Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Investor Day (November 2024)
63 slides from Annaly Capital Management's investor day presentation, Nov 21, 2024
Slide 1: 2024 Investor Day
2024 Investor Day
Slide 2: Important Notices
Important This presentation is issued by Annaly Capital Management, Inc. ("Annaly"), an internally-managed, publicly traded company that has elected to be taxed as a real estate investment trust for federal income tax purposes. This presentation is provided for investors in Annaly for informational
Slide 3: Agenda
Annaly Advantages page 4 Agenda Agency MBS & Mortgage Servicing Rights page 18 Onslow Bay Correspondent Channel & Securitization Platform page 32 Risk & Liquidity Management page 49 Political Landscape | Implications for Markets & Economic Policy page 58 Q&A page 59 3
Slide 4: Annaly Advantages
Annaly Advantages David Finkelstein Chief Executive Officer & Chief Investment Officer 4
Slide 5: Who We Are
ANNALY Who We Are
Slide 6: The Proven Industry Leader Across Residential Mortgage Finance
The Proven Industry Leader Across Residential Mortgage Finance Years as a Publicly Total Return Common and Preferred Permanent Capital(3) Traded Company Talented Professionals Since IPO(1) Dividends Paid Since IPO(2) Annaly is a leader across the Annaly has generated an 869% Annaly has a talented po
Slide 7: Company Evolution
Company Evolution Annaly was founded by a Annaly establishes in-house Annaly closes acquisition of Annaly internalized its Annaly joins the S&P MidCap 400 Index, becoming the handful of forward-thinking FINRA broker dealer, providing CreXus Investment Corp., management structure first mortgage REIT
Slide 8: Annaly Today
Annaly Today Established, Fully Scaled Total Assets Across Our Total Assets Available Investment Strategies Across Investment Strategies(1) for Financing (2) Residential Mortgage Finance American Homes The Size of the Median Dividend Financed(3) mREIT by Market Cap(4) Yield(5) Source: Company filing
Slide 9: What We Have Built
ANNALY What We Have Built
Slide 10: Synergies Across Annaly's Housing Finance Portfolios
Synergies Across Agency Key Synergies Annaly’s ✓ Less correlated returns between Agency, Residential Housing Assets(1) Capital(2) Credit and MSR business Finance ✓ MSR functions as hedge to Agency portfolio Portfolios MSR ✓ Enhanced portfolio modeling and analytics Assets(1) Capital(2) ✓ Synergistic
Slide 11: Annaly's Capital Allocation Evolution
Annaly’s Capital Allocation Evolution Residential Credit Residential Residential 7% Credit Credit CRE ~20% 20%–30% Agency Credit 5% Agency Credit Agency Credit 78% 22% ~60% ~40% 50%–70% 30%–50% MML MSR MSR 10% ~20% 15%–25% Flexibility based on relative value 7.0x – 8.0x 1.5x – 2.5x 0.5x – 1.5x Sourc
Slide 12: Built for Efficiency
Built for • $72 billion highly liquid Agency MBS portfolio(1) • Dynamic recapture capabilities and ability to purchase both bulk and flow MSR Efficiency • Residential Credit securities portfolio consisting of $2.5 billion third-party securities and • In-house servicing operations (i.e., direct-to- $
Slide 13: Established and Fully Scaled Agency, Residential Credit and MSR Platforms
Established and Fully Scaled Agency, Residential Credit and MSR Platforms Agency Residential Credit MSR Financing ▪ $72bn portfolio constructed ▪ Largest non-bank issuer and ▪ Top 10 Servicer of Agency ▪ Extensive risk management largely of high-quality the second largest issuer MBS(5) and liquidity
Slide 14: Superior Economic Return Over the Last Two Years
Superior Economic 10.5% Return Over 6.4% 5.7% 7.5% mREIT Average: 6.4% the Last Two Years Agency mREITs Hybrid mREITs MSR mREITs Annaly’s economic return has outperformed its mREIT peers on 25.2% average by over 15 percentage points 16.9% over the last two years since refocusing on 9.2% mREIT Averag
Slide 15: Where We Are Going
ANNALY Where We Are Going
Slide 16: Annaly is Well-Positioned to Take Advantage of Industry Tailwinds
Annaly is Well-Positioned to Take Advantage of Industry Tailwinds Agency Residential Credit MSR ▪ Federal Reserve to play smaller ▪ Structural tailwinds for non- ▪ Increased trading volume within role in Agency market Agency origination asset class relative to historical periods ▪ Increased need for
Slide 17: Key Takeaways
Key Takeaways 1 Proven history of management over 25+ years through a variety of economic cycles and 5 Synergies between three housing finance businesses have enhanced risk-adjusted returns market environments 2 Only mortgage REIT where you can invest in all aspects of the residential mortgage loan
Slide 18: Agency MBS & Mortgage Servicing Rights
Agency MBS & Mortgage Servicing Rights Andreas Strzodka V.S. Srinivasan Ken Adler Head of Macro Strategy Head of Agency Head of Mortgage Servicing Rights Head of Portfolio Analytics 18
Slide 19: Macro Outlook
ANNALY Macro Outlook
Slide 20: The U.S. Economy
The U.S. Labor Demand/Supply(1), million workers or positions 170 Change, yoy % 8.0% Economy 165 7.0% 160 6.0% labor demand and supply roughly in balance following 155 historical 5.0% shortage 3.9% 150 4.0% 145 3.0% 140 2.0% 2.1% 135 1.0% 130 0.0% 2002 2005 2008 2011 2014 2017 2020 2023 2015 2018 20
Slide 21: Housing & Markets
Housing & U.S. Housing Inventory, units million(1) 1.8 Inventory Levels by Region Fed Funds and OIS Forwards, % 6.0% FOMC Forecasts Oct. 2024 Markets Northeast 5.0% Current Market Midwest Implied Path 4.0% 1.6 South 3.0% West 2.0% Range of Inventory Levels 1.4 since 2021 1.0% 0.0% 2015 2017 2019 202
Slide 22: Agency
ANNALY Agency
Slide 23: Agency MBS Spreads
Agency MBS Current Coupon Mortgage Spread to Treasury Curve, bps 200 Spreads 180 160 Spreads widen on COVID illiquidity 140 Spreads reach wides after Fed reduces MBS portfolio while buying Treasuries 120 100 2015 - 19 80 Average Spread 60 40 Grey shading represents times of Fed MBS portfolio runoff
Slide 24: Agency MBS Supply & Demand
Agency MBS Agency MBS Supply/Demand, $bn Other incl. mREITs Supply & $600 $10 $20 Demand $57 Banks $165 $167 Overseas $500 $180 $400 $25 Fed $210 $75 $300 $200 Issuance $539 $75 Money Managers $200 $412 $437 $238 $225 $100 $200 $0 2022 2023 2024F 2022 2023 2024F Supply Demand Note: 2024 forecasts re
Slide 25: Agency MBS Portfolio
Holdings by Specified Pool Type, %(1) Agency MBS >=6.5 96% 4% Portfolio 6.0 54% 20% 17% 10% Annaly Agency MBS Portfolio Coupon Distribution, $bn $16.0 5.5 23% 26% 23% 28% 21.1% $14.0 0% 20% 40% 60% 80% 100% High Quality Medium Quality Other Call Protected Generic/Other 18.0% 18.4% $12.0 16.4% $10.0
Slide 26: MSR
ANNALY MSR
Slide 27: MSR Market Competitive Position
MSR Market Chase 558 Lakeview 4.87 Competitive Mr. Cooper 499 UWM 4.36 Position Rocket Wells Fargo 364 376 Mr. Cooper Flagstar 4.23 4.34 New Rez/Caliber 360 CrossCountry 4.21 Lakeview 351 PennyMac 4.20 PennyMac 334 Ocwen/PHH 4.19 Freedom Mortgage 258 Rocket 4.11 Matrix/Two 196 Freedom 4.09 188 New R
Slide 28: MSR Market Environment
MSR Rank Top Sellers UPB ($bn) Rank Top Buyers UPB ($bn) Market 1 United Wholesale Mortgage 105.3 1 Mr. Cooper 122.0 Environment 2 3 AmeriHome Movement 33.8 29.7 2 3 Freedom 81.9 49.0 4 CMG Mortgage 17.3 4 Quicken 27.5 5 Wells Fargo 15.9 5 Lakeview 24.9 6 loanDepot 14.2 6 JP Morgan 20.8 7 Lakeview 1
Slide 29: Annaly's MSR Portfolio is Well-Insulated from Rate Rally
Annaly’s Conventional Unpaid Principal Balance by Underlying Mortgage Rate, Percent MSR 50% 100.00% Portfolio is Well- 40% 80.00% Insulated Only 0.8% of Annaly's outstanding mortgage loans are currently in the from Rate 30% money to refinance 60.00% Rally At 5.0% mortgage rates, only 1.5% of Annaly'
Slide 30: Key Takeaways
ANNALY Key Takeaways
Slide 31: 4 Strategic Focus Key Takeaways
Competitive ▪ Flexible capital allocation between investment strategies Key 1 Advantage: ▪ Diverse sources of funding provide improved economics Takeaways Flexibility ▪ Better positioned to handle spread and rate volatility ▪ Connectivity with market participants as desired partner to the Competitiv
Slide 32: Onslow Bay Correspondent Channel & Securitization Platform
Onslow Bay Correspondent Channel & Securitization Platform Mike Fania Deputy Chief Investment Officer Head of Residential Credit 32
Slide 33: Portfolio & Future Growth
ANNALY Portfolio & Future Growth
Slide 34: Residential Credit Portfolio
▪ Annaly Residential Credit portfolio: $6.5 billion in assets(1) at the end of Q3 2024, an increase of 9% compared to Q2 2024, and constitutes $2.3 billion of dedicated capital (~18% of the firm’s equity) Residential − Portfolio(2) consists of: Credit • $2.1 billion OBX retained bonds Portfolio • $1
Slide 35: Onslow Bay Financial Overview
▪ Annaly’s mortgage-related activities occur inside Onslow Bay Financial LLC (“Onslow Bay”), Annaly’s wholly owned taxable REIT subsidiary Onslow Bay ▪ Onslow Bay’s primary mechanism to source residential whole loans is via our correspondent channel(1) Financial − 240+ approved originators Overview
Slide 36: Portfolio Evolution
Portfolio ▪ ▪ Residential Credit portfolio market value has more than doubled since the launch of the correspondent channel in 2021 OBX retained securities and whole loans currently comprise over 60% of the economic market value of the Residential Credit Evolution portfolio and approximately ~58% of
Slide 37: Primed For Incremental Growth
Primed For Non-Delegated Underwriting Expansion of Correspondent Network Incremental Originator Tools Enhancement of Originator Experience Incremental Growth Implement a Non-Delegated Targeting 300-350+ Provide additional resources to Streamline time to settlement for correspondent partners Correspo
Slide 38: Fully Scaled & Diversified Correspondent Channel
Fully Scaled & Diversified Correspondent Channel
Slide 39: Onslow Bay Financial
Onslow Bay Financial 4.4bn 4.1bn 2.9bn 2.8bn 3.7bn 2.3bn 2.7bn 2.4bn 1.6bn 1.2bn 1.5bn 1.2bn 1.2bn 0.9bn 1.0bn 0.6bn 0.6bn 0.7bn 0.4bn 0.5bn 0.5bn 0.3bn 0.5bn 0.3bn 0.3bn 0.4bn 0.2bn 0.0bn Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 2021 2022 2023 2024 2021 20
Slide 40: Onslow Bay Securitizations
Onslow Bay Securitizations Rank Lender 1 PennyMac Financial, CA 6M2024 $40.56 Rank Issuers 1 JP Morgan Chase Total $21,456 Mkt Share 3.20% 2 Freedom Mortgage Corp., NJ $22.88 2 Santander $20,966 3.10% 3 AmeriHome Mortgage, CA $20.28 3 General Motors $13,432 2.00% 4 Newrez, PA $18.84 4 Ford $12,050 1
Slide 41: Strong Production / Securitization Leader
Strong Production / $9.4 Jumbo NPL RPL Non-QM RTL $11.2 (1) Securitization Leader $7.9 $8.2 $4.5 $3.4 $2.8 $4.5 $2.1 $2.0 $2.2 $0.6 $1.7 $1.6 $3.4 $0.9 $0.6 $1.4 $1.1 $0.7 $0.7 $0.6 $1.0 $1.2 $0.3 $1.1 $0.3 $0.2 $0.2 $0.4 $0.3 $0.4 RWT MFA MITT NYMT RITM CIM AOMR RWT AOMR(2) RITM MFA MITT(2) NYMT CI
Slide 42: Onslow Bay's Differentiated Advantages
Onslow Bay’s Differentiated Advantages
Slide 43: Illustrative OBX Returns for Annaly
Illustrative UPB $100.00 Projected lifetime ROEs of 15%+ for Annaly OBX Returns Acquisition Cost(2) GWAC(2) $102.375 7.875% on our retained OBX assets assuming modest recourse leverage for Annaly Bonds Sold to Third Parties Securitization Advance Rate to Cost(3) $89.7 87.6% Securitization Cost of Fu
Slide 44: Residential Credit Illustrative Returns
Residential ▪ Onslow Bay has control over the entire process of manufacturing high quality credit assets on our balance sheet including timing Credit ▪ OBX Retained Non-QM securitizations offer mid-teens returns to Annaly with less than 1.0x of repo leverage Illustrative ▪ Investing in third party s
Slide 45: Performance
Performance ▪ Serious delinquencies among OBX Non-QM securitizations continue to perform favorably to peers (lowest delinquencies across the top 10 largest Non-QM issuers) − The OBX Non-QM shelf has the third lowest serious delinquencies (#3 out of 22) when including all issuers with >$1bn outstandi
Slide 46: Capital Markets Execution
Capital ▪ Annaly’s OBX shelf has a deep investor base with over ~175 disparate institutional accounts participating in our securitizations since 2018 Markets ▪ The investment grade (“IG”) securities sold by Onslow Bay through OBX 2024-NQM15 priced at a weighted average spread between 6bps and 26bps
Slide 47: Key Takeaways
ANNALY Key Takeaways
Slide 48: Key Takeaways
▪ $6.5 billion portfolio(1) of whole loans and securities, $2.3 billion of Key 1 Residential Portfolio is dedicated capital (~18% of firm’s capital) Well-Positioned ▪ Proven track record of scaling portfolio and differentiated Takeaways performance; difficult to replicate ▪ Creation of proprietary a
Slide 49: Risk & Liquidity Management
Risk & Liquidity Management Steven Campbell Serena Wolfe Johanna Griffin Pete Koukouras President and Chief Operating Officer Chief Financial Officer Chief Risk Officer Treasurer 49
Slide 50: Annaly's Capitalization
Annaly’s Capitalization Total Portfolio(1): In-House Broker Dealer Street Repo Total Shareholders’ Equity: Direct Repo Credit Facilities / Warehouse Financing Non-Recourse Term Financing(2) Preferred Equity Common Equity Source: Company filings. Financial data as of September 30, 2024. Detailed endn
Slide 51: Arcola Securities Overview
Arcola Securities ▪ In 2008, Annaly established Arcola as a self-clearing, institutional broker dealer Overview ▪ Provides access to the Fixed Income Clearing Corporation (“FICC”), which funds Agency MBS through cleared triparty repo EST. 2008 ▪ Approximately $516 million in excess net capital as of
Slide 52: Credit Financing Growth
Credit $4.6bn Financing Assets(2) $6.5bn Assets(2) Growth $3,460 $2,350 $1,925 $1,801 9 Counterparties 6 Counterparties 3 Counterparties 5 Counterparties OBX Securitization Activity Period Deal Count UPB Issued Q4 2021 Q4 2022 Q4 2023 Q3 2024 FY 2021 10 $3.9bn FY 2022 16 $6.2bn $0.6bn $2.8bn FY 2023
Slide 53: Risks Overseen at Annaly
Risks Overseen at Annaly Market Liquidity and Funding Operational Designed to facilitate a holistic, enterprise- wide view of risk that supports a strong and collaborative risk Compliance, Regulatory, management culture Credit Counterparty and Legal across the firm Note: Please see Annaly’s Annual R
Slide 54: Rigorous Liquidity and Capital Management Practices
Rigorous Liquidity and Capital Management Practices Robust capital and liquidity reporting framework in place to inform management and appropriate Board and management committees Cash balances, unencumbered assets, repo portfolio, warehouse Risk metrics (spread, rate duration, VAR), capacity, counte
Slide 55: Ample Liquidity Position
Ample $7.4 Liquidity Position $6.2 $6.2 $6.3 59.5% 56.0% $5.0 55.1% 54.4% 47.6% Q3 2023 Q4 2023 Q1 2024 Q2 2024 Q3 2024 Total Assets Available for Financing(1) ($bn) Total Assets Available for Financing as % of Equity Note: Company filings. Financial data as of September 30, 2024. Detailed endnotes
Slide 56: Capital Structure Stability
Capital 37% Structure Stability 32% mREIT Average(2) (Today): 27% Annaly’s capital structure remains conservatively 22% positioned, while our 19% mREIT peers have seen mREIT Average(2) (2019 YE): 18% the percentage of preferred equity and 14% 14% unsecured debt in their 13% 12% capital structure ris
Slide 57: Key Takeaways
Key Takeaways 1 Largest capital base in the sector with proven ability to efficiently access capital markets 5 Active, independent risk management function to identify, measure and monitor enterprise-wide risks 2 Annaly’s deep and diverse financing sources provide unique competitive advantages 6 Con
Slide 58: Political Landscape | Implications for Markets and Economic Policy
Political Landscape | Implications for Markets and Economic Policy Tanya Rakpraja Mark Zandi Jim Parrott Head of Corporate Responsibility Chief Economist, Moody's Analytics Nonresident Fellow, Urban Institute and Government Relations Co-Owners, Parrott Ryan Advisors 58
Slide 59: Q&A
Q&A David Finkelstein Steven Campbell Serena Wolfe Chief Executive Officer & Chief Investment Officer President and Chief Operating Officer Chief Financial Officer Mike Fania Ken Adler V.S. Srinivasan Deputy Chief Investment Officer Head of Mortgage Servicing Rights Head of Agency Head of Residentia
Slide 60: Glossary and Endnotes
ANNALY Glossary and Endnotes
Slide 61: Glossary
Glossary CPR: Refers to Constant Prepayment Rate Non-QM: Refers to a Non-Qualified Mortgage CRT: Refers to Credit Risk Transfer Securities OBX: Refers to Onslow Bay Securities Economic Return: Refers to the change in book value plus dividends declared Re-Performing Loan A type of loan in which payme
Slide 62: Endnotes
Endnotes Annaly Advantages Agency MBS & Mortgage Servicing Rights Page 6 Page 20: 1. Total shareholder return for the period beginning October 7, 1997 through September 30, 2024. 1. Labor supply represents labor force; labor demand represents employed individuals and open positions. 2. Data shown si
Slide 63: Endnotes (cont'd)
Endnotes (cont’d) Risk & Liquidity Management Page 50: 1. Repo balances exclude Residential Credit facilities and US Treasuries reversed in to support the UST short trade. 2. Includes Residential Credit securitizations. Page 52: 1. Issuance through November 20, 2024. 2. Excludes assets transferred o
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