And ladies and gentlemen, thank you for standing by. Welcome to the MFA Third Quarter 2024 Earnings Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. [Operator Instructions] As a reminder, today’s conference is being recorded. I would now like to turn the conference over to our first speaker, Mr. Hal Schwartz. Please go ahead.

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, 2023, 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 third quarter 2024 financial results. Thank you for your time. I would now like to turn this call over to MFA’s CEO, Craig Knutson.

Thank you, Hal. Good morning, everyone, and thank you for joining us for MFA Financial's third quarter 2024 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 a high-level review of the third quarter market environment, touch on some of our results, activities and opportunities, and then I'll turn the call over to Mike to review our financials in more detail, followed by Bryan who will review the portfolio, financing Lima One and risk management before we open up the call for questions. The Federal Reserve Board decreased the federal funds rate target by 50 basis points at their meeting on September 18th. This rate cut, while more than the 25 basis points expected by many market participants was most noteworthy as a clear signal that the Fed has now embarked on an easing cycle. For levered fixed income investors, this is a welcome development after a very challenging 2.5-year period of restrictive monetary policy and the accompanying inverted yield curve. Economic and labor market data has been somewhat mixed over the last few months, which suggests that the easing cycle may proceed more slowly than originally anticipated, but Chair Powell has been clear that a recalibration is merited and a return to a neutral level of Fed funds is in order, although it remains to be seen how long this easing cycle lasts, and how much the Fed ultimately cuts rates, this is a clear and refreshing tailwind for our business. During the third quarter, we announced some management changes, naming Bryan Wulfsohn, President of MFA, in addition to his role as Chief Investment Officer and naming Lori Samuels as Chief Loan Operations Officer. Both Bryan and Lori joined…

Thanks, Craig. At September 30, GAAP book value was $13.77 per common share and economic book value was $14.46 per common share, an increase of approximately 1% from $14.34 at the end of June. We declared dividends of $0.35 per common share and delivered a quarterly total economic return of approximately 3.3%. For the third quarter, MFA generated GAAP earnings of $48.2 million or $0.38 per basic common share, up from $41.9 million or $0.32 per basic common share in the second quarter. Our GAAP earnings included net unrealized gains on our residential whole loan portfolio of approximately $140 million. These gains were concentrated primarily in our non-QM and SFR loan portfolios and were partially offset by a slight increase in credit-related unrealized losses on our multifamily transitional loans. During the quarter, we sold single-family rental loans with an unpaid principal balance of approximately $236 million. As Bryan will detail further in his later remarks, these sales included $74 million UPB of recently originated SFR loans that were sold to third parties by Lima One. These sales represent the first of what we expect to be a new and growing distribution channel for Lima's origination in the quarters and years ahead. We believe that third-party sales provide strategic diversification away from securitization markets, enhanced Lima's relationships with other capital market participants and improve our returns. We report gains derived from loans sold to third parties within three months of their origination as a component of Lima One's mortgage banking income, which is included in our distributable earnings. Sales of recently originated loans attributed $3.5 million to Lima One's mortgage banking income this quarter, driving the increase from the second quarter despite lower origination volumes. During the quarter, MFA again generated DE in excess of our common dividend. DE for the…

Thanks Mike. We grew our investment portfolio during the quarter by adding $565 million of new loans, $294 million of agency securities. Lima One originations and draws accounted for $329 million of the additions. Non-QM purchases sourced from both bulk and flow channels totaled $236 million with an average coupon of 8.2% and an LTV of 64%. We grew our Agency MBS portfolio to approximately $1 billion during the quarter as we believe spreads and carry continue to be attractive. Our purchases have been focused on low payout pools, which provides some prepay protection without sacrificing yields. We believe these investments currently offer ROEs in the mid-teens and are complementary to our credit portfolio. Runoff across our entire portfolio in the quarter was $629 million, down slightly from the second quarter, majority came from our transitional loan portfolio as those loans are designed to pay off quickly with maturities usually ranging from nine months to two years. In addition to the runoff, we sold $241 million of loans from our single-family rental loan portfolio in the quarter. All of those loans we sold were made by Lima one and $77 million of them were newly originated. We expect to sell more loans moving forward as the bid for rental loans remain strong, particularly from insurance accounts looking to add duration to their investment portfolios. As Craig touched on, we have been successful in the securitization markets across our loan strategies. The market has been supportive of residential securitized credit, absorbing almost double the issuance year-to-date as compared to last year. We issued a rated RPL transaction in July, selling $259 million of bonds at a cost of debt of approximately 5.8%. In September, we issued our 15th non-QM securitization, selling $321 million bonds with a coupon just under 5.4%. Post…

[Operator Instructions] And our first question today comes from the line of Doug Harter. Please go ahead.

Thanks. Just first, hoping you could clarify the book value comments you made. Just given how much things are moving around kind of when that 3% to 4% was as of and kind of how you think about dividend accrual in that context?

Yes. Thanks for the question. So that 3% to 4% is probably as of earlier this morning, and it's a bit of a moving target with some spread volatility and rate volatility. But that would be net of the dividend accrual.

Great. Appreciate that. And then just how are you thinking about kind of the earnings power of the portfolio kind of and the sensitivity to lower short-term rates as you factor in kind of the swaps you have and swap expirations.

Yes. Again, thanks for the question. This is something we spend a good amount of time looking at. I think when we think about the earnings power of the portfolio, we try to look at what those assets and liabilities and hedges would be if we were to effectively restrike those yields today. And effectively, over the long-term, whether that's reported as interest income, interest expense or mark-to-market that is what the earnings power of the portfolio is going forward. So given where things are marked at 9/30 and obviously, returns have increased since quarter end with the sell-off in rates, I think, we feel really good about where the dividend is set and what that earnings power is of the portfolio in the context of the dividend. As for your question about the swaps, yes, we have some swaps rolling off beginning in the fourth quarter, really at the end of the fourth quarter, and again in Q1. But again, we've benefited from for a long time from those swaps really below market pay rates. But as we sort of restrike those yields, again, we feel really good about the earnings power of the portfolio going forward.

I appreciate that. Thank you.

Thanks, Doug.

[Operator Instructions] And our next question comes from the line of Eric Hagen. Please go ahead.

Hey, thanks. Good morning. Good morning.

Good morning. Can you talk about how much loan warehouse capacity Lima One has to retain loans on the balance sheet in a scenario where the securitization pipeline maybe doesn't turn over as quickly and spreads were to widen?

So we have ample capacity and several RTL revolving securitizations outstanding. So there's really combined between MFA and Lima One, we have over $1 billion of potential borrowing on those assets away from securitization. So really, there's plenty of room.

Okay. Got you. What would you say are some of the considerations or constraints, if you will, to taking the agency portfolio back up again and increasing leverage there?

I mean, really, we just look at what spreads are available in the market and versus our other assets. So we do think it's a complementary asset to our credit portfolio. We grew it to $1 billion. I think this -- if you were to look out, if spreads remain where they are and the shape of the curve continues to sort of steepened out, we could see that growing to maybe $1.5 billion to $2 billion in the coming quarters.

Got you. All right. That's actually really helpful. Thank you.

Thanks, Eric.

And our next question comes from the line of Brian Zelino [ph]. Please go ahead.

Great. Thanks for taking my question. Just was hoping to get some more detail on the programmatic loan sale outlook. I guess how big could that distribution channel get over time? And is it only SFR, because we see some transitional loan sales as well?

So Brian, I'll take that. It's Craig. So I think it could be a significant part of -- particularly on the rental side. As Bryan said, that the demand is pretty significant there. It's still an asset that we like and that we also have in our portfolio. But I think these third-party sales, they validate pricing, they validate marks. They open an additional distribution channel. Right now, I think our rental loans were about 25% of the origination in the quarter in a lower rate environment, that could grow over time. So I think it's another arrow in the quiver. It's not what we'll do with all rental loans but it's a good outlet to have. If you fast forward and imagine Lima One's origination volume growing significantly over the next couple of years, it may be more necessary outlet at some point. But for now, I think we're really just developing another distribution channel.

Okay. Great. Thank you very much. That's it for me.

Thanks.

And our next question comes from the line of Bose George. Please go ahead.

Good morning. Actually, can you talk about how much was the credit mark on the multifamily piece of the BPO? And then just can you remind us just how much exposure you have left there?

Yes. So during the quarter, it was about $15 million. And we now carry that portfolio, I think it's a 4-point discount to the total UPB. The total UPB at 9/30 was went around $1 billion, give you the exact number – $1.1 billion as of 9/30.

Okay. Great. Thank you. And can you just talk about the competitive side of the BPL business? Obviously, the demand side seems very strong, but are you seeing incumbents trying to grow? Or just can you characterize how that's developing?

Yes. It's definitely competitive. But as we mentioned, volume was down slightly. We're sort of out in the market trying to attract talent and really the way that we believe you grow, there's sort of three ways, right? It's having a good sales force and then there's marketing and sort of technology improvement. We think we're sort of getting to improving on all three of those fronts. And we're aware that, that is competitive, but we think there's enough room for us to get back that volume that we sort of had lost over the past quarter.

Okay. Great. Thanks.

Thanks, Bose.

[Operator Instructions] And it does appear at this time there are no further questions from the phone lines. Please continue.

Thank you, operator. Thanks, everyone, for your interest in MFA Financial. We look forward to speaking with you again in February, when we announce fourth quarter results.

And ladies and gentlemen, today's conference will be available for replay. Today, after 1 p.m. Eastern. You may access the AT&T replay system at any time by dialing 1-866-207-1041, entering the access code 4338621, international participants may dial 402-970-0847. And those numbers again are 1-866-207-1041 and 402-970-0847, again, entering the access code 433-8621, and that replay will be available through February 6 of 2025. That does conclude your conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.