Mfa Financial, Inc. · NYSE:MFA
Mfa Financial — Q3 2017 Earnings Presentation
20 slides from Mfa Financial's earnings presentation, Nov 2, 2017
Slide 1: Forward Looking Statements
Forward Looking Statements 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 2: Executive summary
Executive summary • In the third quarter we generated EPS of $0.15, down from prior earnings due primarily to: •Lower prices of CRT securities due in large part to Harvey and Irma related concerns •One-time contractual obligations of the Company to the estate of our former CEO • Book value per share
Slide 3: Executive summary: annualized shareholder returns
Executive summary Through volatile markets and both interest rate generated strong long term returns to investors and credit cycles, MFA has (1) As of 9/30/17 assuming reinvestment of dividends. 4 Time PeriodAnnualized MFA Shareholder Return (1) Since January 1, 200015.7% 10 Year14.4% 5 Year14.3% 1
Slide 4: Investment strategy
Investment strategy Position for less predictable fiscal and monetary policy. • During 2017, we have focused on shorter term, less interest rate sensitive assets. • Elevated asset prices and lower market yields have shifted risk/reward profiles. • Given the current investment landscape, we will cont
Slide 5: Market conditions and investment activity
Market conditions and investment activity • Despite a challenging investment environment, MFA purchased or committed to purchase close to $600 million in assets in the third quarter. • Portfolio run-off slowed somewhat in the third quarter (to $1 billion vs. $1.75 billion in Q2) but remained elevate
Slide 6: EPS impacted primarily due to unrealized losses on CRTs
EPS impacted primarily due to unrealized losses on CRTs • We noted last quarter the increasing contribution of other income to overall net income. Q3 2017 saw this trend continue as net interest income declined sequentially due to: $m $m • • Run-off in assets that generate net interest income; Conti
Slide 7: Third quarter investment flows
Third quarter investment flows Our assets run-off due to amortization, paydowns or sale, allowing reinvestment opportunities in changing interest rate and credit environments. $ in Millions June 30, 2017 Runoff Acquisitions changes 2017 Change $1,749 $(87) $202 $17 $1,881 $132 performing Loans and R
Slide 8: MFA's yields and spreads remain attractive
MFA’s yields and spreads remain attractive 4.68% 4.61% 4.61% 4.34% Earning Assets 2.02% 2.10% 2.27% 2.12% Rate Spread 2.4x 2.5x 2.9x 3.1x Equity Ratio 9 ThirdSecondFirstFourth QuarterQuarterQuarterQuarter 2017201720172016 Yield on Interest Net Interest Debt to
Slide 9: Third quarter 2017 yields and spreads by asset type
Third quarter 2017 yields and spreads by asset type 5.74% (2.54)% 3.20% 1.7x Securities (1) Net of 49 bps of servicing costs. (2) These residential whole loans are held at fair value and produce GAAP income/loss based on changes in fair value in the current period, and therefore results will vary on
Slide 10: MFA's interest rate sensitivity remains low
MFA’s interest rate sensitivity remains low, as measured by estimated $ in Millions net duration 11 MTR: Months to reset AssetsMarket ValueAverage CouponDuration Non-Agency ARMs and CRTs (12 months or less MTR)$2,4963.76%0.4 RPL/NPL MBS$1,1953.87%0.4 Non-Agency Fixed Rate$8755.79%3.0 Residential Who
Slide 11: Strategy has delivered book value stability and low prepayment sensitivity
MFA’s strategy has consistently delivered book value stability and low sensitivity to prepayment rates MFA's Agency MBS Premium Amortization and Legacy Non-Agency MBS Discount Accretion by quarter Quarterly change in MFA's Book Value $30 10% 8% 6% 4% 2% 0% -2% -4% -6% -8% -10% $25 $20 $15 $10 $5 $0
Slide 12: Continued positive fundamentals for residential mortgage credit
Continued positive fundamentals for residential mortgage credit • Fundamental and technical support for residential credit assets and home prices. • • Unemployment rate of 4.2% in September 2017, down from 4.9% a year ago. According to the Urban Institute and CoreLogic, the percentage of homes with
Slide 13: Credit sensitive residential whole loan portfolio
Credit sensitive residential whole loan portfolio We purchased $202MM of credit sensitive loans and REO in the 3rd quarter. • • Returns to date are consistent with our expectation of 5-7%. • We believe that our oversight of servicing decisions (loan modifications, short sales, etc.) produces better
Slide 14: Performance of delinquent loans purchased before 9/30/16
Performance of delinquent loans purchased before 9/30/16 • Measured by percentage of total loan count, 33% of loans which were delinquent at purchase are either performing or have paid in full as of September 2017. 81% of loans modified by MFA are either performing(2) today or have paid in full. • (
Slide 15: RPL/NPL MBS portfolio
RPL/NPL MBS portfolio • Current market yields of approximately 3% for A1 classes and 5% for A2 classes. • Well protected portfolio with substantial credit enhancement. • Growing number of repo providers for this asset class. • Very short assets with an average of 22 months remaining to step-up. • We
Slide 16: LTV breakdown of non-delinquent loans underlying Legacy Non-Agency MBS
LTV breakdown of non-delinquent mortgage loans underlying MFA’s Legacy Non-Agency MBS 1,400 1,200 1,000 800 600 400 200 0 <= 60% 61-80% 81-90% 91-100% LTV 101-110% 111-125% > 125% • These loans are up to date on all required mortgage payments. • Underlying loans are over eleven years seasoned on ave
Slide 17: Summary
Summary • Weremain active in the market; MFA successfully purchased or committed to purchase nearly $600 million of investments in the third quarter. • We continue to expand our investment opportunity set within the residential mortgage space, utilizing the same disciplined approach to risk/reward a
Slide 18: Summary
Summary *® We remain active in the market; MFA successfully purchased or committed to purchase nearly $600 million of investments in the third quarter. e We continue to expand our investment opportunity set within the residential mortgage space, utilizing the same disciplined approach to risk/reward
Slide 19: Book value for the quarter decreased modestly
Book value for the quarter decreased modestly, as dividend distributions exceeded GAAP income, but is up 1% year-to-date 20 Qtr ended 9/30/17 YTD 9/30/17 Book value per common share at the beginning of the period $7.76 $7.62 Net income available to common shareholders 0.15 0.54 Common dividends decl
Slide 20: Book value per share reconciliation
Qtr ended 9/30/17 YTD 9/30/17 IBook value per common share at the beginning of the period INet income available to common shareholders 0.15 0.54 common dividends declared (0.20) (0.60) INet change attributable to Agency MBS (0.01) (0.06) INet change attributable to Non-Agency MBS and CRT securities