Slide 1: Third Quarter 2019 Earnings Presentation
Third Quarter 2019 Earnings Presentation
Slide 2: Forward Looking Statements
Forward Looking Statements 2 When used in this presentation or other written or oral communications, statements which are not historical in nature, including those containing words such as “will,” “believe,” “expect,” “anticipate,” “estimate,” “plan,” “continue,” “intend,” “should,” “could,” “would,
Slide 3: Executive summary
Executive summary • MFA’s GAAP EPS and Core earnings ( 1 ) in the third quarter of 2019 were both $ 0 . 20 , as our whole loan portfolio continued to make meaningful and growing contributions to our results . • For the third quarter of 2019 , MFA acquired, or committed to acquire, $ 1 . 1 billion of
Slide 4: Executive summary (cont'd.)
• Third quarter investment activity was very robust as we purchased, or committed to purchase, approximately $ 1 . 1 billion of assets, including $ 918 million of Purchased Performing Loans . ( 1 ) • We continue to pursue new investment structures to strengthen our originator relationships and gain
Slide 5: Loan portfolio growth from Purchased Performing Loans has increased interest income
• Loan portfolio growth from Purchased Performing Loans has increased interest income in 2019 : ⦁ Loans held at carrying value ( 1 ) produced $ 64 . 2 million of interest income in the third quarter of 2019 (versus $ 57 . 9 million in Q 2 2019 and $ 100 . 9 million for all of 2018 ) . ⦁ $ 53 . 6 mil
Slide 6: Investment strategy
Investment strategy 6 • Continue to grow investment assets ⦁ Purchased Performing Loans are providing recurring (and increasing) portfolio growth ⦁ Opportunistic growth in other asset classes • Optimize Balance Sheet/Capital Structure ⦁ Modest increase in leverage (including securitization) to suppo
Slide 7: Market conditions and investment activity
• Expand investment opportunities in the form of newly originated whole loans . Acquiring these assets is a unique process : ⦁ Long gestation periods ⦁ Creative approach to partnering with originators ⦁ Flow vs bulk purchases • Opportunities still exist to purchase non - performing and re - performi
Slide 8: Stable earnings again provides dividend coverage
Stable earnings again provides dividend coverage Summary Income Statement Q3 2019 $ in mm Q2 2019 $ in mm Net Interest Income: MBS, CRT, MSR - related $ 36.9 $ 42.4 Residential whole loans (1) 24.1 19.2 Other interest earning assets less interest on Convertible Senior Notes and Senior Notes (4.1 ) (
Slide 9: Third quarter 2019 investment flows
Third quarter 2019 investment flows • Continued robust investment activity with approximately $1.1 billion of asset acquisitions. • Acquired over $900 million of purchased performing loans, growing our holdings of whole loans for the 10th consecutive quarter. 2019 average quarterly whole loan acquis
Slide 10: Strong portfolio growth since expanding investment strategy to include Non-QM, Fix and Flip and SFR Loans
Strong portfolio growth since expanding investment strategy to include Non - QM, Fix and Flip and SFR Loans • Since expanding our investment universe to include Purchased Performing Loans, our investment portfolio has grown by $2.7 billion since the end of Q3 2017. • Residential whole loans and REO
Slide 11: MFA's yields and spreads remain attractive
• MFA’s emphasis on credit risk over interest rate risk continues to deliver attractive portfolio yield and spread. ⦁ Yield on interest earning assets of 5.32% . ⦁ Net interest rate spread of 182bps. • MFA’s funding costs are expected to continue to benefit from falling short term rates. ⦁ At Septem
Slide 12: Third quarter 2019 yields and spreads by asset type
Third quarter 2019 yields and spreads by asset type Amount Yield/ Cost of Debt/Net Allocated Asset (1) (2) Net of servicing expense. These residential whole loans produce GAAP income/loss based on changes in fair value in the current period, and therefore results will vary on a quarter-to-quarter ba
Slide 13: MFA's net interest rate sensitivity remains low
MFA’s net interest rate sensitivity remains low at 1.14 13 Assets (in millions) Market Value Average Coupon (1) Duration Non - Agency ARMs and CRTs $ 1,326 4.37% 0.4 RPL/NPL MBS $ 828 5.06% 0.3 Non - Agency Fixed Rate $ 622 5.86% 3.0 Residential Whole Loans $ 6,509 5.64% 2.2 MSR - Related Assets $ 1
Slide 14: MFA's strategy continues to limit quarterly book value fluctuations
MFA’s strategy continues to limit quarterly book value fluctuations 14 • Through asset selection and risk management MFA has consistently limited quarterly book value fluctuations. • Since 2014 MFA’s average quarterly book value change has been less than 2%. Largest quarterly book value decline was
Slide 15: Continued positive fundamentals residential mortgage credit
Continued positive fundamentals residential mortgage credit 15 3.6% As of August 2019 As of October 2019 3.6% 0.87% As of Q2 - 2019 As of September 2019 1.50mm Source: Zillow Source: NY FED Source: BLS Source: Corelogic
Slide 16: Residential whole loan portfolio
Residential whole loan portfolio 16 • We purchased over $900 million of residential whole loans in the third quarter of 2019. • We continue to grow our portfolio of Non - QM, Fix & Flip, and Single Family Rental loans by adding origination partners and developing our existing relationships. • Our se
Slide 17: RPL portfolio delinquency characteristics as of 9/30/2019
RPL portfolio delinquency characteristics as of 9/30/2019 17 • 87 % of our RPL portfolio is less than 60 days delinquent. • On average, 28% of the 60+ days delinquent loans are making payments. • Prepayment speeds have outperformed expectations, maintaining a range between 6% and 14%.
Slide 18: Performance of non-performing loans purchased before 9/30/18
• Measured by UPB at purchase, 35% (or approximately 3,300) of loans that were non - performing at purchase are either performing or have paid in full as of September 2019. • 76% of MFA modified loans are either performing today or have paid in full. Performance of Non - Performing (1) loans purchas
Slide 19: Non-QM investments
Non - QM investments • We have been purchasing loans made to creditworthy borrowers who have limited conventional mortgage finance options. • We have purchased over $3.1 billion UPB to date • Delinquencies have remained very low with less than 1.0% greater than 60 days delinquent. • Currently workin
Slide 20: Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans
Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans Rehabilitation loans (“Fix and Flip”) • Fixed rate short term loans collateralized by residential property. Term is generally less than 24 months. • Borrower intends to rehabilitate property and resell. • Non - owner occupi
Slide 21: Summary
Summary 21 • Continued successful execution of our investment strategy, with residential whole loan purchases exceeding $ 900 million and approximately $ 100 million of additional capital contributions to select loan originators . • Net portfolio growth of $ 500 million for the nine months ended Sep
Slide 22: Additional Information
NSS MEA Additional Information
Slide 23: GAAP book value continues to be stable
23 QTR 9/30/19 YTD 9/30/19 GAAP book value per common share at the beginning of the period $7.11 $7.15 Net income available to common shareholders 0.20 0.59 Common dividends declared (0.20) (0.60) Net change attributable to Agency MBS — 0.06 Impact of Discount Accretion and realization of gains on s
Slide 24: Reconciliation of GAAP to Core earnings
24 (In Millions, Except Per Share Amounts) Q3 2019 Q2 2019 Q1 2019 YTD Q3 2019 YTD Q3 2018 GAAP Net Income to common stock holders - basic $ 91.6 $ 89.0 $ 84.9 $ 265.4 $ 229.0 Adjustments: Unrealized (gain)/ loss on CRT securities measured at fair value through earnings (0.1 ) 2.0 (2.7 ) (0.7 ) 6.3
Slide 25: Reconciliation of GAAP Book Value to Economic Book Value
25 Reconciliation of GAAP Book Value to Economic Book Value “Economic book value” is a non - GAAP financial measure of our financial position . To calculate our Economic book value, our portfolios of Residential whole loans at carrying value are adjusted to their fair value, rather than the carrying