Mfa Financial, Inc. · NYSE:MFA
Mfa Financial — Q1 2019 Earnings Presentation
23 slides from Mfa Financial's earnings presentation, May 7, 2019
Slide 1: Executive summary
Executive summary • MFA’s GAAP EPS in the first quarter of 2019 was $0.19, as marks recovered on assets impacted last quarter by high market volatility, particularly CRT securities and Agency MBS held at fair value. • Core earnings, a non-GAAP measure of MFA’s financial performance that is calculate
Slide 2: Executive summary - Core earnings
Executive summary - “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
Slide 3: Executive summary (cont'd.)
Executive summary (cont’d.) • First quarter investment activity was very robust as we purchased approximately $1.2 billion of assets and increased our portfolio by $369 million during the quarter. We added over $875 million of Purchased Performing Loans.(1) We continue to pursue new investment struc
Slide 4: Executive summary (cont'd.)
Executive summary (cont’d.) • Loan portfolio growth from Purchased Performing Loans increased interest income in 2019: Loans held at carrying value(1) produced $49.6 million of interest income in the first quarter of 2019 (versus $101 million for all of 2018 and $39.1 million in Q4 2018). $38.2 mill
Slide 5: Investment strategy
Investment strategy • Continue to grow investment assets Purchased Performing Loans should provide recurring (and increasing) portfolio growth. Opportunistic growth in other asset classes • Optimize existing portfolio Strategic sales of Legacy Non-Agency MBS Re-balance CRT portfolio by selling seaso
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: Q1 2019 net income per common share of $0.19
Q1 2019 net income per common share of $0.19 Q1 Net income drivers Higher net interest income, reflecting continued growth in Purchased Performing Loans. Reduced market volatility and reversal of prior quarter spread widening, resulting in: Significant recovery of unrealized losses on CRT securities
Slide 8: Strong portfolio growth since expanding investment strategy
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 $2.5 billion since the end of Q3 2017. Residential whole loans and REO
Slide 9: MFA's yields and spreads remain attractive
MFA’s yields and spreads remain attractive unchanged and remains attractive. • Despite nine Fed Fund increases over three years, MFA’s interest rate spread is relatively During this period, yield on interest earning assets has risen MFA’s credit sensitive investments have benefited from continued im
Slide 10: First quarter 2019 yields and spreads by asset type
First quarter 2019 yields and spreads by asset type Net Spread Allocated (millions) Return Funds Equity Ratio (1) (2) Net of 9 bps of servicing costs. 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 qua
Slide 11: MFA's net interest rate sensitivity remains low
MFA’s net interest rate sensitivity remains low at 1.07 • • • Excluding hedges, our asset duration remains relatively low at 1.58. Our assets continue to be primarily sensitive to mortgage credit fundamentals. In addition, our leverage remains low, with a debt-to-equity ratio of 2.7x. Duration Risk
Slide 12: Strategy limits 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 • Through asset selection and risk management MFA has consistently limited quarterly book value fluctuations. Since 2014 MFA’s average quarterly book value change has
Slide 13: Continued positive fundamentals for residential mortgage credit
Continued positive fundamentals National HPA-YoY As of February 2019 for residential mortgage U-3 Unemployment Rate As of March 2019 credit 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
Slide 14: Residential whole loan portfolio
Residential whole loan portfolio We purchased approximately $875 million of residential whole loans in the first 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 seas
Slide 15: RPL portfolio delinquency characteristics
RPL portfolio delinquency characteristics as of 3/31/2019 • 86% of our RPL portfolio is less than 60 days delinquent. • On average, 27% of the 60+ days delinquent loans are making payments. • Prepayment speeds have outperformed expectations maintaining a range between 6% and 14%. 18
Slide 16: Non-Performing loan performance
Non-Performing1 Performance of loans purchased before 3/31/18 • Through diligent asset management we continue to improve outcomes for our NPL portfolio by returning loans to performing or paid-in-full status, and through other forms of resolution. • Measured by UPB at purchase, 37% (or approximately
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 $2.1 billion UPB to date Delinquencies have remained very low with less than 0.8% greater than 60 days delinquent. We are currently working
Slide 18: Business purpose loans - Rehabilitation and 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 $1.2 billion of
Slide 19: Summary
Summary Continuedrobustinvestmentactivity,growingtheportfolioforthesixth • consecutive quarter. We purchased over $1.2 billion of assets and grew our portfolio by $369 million. • Growth in acquisitions of Purchased Performing Loans has resulted in higher net interest income and we expect this to con
Slide 20: Summary
Summary * Continued robust investment activity, growing the portfolio for the sixth consecutive quarter. We purchased over $1.2 billion of assets and grew our portfolio by $369 million. * Growth in acquisitions of Purchased Performing Loans has resulted in higher net interest income and we expect th
Slide 21: Book value continues to be relatively stable
Book value continues to be relatively stable (0.07) results in a reduction of unrealized gains 24 Qtr ended 3/31/19 Book value per common share at the beginning of the period$7.15 Net income available to common shareholders0.19 Common dividends declared(0.20) Net change attributable to Agency MBS0.0
Slide 22: 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 23: Core earnings
“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 promuleated by the Securltiesand Exchange Cornmisson. Core earnings excludes certain unrealzedgains and losses that we arerequiredto include inGAAPNet