Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q2 2020 Earnings Presentation
30 slides from Annaly Capital Management's earnings presentation, Jul 30, 2020
Slide 1: Second Quarter 2020 Investor Presentation
Second Quarter 2020 Investor Presentation July 29, 2020
Slide 2: Important Notices
Important Notices 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 and is being furnished in connection with Annaly’s Second Quarter
Slide 3: Recent Achievements and Performance Highlights
Recent Achievements and Performance Highlights Annaly delivered strong financial results amidst a challenging operating environment Core earnings (ex. PAA)* up 28.6% from the prior quarter Financial Performance Book value up 11.9% from the prior quarter Economic return of 14.8% for the second
Slide 4: Second Quarter 2020 Financial Highlights
Second Quarter 2020 Financial Highlights Earnings (Loss) per Share Dividend per Share Net Interest Margin (ex. PAA)* Core 1.88% $0.22 GAAP (ex. PAA)* $0.58 | $0.27 Earnings & 1.18% Book Value Book Value per Share Dividend Yield(1) $8.39 13.4% Q1 2020 Q2 2020 Total Portfolio(2) Capital Allocation(3)
Slide 5: Market Environment
Market Environment ANNALY
Slide 6: The Macroeconomic State of Affairs
The Macroeconomic State of Affairs The U.S. economy is undergoing a sharp downturn, with recovery dependent on COVID-19 developments Wall Street economists expect sharp Q2 output losses to have recovered The economic impact of COVID-19 by 2022(2) COVID-19 case growth requires continued social U.S.
Slide 7: The Federal Reserve's Response
The Federal Reserve’s Response The Fed’s measures have helped reduce the economic impact of the downturn and stabilized asset markets The Federal Reserve’s three-fold response The Fed balance sheet has grown significantly Federal Reserve Balance Sheet by Category(1), $ trillion Fed added liquidity
Slide 8: Business Update
Business Update ANNALY
Slide 9: Annaly Investment Strategies
Annaly Investment Strategies The Annaly Agency Group invests in Agency MBS The Annaly Residential Credit Group invests in Non- collateralized by residential mortgages which are Agency residential mortgage assets within the guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae securitized product and w
Slide 10: Agency | Business Update
Agency | Business Update Agency MBS sector benefits from strong technical factors given macro environment Strategic Approach Market Trends Annaly’s Agency Portfolio is made up of high quality and relatively Agency MBS outlook has improved given strong nominal carry and liquid securities, includi
Slide 11: Agency | Portfolio Summary
Agency | Portfolio Summary Annaly Agency Portfolio: $96.3 billion in assets at the end of Q2 2020, a modest increase of ~5% from Q1 2020 The portfolio mix continues to be predominantly concentrated in 30-year fixed rate securities Continuation of portfolio shift down in coupon over the course
Slide 12: Conservative Approach to Credit Businesses Reduces Impact of Volatility
Conservative Approach to Credit Businesses Reduces Impact of Volatility Annaly's credit businesses are relatively lower levered, with high-quality portfolios that has helped mitigate pandemic-related disruption and position them well for the recovery Key Credit Characteristics Commentary Annaly Secu
Slide 13: Residential Credit | Business Update
Residential Credit | Business Update Annaly’s Residential Credit business is well positioned to capitalize on current market Strategic Approach Market Trends Programmatic securitization sponsor of new origination, residential Residential Credit assets have retraced the majority of the widening w
Slide 14: Residential Credit | Portfolio Summary
Residential Credit | Portfolio Summary Annaly Residential Credit Portfolio: $2.6 billion in assets at the end of Q2 2020, relatively flat from Q1 2020 and comprised of a $1.5 billion securities portfolio and a $1.2 billion whole loan portfolio OBX 2020-EXP2 priced post quarter-end, a $489 millio
Slide 15: Commercial Real Estate | Business Update
Commercial Real Estate | Business Update Institutional commercial real estate platform with thoughtful and sustained exposure to investment options that span the capital structure Strategic Approach Market Trends Cautious approach to new investments; premium on cash flow and Commercial property
Slide 16: Commercial Real Estate | Portfolio Summary
Commercial Real Estate | Portfolio Summary Annaly Commercial Real Estate Portfolio: $2.5 billion(1) in assets at the end of Q2 2020, reflecting a decrease of 5% from Q1 2020 Inclusive of loans contributed to the managed CRE CLO, assets under management at the end of Q2 2020 totaled $3.1 billion,
Slide 17: Middle Market Lending | Business Update
Middle Market Lending | Business Update AMML’s recent portfolio activity comes primarily from existing borrowers within our portfolio as opposed to the rapid addition of new borrowers Strategic Approach AMML by the Numbers Execute on a disciplined credit focused investment strategy Current Portfol
Slide 18: Middle Market Lending | Portfolio Summary
Middle Market Lending | Portfolio Summary Annaly Middle Market Lending Portfolio: $2.2 billion(1) in assets at the end of Q2 2020, relatively flat compared to Q1 2020 AMML’s long-standing relationships and legacy portfolio have provided access to continued deal flow through the pandemic The cu
Slide 19: Financial Highlights and Trends
Financial Highlights and Trends
Slide 20: Financial Highlights and Trends
Financial Highlights and Trends Unaudited For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 GAAP net income (loss) per average common share(1) $0.58 ($2.57) $0.82 ($0.54) ($1.24) (1) Core earnings (excluding PAA) per average common share* $0.27 $0.21 $0.26 $0.21 $0.25 Dividen
Slide 21: Financial Highlights and Trends (cont'd)
Financial Highlights and Trends (cont’d) Unaudited, dollars in thousands For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Agency mortgage-backed securities $76,761,800 $78,456,846 $112,893,367 $114,462,524 $118,202,040 Credit risk transfer securities 362,901 222,871 531,322
Slide 22: Credit Reserves Driven by CECL Accounting Standard
Credit Reserves Driven by CECL Accounting Standard Q2 2020 allowance increased primarily due to assumptions related to the impact of COVID 19 Credit Reserves on Funded Loan Portfolio Commentary 3/31/20 6/30/20 6/30/20 CECL accounting standard: Ending Q2 2020 Ending Loan Carrying – Estimation of li
Slide 23: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 24: Non-GAAP Reconciliations
Non-GAAP Reconciliations Core earnings (excluding PAA), a non-GAAP measure, is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSRs, (d) other income (loss) (excluding depreciation expense related to commercial r
Slide 25: 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 GAAP, the Company provides non-GAAP financial measures. These measures should not be considered a substi
Slide 26: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Premium Amortization Reconciliation Premium amortization expense $270,688 $616,937 $171,447 $376,306 $318,587 Less: PAA cost (benefit) 51,742 290,722 (83,892) 1
Slide 27: Glossary and Endnotes
Glossary and Endnotes ANNALY
Slide 28: Glossary
Glossary ACREG: Refers to Annaly Commercial Real Estate Group Middle Market Lending Peers: Represents companies comprising the S&P BDC Index* Agency Peers: Represents companies comprising the Agency sector within the BBREMTG Index*(1) mREITs or mREIT Peers: Represents constituents of the BBREMTG Ind
Slide 29: Endnotes
Endnotes Page 3 Page 9 (cont’d) 1. Includes three residential whole loan securitizations totaling $1.1bn in 2018, five residential whole loan 2. Represents the capital allocation for each of the four investment strategies and is calculated as the securitizations totaling $2.1bn in 2019 and three res
Slide 30: Endnotes (cont'd)
Endnotes (cont’d) Page 17 Page 22 1. Average Investment Size based on AMML principal balance outstanding as of June 30, 2020. 1. Represents the ending allowance at March 31, 2020 which is net of $18.9mm of charge-offs recognized 2. Represents leverage rather than economic leverage and includes non-r
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