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DATE

Tuesday, May 5, 2026 at 11 a.m. ET

CALL PARTICIPANTS

  • Chief Executive Officer — Craig L. Knutson
  • President and Chief Investment Officer — Bryan Wulfsohn
  • Chief Financial Officer — Michael C. Roper

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TAKEAWAYS

  • Investment Portfolio Size -- $12.5 billion at quarter end, following the addition of nearly $700 million of agency securities including TBAs, $471 million of Non-QM loans, and $219 million of business purpose loans originated by Lima One.
  • Book Value per Share -- GAAP book value was $12.70, and economic book value was $13.22, both down approximately 3.8% from 2025.
  • Common Dividend -- $0.36 per share declared and paid for the quarter.
  • Quarterly Economic Return -- Negative 1.2%, reflecting widened mortgage spreads after market volatility and geopolitical developments.
  • GAAP Net Loss -- $10 million loss, or $0.11 per basic common share, primarily due to $28.8 million in net mark-to-market losses from higher rates and wider spreads.
  • Net Interest Income -- $59.2 million, an increase from $55.5 million in the fourth quarter, driven by late-2025 rate cuts and portfolio growth; offset by $3.5 million in interest income reversals from nonaccrual transitional loans.
  • Expense Reductions -- Nearly $20 million per year in run-rate overhead savings achieved versus 2024, including $4 million per year expected from headquarters relocation.
  • G&A Expense Detail -- $2.4 million in accelerated noncash depreciation in the quarter and $4 million in accelerated noncash stock-based compensation; additional $5 million noncash depreciation expected in the second quarter, after which normalized run-rate expenses are anticipated.
  • Distributable Earnings (DE) -- $31.1 million, or $0.30 per share, up from $0.27 per share in the fourth quarter, with a $0.03 benefit from lease modification and $0.02 from higher mortgage banking income, offset by $0.02 in aggregate charges for REO and credit losses.
  • Supplemental DE Metric -- MFA introduced "distributable earnings prior to realized credit losses" as an additional non-GAAP measure, intended to clarify underlying earnings capacity by excluding credit losses on residential whole loans held at fair value.
  • Non-QM Loan Growth -- Non-QM portfolio expanded to $5.5 billion; $471 million of new loans added at an average 7% coupon and 68% LTV.
  • Non-QM Default Rate -- Portfolio default rate just above 4% reported.
  • Securitization Activity -- Two Non-QM securitizations: a $326 million bond deal with a 5.12% average coupon, and a re-securitization of over $400 million in seasoned loans unlocking $40 million of cash and financing capacity.
  • Agency Portfolio -- Exceeds $3.5 billion, with Q1 investments emphasizing low pay-up spec pools and $300 million of TBAs acquired late in the quarter.
  • Lima One Business Purpose Lending -- $219 million originated, including $145 million transitional loans and $74 million rental term loans; $81 million of rental loans sold generated $2.7 million of gain-on-sale income.
  • Mortgage Banking Income at Lima One -- $7.7 million, up 34% from the fourth quarter.
  • Residential Loan Delinquency Rate -- 7.8% at quarter end, up due to legacy multifamily book; subsequent to quarter end, delinquencies dropped to 7.3% as portfolio was reduced.
  • Capital Tied Up in Legacy Multifamily Book -- $101 million at quarter end, as explicitly detailed in management’s response to analyst inquiry.
  • Transitional Loans Portfolio Discount -- Multifamily portfolio marked at a total discount just over $50 million; single-family portfolio discount close to $15 million to $20 million.
  • Guidance on Realized Credit Losses -- Management expects "high teens" level of credit losses on multifamily resolutions in the second quarter, before beginning to normalize later in 2026 and into 2027.
  • Lima One G&A Reduction Target -- Management aims to cut Lima One’s G&A by "roughly 10% plus," with Q1 efficiencies achieved using Claude and Anthropic AI infrastructure.
  • Subsequent Economic Book Value -- At the close of business on the Friday preceding the call, economic book value was "approximately flat" to quarter end.

SUMMARY

MFA Financial (MFA 6.00%) expanded its investment portfolio by over $1 billion, highlighted by sizeable allocations to agency securities, Non-QM, and business purpose loans. The company reported a 3.8% decline in both GAAP and economic book value per share, alongside a quarterly economic return of negative 1.2%, due to mark-to-market losses from wider mortgage spreads. Management introduced a new distributable earnings metric prior to realized credit losses, addressing investor demand for greater clarity on the company’s underlying earnings capacity. Strategic asset sales and liability management initiatives, including re-securitizations and headquarters relocation, contributed to realized expense reductions and unlocked new capital for redeployment. Lending volumes at Lima One showed momentum, featuring volume records and increased gain-on-sale income, with further operational efficiencies anticipated through ongoing AI-driven cost management.

  • Management’s guidance indicates distributable earnings are expected to converge with the common dividend in the latter half of 2026, factoring in paydowns of troubled assets and redeployment to higher-yielding segments.
  • Lima One’s origination pipeline reached its highest submission and application levels since 2024, and the re-launch of multifamily lending is positioned to provide incremental growth in the coming quarters.
  • Following an increase in delinquencies driven by maturity and refinancing issues in legacy multifamily loans, management reported subsequent improvement through portfolio reduction and resolution strategies.
  • Company actions such as issuing preferred stock via an ATM and repurchasing common shares at a discount were described as "accretive," while preserving the equity base.
  • Agency MBS holdings may decrease over time, as management plans to rotate assets into growing Non-QM and Lima One BPL categories based on relative market attractiveness.

INDUSTRY GLOSSARY

  • Non-QM: Non-qualified mortgage; a loan that does not conform to established agency standards and is typically held or securitized by private investors.
  • TBA: "To Be Announced"; a forward contract for the purchase or sale of agency mortgage-backed securities at a future date.
  • REO: Real Estate Owned; property acquired by a lender via foreclosure and held in inventory until sold.
  • Distributable Earnings (DE): A non-GAAP earnings measure reflecting recurring cash flows available for distribution to shareholders, often adjusted to exclude certain non-cash items or realized credit losses.

Full Conference Call Transcript

Craig L. Knutson: Thank you, Hal. Morning, everyone. Thank you for joining us for MFA Financial, Inc.'s first quarter 2026 earnings call. With me today are Bryan Wulfsohn, our President and Chief Investment Officer, Michael C. Roper, our Chief Financial Officer, and other members of our senior management team. I will offer some general remarks on the macroeconomic and political landscapes and will then provide an update on MFA's business initiatives and portfolio activities. Then I will 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 the strong investor demand and low volatility we experienced in 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 two Non-QM securitizations in March and, while spreads were modestly wider, the market functioned normally. This is a testament to the expansion, maturity, and depth of these markets over the last four years.

The second of these two Non-QM securitizations was a relever of two previous deals, which is a good example of what we often refer to as an underappreciated source of optionality—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 maddeningly time-consuming, but our team has been working out delinquent loans for over a decade, the majority of which were purchased as nonperforming loans. They are 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 two 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, it 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. I will now turn the call over to Mike to discuss our financial results.

Michael C. Roper: Thanks, Craig, and good morning, everyone. At March 31, GAAP book value was $12.7 per share, and economic book value was $13.22 per share, each down approximately 3.8% from 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 $10 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 through 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 are 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 and 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, which is 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 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 are providing this new disclosure to give additional context around our distributable earnings as credit losses on our legacy multifamily portfolio continue to flow through DE. As we have noted on prior calls, because resolving NPLs does not impact our DE long after the loan has been marked down in 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 resultant 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 2026 and into 2027. As a result, we expect that the difference between DE and this new supplemental DE measure will narrow considerably over time. 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 would 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, $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 remains strong, with a default rate just above 4%. During the quarter we issued two securitizations. First, in early March, we issued our twenty-second 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 re-securitized over $400 million of seasoned Non-QM loans that had been in two 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 continued to focus on low pay-up spec pools. After the escalation in the Middle East unleashed a 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 then, we have seen spreads retrace 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 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'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 two years.

We have made further progress shrinking that multifamily book and resolving nonperforming loans since quarter end. 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, executed two Non-QM securitizations, saw strong momentum at Lima One, and continued to move our credit borrowings toward non-mark-to-market financing. We believe the current environment positions us well for the year ahead. And with that, I will turn the call over to the operator for questions.

Operator: We will now open the call for questions. Thank you. Ladies and gentlemen, at this time, we would like to begin the Q&A session. Your first question comes from Bose Thomas George with KBW. Please state your question.

Bose Thomas George: Yes, good morning. 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 DE and the dividend—does that include paydowns as well?

Michael C. Roper: Hi, Bose. Yes, to answer your second question first, the forward guidance on DE reconverging by the end of the year does include anticipated paydowns 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 is just over $100 million—$101 million at the end of the quarter.

Bose Thomas George: Okay, great. Thanks. And then on the expenses, after the second quarter, when that noise is over with the depreciation, what is a decent run rate for expenses going forward?

Michael C. Roper: Yes. So I think there is always a little bit of noise from quarter to quarter in our G&A for various reasons. 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 million of the accelerated depreciation. So if you take this quarter and normalize for those one-timers and then about a penny a quarter—or roughly $1 million a quarter—for the lease changes, I think that is a pretty good start for the run rate of G&A.

Bose Thomas George: Okay. And each first quarter will have that noncash comp piece that kind of bumps it up a little bit?

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

Bose Thomas George: Okay. Okay. Great. Thank you.

Operator: Next question comes from Marissa Wilbos with UBS. Please state your question.

Marissa Wilbos: Thank you and good morning. On the Agency MBS portfolio, how should we think about it? Is it ultimately something that you are 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 will 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 grows its production, you could expect that agency portfolio to receive paydowns, and we could also sell bonds to help fund the growth at Lima One, in addition to Non-QM purchases as well.

Marissa Wilbos: Okay. Great. And for Lima One, what is its posture on AI and automation within servicing and underwriting? Is there a cost target that you are willing to share for 2026, 2027 there?

Bryan Wulfsohn: We are trying to reduce G&A there by roughly 10% plus, and we are on the way to doing that. We had some efficiencies gained in Q1. We are utilizing AI down there, utilizing the Claude and Anthropic AI infrastructure to help accelerate those moves. It is unclear if there is an exact percentage of cost reductions we can say AI will accrue to the business, but it is one of those things that we are exploring, and there will be ongoing benefits as we utilize the AI code and agents down there.

Marissa Wilbos: Okay. Great. Thank you.

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

Matthew Erdner: Hey, good morning, thanks for taking the question. I would like to touch on the multifamily. Is there anything that specifically drove the delinquencies to increase quarter over quarter significantly?

Bryan Wulfsohn: Well, the whole portfolio’s loan structure was three-year terms with two-year extensions. They are 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 cannot get the same amount of proceeds that they borrowed initially, so then they call it a day, and we have to deal with the property or work out a mutual resolution. Really, I think it is the fact that as they are toward end-of-life, you see more delinquencies in certain cases where the borrower is unable to refi or sell the property timely.

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

Bryan Wulfsohn: It is 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 is 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 levels?

Michael C. Roper: Yes, so, as I said in my prepared remarks, it is 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—we expect this primarily in the second quarter—we are expecting somewhere in, call it, the high teens of credit losses on multifamily resolutions. Part of the reason why our guidance is the back half of 2026 is that one bad multifamily loan rolling through the next quarter can be a 3 or 4 cent swing in DE, depending on 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 2027.

Matthew Erdner: Got it. I appreciate the comments. That is helpful. Thank you, guys.

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

Mikhail Goberman: Hey, good morning, guys. Hope everybody is doing well. If I could just 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 realized credit losses figure?

Michael C. Roper: That is referring to our $0.30 DE, or the DE with loss adjustments.

Mikhail Goberman: Gotcha. Thank you for that. And in looking at the Lima One pipeline, what do you guys see as the product mix going forward? Obviously, a very good quarter to start the year. Do you see momentum picking up in Q2, Q3? And your thoughts on the product mix going forward?

Bryan Wulfsohn: Right now, the mix is really split between transitional and rentals. As we bring wholesale more online, we could see growth on the rental side accelerate. But we are also seeing great growth on the transitional side. When we said the pipeline is the highest it has been in the past couple of years, that is plus or minus $200 million at the moment. In terms of what the pipeline converts to actual loans, you might be, say, 50% to 60% to 75%, depending on coupon, timing, and other factors. So that might go to roughly $100 million per month, plus or minus, in the near term, and we still expect to grow from there.

One thing we have not really hit upon yet is multifamily is relaunched, but the pipeline and submissions are really not including multifamily figures. We think we are in slow growth mode there; we have looked at a lot of loans, but we have not closed anything yet. The hope is that multifamily really comes online in the back half of the year and could help accelerate growth on top of what we are doing on the transitional and rental side.

Mikhail Goberman: Great. Thank you, guys.

Michael C. Roper: Thanks, Mikhail.

Operator: Your next question comes from Doug Harter with BTIG. Please state your question.

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

Michael C. Roper: I will speak to the second half of your question first. We mark these loans every quarter to fair value, and that is not just what we would expect in a credit loss situation—it is what we think we could sell the loan for. There is not a huge market for delinquent transitional loans, so a loan rolling delinquent can have a pretty big impact on its fair value even if we think the LTV is good enough to be money-good on that asset. As far as the mark level, it is a story of the current loans versus the delinquent loans.

The current loans, with their, call it, 10% to 11% coupon, tend to be marked just slightly below par. For the delinquent loans, it is really on a loan-by-loan basis. I think the weighted average total discount for the portfolio in multifamily is just over $50 million, and then single-family is probably closer to about $15 million to $20 million discount.

Doug Harter: Great. So it just depends on the ultimate resolution, but you feel like on the delinquent loans you have been fairly conservative?

Michael C. Roper: Yes, for sure. We have always taken great pride in our marks process and have extreme confidence in the level of our marks. I think we have said over the last few quarters that as we have resolved some of these delinquent loans we are generally—almost entirely—generating gains. This quarter, we resolved another $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 have executed loan sales in prior quarters, gives us a lot of confidence in where we have these assets marked.

Doug Harter: Great. Thank you.

Michael C. Roper: Thanks, Doug.

Operator: Thank you. And there are no further questions at this time. I will now hand the call back to Craig L. Knutson for closing remarks. Thank you.

Craig L. Knutson: All right. Well, thanks, everyone, for your interest in MFA Financial, Inc. 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.