Mfa Financial, Inc. · NYSE:MFA
Mfa Financial — Q2 2019 Earnings Presentation
24 slides from Mfa Financial's earnings presentation, Aug 7, 2019
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 (1) • MFA’s GAAP EPS and Core earningsin the second quarter of 2019 were $0.20, as our whole loan portfolio continued to make meaningful and growing contributions to our results. • For the second quarter of 2019, MFA acquired approximately $1.4 billion of assets, increasing its por
Slide 3: Executive summary (cont'd.)
Executive summary (cont'd.) • Second quarter investment activity was very robust as we purchased approximately $1.4 billion of assets and increased our portfolio by $391 million during the quarter. We added $913 million of Purchased Performing Loans.(1) We continue to pursue new investment structure
Slide 4: Executive summary (cont'd.)
Executive summary (cont'd.) • Loan portfolio growth from Purchased Performing Loans has increased interest income in 2019: Loans held at carrying value(1) produced $57.9 million of interest income in the second quarter of 2019 (versus $49.6 million in Q1 2019 and $100.9 million for all of 2018). $46
Slide 5: Investment strategy
Investment strategy • 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 support asset
Slide 6: Market conditions and investment activity
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
Slide 7: Higher sequential quarter GAAP EPS and Core earnings
Higher sequential quarter GAAP EPS and Core earnings GAAP EPS $0.01 higher. Core Earnings $0.03 higher. Q2 2019 net income drivers include: $ in mm $ in mm • Higher other income, as additional net gains on whole loans measured at fair value were partially offset by: Lower realized gains on MBS and C
Slide 8: Second quarter 2019 investment flows
Second quarter 2019 investment flows • Continued robust investment activity with asset acquisitions of approximately $1.4 billion. • Investment portfolio grew by $391 million in the second quarter as we continue to expand our new loan initiatives. • Opportunistic sales of $195 million of residential
Slide 9: 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 over $2.9 billion since the end of Q3 2017. Residential whole loans and REO
Slide 10: MFA's yields and spreads remain attractive
MFA's yields and spreads remain attractive • Despite nine Fed Fund increases over three years, MFA’s interest rate spread has remained stable and attractive. During this period, yield on interest earning assets has risen. Funding costs have risen slower than Fed Funds. • Going forward, MFA’s funding
Slide 11: Second quarter 2019 yields and spreads by asset type
Second quarter 2019 yields and spreads by asset type Net Spread Allocated (millions) Return Funds Equity Ratio (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-t
Slide 12: MFA's net interest rate sensitivity remains low
MFA’s net interest rate sensitivity remains low at 1.11 • • • Excluding hedges, our asset duration remains relatively low at 1.57. Our assets continue to be primarily sensitive to mortgage credit fundamentals. In addition, our leverage remains low, with a debt-to-equity ratio of 2.8x. Duration Risk
Slide 13: MFA's strategy continues to limit quarterly book value fluctuations
MFA’s strategy continues to limit quarterly book value fluctuations Quarterly change in MFA's Book Value (left axis) and MFA's Asset Duration by Quarter (right axis) • Through asset selection and risk management MFA has consistently limited quarterly book value fluctuations. Since 2014 MFA’s average
Slide 14: Continued positive fundamentals
Continued positive fundamentals National HPA-YoY As of May 2019 residential mortgage U-3 Unemployment Rate As of June 2019 credit 3.7% 10% Source: Zillow Source: NY FED # of Units (millions) Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Oct-14 Jan-15 Apr-15 Jul-15 Oct-15 Jan-16 Apr-16 Jul-16 Oct-
Slide 15: Residential whole loan portfolio
Residential whole loan portfolio We purchased approximately $1.0 billion of residential whole loans in the second 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. Seasone
Slide 16: RPL portfolio delinquency characteristics
RPL portfolio delinquency characteristics • 87% of our RPL portfolio is less than 60 days delinquent. as of 6/30/2019 • On average, 27% of the 60+ days delinquent loans are making payments. • Prepayment speeds have outperformed expectations maintaining a range between 6% and 14%. 17
Slide 17: 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 $2.5 billion UPB to date Delinquencies have remained very low with less than 0.8% greater than 60 days delinquent. Currently working with s
Slide 18: Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans
Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans We continue to grow our holdings of Rehabilitation and SFR loans as we expand our existing originator relationships and develop new ones. Since inception we have acquired (including undrawn commitments) over $1.7 billion of
Slide 19: Summary
Summary • Continued robust investment activity, growing the portfolio for the seventh consecutive quarter. We purchased approximately $1.4 billion of assets and grew our portfolio by $391 million. • Net portfolio growth exceeds $750 million for the six months ended June 30, 2019. • AcquisitionsofPur
Slide 20: Summary
Summary ¢ Continued robust investment activity, growing the portfolio for the seventh consecutive quarter. We purchased approximately $1.4 billion of assets and grew our portfolio by $391 million. ° Net portfolio growth exceeds $750 million for the six months ended June 30, 2019. ¢ Acquisitions of P
Slide 21: Book value continues to be stable
Book value continues to be stable (0.05) (0.12) results in a reduction of unrealized gains 23 QTRYTD 6/30/196/30/19 Book value per common share at the beginning of the period$7.11$7.15 Net income available to common shareholders0.200.39 Common dividends declared(0.20)(0.40) Net change attributable t
Slide 22: Core earnings
"Core earnings" • Core earnings = GAAP earnings less the impact of unrealized gains and losses on: CRT securities that are measured at fair value through earnings Agency MBS and related hedges that are measured at fair value through earnings • Included in Core earnings: Realized gains and losses Unr
Slide 23: Reconciliation of GAAP to Core earnings
Reconciliation of GAAP to Core earnings “Core earnings” is a non-GAAP financial measure of our operating performance, within the meaning of Regulation G and Item 10(e) of Regulation S-K, as promulgated by the Securities and Exchange Commission. Core earnings excludes certain unrealized gains and los
Slide 24: Reconciliation to Core earnings
conc to Core “Core earrings” Is 2 non-GAAP financial measure of our operating performance, within the rearing of Retulation G and item 20(e) of Retulation S-K, 2s promulgated by the Securliesand Exchange Cornmission. Core earnings excludes certain unrealzedgains and losses that we arerequiredto incl