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Section 1: 8-K (8-K)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 8-K

 

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the

Securities Exchange Act of 1934

 

Date of Report (Date of earliest event reported):  May 7, 2019

 

MFA FINANCIAL, INC.

(Exact name of registrant as specified in its charter)

 

Maryland

 

1-13991

 

13-3974868

(State or other jurisdiction

 

(Commission File Number)

 

(IRS Employer

of incorporation

 

 

 

Identification No.)

or organization)

 

 

 

 

 

350 Park Avenue, 20th Floor

 

 

New York, New York

 

10022

(Address of principal executive offices)

 

(Zip Code)

 

Registrant’s telephone number, including area code: (212) 207-6400

 

Not Applicable

(Former name or former address, if changed since last report)

 

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

 

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

 

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

 

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

 

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

 

Emerging growth company o

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  o

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Trading Symbol(s)

 

Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share

 

MFA

 

New York Stock Exchange

 

 

 

 

 

7.50% Series B Cumulative Redeemable
Preferred Stock, par value $0.01 per share

 

MFA/PB

 

New York Stock Exchange

 

 

 

 

 

8.00% Senior Notes due 2042

 

MFO

 

New York Stock Exchange

 

 

 


 

Item 2.02 Results of Operations and Financial Condition and

Item 7.01 Regulation FD Disclosure

 

MFA Financial, Inc. (“MFA”) issued a press release, dated May 7, 2019, announcing its financial results for the quarter ended March 31, 2019, which is attached hereto as Exhibit 99.1 and is incorporated herein by reference.  In addition, in conjunction with the announcement of its financial results, MFA issued additional information relating to its 2019 first quarter financial results.  Such additional information is attached to this report as Exhibit 99.2 and is incorporated herein by reference.

 

The information referenced in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is being “furnished” and, as such, shall not be deemed to be “filed” for the purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section.  The information set forth in this Current Report on Form 8-K (including Exhibits 99.1 and 99.2) is and will not be incorporated by reference into any registration statement or other document filed by MFA pursuant to the Securities Act of 1933, as amended (the “Securities Act”), except as may be expressly set forth by specific reference in such filing.

 

As discussed therein, the press release contains forward-looking statements within the meaning of the Securities Act and the Exchange Act and, as such, may involve known and unknown risks, uncertainties and assumptions.  These forward-looking statements relate to MFA’s current expectations and are subject to the limitations and qualifications set forth in the press release as well as in MFA’s other documents filed with the SEC, including, without limitation, that actual events and/or results may differ materially from those projected in such forward-looking statements.

 

Exhibit

 

99.1                        Press Release, dated May 7, 2019, announcing MFA’s financial results for the quarter ended March 31, 2019.

 

99.2                        Additional information relating to the financial results of MFA for the quarter ended March 31, 2019.

 

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EXHIBIT INDEX

 

Exhibit No.

 

Description

 

 

 

99.1

 

Press Release, dated May 7, 2019, announcing MFA Financial Inc.’s financial results for the quarter ended March 31, 2019.

 

 

 

99.2

 

Additional information relating to the financial results of MFA Financial, Inc. for the quarter ended March 31, 2019.

 

3


 

SIGNATURE

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

 

MFA FINANCIAL, INC.

 

(REGISTRANT)

 

 

 

By:

/s/ Harold E. Schwartz

 

 

Name: Harold E. Schwartz

 

 

Title: Senior Vice President and General Counsel

 

Date:  May 7, 2019

 

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(Back To Top)

Section 2: EX-99.1 (EX-99.1)

Exhibit 99.1

 

 

MFA

FINANCIAL, INC.

350 Park Avenue

New York, New York 10022

 

PRESS RELEASE

 

FOR IMMEDIATE RELEASE

 

 

 

May 7, 2019

 

NEW YORK METRO

 

 

 

INVESTOR CONTACT:

InvestorRelations@mfafinancial.com

NYSE: MFA

 

212-207-6488

 

 

www.mfafinancial.com

 

 

 

 

MEDIA CONTACT:

Abernathy MacGregor

 

 

Tom Johnson

 

 

212-371-5999

 

 

MFA Financial, Inc.

Announces First Quarter 2019 Financial Results

 

NEW YORK - MFA Financial, Inc. (NYSE:MFA) today announced its financial results for the first quarter ended March 31, 2019.

 

First Quarter 2019 and other highlights:

 

·                  MFA generated first quarter GAAP net income of $85.1 million, or $0.19 per common share.

 

·                  As of March 31, 2019, book value per common share was $7.11.

 

·                  GAAP Net Income per common share was $0.06 higher than the fourth quarter of 2018, primarily due to partial recovery of unrealized losses in our residential mortgage securities portfolio, particularly CRT securities.

 

·                  Core earnings, was $77.6 million, or $0.17 per common share in the first quarter.  Core earnings is a non-GAAP measure of MFA’s financial performance that is calculated by adjusting GAAP net income to exclude the impact of unrealized gains and losses on certain of our investments.  Core earnings was lower than GAAP earnings in the first quarter due to the exclusion of unrealized gains on residential mortgage securities and related swap hedges measured at fair value through earnings.

 

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·                  Continued success in growing the investment portfolio, for the sixth consecutive quarter.  MFA added approximately $1.2 billion of residential mortgage assets in the first quarter, including $875 million of residential whole loans, increasing the total investment portfolio by $369 million.

 

·                  Net interest income on MFA’s residential whole loan portfolio increased 21.4% from the prior quarter to $17.6 million, due to the acquisition of Purchased Performing Loans, including Non-QM loans, rehabilitation or “fix and flip” loans and single family rental loans.

 

·                  On April 30, 2019, MFA paid its first quarter 2019 dividend of $0.20 per share of common stock to shareholders of record as of March 29, 2019.

 

Craig Knutson, MFA’s CEO and President, said, “MFA continued to grow our investment portfolio in the first quarter of 2019, acquiring $1.2 billion of new assets during the quarter.  Our residential whole loan and REO portfolio increased by $595 million, largely due to investments in purchased performing loans.  In addition, MSR-related assets increased by $213 million.  Our growth in purchased performing whole loans was driven by the acquisition of Non-QM loans, fix and flip loans and single family rental loans.  We continue to gain traction on these new acquisition efforts, which involve relationships cultivated over the past two years.  Through our willingness and ability to explore and enter into various arrangements, including flow agreements, strategic alliances and also minority equity investments, we have been able to partner with originators to source attractive new investments, while enabling them to grow with support from MFA as a reliable provider of capital.”

 

“MFA is introducing this quarter a Core earnings financial measure that we consider to be more useful to understanding the economic earnings generated by our portfolio.  Core earnings adjusts GAAP net income by excluding unrealized gains and losses of certain assets that arise due to market pricing disruptions that may be caused by technical factors rather than fundamental or cash flow-related changes.  In addition, Core earnings serves as a consideration for our Board of Directors in the determination of our dividend.”

 

Mr. Knutson added, “Through our asset selection and hedging strategy, our estimated net effective duration, a gauge of our portfolio’s sensitivity to interest rates, remained relatively low and measured 1.07 at quarter-end.  Our portfolio continues to deliver book value stability.  MFA’s book value per common share slightly decreased to $7.11 from $7.15 as of December 31, 2018.  Leverage, which reflects the ratio of our financing obligations to equity, was 2.7:1 at quarter-end.”

 

At March 31, 2019, our investments in residential whole loans totaled $5.2 billion.  Of this amount, $3.7 billion is recorded at carrying value and generated a yield of 5.89% during the quarter, and $1.5 billion is recorded at fair value on our consolidated balance sheet. We recorded gains for the quarter on residential whole loans measured at fair value of approximately $25.3 million, primarily reflecting coupon interest payments and other cash received during the quarter together with changes in the fair value of the underlying loans.  In addition, as of the end of the quarter, we held approximately $291 million of REO properties.  MFA’s proactive asset management team has been able to shorten liquidation timelines and increase property sale proceeds, leading to improved outcomes and better returns.

 

MFA’s Legacy Non-Agency MBS had a face amount of $2.0 billion with an amortized cost of $1.4 billion and a net purchase discount of $632.1 million at March 31, 2019.  This discount consists of a $502.7 million credit reserve and other-than-temporary impairments and a $129.4 million net accretable discount.  We believe this credit reserve appropriately factors in remaining uncertainties regarding underlying

 

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mortgage performance and the potential impact on future cash flows.  Our Legacy Non-Agency MBS generated a yield of 10.45% for the quarter.  The portfolio continues to outperform our credit assumptions and has underlying mortgage loans that are on average approximately thirteen years seasoned and only 11.2% are currently 60 or more days delinquent.

 

As of March 31, 2019, the Agency MBS portfolio totaled $2.5 billion, had an amortized cost basis of 103.9% of par and generated a yield of 2.77% for the first quarter. At the end of the first quarter, MFA held approximately $1.3 billion of RPL/NPL MBS.  These securities had an amortized cost basis of 99.96% of par and generated a yield of 4.90% for the quarter.  In addition, our investments in MSR-related assets at March 31, 2019 totaled $825.4 million and generated a yield of 5.39% for the first quarter.  Our investments in CRT securities totaled $423.7 million at March 31, 2019, and generated a yield of 5.62% for the first quarter.  During the quarter we opportunistically sold residential mortgage securities for $209.5 million, realizing gains of $24.6 million ($5.5 million of which had previously been recorded as unrealized gains on CRT securities for which we had elected fair value accounting). We realized a loss of $7.8 million on termination of swap hedges in connection with managing our investment in 30-Year Agency MBS, as a sharp rally in rates led to a shortening of these assets and a reduction in their duration.

 

For the three months ended March 31, 2019, MFA’s costs for compensation and benefits and other general and administrative expenses were $13.2 million, or an annualized 1.55% of stockholders’ equity as of March 31, 2019.

 

The following table presents MFA’s asset allocation as of March 31, 2019, and the first quarter 2019 yield on average interest-earning assets, average cost of funds and net interest rate spread for the various asset types.

 

Table 1

 

ASSET ALLOCATION

 

At March 31, 2019

 

Agency
MBS

 

Legacy
Non-
Agency
MBS

 

RPL/NPL
MBS

 

Credit
Risk
Transfer
Securities

 

Residential
Whole
Loans, at
Carrying
Value (1)

 

Residential
Whole
Loans, at
Fair
Value

 

MSR-
Related
Assets

 

Other,
net (2)

 

Total

 

($ in Millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Fair Value/Carrying Value

 

$

2,547

 

$

1,814

 

$

1,285

 

$

424

 

$

3,724

 

$

1,512

 

$

825

 

$

540

 

$

12,671

 

Less Repurchase Agreements

 

(2,353

)

(1,360

)

(1,009

)

(339

)

(2,151

)

(596

)

(648

)

(54

)

(8,510

)

Less Securitized Debt

 

 

 

 

 

(155

)

(504

)

 

 

(659

)

Less Senior Notes

 

 

 

 

 

 

 

 

(97

)

(97

)

Net Equity Allocated

 

$

194

 

$

454

 

$

276

 

$

85

 

$

1,418

 

$

412

 

$

177

 

$

389

 

$

3,405

 

Debt/Net Equity Ratio (3)

 

12.1

x

3.0

x

3.7

x

4.0

x

1.6

x

2.7

x

3.7

x

 

 

2.7

x

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended March 31, 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

Yield on Average Interest Earning Assets (4)

 

2.77

%

10.45

%

4.90

%

5.62

%

5.89

%

N/A

 

5.39

%

 

 

5.47

%

Less Average Cost of Funds (5)

 

(2.53

)

(3.30

)

(3.43

)

(3.38

)

(4.21

)

(4.13

)

(3.56

)

 

 

(3.49

)

Net Interest Rate Spread

 

0.24

%

7.15

%

1.47

%

2.24

%

1.68

%

N/A

 

1.83

%

 

 

1.98

%

 

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(1)   Includes $1.9 billion of Non-QM loans, $621.3 million of Rehabilitation loans, $227.5 million of Single-family rental loans, $215.4 million of seasoned performing loans and $773.9 million of purchased credit impaired loans.  At March 31, 2019, the total fair value of these loans is estimated to be approximately $3.8 billion.

(2)   Includes cash and cash equivalents and restricted cash, other assets and other liabilities.

(3)   Represents the sum of borrowings under repurchase agreements, securitized debt and payable for unsettled purchases as a multiple of net equity allocated.  The numerator of our Total Debt/Net Equity Ratio also includes Senior Notes.

(4)   Yields reported on our interest earning assets are calculated based on the interest income recorded and the average amortized cost for the quarter of the respective asset.  At March 31, 2019, the amortized cost of our interest earning assets were as follows: Agency MBS - $2.6 billion; Legacy Non-Agency MBS - $1.4 billion; RPL/NPL MBS - $1.3 billion; Credit Risk Transfer securities - $413.8 million; and Residential Whole Loans at carrying value - $3.7 billion. In addition, the yield for residential whole loans at carrying value was 5.80%, net of 9 basis points of servicing fee expense incurred during the quarter.  For GAAP reporting purposes, such expenses are included in Loan servicing and other related operating expenses in our statement of operations.  Interest payments received on residential whole loans at fair value is reported in Other Income as Net gain on residential whole loans measured at fair value though earnings in our statement of operations.  Accordingly, no yield is presented as such loans are not included in interest earning assets for reporting purposes.

(5)   Average cost of funds includes interest on repurchase agreements, the cost of swaps, Senior Notes and securitized debt.  Agency MBS cost of funds is reduced by 13 basis points and Legacy Non-Agency MBS cost of funds is reduced by 20 basis points associated with swaps to hedge interest rate sensitivity on these assets.  Residential Whole Loans at Carrying Value cost of funds includes 6 basis points associated with swaps to hedge interest rate sensitivity on these assets.

 

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At March 31, 2019, MFA’s $4.4 billion of Agency and Legacy Non-Agency MBS were backed by hybrid, adjustable and fixed-rate mortgages.  Additional information about these MBS, including average months to reset and three-month average CPR, is presented below:

 

Table 2

 

 

 

Agency MBS

 

Legacy Non-Agency MBS (1)

 

Total (1)

 

Time to Reset

 

Fair
Value
(2)

 

Average
Months
to Reset
(3)

 

3 Month
Average
CPR (4)

 

Fair
Value

 

Average
Months
to Reset
(3)

 

3 Month
Average
CPR (4)

 

Fair
Value
(2)

 

Average
Months
to Reset
(3)

 

3 Month
Average
CPR (4)

 

($ in Millions)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

< 2 years (5)

 

$

962

 

5

 

19.2

%

$

1,115

 

5

 

14.2

%

$

2,077

 

5

 

16.4

%

2-5 years

 

113

 

39

 

4.0

 

 

 

 

113

 

39

 

4.0

 

> 5 years

 

10

 

75

 

3.5

 

 

 

 

10

 

75

 

3.5

 

ARM-MBS Total

 

$

1,085

 

9

 

17.5

%

$

1,115

 

5

 

14.2

%

$

2,200

 

7

 

15.7

%

15-year fixed (6)

 

$

747

 

 

 

9.0

%

$

1

 

 

 

31.6

%

$

748

 

 

 

9.0

%

30-year fixed (6)

 

715

 

 

 

12.6

 

648

 

 

 

10.3

 

1,363

 

 

 

11.4

 

40-year fixed (6)

 

 

 

 

 

47

 

 

 

11.0

 

47

 

 

 

11.0

 

Fixed-Rate Total

 

$

1,462

 

 

 

10.7

%

$

696

 

 

 

10.4

%

$

2,158

 

 

 

10.6

%

MBS Total

 

$

2,547

 

 

 

13.6

%

$

1,811

 

 

 

12.7

%

$

4,358

 

 

 

13.2

%

 


(1)   Excludes $1.3 billion of RPL/NPL MBS.

(2)   Does not include principal payments receivable of $524,000.

(3)   Months to Reset is the number of months remaining before the coupon interest rate resets. At reset, the MBS coupon will adjust based upon the underlying benchmark interest rate index, margin and periodic or lifetime caps.  Months to Reset does not reflect scheduled amortization or prepayments.

(4)   3 month average CPR weighted by positions as of beginning of each month in the quarter.

(5)   Includes floating-rate MBS that may be collateralized by fixed-rate mortgages.

(6)   Information presented based on data available at time of loan origination.

 

Webcast

 

MFA Financial, Inc. plans to host a live audio webcast of its investor conference call on Tuesday, May 7, 2019, at 10:00 a.m. (Eastern Time) to discuss its first quarter 2019 financial results. The live audio webcast will be accessible to the general public over the internet at http://www.mfafinancial.com through the “Webcasts & Presentations” link on MFA’s home page.  To listen to the conference call over the internet, please go to the MFA website at least 15 minutes before the call to register and to download and install any needed audio software.  Earnings presentation materials will be posted on the MFA website prior to the conference call and an audio replay will be available on the website following the call.

 

Cautionary Language Regarding Forward-Looking Statements

 

When used in this press release 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,” “may” or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and, as such, may involve known and unknown risks, uncertainties and assumptions. Statements regarding the following subjects, among others, may be forward-looking: changes in interest rates and the market (i.e., fair) value of MFA’s MBS, residential whole loans, CRT securities and other assets; changes in the prepayment rates on residential mortgage assets, an increase of which could result in a reduction of the yield on certain investments in our portfolio and could require us to reinvest the proceeds received by us as a result of such prepayments in investments with lower coupons, while a decrease

 

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in which could result in an increase in the interest rate duration of certain investments in our portfolio making their valuation more sensitive to changes in interest rates and could result in lower forecasted cash flows or, in certain circumstances, other-than-temporary impairment on certain Legacy Non-Agency MBS purchased at a discount; credit risks underlying MFA’s assets, including changes in the default rates and management’s assumptions regarding default rates on the mortgage loans securing MFA’s Non-Agency MBS and relating to MFA’s residential whole loan portfolio; MFA’s ability to borrow to finance its assets and the terms, including the cost, maturity and other terms, of any such borrowings; implementation of or changes in government regulations or programs affecting MFA’s business; MFA’s estimates regarding taxable income, the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by MFA to accrete the market discount on Non-Agency MBS and residential whole loans and the extent of prepayments, realized losses and changes in the composition of MFA’s Agency MBS, Non-Agency MBS and residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and whole loan modifications, foreclosures and liquidations; the timing and amount of distributions to stockholders, which are declared and paid at the discretion of MFA’s Board of Directors and will depend on, among other things, MFA’s taxable income, its financial results and overall financial condition and liquidity, maintenance of its REIT qualification and such other factors as MFA’s Board of Directors deems relevant; MFA’s ability to maintain its qualification as a REIT for federal income tax purposes; MFA’s ability to maintain its exemption from registration under the Investment Company Act of 1940, as amended (or the “Investment Company Act”), including statements regarding the concept release issued by the Securities and Exchange Commission (“SEC”) relating to interpretive issues under the Investment Company Act with respect to the status under the Investment Company Act of certain companies that are engaged in the business of acquiring mortgages and mortgage-related interests; MFA’s ability to continue growing its residential whole loan portfolio, which is dependent on, among other things, the supply of loans offered for sale in the market; expected returns on our investments in nonperforming residential whole loans (“NPLs”), which are affected by, among other things, the length of time required to foreclose upon, sell, liquidate or otherwise reach a resolution of the property underlying the NPL, home price values, amounts advanced to carry the asset (e.g., taxes, insurance, maintenance expenses, etc. on the underlying property) and the amount ultimately realized upon resolution of the asset; targeted or expected returns on MFA’s investments in recently-originated loans, the performance of which is, similar to MFA’s other mortgage loan investments, subject to, among other things, prepayment risk, credit risk and financing cost associated with such investments; risks associated with our investments in MSR-related assets, including servicing, regulatory and economic risks, and risks associated with investing in real estate assets, including changes in business conditions and the general economy. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that MFA files with the SEC, could cause MFA’s actual results to differ materially from those projected in any forward-looking statements it makes. All forward-looking statements are based on beliefs, assumptions and expectations of MFA’s future performance, taking into account all information currently available.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect MFA. Except as required by law, MFA is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

 

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MFA FINANCIAL, INC.

CONSOLIDATED BALANCE SHEETS

 

 (In Thousands, Except Per Share Amounts)

 

March 31,
2019

 

December 31,
2018

 

 

 

(Unaudited)

 

 

 

Assets:

 

 

 

 

 

Residential mortgage securities:

 

 

 

 

 

Agency MBS, at fair value ($2,524,612 and $2,575,331 pledged as collateral, respectively)

 

$

2,546,597

 

$

2,698,213

 

Non-Agency MBS, at fair value ($3,068,294 and $3,248,900 pledged as collateral, respectively)

 

3,099,272

 

3,318,299

 

Credit Risk Transfer (“CRT”) securities, at fair value ($419,877 and $480,315 pledged as collateral, respectively)

 

423,702

 

492,821

 

Residential whole loans, at carrying value ($2,441,975 and $1,645,372 pledged as collateral, respectively) (1)

 

3,724,146

 

3,016,715

 

Residential whole loans, at fair value ($822,235 and $738,638 pledged as collateral, respectively) (1)

 

1,512,337

 

1,665,978

 

Mortgage servicing rights (“MSR”) related assets ($825,363 and $611,807 pledged as collateral, respectively)

 

825,363

 

611,807

 

Cash and cash equivalents

 

76,579

 

51,965

 

Restricted cash

 

41,999

 

36,744

 

Other assets

 

551,618

 

527,785

 

Total Assets

 

$

12,801,613

 

$

12,420,327

 

 

 

 

 

 

 

Liabilities:

 

 

 

 

 

Repurchase agreements

 

$

8,509,713

 

$

7,879,087

 

Other liabilities

 

887,369

 

1,125,139

 

Total Liabilities

 

$

9,397,082

 

$

9,004,226

 

 

 

 

 

 

 

Stockholders’ Equity:

 

 

 

 

 

Preferred stock, $.01 par value; 7.50% Series B cumulative redeemable; 8,050 shares authorized; 8,000 shares issued and outstanding ($200,000 aggregate liquidation preference)

 

80

 

80

 

Common stock, $.01 par value; 886,950 shares authorized; 450,483 and 449,787 shares issued and outstanding, respectively

 

4,505

 

4,498

 

Additional paid-in capital, in excess of par

 

3,622,636

 

3,623,275

 

Accumulated deficit

 

(637,286

)

(632,040

)

Accumulated other comprehensive income

 

414,596

 

420,288

 

Total Stockholders’ Equity

 

$

3,404,531

 

$

3,416,101

 

Total Liabilities and Stockholders’ Equity

 

$

12,801,613

 

$

12,420,327

 

 


(1)   Includes approximately $202.7 million and $209.4 million of Residential whole loans, at carrying value and $647.0 million and $694.7 million of Residential whole loans, at fair value transferred to consolidated VIEs at March 31, 2019 and December 31, 2018, respectively. Such assets can be used only to settle the obligations of each respective VIE.

 

7


 

MFA FINANCIAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

 

 

Three Months Ended
March 31,

 

(In Thousands, Except Per Share Amounts)

 

2019

 

2018

 

 

 

(Unaudited)

 

(Unaudited)

 

Interest Income:

 

 

 

 

 

Agency MBS

 

$

18,441

 

$

15,293

 

Non-Agency MBS

 

54,001

 

56,102

 

CRT securities

 

6,200

 

9,496

 

Residential whole loans held at carrying value

 

49,620

 

14,329

 

MSR-related assets

 

10,620

 

7,623

 

Cash and cash equivalent investments

 

764

 

909

 

Other interest-earning assets

 

1,306

 

 

Interest Income

 

$

140,952

 

$

103,752

 

 

 

 

 

 

 

Interest Expense:

 

 

 

 

 

Repurchase agreements

 

$

70,809

 

$

45,717

 

Other interest expense

 

8,217

 

4,837

 

Interest Expense

 

$

79,026

 

$

50,554

 

 

 

 

 

 

 

Net Interest Income

 

$

61,926

 

$

53,198

 

 

 

 

 

 

 

Other Income, net:

 

 

 

 

 

Net gain on residential whole loans measured at fair value through earnings

 

$

25,267

 

$

38,498

 

Net realized gain on sales of residential mortgage securities

 

24,609

 

8,817

 

Net unrealized gain/(loss) on residential mortgage securities measured at fair value through earnings

 

8,672

 

(880

)

Net loss on Swaps not designated as hedges for accounting purposes

 

(8,944

)

 

Other, net

 

1,565

 

1,225

 

Other Income, net

 

$

51,169

 

$

47,660

 

 

 

 

 

 

 

Operating and Other Expense:

 

 

 

 

 

Compensation and benefits

 

$

8,554

 

$

6,748

 

Other general and administrative expense

 

4,645

 

3,832

 

Loan servicing and other related operating expenses

 

11,039

 

6,883

 

Operating and Other Expense

 

$

24,238

 

$

17,463

 

 

 

 

 

 

 

Net Income

 

$

88,857

 

$

83,395

 

Less Preferred Stock Dividends

 

3,750

 

3,750

 

Net Income Available to Common Stock and Participating Securities

 

$

85,107

 

$

79,645

 

 

 

 

 

 

 

Earnings per Common Share - Basic and Diluted

 

$

0.19

 

$

0.20

 

 

 

 

 

 

 

Dividends Declared per Share of Common Stock

 

$

0.20

 

$

0.20

 

 

8


 

Reconciliation of GAAP net income available to common stock and participating securities to non-GAAP 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 losses that we are required to include in GAAP Net Income each period because management believes that these items, which to date have typically resulted from short-term market volatility or other market technical factors and not due to changes in fundamental asset cash flows, are not reflective of the economic income generated by our investment portfolio.  Accordingly, we believe that the adjustments to compute Core earnings specified below better allow investors and analysts to evaluate our financial results, including by analyzing changes in our Core earnings between periods.   In addition to using Core earnings in the evaluation of investment portfolio performance over time, Management considers estimates of periodic Core earnings as an input to the determination of the level of quarterly dividends to common shareholders that are recommended to the Board of Directors for approval and in its forecasting and decision-making processes relating to the allocation of capital between different asset classes.

 

We believe that Core earnings provides useful supplemental information to both management and investors in evaluating our financial results.  Core earnings should be used in conjunction with results presented in accordance with GAAP.  Core earnings does not represent and should not be considered as a substitute for Net Income or Cash Flows from Operating Activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies.

 

The following table provides a reconciliation of our GAAP net income available to common stock and participating securities to our non-GAAP Core earnings for the three months ended March 31, 2019 and December 31, 2018:

 

9


 

 

 

Three Months Ended

 

(In Thousands, Except Per Share Amounts)

 

March 31,
2019

 

December 31,
2018

 

 

 

(Unaudited)

 

(Unaudited)

 

GAAP Net Income Available to Common Stock and Participating Securities

 

$

85,107

 

$

57,129

 

Adjustments:

 

 

 

 

 

Unrealized (gain)/loss on CRT securities measured at fair value through earnings

 

(2,690

)

27,246

 

Unrealized net (gain)/loss on Agency MBS measured at fair value through earnings and related swaps that are not accounted for as hedging transactions

 

(4,840

)

11,758

 

Total adjustments

 

$

(7,530

)

$

39,004

 

Core earnings

 

$

77,577

 

$

96,133

 

 

 

 

 

 

 

GAAP earnings per common share

 

$

0.19

 

$

0.13

 

Core earnings per common share

 

$

0.17

 

$

0.21

 

Weighted average common shares for earnings per share

 

450,358

 

449,559

 

 

10


(Back To Top)

Section 3: EX-99.2 (EX-99.2)

Exhibit 99.2

First Quarter 2019 Earnings Presentation

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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,” “may” the negative of these words or similar expressions, are intended to identify “forward-looking statements” within the meaning of Section 27A of the 1933 Act and Section 21E of the 1934 Act and, as such, may involve known and unknown risks, uncertainties and assumptions. Statements regarding the following subjects, among others, may be forward-looking: changes in interest rates and the market (i.e., fair) value of MFA’s MBS, residential whole loans, CRT securities and other assets; changes in the prepayment rates on residential mortgage assets, an increase of which could result in a reduction of the yield on certain investments in our portfolio and could require us to reinvest the proceeds received by us as a result of such prepayments in investments with lower coupons, while a decrease in which could result in an increase in the interest rate duration of certain investments in our portfolio making their valuation more sensitive to changes in interest rates and could result in lower forecasted cash flows, or in certain circumstances, other-than-temporary impairment on certain Legacy Non-Agency MBS purchased at a discount; credit risks underlying MFA’s assets, including changes in the default rates and management’s assumptions regarding default rates on the mortgage loans securing MFA’s Non-Agency MBS and relating to MFA’s residential whole loan portfolio; MFA’s ability to borrow to finance its assets and the terms, including the cost, maturity and other terms, of any such borrowings; implementation of or changes in government regulations or programs affecting MFA’s business; MFA’s estimates regarding taxable income, the actual amount of which is dependent on a number of factors, including, but not limited to, changes in the amount of interest income and financing costs, the method elected by MFA to accrete the market discount on Non-Agency MBS and residential whole loans and the extent of prepayments, realized losses and changes in the composition of MFA’s Agency MBS, Non-Agency MBS and residential whole loan portfolios that may occur during the applicable tax period, including gain or loss on any MBS disposals and whole loan modifications, foreclosures and liquidations; the timing and amount of distributions to stockholders, which are declared and paid at the discretion of MFA’s Board of Directors and will depend on, among other things, MFA’s taxable income, its financial results and overall financial condition and liquidity, maintenance of its REIT qualification and such other factors as MFA’s Board of Directors deems relevant; MFA’s ability to maintain its qualification as a REIT for federal income tax purposes; MFA’s ability to maintain its exemption from registration under the Investment Company Act of 1940, as amended (or the Investment Company Act), including statements regarding the Concept Release issued by the Securities and Exchange Commission (SEC) relating to interpretive issues under the Investment Company Act with respect to the status under the Investment Company Act of certain companies that are engaged in the business of acquiring mortgages and mortgage-related interests; MFA’s ability to continue growing its residential whole loan portfolio which is dependent on, among other things, the supply of loans offered for sale in the market; expected returns on our investments in non-performing residential whole loans (NPLs), which are affected by, among other things, the length of time required to foreclose upon, sell, liquidate or otherwise reach a resolution of the property underlying the NPL, home price values, amounts advanced to carry the asset (e.g., taxes, insurance, maintenance expenses, etc. on the underlying property) and the amount ultimately realized upon resolution of the asset; targeted or expected returns on MFA’s investments in recently-originated loans, the performance of which is, similar to MFA’s other mortgage loan investments, subject to, among other things, prepayment risk, credit risk and financing cost associated with such investments; risks associated with our investments in MSR-related assets, including servicing, regulatory and economic risks, and risks associated with investing in real estate assets, including changes in business conditions and the general economy. These and other risks, uncertainties and factors, including those described in the annual, quarterly and current reports that MFA files with the SEC, could cause MFA’s actual results to differ materially from those projected in any forward-looking statements it makes. All forward-looking statements are based on beliefs, assumptions and expectations of MFA’s future performance, taking into account all information currently available. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date on which they are made. New risks and uncertainties arise over time and it is not possible to predict those events or how they may affect MFA. Except as required by law, MFA is not obligated to, and does not intend to, update or revise any forward-looking statements, whether as a 2result of new information, future events or otherwise.

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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 calculated by adjusting GAAP net income to exclude the impact of unrealized gains and losses on certain of our investments, was $77.6 million, or $0.17 per common share.(1) • For the first quarter of 2019, MFA acquired over $1.2 billion of assets, increasing portfolio by approximately $369 million. its • Our first quarter dividend to common stockholders of $0.20 was paid on April 30. • Book value declined slightly to $7.11 from $7.15 per share at December 31, 2018. • Estimated undistributed taxable income was $0.07 per share at March 31, 2019. 3 (1) Refer to slide 25 for additional information, including a reconciliation of GAAP net income to Core earnings.

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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 gains and losses Unrealized gains/losses on residential whole loans that are measured at fair value through earnings • Core earnings Represents what the Company considers to be economic earnings Serves as an input to Board’s dividend determination 4

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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 structures to strengthen our originator relationships and gain access to loan flow.  We purchased an additional $220 million of MSR-related assets in the first quarter. (1) Purchased Performing Loans are comprised of Non-QM loans, Fix and Flip Loans, Single Family Rental Loans and Seasoned Performing Loans. They are included, along with Purchased Credit Impaired Loans, in Residential whole loans held at carrying value on our consolidated balance sheet. 5

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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 million of this $49.6 million of interest income was from Purchased Performing Loans, up from $27.5 million in Q4 2018. • MFA’s asset management team maintains oversight of servicing of our credit sensitive loans, particularly non-performing loans, to improve outcomes and expected returns. • Strong credit fundamentals continue to drive performance of our Legacy Non-Agency portfolio, which generated an unlevered yield in the first quarter of 10.45%. (1) As of March 31, 2019, Residential whole loans held at carrying value includes $3.0 billion of Purchased Performing Loans and $0.8 billion of Purchased Credit Impaired Loans. 6

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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 seasoned, higher priced, lower yielding assets and replacing with newer production, at prices near par and with higher yield • Optimize Balance Sheet/Capital Structure Modest increase in leverage (including securitization) to support asset growth Produce attractive returns that are comparable to peers, but with less risk due to lower leverage, less interest rate exposure and reduced prepayment sensitivity 7

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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 non-performing and re-performing credit sensitive whole loans. 8

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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. Higher unrealized gains on 30-Year Agency MBS. However, a net loss resulted after the impact of related swap hedges. Continued strong contribution from whole loans measured at fair value, primarily reflecting cash income. Operating and other expenses higher primarily due to higher compensation related costs and loan/REO portfolio growth. Summary Income Statement 2019 2018 • • (3.0) (11.8) at fair value • • (1) Includes interest expense on financing associated with all residential whole loans. Interest income received on residential whole loans held at fair value is reported in Other Income in Net gains on residential whole loans measured at fair value. (2) Net income impact of MBS and CRT securities sold is comprised of: Realized gains on MBS and CRT securities sold Reversal of previously unrealized gains on sold CRT securities held at fair value $24.6 $(5.5) $19.1 $28.6 $(7.8) $20.8 9 Q1Q4 $mm$mm Net Interest Income: MBS, CRT, MSR-related$45.0 $48.4 Residential whole loans (1) 17.614.5 Other interest earning assets less interest on Senior Notes(0.7)(1.1) Net Interest Income$61.9 $61.8 Other Income, net: Net gains on residential whole loans measured at fair value25.331.7 Net income impact of MBS and CRT sales (2) 19.120.8 Unrealized gain/(loss) on CRT securities measured at fair value8.2(19.4) Net loss on Agency MBS and related swap hedges measured Other1.6(0.4) Other Income, net:$51.2 $21.0 Operating and Other Expenses(24.2)(21.9) Preferred Dividends(3.8)(3.8) Net Income Available to Common Shareholders$85.1 $57.1 Earnings Per Common Share$0.19 $0.13

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First quarter 2019 investment flows • • Continued robust investment activity with asset acquisitions of approximately $1.2 billion. Investment portfolio grew by $369 million in the first quarter as we continue to expand our new loan initiatives. Opportunistic sales of $209 million of residential mortgage securities in the quarter. • December 31, 1st Quarter 1st Quarter 1st Quarter $ in Millions March 31, 2019 and other $4,932 $(297) $875 $17 $5,527 $595 and REO 10 (1) Includes sales for the quarter of $83.4 million of CRT Securities, $65.8 million of Legacy Non-Agency MBS and $60.3 million of RPL/NPL MBS. Sales(1), MTM 2018RunoffAcquisitionschangesChange Residential Whole Loans RPL/NPL MBS$1,377$(141)$101$(52)$1,285$(92) MSR-Related Assets$612$(7)$220$—$825$213 CRT Securities$493$—$5$(74)$424$(69) Legacy Non-Agency MBS$1,941$(88)$2$(41)$1,814$(127) Agency MBS$2,698$(160)$—$9$2,547$(151) Totals$12,053$(693)$1,203$(141)$12,422$369

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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 have grown by over $3.6 billion since the end of Q3 2017 and are currently our largest asset class. • Non-QM, Fix and Flip and SFR Loans have grown from $0 since the end of Q3 2017 to over $2.7 billion at the end of Q1 2019 and now represent 22% of our investment portfolio. Flip and SFR Whole Loans and 11 (in millions)Total Investment Portfolio Residential% of Total Whole Loans andInvestment REOPortfolio Non-QM, Fix and% of Residential LoansREO 9/30/17$9,878 $1,88119% $——% 12/31/17$9,901 $2,38624% $1185% 3/31/18$10,018 $2,83828% $32611% 6/30/18$10,160 $3,60135% $84523% 9/30/18$11,488 $4,14436% $1,39934% 12/31/18$12,053 $4,93241% $1,99540% 3/31/19$12,422 $5,52744% $2,73549% Change (9/30/17 to 3/31/19)$2,544 $3,646 $2,735

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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 improvements in credit fundamentals. We have successfully identified higher yielding assets in a rising rate environment. Most recently by adding Purchased Performing Loans including Non-QM, Fix and Flip and SFR loans. Funding costs have risen more slowly than Fed Funds. Interest rate swaps and securitizations have mitigated increases in repo costs. Funding spreads have improved as rates have risen. MFA's Yield on interest earning assets, MFA's net interest rate spread and Fed Funds 6.0% 3.0% 5.0% 2.5% 4.0% 2.0% 3.0% 1.5% 2.0% 1.0% 1.0% 0.5% 0.0% 0.0% Q3 ‘15Q4 ‘15Q1 ‘16Q2 ‘16Q3 ‘16Q4 ‘16Q1 ‘17Q2 ‘17Q3 ‘17Q4 ‘17Q1 ‘18Q2 ‘18Q3 ‘18Q4 ‘18Q1 ‘19 12 Yield on interest earning assets (Left Axis) Net interest rate spread (Left Axis) Fed Funds (Right Axis) Yield and Spread (%) Fed Funds (%)

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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 quarter-to-quarter basis. MFA expects to realize returns over time on these investments of 5-7%. Agency MBS cost of funds reduced by 13 bps and Legacy Non-Agency cost of funds reduced by 20 bps associated with swaps to hedge interest rate sensitivity on these assets. Whole Loans at Carrying Value cost of funds increased by 6 bps associated with swaps to hedge interest rate sensitivity on these assets. (3) 13 AssetAmountNet EquityYield/Cost ofDebt/Net (millions) Whole Loans at Carrying Value$3,724$1,4185.80% (1) (4.21)% (3) 1.59%1.6x Whole Loans at Fair Value$1,512$412N/A (2) (4.13)%N/A2.7x Legacy Non-Agency MBS$1,814$45410.45%(3.30)% (3) 7.15%3.0x RPL/NPL MBS$1,285$2764.90%(3.43)%1.47%3.7x Agency MBS$2,547$1942.77%(2.53)% (3) 0.24%12.1x Credit Risk Transfer Securities$424$855.62%(3.38)%2.24%4.0x MSR-Related Assets$825$1775.39%(3.56)%1.83%3.7x

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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 Portfolio sensitivity to Rates interest rate Change in Change as a Hedging Instruments (in millions) Duration Market 14 Estimated Net Duration 1.07 Notional/ Value Swaps (Less than 3 years)$2,530-1.5 Swaps (3-10 years)$457-4.3 Securitized Debt$660-1.1 Total Hedges $3,647-1.8 ParallelEstimatedEstimated shiftportfolio% of Equity value -100bp0.8%3.0% -50bp0.5%1.7% +50bp-0.6%-2.2% +100bp-1.3%-4.9% Assets (in millions)MarketAverageDuration ValueCoupon Non-Agency ARMs and CRTs$1,5394.47%0.4 RPL/NPL MBS$1,2864.92%0.6 Non-Agency Fixed Rate$6995.84%3.0 Residential Whole Loans$5,3295.35%2.2 MSR-Related Assets$8255.34%0.5 Agency ARMs$1,0854.15%0.8 Agency 15-Year Fixed Rate$7473.08%2.6 Agency 30-Year Fixed Rate$7154.50%1.9 Cash, cash equivalents and Other Assets $4190.2 Total Assets $12,644 1.58

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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 been less than 2%. Largest quarterly book value decline was 4%. Protecting book value gives MFA the ability to take advantage of new opportunities as they arise. Duration by Quarter (right axis) 15% 2.5 10% 2.0 • 5% 1.5 0% 1.0 -5% 0.5 -10% • -15% 0.0 Q3 '14 Q1 '15 Q3 '15 Q1 '16 Q3 '16 Q1 '17 Q3 '17 Q1 '18 Q3 '18 Q1 '19 15

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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 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 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 Oct-16 Jan-17 Apr-17 Jul-17 Oct-17 Jan-18 Apr-18 Jul-18 Oct-18 Jan-19 Sep-02 Apr-03 Mar-03 Dec-03 Sep-04 Jun-05 Mar-06 Dec-06 Sep-07 Jun-08 Mar-09 Dec-09 Sep-10 Jun-11 Mar-12 Dec-12 Sep-13 Jun-14 Mar-15 Dec-15 Sep-16 Jun-17 Mar-18 Dec-18 Nov-03 Jun-04 Jan-05 Aug-05 Mar-06 Oct-06 May-07 Dec-07 Jul-08 Feb-09 Sep-09 Apr-10 Nov-10 Jun-11 Jan-12 Aug-12 Mar-13 Oct-13 May-14 Dec-14 Jul-15 Feb-16 Sep-16 Apr-17 Nov-17 Jun-18 Jan-19 12% 10% 8% 6% 4% 2% 0% Source: Corelogic 12% 10% 8% 6% 3.6% 4% 2% 0% Source: BLS National for Sale Inventory As of March 2019 1.9 1.8 1.7 1.6 1.5 1.4 1.3 1.2 1.1 1.0 90+ Day Delinquencies on Mortgages As of Q4-2018 8% 6% 4% 2%1.06% 0% 16 1.24mm 4.0%

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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 seasoned loan portfolio continues to out-perform our initial expectations. • • • 17

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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

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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 3,300) of loans that were non-performing at purchase are either performing or have paid in full as of March 2019. • In addition, 37% of our NPL portfolio has liquidated or reverted to REO. • 79% of MFA modified loans are either performing today or have paid in full. 1Non-Performing at purchase defined as greater than or equal to 60 days delinquent 2Performing as of 3/31/2019 defined as less than 60 days delinquent or made a full P&I payment in March 2019 32018 only includes acquisitions prior to 3/31/2018 19 Acquisition Year 201420152016201720183Total Loan Count7432,3651,0693,1259778,279 UPB Purchased (in millions)$161.3$619.9$301.3$704.7$304.2$2,091.4 3/31/2019 Status Performing2/PIF36%28%32%39%56%37% Liquidation/REO49%49%49%30%13%37% Non-Performing15% 23% 19% 31% 31% 26% Total100%100%100%100%100%100%

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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 with several origination partners. Able to achieve appropriate leverage through warehouse lines and potentially through capital markets transactions. Targeted yield on Non-QM assets of 5% and ROE of low double digits. • • • • • 20 Non-QM Portfolio Statistics (3/31/19) WA LTV66% WA FICO707 WA Coupon6.49% Avg Balance$433,047 Total UPB (in millions)$1,826.2 Hybrid ARM’s78% Fixed Rate22% Current and 30 Days DQ99.2% 60+Days DQ0.8% Top 2 States CA58% FL15%

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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 Rehabilitation and 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 occupied business purpose loans. Target yield of 7%. • • • SFR Loans • Hybrid and fixed rate loans collateralized by residential property/properties. Term is 30 years. Borrower intends to rent out property. Non-owner occupied business purpose loans. Target yield of 6%. • • • * WA ARV-LTV: Weighted average after repair loan to value ** WA DSCR: Weighted average debt service coverage ratio 21 SFR Portfolio Statistics (3/31/19) WA LTV70% WA FICO745 WA DSCR**1.5x WA Coupon6.49% Hybrid Arm Loans81% UPB$227mm Current and 30 Days DQ99.8% 60+ Days DQ0.2% Rehabilitation Portfolio Statistics (3/31/19) WA ARV-LTV*65% WA FICO714 WA Orig Term14 WA Passthrough Rate7.37% UPB$622mm Undrawn Commitments$53mm Current and 30 Days DQ96.0% 60+ Days DQ4.0%

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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 continue. • More stable market conditions resulted in reversal of prior quarter spread widening and significant recovery of unrealized losses. • Portfolio continues to deliver relative book value stability. 22

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Additional Information 23

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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 MBS0.01 Impact of Discount Accretion and realization of gains on sale of Non-Agency MBS that Fair value and other net changes attributable to Non-Agency MBS0.06 Net change in value of swap hedges(0.03) Book value per common share as of 3/31/19$7.11

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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 losses that we are required to include in GAAP Net Income each period because management believes that these items, which to date have typically resulted from short-term market volatility or other market technical factors and not due to changes in fundamental asset cash flows, are not reflective of the economic income generated by our investment portfolio. Accordingly, we believe that the adjustments to compute Core earnings specified below better allow investors and analysts to evaluate our financial results, including by analyzing changes in our Core earnings between periods. In addition to using Core earnings in the evaluation of investment portfolio performance over time, Management considers estimates of periodic Core earnings as an input to the determination of the level of quarterly dividends to common shareholders that are recommended to the Board of Directors for approval and in its forecasting and decision-making processes relating to the allocation of capital between different asset classes. We believe that Core earnings provides useful supplemental information to both management and investors in evaluating our financial results. Core earnings should be used in conjunction with results presented in accordance with GAAP. Core earnings does not represent and should not be considered as a substitute for Net Income or Cash Flows from Operating Activities, each as determined in accordance with GAAP, and our calculation of this measure may not be comparable to similarly titled measures reported by other companies. The following table provides a reconciliation of GAAP net income to our non-GAAP Core earnings for each quarter from Q1 2017 through Q1 2019 and for 2018 and 2017. (2.7) 27.2 3.0 2.4 0.9 (13.5) 5.2 (13.8) (5.6) earnings (4.8) 11.8 1.5 — — — — — — earnings and related swaps not accounted for as hedging transactions 25 25 Q1 Q4Q3 Q2 Q1Q4 Q3Q2Q1 (in millions)201920182018201820182017201720172017 GAAP Net Income$85.1 $57.1 $83.4 $66.6 $79.6 $96.8 $60.1 $76.2 $74.3 Adjustments: Unrealized (gain)/loss on CRT securities measured at fair value through Unrealized net (gain)/loss on Agency MBS measured at fair value through Total adjustments:$(7.5) $39.0 $4.5 $2.4 $0.9 $(13.5) $5.2 $(13.8) $(5.6) Core earnings$77.6 $96.1 $87.9 $69.0 $80.5 $83.3 $65.3 $62.4 $68.7 Core earnings per common share$0.17 $0.21 $0.21 $0.17 $0.20 $0.21 $0.16 $0.16 $0.18 Core earnings - Annual Periods 2018 and 2017$0.79$0.72 GAAP earnings per common share$0.19 $0.13 $0.19 $0.17 $0.20 $0.24 $0.15 $0.20 $0.20 GAAP earnings - Annual Periods 2018 and 2017$0.68$0.79

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