Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q4 2015 Earnings Presentation
38 slides from Annaly Capital Management's earnings presentation, Feb 24, 2016
Slide 1: Fourth Quarter 2015 Supplemental Information
February 24, 2016 Fourth Quarter 2015 Supplemental Information
Slide 2: Safe Harbor Notice
This presentation, other written or oral communications and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future perio
Slide 3: 4Q 2015 Financial Overview
Note: The endnotes for this page appear in the section entitled “Endnotes for Page 2” in the Appendix. Core earnings, normalized core earnings, annualized core return on average equity, annualized normalized core return on average equity, normalized average yield on interest earning assets, normaliz
Slide 4: Annaly's Strategic Evolution
NLY Closes CXS Acquisition Formed FINRA Registered, Self-Clearing Broker Dealer-R Cap Securities, Inc. CreXus Investment Corp. (CXS) $200mm IPO Commercial Real Estate platform established Annaly Capital Management (NLY) $107mm IPO Annaly’s Strategic Evolution 1997 2004 2005 2006 2007 2008 2009 2010
Slide 5: Strategy Overview
(1)Includes loans held for sale. (2)As of February 19, 2016. Strategy Overview Portfolio Positioning Market Opportunities Liability and Interest Rate Management Unaudited Investment activity during the fourth quarter of 2015 included growth in our credit businesses of $705 million (1) Total share re
Slide 6: Enhanced Financial Disclosure
Enhanced Financial Disclosure Annaly continues to improve and expand upon existing financial disclosure Capital Allocation Financing Detailed breakdown of capital allocation by investment type 20 product categories among our four main businesses Financing and leverage profile by investment type Summ
Slide 7: Annaly Sum-of-the-Parts Capital Diversification
Balancing the liquidity of the Agency strategies with the durability of multiple credit strategies Annaly Sum-of-the-Parts Capital Diversification Agency Residential Credit Commercial Real Estate Middle Market Lending Dedicated Capital $9.0bn $1.8bn $0.6bn $0.5bn % of Total Capital 77% 14% (1) 5% 4%
Slide 8: Agency MBS: Interest Rate Market Performance
(1) Eurodollar Future implied hiking path over the next 12 months, based on Morgan Stanley Market Implied Pace of Hikes (MSP0KEIndex) Source: Morgan Stanley, Bloomberg Agency MBS: Interest Rate Market Performance Interest rates rose and yield curve flattened in Q4 as the Federal Reserve hiked rates
Slide 9: Agency MBS: Market Backdrop
Source: JP Morgan, Credit Suisse, Annaly calculations (1) MBS relative performance vs. swaps reflects cumulative price performance of an MBS position hedged with a combination of2-yr, 5-yr and 10-yr interest rate swaps to a one year duration gap on September 30, 2015. Calculations are based on Credi
Slide 10: Agency MBS: Portfolio
15 & 20Yr: 28% 30yr+: 72% Pass Through Coupon Type Agency MBS: Portfolio Data as of December 31, 2015. Note: Percentages based on fair market value. (1) 15yr and 20yr Fixed %’s are inclusive of TBA contracts. (2) “High Quality” protection is defined as pools backed by original loan balances of up to
Slide 11: Residential Credit: Market Backdrop
Market Performance Residential Credit: Market Backdrop Technical spread widening has outweighed positive fundamentals in mortgage credit (1) 2016 Morgan Stanley research. Home Price Appreciation data from Corelogic. Fundamental Performance All securitized credit experienced elevated spread volatilit
Slide 12: Residential Credit: Portfolio
Residential Credit: Portfolio Data as of December 31, 2015. Note: Percentages based on fair market value. Throughout 2015, the portfolio grew to approximately $1.4 billion, comprised of the following sectors: Credit Risk Transfer (CRT): floating rate assets originated by the GSEs in a high quality u
Slide 13: Commercial Real Estate: Portfolio
Commercial Real Estate: Portfolio Data as of December 31, 2015. Note: Percentages based on economic interest (1) Includes loans held for sale. Economic interest of $1.5 billion excluding loans held for sale at December 31, 2015. (2) Other includes 38 states, none of which represent more than 5% of t
Slide 14: Middle Market Lending: Portfolio
Middle Market Lending: Portfolio Lien Position Industry Sponsor Concentration Flexible capital provider to established control equity partners Well-tenured relationships with private equity community fosters recurring deal flow Credit first approach requiring first level due diligence in targeted in
Slide 15: Last Five Quarters Financial Performance
Last Five Quarters Financial Performance Unaudited Normalized Core Earnings Per Average Common Share $0.10 $0.20 $0.30 $0.40 $0.50 4Q14 1Q15 2Q15 3Q15 4Q15 $0.33 $0.34 $0.33 $0.30 $0.31 Annualized Normalized Core Return on Equity 6.50% 8.50% 10.50% 12.50% 14.50% 4Q14 1Q15 2Q15 3Q15 4Q15 10.00% 10.34
Slide 16: Summary Balance Sheet and Applicable Information
Unaudited, numbers in thousands except per share amounts Summary Balance Sheet and Applicable Information (1)Includes loans held for sale, commercial real estate debt and preferred equity and investments in commercial real estate. (2)Commercial investment portfolio consists of commercial real estate
Slide 17: Summary of Select GAAP and Non-GAAP Information
Unaudited, dollars in thousands except per share amounts Summary of Select GAAP and Non-GAAP Information (1)Includes interest expense on interest rate swaps used to hedge cost of funds. Excludes interest expense on interest rate swaps used to hedge TBA dollar roll. For the quarters ended December 31
Slide 18: Components of Economic Net Interest Income
Unaudited, dollars in thousands Components of Economic Net Interest Income (1)Included within realized losses on interest rate swaps. Excludes interest expense on interest rate swaps used to hedge TBA dollar roll. For the quarters ended December 31, September 30, December 31, 2015 2015 2014 Interest
Slide 19: Change in Normalized Net Interest Margin
Unaudited Change in Normalized Net Interest Margin Change from 3Q15 to 4Q15 Note: Graph shows relative changes in contribution from 3Q15 to 4Q15. For example, coupon on average interest earning assets increased normalized net interest margin by 0.12% more in 4Q15 versus 3Q15. (1)Represents economic
Slide 20: Change in Normalized Net Interest Spread
Unaudited Change in Normalized Net Interest Spread Change from 3Q15 to 4Q15 Note: Graph shows relative changes in contribution from 3Q15 to 4Q15. For example, coupon on average interest-earning assets increased normalized net interest spread by 0.14% more in 4Q15 versus 3Q15. (1)Includes interest ex
Slide 21: Reconciliation to Core Earnings and Normalized Core Earnings
Unaudited, dollars in thousands Reconciliation to Core Earnings and Normalized Core Earnings Reconciliation of 4Q15 GAAP Net Income to Core Earnings and Normalized Core Earnings (1) Represents a component of Net gains (losses) on trading assets. $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 GAAP
Slide 22: Change in Annualized GAAP Return on Average Equity
Unaudited Change in Annualized GAAP Return on Average Equity Change from 3Q15 to 4Q15 Note: Graph shows relative changes in contribution from 3Q15 to 4Q15. For example, coupon income increased annualized ROE by 1.66% more in 4Q15 versus 3Q15. (1)Other includes investment advisory income, dividend in
Slide 23: Change in Annualized Normalized Core Return on Average Equity
Unaudited Change in Annualized Normalized Core Return on Average Equity Change from 3Q15 to 4Q15 Note: Graph shows relative changes in contribution from 3Q15 to 4Q15. For example, coupon income increased annualized core ROE by 1.67% more in 4Q15 versus 3Q15. (1) Other includes investment advisory in
Slide 24: Residential Investment Securities Net Premium and Discount Balance and CPR
Unaudited, dollars in thousands Residential Investment Securities Portfolio Net Premium and Discount Balance and Constant Prepayment Rate $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 4Q14 1Q15 2Q15 3Q15 4Q15 0.00% 10.00% 20.00% 30.00% 40.00% 50.00% 60.00% 8% 9% 12% 12% 10% 40.13
Slide 25: Interest Rate and Liability Management
Unaudited Interest Rate and Liability Management (1)Excludes forward starting swaps. Note: Net rates do not take into consideration other secured financing, Convertible Senior Notes, securitized debt of consolidated VIEs , participation sold or mortgages payable. (1) 0.00% 1.00% 2.00% 3.005 4.00% 5.
Slide 26: Hedging and Liabilities as of December 31, 2015
Hedging and Liabilities as of December 31, 2015 Unaudited, dollars in thousands (1)Notional amount includes $0.5 billion in forward starting pay fixed swaps, which settle in January 2016. (2)Excludes forward starting swaps. (3)Weighted average fixed rate on forward starting pay fixed swaps was 1.44%
Slide 27: Residential Investment Securities and TBA Derivative Overview
Residential Investment Securities and TBA Derivative Overview as of December 31, 2015 Agency Fixed-Rate Securities (Pools) Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Years to Maturity Face Value % Coupon Amortized Cost Fair Value 3-Month CPR Fair Value <=
Slide 28: Residential Investment Securities and TBA Derivative Overview (cont'd)
Unaudited, dollars in thousands Residential Investment Securities and TBA Derivative Overview as of December 31, 2015 (cont’d) (1) Weighted by fair value. Agency Fixed-Rate and Floating-Rate Collateralized Mortgage-Backed Obligations Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Es
Slide 29: Residential Credit Investments Detail
Residential Credit Investments Detail Unaudited, dollars in thousands By Sector Product Product Market Value Coupon Credit Enhancement 60+ Delinquencies 3M VPR Alt-A $124,280 4.15 9.38 12.18 7.40 Prime 107,378 4.70 1.42 4.04 4.37 Subprime 110,050 1.91 27.73 21.55 2.71 Prime Jumbo (>=2010 Vintage) 19
Slide 30: Interest Rate and MBS Spread Sensitivity
Unaudited Quarter-Over-Quarter Interest Rate and MBS Spread Sensitivity (1)Scenarios include Residential Investment Securities and derivative instruments. (2)NAV represents book value of common equity. Assumptions: The interest rate sensitivity and spread sensitivity are based on the portfolios as o
Slide 31: Commercial Real Estate Overview
Commercial Real Estate Overview as of December 31, 2015 (1) Book values include unamortized net origination fees. (2) Total weighted based on book value. (3) Based on most recent third party appraisal, which may be prior to loan origination/purchase date, and on an "as is" basis at the time of under
Slide 32: Last Five Quarters Summary Data
Unaudited, dollars in thousands Last Five Quarters Summary Data (1)Includes consolidated VIEs and loans held for sale. For the quarters ended December 31, September 30, June 30, March 31, December 31, 2015 2015 2015 2015 2014 Portfolio-Related Data: Residential Investment Securities $67,233,494 $67,
Slide 33: Last Five Quarters Summary Data (cont'd)
Unaudited, dollars in thousands except per share amounts Last Five Quarters Summary Data (cont’d) (1)Measures total notional balances of interest rate swaps, interest rate swaptionsand futures relative to repurchase agreements and TBA notional outstanding. (2)Excludes forward starting swaps. (3)Weig
Slide 34: Last Five Quarters Summary Data (cont'd)
Unaudited, dollars in thousands except per share amounts Last Five Quarters Summary Data (cont’d) For the quarters ended December 31, September 30, June 30, March 31, December 31, 2015 2015 2015 2015 2014 Performance-Related Data: Total interest income $576,580 $450,726 $624,277 $519,114 $648,088 To
Slide 35: Appendix
ANNALY | Appendix
Slide 36: Endnotes
Endnotes for Page 2 1."Core earnings" represents a non-GAAP measure and is defined as net income (loss) excluding gains or losses on disposals of investments and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities,
Slide 37: Non-GAAP Reconciliations
Non-GAAP Reconciliations Unaudited, dollars in thousands except per share amounts For the quarters ended December 31, September 30, June 30, March 31, December 31, 2015 2015 2015 2015 2014 GAAP to Core Reconciliation GAAP net income (loss) $669,666 ($627,491) $900,071 ($476,499) ($658,272) Less: Rea
Slide 38: Non-GAAP Reconciliations (continued)
Non-GAAP Reconciliations (continued) Unaudited, dollars in thousands except per share amounts For the quarters ended December 31, September 30, June 30, March 31, December 31, 2015 2015 2015 2015 2014 Normalized Interest Income Reconciliation Total interest income $576,580 $450,726 $624,277 $519,114
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