Slide 1: Forward Looking Language
Forward Looking Language 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,” “m
Slide 2: Executive summary
Executive summary • In this historically low interest rate environment, we continue to generate attractive returns from residential credit mortgage assets. • In the first quarter we generated EPS of $0.20. • Book value per share increased to $7.66 versus $7.62 at the end of 2016. • MFA continued to
Slide 3: Executive summary: long term 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 3/31/17 assuming reinvestment of dividends. 4 Time PeriodAnnualized MFA Shareholder Return (1) Since January 1, 200015.4% 10 Year13.8% 5 Year15.7% 1
Slide 4: 2017 investment strategy
2017 investment strategy Be positioned for less predictable fiscal and monetary policy. 1. Focus on shorter term, less interest rate sensitive assets. 2. Blend mortgage credit exposure with interest rate exposure. 3. Maintain staying power and the ability to invest in distressed, less liquid assets:
Slide 5: Market conditions and changes in asset allocation
Market conditions and changes in asset allocation • While the Federal Reserve increased the Fed Funds rate in both December and March, yields on credit sensitive assets remained flat as investors priced in more optimistic credit assumptions. • We did not reinvest all of our first quarter runoff due
Slide 6: First quarter investment flows
First 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 2016 Runoff Acquisitions changes March 31, 2017 Change $1,405 $(43) $— $(13) $1,349 $(56) performing Loans (1)
Slide 7: MFA's yields and spreads remain attractive
MFA’s yields and spreads remain attractive 4.61% 4.34% 4.23% 4.19% Earning Assets 2.27% 2.12% 2.13% 2.14% Rate Spread 2.9x 3.1x 3.1x 3.3x Equity Ratio 8 FirstFourthThirdSecond QuarterQuarterQuarterQuarter 2017201620162016 Yield on Interest Net Interest Debt to
Slide 8: First quarter 2017 yields and spreads by asset type
First quarter 2017 yields and spreads by asset type 5.93% (2.25)% 3.68% 2.3x Securities (1) Net of 30 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 9: MFA's interest rate sensitivity remains low
MFA’s interest rate sensitivity remains low, as measured by estimated $ in Millions net duration MTR: Months to reset 10 AssetsMarket ValueAverage CouponDuration Non-Agency ARMs (12 months or less MTR)$2,5523.51%0.4 3 Year Step-up Securities$2,4534.05%0.3 Non-Agency Fixed Rate$9615.80%3.0 Residentia
Slide 10: Low sensitivity to prepayment rates
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 Non-Agency MBS Discount Accretion by quarter $30 $25 $20 $15 $10 $5 $0 Agency MBS Premium Amortization Legacy Non-Age
Slide 11: 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. • • According to the National Association of Realtors: • Existing-home sales for March increased 4.4% to a seasonally adjusted annual rate of 5.71 million
Slide 12: Recent trends in credit sensitive loan trading
Recent trends in credit sensitive loan trading • Bid prices for Re-performing whole loans have been firm due to strong demand despite higher funding costs due to Fed Fund increases in December and March. • Non-performing whole loans have also seen firm pricing, partly due to DOJ settlements. • We ha
Slide 13: Credit sensitive residential whole loan portfolio
Credit sensitive residential whole loan portfolio • 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. • We believe that our oversight of servicing decisio
Slide 14: 3 year step-up securities portfolio
3 year step-up securities portfolio • Current market yields of mid to high 3%. • Well protected portfolio with substantial credit enhancement. • Growing number of repo providers for this asset class. • Very short assets with an average of 18 months remaining to step-up. • We have witnessed very low
Slide 15: 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 nearly eleven years seasoned on a
Slide 16: Summary
Summary • Wecontinuetoidentifyandacquireattractivecreditsensitiveresidential mortgage assets. • We continued to acquire 3 year step-up and CRT Securities during the first quarter of 2017. • Our credit sensitive assets continue to perform well. • MFA is well-positioned for changes in prepayment rates
Slide 17: Summary
Summary e We continue to identify and acquire attractive credit sensitive residential mortgage assets. © Wecontinued to acquire 3 year step-up and CRT Securities during the first quarter of 2017. ° Our credit sensitive assets continue to perform well. ° MEA is well-positioned for changes in prepayme
Slide 18: Book value increased due to fair value changes in Legacy Non-Agency MBS
Book value increased due to impact of fair value changes in Legacy Non-Agency MBS 19 Book value per common share as of 12/31/16$7.62 Net income available to common shareholders0.20 Common dividend declared during the quarter(0.20) Net change attributable to Agency MBS(0.03) Net change attributable t
Slide 19: First Quarter Non-Agency MBS impact on MFA book value per share
First Quarter value Non-Agency MBS impact on MFA book Per Share(1) (0.06) a discount. This income increases amortized cost and lowers unrealized gains (1) Does not include impact of swap hedges. 20 Impact Impact of change in market prices$0.11 Realized gains from asset sales: Reallocation from OCI t
Slide 20: Impact per share
Impact Per Share? impact of change in market prices Realized gains from asset sales: Reallocation from OC! to Retained Earnings Discount Accretion: Primarily income in excess of coupon on Non-Agency MBS purchased at la discount. This income increases amortized cost and lowers unrealized gains (eye o