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 fourth quarter we generated EPS of $0.24, an increase from prior earnings due primarily to: • •Gains on Fair Value whole loans (including approx $15 million of cash received) •Recovery of prices of CRT securities after hurricane-related declines in Q3 • 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 12/31/17 assuming reinvestment of dividends. 4 Time PeriodAnnualized MFA Shareholder Return (1) Since January 1, 200015.0% 10 Year11.7% 5 Year12.5% 1
Slide 4: Investment strategy
Investment strategy Position for higher levels of market uncertainty • Primary focus on shorter term assets with inherently less interest rate sensitivity. • Produce attractive returns that are comparable to peers, but with less risk due to lower leverage, less interest rate exposure and reduced pre
Slide 5: Market conditions and investment activity
Market conditions and investment activity • Despite a challenging investment environment, MFA purchased more than $700 million in assets in the fourth quarter. • Investment activity slightly exceeded portfolio run-off in the fourth quarter. RPL/NPL MBS run-off, which had been elevated in prior quart
Slide 6: Higher EPS primarily due to MTM gains on fair value loans and CRTs
Higher EPS primarily due to MTM gains on fair value loans and CRTs • In Q4 2017, lower sequential net interest income, due primarily to continued run-off in interest earning assets, was more than offset by higher net other income, which was driven by: •Strong performance from fair value loans, which
Slide 7: Fourth quarter investment flows
Fourth 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 2017 Runoff Acquisitions changes December 31, 2017 Change $1,881 $(87) $554 $38 $2,386 $505 REO (1) RPL/NPL a
Slide 8: MFA's yields and spreads remain attractive
MFA’s yields and spreads remain attractive • Despite five Fed Funds rate increases in two years: • • MFA’s interest rate spread is relatively unchanged and remains attractive. Yields on many of our credit sensitive assets have risen as credit fundamentals have continued to improve. We have successfu
Slide 9: Fourth quarter 2017 yields and spreads by asset type
Fourth quarter 2017 yields and spreads by asset type (1) Net of 45 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 a quarter-to-quarter basis. MFA ex
Slide 10: MFA's interest rate sensitivity remains low
MFA’s interest rate sensitivity remains low • • Excluding hedges, our Asset Duration remains relatively low at 1.41. Our assets have limited exposure to long term interest rates and their duration changes little when long term interest rates change. • • • Many of our assets are primarily sensitive t
Slide 11: Strategy has delivered book value stability and low prepayment sensitivity
MFA’s strategy has 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 (left axis) and MFA's Asset Duration by Quarter (right axis) $30 10% 8% 6% 4% 2
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 4.1% in December 2017, down from 4.7% a year ago. • According to the Urban Institute and CoreLogic, the percentage of homes with n
Slide 13: Residential whole loan portfolio update
Residential whole loan portfolio update • We purchased $554MM of residential whole loans in the fourth quarter. • Purchases were more heavily weighted towards NPLs as we have seen a material spread tightening in the RPL market. • Market trading volumes for the year ended 2017 were approximately $40B
Slide 14: Performance of non-performing loans purchased before 12/31/16
Performance of non-performing loans purchased before 12/31/16 Measured by percentage of total loan count, 31% of loans which were non-performing at purchase are either performing or have paid in full as of December 2017. • 1,415 loans that were non-performing at purchase are either performing today
Slide 15: RPL/NPL MBS portfolio
RPL/NPL MBS portfolio • Current market yields of approximately 3.375% for A1 Classes and 5% for A2 classes. • Well protected portfolio with substantial credit enhancement. • Very short assets with an average of 22 months remaining to step-up. • We have witnessed very low levels of price volatility.
Slide 16: MFA Non-Agency MBS portfolio: Then and Now
MFA Non-Agency MBS portfolio: Then and Now 60% 49.1% 50% 40% 30% 20% 10% % % 0.2% 0% <= 60% 61-80% 81-90% 91-100% 101-110% > 125% Loan-to-value • • • Loan-to-value ratios have improved markedly from the first quarter of 2014 to today. The improvement has led to an increased ability to refinance resu
Slide 17: Summary
Summary • We remain active in the market and successfully purchased more than $700 million of investments in the fourth quarter. • We continue to expand our investment opportunity set within the residential mortgage space, utilizing the same disciplined approach to risk/reward as we have in the past
Slide 18: Summary
Summary ® We remain active in the market and successfully purchased more than $700 million of investments in the fourth quarter. e We continue to expand our investment opportunity set within the residential mortgage space, utilizing the same disciplined approach to risk/reward as we have in the past
Slide 19: Book value for the quarter was unchanged and up 1% in 2017
Book value for the quarter was unchanged and up 1% in 2017 20 Qtr ended 12/31/17 Year ended 12/31/17 Book value per common share at the beginning of the period $7.70 $7.62 Net income available to common shareholders 0.24 0.79 Common dividends declared (0.20) (0.80) Net change attributable to Agency
Slide 20: Book value per common share reconciliation
Qtrended Year ended 12/31/17 12/31/17 IBook value per common share at the beginning of the period INet income available to common shareholders 0.24 0.79 Common dividends declared (0.20) (0.80) INet change attributable to Agency MBS (0.04) (0.10) INet change attributable to Non-Agency MBS and CRT sec