Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q1 2017 Earnings Presentation
32 slides from Annaly Capital Management's earnings presentation, May 3, 2017
Slide 1: First Quarter 2017 Investor Presentation
First Quarter 2017 Investor Presentation May 3, 2017
Slide 2: Safe Harbor Notice
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 referen
Slide 3: Overview
Overview @ANNALY
Slide 4: Annaly is a Leading Diversified Capital Manager
Annaly is a Leading Diversified Capital Manager Residential Commercial Real Middle Market Agency Credit Estate (CRE) Lending (MML) The Annaly Commercial The Annaly Middle The Annaly Residential Real Estate Group Market Lending Group The Annaly Agency Group Credit Group invests in originates and inve
Slide 5: Capital Diversification Drives Performance
Capital Diversification Drives Performance Annaly is positioned as a permanent capital solution for the redistribution of MBS, residential credit, CRE assets and middle market loans Commercial Real Middle Market Agency Residential Credit Estate Lending Assets (1) $83.8bn $2.8bn $2.1bn $0.8bn Financi
Slide 6: Evolution of Annaly's Lower Leveraged Floating Rate & Credit Businesses
Evolution of Annaly’s Lower Leveraged Floating Rate & Credit Businesses Over the last 12 months, Annaly has continued its diversification effort – adding over $6 billion of assets with lower leveraged floating rate/credit exposure ($ in millions) $18,000 $682 $202 $437 $15,483 $5,870 ($592) ($177) $
Slide 7: Annaly's Strong Balance Sheet and Liquidity
Annaly’s Strong Balance Sheet and Liquidity Annaly’s liability profile and large capital base provide the Company with unique competitive advantages Total Capitalization of ~$80bn Weighted average maturity of 88 days represents one of the longest term repo in the mREIT sector(1) RCap, in place s
Slide 8: Annaly's Financing Structure
Annaly’s Financing Structure The depth and diversity of Annaly’s financing structure provides attractive funding costs Annaly’s longer term structure is desirable compared to mREIT peers and is supplemented by unique access to the FHLB Swaps, Eurodollar and Treasury futures represent nearly 75%
Slide 9: Scaled Diversification Enhances Dividend and Book Value Stability
Scaled Diversification Enhances Dividend and Book Value Stability As a result of the diversification strategy, Annaly has generated strong returns, while delivering consistent dividends and a stable book value Economic Return(1) Dividend Stability(2) Book Value Stability (3) 25% – – 22% 22% (2%) 20%
Slide 10: Understanding Annaly's Premium Amortization Adjustment (PAA)
Understanding Annaly’s Premium Amortization Adjustment (PAA) PAA, the component of premium amortization representing the quarter-over-quarter change in estimated long- term CPRs, is magnified in periods with large interest rate movements $0.30 $0.19 PAA Cost / (Benefit) $0.15 $0.09 $0.09 $0.10 $0.02
Slide 11: Consistent Operating Performance
Consistent Operating Performance The balance of core earnings and the PAA cost / benefit impact is indicative of earnings power and one of the main determinants of the dividend $0.60 $0.53 $0.50 $0.41 $0.40 $0.09 $0.33 $0.19 $0.10 $0.29 $0.29 $0.02 ($0.08) $0.09 $0.00 $0.30 Dividend per ($0.02) ($0.
Slide 12: Performance
Performance @ANNALY
Slide 13: Annaly's Value to an Illustrative Investment Portfolio
Annaly’s Value to an Illustrative Investment Portfolio Adding Annaly stock to a fixed-income and equity portfolio enhanced the optimal risk-adjusted returns w/o NLY frontier excluding Annaly Efficient Annaly’s risk-adjusted Series2 Efficient frontier including Annaly 16.0% NLY return(1) is favorab
Slide 14: Annaly is a Leading Yield Manufacturer in the Financial Services Sector
Annaly is a Leading Yield Manufacturer in the Financial Services Sector Of the top 15 dividend payers, Annaly has generated the highest total return in 2017 Rankings of the Top 15 Public Financial Companies in the S&P 500, Property REITs and Mortgage REITs Dividend / Market Cap Dividends Paid ($mm)
Slide 15: Industry Leading Size and Scale
Industry Leading Size and Scale Annaly is 10x the median size of Agency mREITs while utilizing 20% less leverage, which enables the generation of meaningful returns per unit of leverage $14.0 Total Return Per Leverage Return Unit of (12/31/2016) 2017 YTD Leverage(1) $12.0 6.4x 23.5% 3.7% $10.0 Agenc
Slide 16: Consistently Attractive Returns in a Low-Yielding Environment
Consistently Attractive Returns in a Low-Yielding Environment Annaly’s historic total return profile is highly attractive when compared across asset classes, and current yield far outstrips most income-oriented market alternatives Yields & Returns Since 2000 20.0% 16.8% 15.7% 16.0% 13.2% 12.0% 11.5%
Slide 17: Performance vs. Other Equity Yield Investments
Performance vs. Other Equity Yield Investments Annaly’s current investment team, in place since 2014, has outperformed other yield options 75.0% 73.9% 52.9% 50.0% 42.7% 40.8% 38.5% 25.0% Total Return (%) 17.9% – (14.2%) (25.0%) (50.0%) Dec-13 Jun-14 Dec-14 Jun-15 Dec-15 Jun-16 Dec-16 Annaly mREITs U
Slide 18: Market Positioning
Market Positioning @ANNALY
Slide 19: Macro Economic & Interest Rate Market Conditions
Macro Economic & Interest Rate Market Conditions Rates markets remained range bound in Q1 2017 amid economic optimism despite reduced confidence in fiscal stimulus Survey measures of growth have soared after the 2016 U.S. election, although hard data continues to show only modest current growth
Slide 20: This Hiking Cycle is Different from the Past…
This Hiking Cycle is Different from the Past… The Fed is raising rates at a much slower pace than in prior cycles Numerous factors are driving the Fed to be much more The pace in Fed hikes has been slower than prior cycles cautious in hiking interest rates than in prior hiking cycles Inflation is
Slide 21: … Which Could Maintain a Steeper Curve
… Which Could Maintain a Steeper Curve The yield curve may remain steeper than in prior cycles Factors driving a steeper curve: The curve is steeper than in prior cycles The Fed’s balance sheet runoff may add long-end duration to the market in coming years 300 10yr-2yr Spread (bps) Strong foreig
Slide 22: Agency MBS Market Already Pricing in Fed Runoff
Agency MBS Market Already Pricing in Fed Runoff The market is better prepared for change in Fed Balance Sheet Policy than it was during the 2013 Taper Tantrum Broader range of Volatility and Highlights Lower risk and Significantly Greater Healthier overall Higher current outcomes given balance sheet
Slide 23: Valuation Effect
Valuation Effect The market is beginning to recognize the value of Annaly’s ~30 investment options and there is more upside potential based on the implied valuations of credit businesses Valuation Growth / (Decline) 0.82x 30.7% 1.07x 0.81x Agency mREITS 26.5% 1.02x Price / Book Multiple 0.96x Hybrid
Slide 24: Business Update
Business Update @ANNALY
Slide 25: Agency MBS Portfolio
Agency MBS Portfolio As of Q1 2017, the market value of the Agency portfolio was $83.8 billion(1) in assets ~80% of the portfolio is positioned in securities with prepayment protection as of Q1 2017 Agency MBS performed in line with hedges as rates remained largely range bound in Q1 and volati
Slide 26: Residential Credit Portfolio
Residential Credit Portfolio The residential credit portfolio grew from $2.5 billion to $2.8 billion in assets during Q1 2017, a ~13% increase from Q4 2016, primarily driven by growth of nearly $350mm in whole loans Significant spread tightening and steepening of seasoning curve in credit risk t
Slide 27: Commercial Real Estate Portfolio
Commercial Real Estate Portfolio The commercial real estate portfolio declined from $2.3 billion to $2.1 billion in assets(1) during Q1 2017, a ~8% decrease from Q4 2016 New investment activity has been moderate, primarily a result of a cautious stance on credit and valuations, a significant dec
Slide 28: Middle Market Lending Portfolio
Middle Market Lending Portfolio The middle market lending portfolio grew from $773 million to $841 million in assets during Q1 2017, a ~9% increase from Q4 2016 Despite reduced M&A activity and a technical imbalance with increased capital raising, fund flows and new issue CLOs, the Annaly middle
Slide 29: Performance Highlights and Trends
Performance Highlights and Trends Unaudited, dollars in thousands except per share amounts For the quarters ended March 31, December 31, September 30, June 30, March 31, 2017 2016 2016 2016 2016 GAAP net income (loss) per average common share $0.41 $1.79 $0.70 ($0.32) ($0.96) Core earnings per avera
Slide 30: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 31: Non-GAAP Reconciliations
Non-GAAP Reconciliations Unaudited, dollars in thousands except per share amounts To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides non-GAAP financial measures. These mea
Slide 32: Non-GAAP Reconciliations (Cont'd)
Non-GAAP Reconciliations (Cont’d) Unaudited, dollars in thousands except per share amounts To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (GAAP), the Company provides non-GAAP financial measures.
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