Mfa Financial, Inc. · NYSE:MFA
Mfa Financial — Q4 2019 Earnings Presentation
29 slides from Mfa Financial's earnings presentation, Feb 20, 2020
Slide 1: Fourth Quarter 2019 Earnings Presentation
Fourth Quarter 2019 Earnings Presentation
Slide 2: Forward Looking Statements
Forward Looking Statements 2 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 3: Executive summary
Executive summary • MFA’s GAAP EPS in the fourth quarter of 2019 was $ 0 . 21 , as our whole loan portfolio growth and performance continues to drive our financial results . Core earnings ( 1 ) was also $ 0 . 21 . • For the fourth quarter of 2019 , MFA acquired $ 1 . 7 billion of assets, including $
Slide 4: Executive summary: fourth quarter investment activity
• Fourth quarter investment activity was our highest of the year, as we purchased approximately $ 1 . 7 billion of assets, including $ 1 . 5 billion of Purchased Performing Loans ( 1 ) . New investments for the year were $ 5 . 3 billion, including $ 4 . 3 billion of residential whole loans . • We co
Slide 5: Executive summary (cont'd.)
• Growth of Purchased Performing Loans continues to drive interest income : ▪ Loans held at carrying value produced $ 72 . 3 million of interest income in the fourth quarter of 2019 (versus $ 64 . 2 million in Q 3 2019 and $ 100 . 9 million for all of 2018 ) . ▪ Interest income from residential whol
Slide 6: Executive summary (cont'd.)
• Our asset management team maintains very active oversight of the servicing of delinquent and credit sensitive loans to improve outcomes and expected returns . This team also manages our REO properties, some of which we have converted to rental properties . • Technology initiatives have improved pr
Slide 7: Investment strategy
Investment strategy 7 • Continue to grow investment assets ▪ Purchased Performing Loans are providing recurring (and increasing) portfolio growth ▪ Opportunistic growth in other asset classes if/when available • Optimize Balance Sheet/Capital Structure ▪ Modest increase in leverage (including securi
Slide 8: Market conditions and investment activity
• Expand investment opportunities in the form of newly originated whole loans . ▪ Benign rate environment often leads to higher origination volume of non - conventional loan products such as Non - QM mortgages . ▪ Creative approach to partnering with originators gives MFA an edge as competition incr
Slide 9: Higher net interest income drives earnings
Higher net interest income drives earnings Summary Income Statement Q4 2019 $ in mm Q3 2019 $ in mm Net Interest Income: Residential mortgage securities (1) $ 45.8 $ 36.9 Residential whole loans (2) 27.9 24.1 Other interest earning assets and interest bearing liabilities (3.1 ) (4.1 ) Net Interest I
Slide 10: FY 2019 reflects lower market volatility and loan portfolio growth
FY 2019 reflects lower market volatility and loan portfolio growth Summary Income Statement FY 12/31/19 $ in mm FY 12/31/18 $ in mm Net Interest Income: Residential mortgage securities (1) $ 170.1 $ 198.6 Residential whole loans (2) 88.9 29.6 Other interest earning assets and interest bearing liabil
Slide 11: Impact of Credit Impairment standard (CECL) adoption
Impact of Credit Impairment standard (CECL) adoption • We adopted CECL on January 1, 2020. Adoption did not have a material impact on our financial position or book value. Key impacts of adoption on our investments are as follows: ▪ Purchased Performing Loans - “Day 1” transition adjustment of $8.3
Slide 12: Fourth quarter 2019 investment flows
Fourth quarter 2019 investment flows • Continued robust investment activity with approximately $1.7 billion of asset acquisitions. • Acquired over $1.5 billion of purchased performing loans, growing our holdings of whole loans for the 11th consecutive quarter. 2019 average quarterly whole loan acqui
Slide 13: 2019 Investment Flows
2019 Investment Flows • Investment portfolio grew by $1 billion in 2019. • $5.3 billion in total acquisitions of which $4.3 billion (approximately 80%) was whole loans. • Doubled our holdings of MSR - Related assets to $1.2 billion. • Shrunk our Agency MBS portfolio by 40% through asset sales and ru
Slide 14: Strong portfolio growth since expanding investment strategy
Strong portfolio growth since expanding investment strategy to include Non - QM, Fix and Flip and SFR Loans • Residential whole loans are now our largest asset class. • Since expanding our investment universe to include Purchased Performing Loans, our investment portfolio has grown by $3.2 billion s
Slide 15: MFA's yields and spreads remain attractive
• MFA’s emphasis on credit risk over interest rate risk continues to deliver attractive portfolio yield and spread. ▪ Yield on interest earning assets of 5.66 % . ▪ Net interest rate spread of 233 bps. • MFA’s funding costs continue to benefit from falling short term rates. ▪ At December 31, 2019, t
Slide 16: Fourth quarter 2019 yields and spreads by asset type
Fourth quarter 2019 yields and spreads by asset type 16 Asset Amount (millions) Net Equity Allocated (millions) Yield/R eturn Cost of Funds Net Spread Debt/Net Equity Ratio Whole Loans at Carrying Value $6,066 $1,848 5.27 % (1) (3.59 )% (3) 1.68% 2.3x Whole Loans at Fair Value $1,382 $288 N/A (2) (3
Slide 17: MFA's net interest rate sensitivity remains low
MFA’s net interest rate sensitivity remains low at 1.36 17 Assets (in millions) Market Value Average Coupon (1) Duration Non - Agency ARMs and CRTs $ 1,122 4.12% 0.4 RPL/NPL MBS $ 635 5.06% 0.4 Non - Agency Fixed Rate $ 562 5.85% 3.0 Residential Whole Loans $ 7,630 5.66% 2.4 MSR - Related Assets $ 1
Slide 18: Strategy continued to limit quarterly book value fluctuations
MFA’s strategy continued to limit quarterly book value fluctuations 18 • Through asset selection and risk management MFA continued to limit quarterly book value fluctuations in 2019. • Since 2014, MFA’s average quarterly book value change has been less than 2%. Largest quarterly book value decline w
Slide 19: Continued positive fundamentals residential mortgage credit
Continued positive fundamentals residential mortgage credit 19 4.02% As of November 2019 As of December 2019 3.6% 0.97% As of Q3 - 2019 As of December 2019 1.49mm Source: Zillow Source: NY FED Source: BLS Source: Corelogic
Slide 20: Residential whole loan portfolio
Residential whole loan portfolio 20 • We purchased over $1.5 billion of residential whole loans in the fourth 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 s
Slide 21: RPL portfolio delinquency characteristics as of 12/31/2019
RPL portfolio delinquency characteristics as of 12/31/2019 21 • 87 % of our RPL portfolio is less than 60 days delinquent. • On average, 29% of the 60+ days delinquent loans are making payments. • Prepayment speeds have outperformed expectations, maintaining a range between 6% and 14%.
Slide 22: Performance of Non-Performing loans purchased before 12/31/18
• Measured by UPB at purchase, 36% (or approximately 3,500) of loans that were non - performing at purchase are either performing or have paid in full as of December 2019. • 75% of MFA modified loans are either performing today or have paid in full. Performance of Non - Performing (1) loans purchase
Slide 23: 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 $4.6 billion UPB to date. • Delinquencies have remained very low with approximately 1% greater than 60 days delinquent. • Currently wor
Slide 24: Business purpose loans - Rehabilitation and SFR Loans
Business purpose loans - Rehabilitation and Single Family Rental (SFR) Loans Rehabilitation loans (“Fix and Flip”) • Fixed rate short term loans collateralized by residential property. Term is generally less than 24 months. • Borrower intends to rehabilitate property and resell. • Non - owner occupi
Slide 25: Summary
Summary 25 • Continued successful execution of our investment strategy, with residential whole loan purchases exceeding $ 1 . 5 billion in Q 4 and $ 4 . 3 billion in 2019 . • Net portfolio growth of $ 1 billion for the year ended December 31 , 2019 . • Acquisitions of P urchased Performing Loans aga
Slide 26: Additional Information
—————————— ee MEA Additional Information 26
Slide 27: GAAP book value per common share roll-forward
27 QTR 12/31/19 YTD 12/31/19 GAAP book value per common share at the beginning of the period $7.09 $7.15 Net income available to common shareholders 0.21 0.80 Common dividends declared (0.20) (0.80) Net change attributable to Agency MBS — 0.06 Impact of Discount Accretion and realization of gains on
Slide 28: Reconciliation of GAAP earnings to Core earnings
28 (In Millions, Except Per Share Amounts) Q4 2019 Q3 2019 Q2 2019 Q1 2019 FY 2019 FY 2018 GAAP Net Income to common stock holders - basic $ 96.6 $ 91.6 $ 89.0 $ 84.9 $ 362.0 $ 285.9 Adjustments: Unrealized (gain)/ loss on CRT securities measured at fair value through earnings 1.4 (0.1 ) 2.0 (2.7 )
Slide 29: Reconciliation of GAAP Book Value to Economic Book Value
29 Reconciliation of GAAP Book Value to Economic Book Value “Economic book value” is a non - GAAP financial measure of our financial position . To calculate our Economic book value, our portfolios of Residential whole loans at carrying value are adjusted to their fair value, rather than the carrying