Joining us for our next presenting company, MFA Financial. My name's Jeff Elliott. I'm with Three Part Advisors. MFA is actually a newer client of ours, so if anyone would like a follow-up after the meeting or a call later, just reach out to me. Happy to help set that up. MFA is based in New York. Here today from the company, we have Bryan Wulfsohn. He's president and co-CIO, and Ben Noble, who is head of investor relations. With that, I'll just turn it over to Bryan. Hi. Good afternoon. Thank you all for attending. So first, I'll just go into a little bit of background of the company and then go into a little bit more detail about some of the things that we do. So MFA Financial, we're a mortgage REIT, started back in 1998, a combination of a bunch of master limited partnerships, ended up combining together and IPO'd. Long track record, something to point out, distributed over $4.8 billion in dividends since our inception. Our primary focus is in residential credit. We started when we were founded, for the first eight to 10 years of our life, all we really did was agency securities, so guaranteed government-backed bonds issued by Fannie Mae and Freddie Mac. When the financial crisis hit in 2008, we saw a big opportunity to move into credit. And so what we first did was looked at securities that were once AAA, but were then expected to take losses. So these are bonds that originally were trading at par or premium, and we were able to acquire them at significant discounts to par, anywhere from $0.30-$0.70 on the dollar. We were able to cut our teeth in credit from that, grew that portfolio to several billion dollars, and then watched that portfolio mature, something that bothered us somewhat about the monthly remittances we would get. These are the reports that servicers, bond trustees would send investors on a monthly basis to let you know loans that paid off, loans that went delinquent, whatever happened to those loans. We saw things that we didn't like. Loans were taking bigger losses than they should otherwise take. We came to realize this was because no one was really minding the store at the servicer. So when a loan would go delinquent, no one really cared, what would you sell this property for if you had to take it back? Or if there was a modification, what is the most really net present value option to take? So when we came to realize these things were going on, and as the portfolio matured, again, it worked out fantastically well for us, but we realized if we could buy the loans at a similar price, we could buy the securities and put ourselves in as asset managers and then hire other third-party servicers that we would basically manage, we could create better outcomes for our investors. So from the years of 2013 to really 2020, we were buying distressed residential loans. So these were loans that either were once defaulted and became reperforming or loans that were not paying at all. So when we buy these loans at significant discounts to par, what we would then do is employ these servicers, re-engage with the borrower. Many times we'd be able to get these borrowers to reperform, and then if we weren't able to do that, unfortunately, we'd have to take the property and subsequently sell it or the like. So that's just talking about those RPLs and NPLs. And fast forward to 2017, 2018, as prices of those loans increased, spreads available in the market decreased, we were saying, "All right, what can we do next?" And one of the results of the financial crisis, we had all this regulation that basically said, "All right, no bad loans can ever be made again, Dodd-Frank." And there were some things that came out of that. One was this non-qualified mortgages. And those are basically loans to people that are really good credits, but they don't have traditional income documentation. So if you, just for example, you own a business, you don't get a W-2, it's very difficult for you to get a loan in the residential space as a result of these regulations. So just an example of a non-QM loan, instead of looking at your W-2 or tax returns, they'll say, "All right, shoot over 12-24 months of your bank statements," and they would generate a DTI using those cash flows, which is a good surrogate for either a W-2 or a tax return. And the borrower's creditworthiness is generally like or better than conventional. And the borrower, by the way, is putting down 30-40 points in equity, which sits behind our loan. So the focus for the last several years has been in that space. And in addition to that, we identified the business purpose loan space. So these are shorter-term loans made to real estate investors. So it could be some people know them as fix and flip or bridge loans. It could also be taking the form of longer-term loans where the investor is looking to rent out the property on single-family homes, and the way that we come to acquire these shorter-term loans, we sort of thought to be in the space, we needed to sort of own the means of production. Because when you're dealing with shorter-term loans, they turn over so quickly, so in terms of being able to acquire the amount that we want, we thought we needed to own an originator, so in 2021, we acquired a company called Lima One Capital, which is based in Greenville, South Carolina. They have plus or minus 300 people down there, and they are a full-service originator in the BPL space. What makes them somewhat unique is they have in-house servicing, construction management, and asset management people too. It really allows us to give us comfort to really have dove into this space. Just to take a step back, a couple of things about MFA. The current stock price is, I think today it's a little sub $11. As of end of Q3, our economic book value was $14.46. Now, there's economic book value, there's GAAP book value, there's a little bit of difference between the two. When you buy loans or securities, you elect upon purchase either to hold them at carrying value or fair value. We have some legacy assets that we elected carrying value for. But if we were to mark those assets to market on top of our fair value assets, that is how you get to that $14.46. At the end of the quarter, we had over $300 million in cash. Again, the market cap for our company is over $1 billion. So we have a fair amount of cash relative to our market cap. Again, gives us comfort, gives us stability. Our distributable earnings for the last quarter was $0.37. That's as compared to our dividend we pay, which is $0.35 a quarter and has been that for the past several quarters. All that equates to dividend yield of between 12% and 13%. As I mentioned before, if you take a look at this slide, you can see a breakdown of the assets that we own, the different loan types. The largest category of loans is non-QM, which is over $4 billion. Then the next three, sort of the bottom to the left, are the single-family rental loans, the short-term bridge, fix and flip type loans, and we also had made in the past multifamily transitional loans. All those loans add up together are probably $3 and change billion of what we call business purpose loans. And then mentioned earlier, legacy RPL, NPL, these were the loans that we had bought between 2013 and up until 2020 of either loans that had defaulted in the past or were currently defaulted. And then we also, as of the last several quarters, as spreads have been attractive, have been buying Agency MBS again. That space historically, again, between 1998 and 2008, we had bought those securities. If you look at where spreads have gone over the past however many years with the Fed's involvement, banks buying, spreads really contracted dramatically. We've seen a reverse of that as inflation had come back, as the Fed had stepped back, increased rates, increased rates led to banks not really buying, creating an opportunity for us again with spreads widening out. So we view that as a nice complementary asset class to our portfolio of credit, while still being able to put that money to work, earning our target mid-double digit type ROEs. One thing to note, just giving a backdrop, last quarter loans that we bought, think about the coupons that we own, the stack. Last quarter, the coupons that we bought were 9.4%, either originated through Lima One or non-QM loans purchased. So we're exposed to residential credit. And when people think about residential credit, what does that mean? Does that mean we're necessarily going to take a bunch of losses? Is it scary? Whatever. One of the biggest determinants of whether you're actually going to take a loss or not is your LTV. So you have a loan. Our average loan balance in our non-QM portfolio is around $600,000. And if the LTV, if you look at it on this page, is 56%, round up saying the average property value might be a million dollars that's backing our non-QM portfolio. So if somebody were to go delinquent, there is a large cushion before we would take our first dollar of loss. So one of the things that note, you look at the delinquency rate. Delinquency doesn't mean you're going to take a loss. It means you are exposed if you happen to be upside down. But as I've sort of mentioned previously, when you have loans that have a bunch of equity, they go delinquent, the borrower is going to really just sell the home. And there's not much that you really need to do because they have that much equity trapped and they don't really want to turn the property back over to you. So I want to touch for a few minutes on our liabilities. So the total assets of the firm are between $9 and $10 billion. So we utilize leverage. And we utilize leverage in a couple of different forms. One, and our biggest form is through securitization. So when we buy or originate loans, we package them together. It could be $2-$300 million at a clip. And we will go term out that financing. So just as an example, say we buy loans and they yield 7.5%. We then turn around and we can securitize, sell bonds, which might equate to 85%-90% of those loans at a cost of funds of, say, 6%. So that spread of 180 basis points times the leverage of seven to eight times is an example of what I just told you. That'll get us to that mid, high double digit type ROE, which we're targeting. So in addition to securitization, we utilize warehouse lines, which are basically facilities set up with banks. So the day that we buy a loan is not necessarily the day that we can securitize that loan. So there's a time period between the aggregation and securitization. So during that time period, we actually need to finance it. We don't finance loans just with cash. So we have deep relationships with banks, as you can think of the bulge bracket style banks. Sure. Question. In regard to your relationship with banks, if you're paying 12.7%, 12.6% dividend yield, what are the banks charging you for your money? So the 12.7% dividend yield is what we are paying to our investors, yes. So the banks, go back to my example. So the loans, remember, we would get asset-backed funding. So we would be pledging the loan. So we're pledging an asset that is worth par, and we may be borrowing $0.85 or $.080 from the bank. They would be charging us, say, SOFR plus $175. So that so far now is at in the lower fours. But so that's like cost of 6%, say, to finance. And you would get those facilities for, again, one to two years in length. And part of the reason they're willing to do that is there's somewhat of an ecosystem. Those banks that we get warehouse lines with to finance these loans, we pay them fees to securitize the assets. So it's not. You pay 6% for the money. So in your fees, what does that make your actual bottom line interest expense to the money? So yeah, so it's. It boils down to the interest rate that you're paying for your money. That's right. So really, it's the securitization. When I'm talking about a cost of, say, 6%, and obviously rates have been volatile, so things are moving around. But generally, to securitize, it might be 15% if you were to amortize it out because the securitization is not just one year. It might be an extra 15 basis points or 20 basis points, something like that, maybe even less on top of the cost to securitize. Pretty good question. Have y'all investigated or looked into the so-called Japan carry trade where you borrow from the Bank of Japan or Bank of Korea or anything like that? We haven't. There are banks that I'm sure that lend to us. There are Japanese banks that want to lend, and they may be employing it, but we aren't. But thank you for your question. So all this sort of boils down to, it's really just to show we may optically look because we have to consolidate all of our assets. Even if we securitize, we end up holding 10%-15% or 5%-15%. It still looks on our balance sheet that we hold all the loans. It's not as though we do that. We actually hold bonds, but for GAAP, we hold loans. Therefore, the leverage looks higher. I'll just take you back a few slides. We like to look at the number of recourse leverage to us. That's the real amount that we are really borrowing. Whereas financial leverage or economic leverage may be closer to five, the actual dollars that we're borrowing, it's really less than two times. Again, just back to another couple of things about our borrowing or our liabilities is we do have a couple of senior notes outstanding, and those were utilized to repay, convert. The reason that we like those is they are around a 9% cost of debt on those senior notes, but they are a five-year piece of paper with a two-year call feature. If we are in a lower interest rate environment, we are able, starting 2026, to call those bonds and reissue to eventually lower our cost of funds. Call features are important, not only explicitly in our senior notes, but in the securitizations that I mentioned, which we have almost $5 plus billion of embedded in those securitizations are also call features, which we retain. If you were to look at a stack, you can see this in our Q3 or every quarterly investor presentation that we sent out, we have a list of all the securitizations that we have done. Those securitizations really range from coupons because we started issuing at the end of 2020. They may range from a coupon of 1% up to securitizations that were issued more recently when interest rates were higher over the past couple of years of 6%-7%. But call features that we retain is either after two to three years, just like this senior debt, we have the ability to call, or it could be once the securitization has paid down to a certain% of its original size, we have the ability to call. We're not forced to call. We have the ability to call. Again, it gives us optionality. So if we were to look at our cost of funds today, if we're in a lower interest rate environment, we have the opportunity to reissue and lower our cost of funds while our assets still remain at that healthy yield. So just again, to touch on business purpose loans and Lima One, just dive into that a little deeper. There are a few different kinds of loans that they do as it relates to fix and flip and the short-term business purpose loans, which they can be as little as someone doing paint and carpet and doing a quick flip all the way to ground-up construction. So if you look at the split, if you were to look at the split of our short-term business purpose loans, about 30%-40% of them are in ground-up, whereas the other two-thirds are either the quick flip or bridge. So in those loans, as I was talking about securitization, the difference is, and this has been very helpful for us as of late, is we have been able to issue securitizations based upon revolving structures. So when you think about we have $4 billion of non-QM loans, we issue a securitization, a loan pays off, bond pays down. If I was to think about on the fix and flip side, because those loans are so much shorter, when those loans pay off, this revolving securitization, what we're able to do is when that loan pays off, we're able to put back into the deal a new loan, therefore creating sort of a sustainable structure that lasts not just for six months, nine months, but the revolving period on these deals goes up to two years. And then post that, the deal will amortize down, and there's no call on us, but there's a self-sustaining structure. And those deals, in terms of just to do economics for you, the coupons that we have on the underlying loans on the short-term business purpose are 8%-12%. Average coupon is probably 10%. And the deal we just issued a few weeks ago has a cost of funds of six and change. So that spread there is particularly healthy. And if you were to do sort of spot ROE on those types of assets, you really get north of 20%, whereas we're trying to pay the dividend right now that we are paying is 13%. So it well covers what we are paying. But the thing is, for those types of loans, they are great. However, you need to have on a portfolio such as ours for us to have material exposure. You need to sort of own that production pipeline, which we do, which I think somewhat sets us apart from others in the space that are especially involved in credit, is that they have to buy from other third parties where they're not as close to the borrower, as close to the project. We are intimately involved, have originators speaking directly to the borrower, which we're able to make decisions on a daily basis, so again, I'd like to thank you all for listening to me and like to open it up to any other questions we may have. Yes. [Audio Distortion] So historically, we've always shot for low double-digit returns to our investors, and that's where it stands today. If you were to think about the earnings power of the portfolio, ex expenses, it really shakes out to that low double digits. There are some costs. Obviously, we own an originator. So that, if you were to think about a run rate, that generally costs 2% to 3% on equity to run that business. But in terms of their origination, they get paid fees, either it's origination fees, extension fees, and the like, which helps cover the material portion of that G&A. [Audio Distortion] Yeah. It depends on which portfolio. Again, you asked a question about loan-to-value on delinquent loans. It depends which part of the portfolio you're looking at. If you're looking at the non-QM portfolio, which is $4 billion and change, of which 3.5% of that portfolio is 60-plus, that LTV is not different from the rest of the portfolio. Looking at the business purpose side, it's generally a bit higher for the delinquent loans, and whether optically it shows it or not, for one of those projects to go delinquent, it's usually something went wrong. Either there was a delay or the delays, permits, materials cost more, anything of that nature. Right. Right. So then we have, if we have to go in there, the LTV may have been when we originate, the average AR LTV, so that's the expected value should the work in the budget get completed, is 65%. That's the average. So again, if things don't go as planned, there could be losses that come, but that's part of what the 10% coupon makes up for. Yes? What are your options? What's the DLL and what's your institutional ownership proceeds? So I don't know exactly how much the directors own. I know, given that it's a billion-dollar company, the senior management owns a large percentage of their wealth in the company, but not necessarily a large percentage of the company. It's just a couple of percentage points. So institutional ownership is, I think it's somewhere, is it over 60%? Yeah. A significant majority of our shareholders. Yes. What's your general outlook for interest rates? So yeah, it's interesting for us because as we've looked at the amount of volatility we have had in interest rates over the past several years, it's really been astounding. I mean, for us, what matters more than the absolute level of interest rates is more the shape of the curve, and we've come out of an environment over the last two years, really an inverted yield curve, which has been a tricky environment for us, for banks just in general. But in terms of the outlook for rates, we generally think we believe the Fed and that they are going to continue cutting the short-term rates. But in the long term, given we're at 450 plus or minus on the 10-year, I mean, you could see it's somewhat closer to fair value. I wouldn't be surprised to see it at 5%. I wouldn't be surprised to see it at 4%. But it seems like we'll be trading in some kind of range absent some unforeseen significant inflationary rates head again. Yes. [Audio Distortion] So it is somewhat interesting what has occurred. QT and then the rates increasing in 2022, 2023, that caused banks to really pull back, and they were a big buyer in 2021 and 2022 of mortgage-backed securities, and given that change, they have pulled back. Now, with the passage of time, with potential changes in regulations, loosening up bank regulations, you could see them come back, and you're starting to see it already. Agency post-election spreads on mortgage-backed securities are probably in 10-15 basis points sort of right off the bat. People are probably trying to front-run that, so I wouldn't be surprised if spreads come in. I don't think we get back to if you look back to 2021, where the Fed was buying, spreads were down in the 60 basis point range. That I don't see occurring, but a more normal, closer to 100, where today it's at 140, that in terms of spread to the line to the 5- and 10-year, that wouldn't surprise me at all.