Mfa Financial, Inc. · NYSE:MFA
Mfa Financial — Q1 2018 Earnings Presentation
20 slides from Mfa Financial's earnings presentation, May 8, 2018
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 the first quarter of 2018, MFA generated EPS of $0.20, the same as we earned in the first quarter • of 2017.Net income decreased from the fourth quarter of 2017, as prices of CRT securities in Q1 2018 were flat after rising significantly to historic tights in Q4 2017, when they
Slide 3: Executive summary (cont'd.)
Executive summary (cont’d.) Strong credit fundamentals continue to drive earnings and book value. • • Residential mortgage credit-related assets now comprise over 70% of MFA’s total assets, and nearly 90% of MFA’s equity allocation. • Residential whole loans (including REO) now represent MFA’s large
Slide 4: Investment strategy
Investment strategy Position for higher levels of market uncertainty • Primary focus on credit-related assets with inherently less interest rate sensitivity. • Produce attractive returns that are comparable to peers, but with less risk due to lower leverage, less interest rate exposure and reduced p
Slide 5: Market conditions and investment activity
Market conditions and investment activity • Despite a challenging investment landscape, MFA again purchased more than $700 million in assets in the first quarter, as we had in the fourth quarter of 2017. • Investment activity exceeded portfolio run-off in the first quarter by over $100 million, and
Slide 6: Q1 EPS reflects reduced price volatility on CRT securities
Q1 EPS reflects reduced price volatility on CRT securities Q1 2018 net income per common share was $0.20. Other Income was not as high as the prior quarter primarily due to: • Prices of CRT securities were largely unchanged during the quarter. Prices rose in Q4 2017 to reflect historic tight spreads
Slide 7: First quarter 2018 investment flows
First quarter 2018 investment flows Another active quarter with asset acquisitions exceeding run-off $ in Millions 2017 Runoff Acquisitions changes March 31, 2018 Change $2,386 $(100) $522 $31 $2,839 $453 REO (1) RPL/NPL are securitized financial instruments that are backed by re-performing and non-
Slide 8: MFA's yields and spreads remain attractive
MFA’s yields and spreads remain attractive • Despite six Fed Funds rate increases in two and a half years: • • MFA’s interest rate spread is relatively unchanged and remains attractive. Yields on many of our credit sensitive assets have risen as credit fundamentals have continued to improve. We have
Slide 9: First quarter 2018 yields and spreads by asset type
First quarter 2018 yields and spreads by asset type (1) Net of 29 bps of servicing costs. (2) 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-to-quarter basis. MFA expects to realize returns ove
Slide 10: MFA's interest rate sensitivity remains low
MFA’s interest rate sensitivity remains low • • Excluding hedges, our Asset Duration remains relatively low at 1.47. Our assets have limited exposure to long term interest rates and their duration changes little when long term interest rates change. • • • Majority of our assets are primarily sensiti
Slide 11: Strategy has delivered book value stability during increases in interest rates
MFA’s strategy has delivered book value stability and strong performance during increases in interest rates MFA's Book Value change during recent increases in interest rates (Q4 2016 and Q4 2017 to Q1 2018) Quarterly change in MFA's Book Value (left axis) and MFA's Asset Duration (right axis) by Qua
Slide 12: 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. • Unemployment rate of 3.9% in April 2018, down from 4.4% a year ago. • Housing inventory remains limited at 3.7 months of supply in March, lower than 4.
Slide 13: Residential whole loan portfolio update
Residential whole loan portfolio update • We purchased $522 million of residential whole loans in the first quarter. • Purchases continued to be heavily weighted towards NPLs as we have seen a material spread tightening in the RPL market. • Market trading volumes through the end of the first quarter
Slide 14: Performance of non-performing loans purchased before 3/31/17
Performance of non-performing loans purchased before 3/31/17 Measured by percentage of total loan count, 33% (or nearly 1,500) of loans that were non-performing at purchase are either performing or have paid in full as of March 2018. • 82% of MFA modified loans are either performing today or have pa
Slide 15: NPL asset management performance
NPL asset management performance % Performing or Paid-in-Full by Year of Acquisition • 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. 2014 2015 2016 30% 25% 20% 15
Slide 16: RPL/NPL MBS portfolio
RPL/NPL MBS portfolio • Current market yields of approximately 3.75% for A1 Classes and 5% for A2 classes. • Well protected portfolio with substantial credit enhancement. • Very short assets with an average of 19 months remaining to step-up. • We have witnessed very low levels of price volatility. N
Slide 17: Summary
Summary We remain active in the market and again grew the portfolio as we successfully purchased • more than $700 million of investments in the first quarter. We continue to expand our investment opportunity set within the residential mortgage • space, utilizing the same disciplined approach to risk
Slide 18: Summary
Summary » We remain active in the market and again grew the portfolio as we successfully purchased more than $700 million of investments in the first quarter. » We continue to expand our investment opportunity set within the residential mortgage space, utilizing the same disciplined approach to risk
Slide 19: Investment strategy continues to deliver relatively stable book value
Investment strategy continues to deliver relatively stable book value 20 Qtr ended 3/31/18 Book value per common share at the beginning of the period $7.70 Net income available to common shareholders 0.20 Common dividends declared (0.20) Net change attributable to Agency MBS (0.03) Net change attrib
Slide 20: Book value per common share reconciliation
Book value per common share at the beginning of the period Net income available to common shareholders ommon dividends declared Net change attributable to Agency MBS Net change attributable to Non-Agency MBS and CRT securities Net change in value of swap hedges Book value per common share as of 3/31