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 this low interest rate environment, we continue to generate attractive returns from residential credit mortgage assets. • In the third quarter we generated EPS of $0.21 and dividend per share of $0.20. • MFA continued to acquire credit sensitive residential mortgage assets, su
Slide 3: MFA has generated strong long term returns to investors
Through volatile markets and both interest rate and credit cycles, MFA has generated strong long term returns to investors (1) As of 9/30/16 assuming reinvestment of dividends. 4 Time Period Annualized MFA Shareholder Return (1) Since January 1, 2000 14.9% 10 Year 12.6% 5 Year 15.9% 1 Year 22.8%
Slide 4: 2016 MFA strategy
2016 MFA strategy 1)Invest in high value-added assets A.Generate returns from investment in credit sensitive residential mortgage assets: •MFA’s credit sensitive assets continue to perform well. Legacy Non-Agency MBS Credit Reserve has been reduced by $39.8 million over the past 12 months. B.Acquire
Slide 5: 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, 2016 Runoff Acquisitions (1) other changes 2016 Change Re-performing and Non-performing Loans $1,077
Slide 6: MFA's yields and spreads remain attractive
MFA’s yields and spreads remain attractive Earning Assets 4.23% 4.19% 4.23% Rate Spread 2.13% 2.14% 2.18% Equity Ratio 3.1x 3.3x 3.4x 7 Third Second First Quarter Quarter Quarter 2016 2016 2016 Yield on Interest Net Interest Debt to EPS $0.21 $0.20 $0.20
Slide 7: Third quarter 2016 yields and spreads by asset type
Third quarter 2016 yields and spreads by asset type (1) Net of 38 bps of servicing costs. (2) Residential whole loans held at fair value 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 expects to realize
Slide 8: Undistributed REIT taxable income
Undistributed REIT taxable income • As of September 30, 2016, we estimate that MFA had undistributed REIT taxable income of approximately $0.16 per share. • MFA has until the filing of its 2016 tax return (due not later than September 15, 2017) to declare the distribution of any 2016 REIT taxable in
Slide 9: MFA's interest rate sensitivity remains below 1.0, as measured by net duration
MFA’s interest rate sensitivity remains below 1.0, as measured by net duration $ in Millions 10 Assets Market Value Average Coupon Duration Non-Agency ARMs (12 months or less MTR) $2,620 3.30% 0.4 Non-Agency Hybrid (13-48 MTR) $3 3.99% 1.0 3 Year Step-up Securities $2,523 3.83% 0.3 Non-Agency Fixed
Slide 10: Low sensitivity to prepayment rates
Millions ($) Q3-2013 Q4-2013 Q1-2014 Q2-2014 Q3-2014 Q4-2014 Q1-2015 Q2-2015 Q3-2015 Q4-2015 Q1-2016 Q2-2016 Q3-2016 Low sensitivity to prepayment rates Legacy Non-Agency MBS discount accretion has exceeded Agency MBS premium amortization since 2013. MFA's Agency MBS Premium Amortization and Legacy
Slide 11: Positive fundamentals for residential mortgage credit and home prices
While economic growth rate is uncertain, there are many positive fundamentals for residential mortgage credit and home prices • Fundamental and technical support for residential credit assets and home prices • Distressed sales share of existing home sales is down to 4% (vs. 10% a year ago and 30% 5
Slide 12: Continued growth in credit sensitive loan portfolio
Continued growth in credit sensitive loan portfolio • Re-Performing and Non-Performing Loan Portfolio $ in Millions • At today’s market prices, re-performing and non-performing residential mortgage loans generate higher yields than residential MBS. • Residential whole loans are qualifying interests
Slide 13: Credit sensitive residential whole loans: Growing asset class for MFA
Credit sensitive residential whole loans: Growing asset class for MFA • Early results indicate returns to date are consistent with our expectation of 5-7%. • Utilizes the same residential mortgage credit expertise we have employed in Legacy Non-Agency MBS since 2008. • Ability to oversee servicing d
Slide 14: Third quarter 3 Year Step-up Securities Holdings
Third quarter 3 Year Step-up Securities Holdings • Current market yields of mid to high 3% • Well protected portfolio with current credit enhancement of 48% • Very short assets with an average of 20 months remaining to step-up As of September 30, 2016 Underlying collateral Fair Value mm Net Coupon M
Slide 15: LTV breakdown of non-delinquent mortgage loans underlying Legacy Non-Agency MBS
16 $ (Millions) 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% 101-110% 111-125% > 125% LTV •These loans are up to date on all required mortgage payments. •Underlying loans are over ten years seas
Slide 16: Summary
Summary •We continue to identify and acquire attractive credit sensitive residential mortgage assets. •We continued to acquire 3 year step-up securities and credit sensitive mortgage loans during the quarter. •Our credit sensitive assets continue to perform well. •MFA is well positioned for changes
Slide 17: Summary
Summary + We continue to identify and acquire attractive credit sensitive residential mortgage assets. + We continued to acquire 3 year step-up securities and credit sensitive mortgage loans during the quarter. * Our credit sensitive assets continue to perform well. * MFAis well positioned for chang
Slide 18: Book value increased 3% primarily due to Legacy Non-Agency MBS fair value changes
Book value increased 3% primarily due to impact of fair value changes in Legacy Non-Agency MBS 19 Book value per common share as of 6/30/16 $7.41 Net income available to common shareholders 0.21 Common dividend declared during the quarter (0.20) Net change attributable to Agency MBS (0.02) Net chang
Slide 19: Third Quarter Non-Agency MBS impact on MFA book value
Third Quarter Non-Agency MBS impact on MFA book value Impact Per Share(1) Discount Accretion: Primarily income in excess of coupon on Non-Agency MBS purchased at a discount. This income increases amortized cost and lowers unrealized gains (0.05) (1) Does not include impact of swap hedges. 20 Impact
Slide 20: Third Quarter Non-Agency MBS impact on MFA book value
Third Quarter Non-Agency MBS impact on MFA book value Impact Per Share” impact of change in market prices Realized gains from asset sales: Reallocation from OCI to Retained Earnings Discount Accretion: Primarily income in excess of coupon on Non-Agency MBS purchased at fa discount. This income incre