-case basis. Some assets, we will try to stabilize where it makes sense, depending on the time and capital required to do so. But in some instances, it just makes sense to hit the bid and move on.

Matthew Erdner: Got it. That’s helpful. And then one last one for me as it relates to this. I appreciate you throwing in the adjustment there for DE, should we expect a number kind of similar to 3Q, 2Q of last year?

Michael Roper: Yes. So listen, as I said in my prepared remarks, it’s really hard to have a reliable forecast of when exactly the losses are going to hit. Every foreclosure is different, every borrower is different and there can be some timing differences from quarter-to-quarter pretty easily. I think with that said, in the immediate term, and we expect this primarily in the second quarter, we’re expecting somewhere in, call it, the high teens of credit losses on multifamily resolutions. Like I said, it’s — and part of the reason why our guidance is the back half of 2026 is one of these bad multifamily loans rolling into the next quarter can be a $0.03 or $0.04 swing in DE or the timing of that resolution. But our base case is somewhere in the mid- to high teens of credit losses for the second quarter before beginning to normalize in the back half of the year and into ’27.

Operator: Your next question comes from Mikhail Goberman with Citizens JMP.

Mikhail Goberman: If I could just to clear up one thing. When you talk about distributable earnings converging with the $0.36 dividend in the latter half of the year, are you referring to the current $0.30 figure you printed in Q1 or the $0.34 prior to realized credit losses figure?

Michael Roper: Yes, that’s referring to our $0.30 DE or the DE with loss adjustments.

Mikhail Goberman: Got you. And sort of in — looking at the Lima One pipeline, what do you guys see the product mix of that going forward? Obviously, a very good quarter to start the year. You guys see momentum picking up in Q2, Q3? And just kind of your thoughts on the product mix there going forward?

Bryan Wulfsohn: Yes. I mean, so right now, the mix is really split between the transitional and the rentals. As we sort of bring wholesale more online, we could see growth on the rental side, which could accelerate. But we’re also seeing great growth on the transitional. So when we said pipeline is sort of the highest it’s been in the past couple of years, right, that’s plus or minus $20 million at the moment and you think about what pipeline converts to actual loan, usually might be, say, 50% to 60% to 75%, so depending on coupon timing, what have you. So that might go to like $100 million or plus or minus per month in the near term, and we still expect to grow from there. And one thing we haven’t really hit upon yet is multifamily is relaunched, but the pipeline and submissions that’s really not including the multifamily figures.

So we still think it’s sort of — we’re in a slow growth mode. We took — looked at a lot of loans — but we haven’t really — we haven’t closed anything yet. So the hope is as that really comes online maybe back half of the year that could really help accelerate sort of the growth on top of what we’re doing on the transitional and rental side.

Operator: [Operator Instructions]. Your next question comes from Doug Harter with BTIG.

Douglas Harter: On the transitional loans, if you could just remind us sort of at what level those are marked and just how we should think about resolutions and working through that book and any impact that should have on book value?

Michael Roper: Yes, I’ll speak to the second half of your question first. We mark these loans every quarter to fair value, and that’s not just what we would expect in a credit loss situation. It’s what we think we could solve a loan for. So there’s not a huge market for delinquent transitional loans. So a loan rolling delinquent can have a pretty big impact on fair value, even if we think the LTV is good enough to be picked on that asset. As far as the market level, I think as I kind of said a second ago, it’s sort of the current loans versus the delinquent loans. The current loans with their, call it, 10%, 11% coupon tend to be marked just slightly below par, whereas the delinquent loans, it’s really on a loan-by-loan basis. I think the weighted average for the portfolio, or I should say, the total discount for the portfolio in multifamily is just over $50 million. And then single family, it’s probably closer to about $15 million to $20 million discount.

Douglas Harter: Great. So I mean, I guess, so it just depends on the ultimate resolution, but you feel like on the delinquent loans, you’ve been fairly conservative.

Michael Roper: Yes, for sure. We’ve always taken great pride in our marks process and have extreme confidence in the level of our marks. I think we’ve said over the last few quarters that as we’ve resolved some of these delinquent loans were generally — not generally almost entirely generating gains. This quarter, we resolved another, I think it’s $160 million of delinquent loans and the P&L versus our prior mark on those assets generated a gain of about $14 million this quarter. So again, all of the empirical evidence, including where we’ve executed loan sales in prior quarters, gives us a lot of confidence in where we have these assets marked.

Operator: Thank you. And there are no further questions at this time. So I’ll hand it back to Craig Knutson for closing remarks. Thank you.

Craig Knutson: All right. Well, thanks, everyone, for your interest in MFA Financial, and we look forward to speaking with you again in August when we announce second quarter results.

Operator: Thank you. And that concludes today’s call. All parties may disconnect. Have a good day.

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