Annaly Capital Management Inc. · NYSE:NLY

Annaly Capital Management — Investor Presentation (September 2019)

37 slides from Annaly Capital Management's investor presentation, September 2019

  1. Slide 1: Onslow Bay Financial LLC

    Onslow Bay Financial LLC September 2019

  2. Slide 2: Safe Harbor Notice

    Safe Harbor Notice Forward-Looking Statements 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 m

  3. Slide 3: Corporate Overview

    Corporate Overview ANNALY’

  4. Slide 4: Annaly Is a Leading Diversified Capital Manager

    Annaly Is a Leading Diversified Capital Manager 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 securi

  5. Slide 5: Second Quarter 2019 Financial Highlights

    Second Quarter 2019 Financial Highlights Earnings (Loss) per Share Dividend per Share Net Interest Margin Net Interest Margin Core (ex. PAA)* $0.25 GAAP (ex. PAA)* 1.51% Earnings & ($1.24) | $0.25 1.25% 1.28% 0.87% Book Value Book Value per Share Dividend Yield(1) $9.33 10.95% Q1 2019 Q2 2019 Q1 201

  6. Slide 6: Agency | Portfolio Summary

    Agency | Portfolio Summary  Annaly Agency Portfolio: $128.3 billion in assets at the end of Q2 2019, an increase of 7% from Q1 2019  The portfolio mix continues to be predominately concentrated in 30-year fixed rate securities  Agency MBS risk-adjusted returns should remain attractive as current

  7. Slide 7: Residential Credit | Portfolio Summary

    Residential Credit | Portfolio Summary  Annaly Residential Credit Portfolio: $3.1 billion at the end of Q2 2019, a decrease of 9% from Q1 2019 due to two securitizations closed during the quarter, but credit exposure continued to increase as we retained all subordinate tranches  Two securitization

  8. Slide 8: Commercial Real Estate | Portfolio Summary

    Commercial Real Estate | Portfolio Summary  Annaly Commercial Real Estate Portfolio: $1.8 billion in assets at the end of Q2 2019, reflecting a decrease of 12% from Q1 2019 due to CMBS and other loan paydowns  85% of the ramp proceeds from the $857 million actively managed CRE CLO issued in Q1 201

  9. Slide 9: Middle Market Lending | Portfolio Summary

    Middle Market Lending | Portfolio Summary  Annaly Middle Market Lending Portfolio: $1.8 billion in assets at the end of Q2 2019, an increase of 1% from Q1 2019  AMML remains disciplined in our credit intensive approach, focusing on top private equity sponsor relationships in defensive, non- discre

  10. Slide 10: Onslow Bay Financial LLC

    Onslow Bay Financial LLC ANNALY’

  11. Slide 11: Onslow Bay Overview

    Onslow Bay Overview Annaly purchases residential whole loans through Onslow Bay Financial LLC  Onslow Bay Financial LLC (“Onslow Bay”) (previously Onslow Bay Servicing LLC) was formed on July 17, 2013  Onslow Bay was a wholly owned subsidiary of Hatteras Financial Corp. (“Hatteras”). In July of 20

  12. Slide 12: Loan Due Diligence & Servicer Oversight

    Loan Due Diligence & Servicer Oversight 100% Full Securitization Diligence Sub-Servicer Oversight  Onslow Bay uses American Mortgage Consultants (“AMC”),  Onslow Bay contracts Select Portfolio Servicing (“SPS”) and Clayton Holdings LLC (“Clayton”) and Opus CMC (“Opus”) to Specialized Loan Servicin

  13. Slide 13: Credit Enhancement

    Retained Interest in OBX Shelf Annaly has retained significantly more assets than mandated by risk retention(1) to date  Annaly utilizes securitization as a mechanism to Percentage of diversify funding for the whole loan business Subordinate and Deal Size IO/AIOs Bonds Retained – Securitization is

  14. Slide 14: Onslow Bay Expanded Prime ("EXP") Securitization Program

    Onslow Bay Expanded Prime (“EXP”) Securitization Program

  15. Slide 15: Onslow Bay Expanded Prime Target Acquisitions

    Onslow Bay Expanded Prime Target Acquisitions  Onslow Bay seeks to purchase closed, funded, performing residential whole loans made to mortgagors with stable incomes and employment histories  The summary below is representative of the “Expanded Prime” guidelines Onslow Bay utilizes to purchase who

  16. Slide 16: Onslow Bay Expanded Prime Target Acquisitions (cont'd)

    Onslow Bay Expanded Prime Target Acquisitions (cont’d)  Onslow Bay also purchases 12 Month PnL and DSCR Investor loans  The summary below is representative of the Expanded Prime guidelines Onslow Bay utilizes to purchase whole loans from our originator / aggregator network  Onslow Bay targets hig

  17. Slide 17: Onslow Bay Expanded Prime Securitizations (OBX EXP)

    Onslow Bay Expanded Prime Securitizations (OBX EXP) OBX 2019-EXP2 OBX 2019-EXP1 OBX 2018-EXP2 OBX 2018-EXP1 Issue Date Jul-19 Apr-19 Oct-18 Aug-18 Collateral Type Expanded Prime Expanded Prime Expanded Prime Expanded Prime Source of Collateral Whole Loan Purchases Whole Loan Purchases Whole Loan Pur

  18. Slide 18: Representative OBX "EXP" Structure | OBX 2019-EXP2

    Representative OBX “EXP” Structure | OBX 2019-EXP2 Group 1 (Fixed) and Group 2 (ARM): “Y-Structure” With Subordinate Bonds Cross-Collateralized Same structure used across all OBX “EXP” transactions Group 1: Super Senior PT Super Senior PT Group 2: Fixed Floating Rate Senior Support Senior Support Ra

  19. Slide 19: Onslow Bay Securitization Performance | Expanded Prime

    Onslow Bay Securitization Performance | Expanded Prime OBX securitizations have performed in line with expectations 3M VPR D60+ 50% 0.40% 40% 32.86% 0.30% 30% 27.35% 27.06% 0.20% 0.20% 20% 24.91%(1) 0.12% 0.10% 10% 0.05% 0% 0.00% 0.00% Sep-18 Dec-18 Aug-18 Aug-19 Apr-18 Jun-18 Apr-19 Jun-19 Sep-18 J

  20. Slide 20: Onslow Bay Agency Investor ("INV") Securitization Program

    Onslow Bay Agency Investor (“INV”) Securitization Program

  21. Slide 21: OBX INV Collateral | GSE Single Family Investor Loans

    OBX INV Collateral | GSE Single Family (1—4 Unit) Investor Loans Loans are underwritten to individual borrower, not property GSE’s Provide Financing for Investment Properties Single Family Investor Ownership Concentration 51-250 Properties 251+ Properties  GSE Investor loans are originated using th

  22. Slide 22: Agency Eligible Investor Credit Performance

    Agency Eligible Investor Credit Performance Initial Super Senior (SSNR) Credit Enhancement (20%) was set at >5.4x the life to date cumulative loss experienced by the ‘07 vintage (3.68%), re-weighted by OBX 2019-INV2 Historical Loss Performance Re-weighted to OBX 2019-INV2 Transaction 20% 15% 10% 3.7

  23. Slide 23: Agency Eligible Investor Convexity

    Agency Eligible Investor Convexity Agency Eligible Investor loans appear to show beneficial convexity characteristics S-curve by Occupancy(1) Speed Ramp by Occupancy(2) 1M CPR  Prepayment speeds for Investor properties ramp up more quickly than 30% comparable owner occupied loans – Terminal speed f

  24. Slide 24: Agency Investor versus Prime Jumbo

    Agency Investor versus Prime Jumbo OBX 2019-INV2 contained ~70% spec pool or TBA collateral  100% of the loans in OBX 2019-INV2 were eligible to be delivered to the GSEs (DU / LP certificate) – ~70% of the loans would trade at a pay-up to TBA or would be delivered into TBA (Non Owner Occupied, “NOO

  25. Slide 25: Onslow Bay Investor Securitizations (OBX INV)

    Onslow Bay Investor Securitizations (OBX INV) OBX 2019-INV2 OBX 2019-INV1 Issue Date Jun-19 Jan-19 Collateral Type Agency Investor Agency Investor Source of Collateral Whole Loan Purchases Whole Loan Purchases Rating Agencies Moody’s / DBRS Moody’s / KBRA Sponsor Onslow Bay Financial LLC Onslow Bay

  26. Slide 26: Onslow Bay Securitization Performance | Agency Investor

    Onslow Bay Securitization Performance | Agency Investor OBX securitizations have performed in line with expectations 3M VPR D60+ 30% 0.40% 28.01%(1) 0.36% 25% 0.30% 21.61% 20% 15% 0.20% 10% 0.10% 5% 0.00% 0% 0.00% Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Feb-19 Mar-19 Apr-19 May-19 Ju

  27. Slide 27: Appendix

    Appendix ANNALY’

  28. Slide 28: Onslow Bay Securitizations

    Onslow Bay Securitizations OBX 2019-EXP2 OBX 2019-INV2 OBX 2019-EXP1 OBX 2019-INV1 OBX 2018-EXP2 OBX 2018-EXP1 OBX 2018-1 OBX 2015-1 Issue Date Jul-19 Jun-19 Apr-19 Jan-19 Oct-18 Aug-18 Mar-18 Dec-15 Seasoned Prime Collateral Type Expanded Prime Agency Investor Expanded Prime Agency Investor Expande

  29. Slide 29: Non-GAAP Reconciliations

    Non-GAAP Reconciliations ANNALY’

  30. Slide 30: Non-GAAP Reconciliations

    Non-GAAP Reconciliations Beginning with the quarter ended September 30, 2018, Annaly updated its calculation of core earnings and related metrics to reflect changes to its portfolio composition and operations, including the acquisition of MTGE in September 2018. Compared to prior periods, the revise

  31. Slide 31: 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

  32. Slide 32: Non-GAAP Reconciliations (cont'd)

    Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands For the quarters ended 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 Premium Amortization Reconciliation Premium amortization expense $318,587 $247,446 $220,131 $187,537 $202,426 Less: PAA cost (benefit) $139,763 $81,871 $45,472

  33. Slide 33: Glossary and Endnotes

    Glossary and Endnotes ANNALY’

  34. Slide 34: Glossary

    Glossary ARM: Refers to adjustable rate mortgage IO: Refers to interest only bonds ACREG: Refers to Annaly Commercial Real Estate Group LLC: Refers to limited liability corporation Agency Peers: Represents companies comprising the Agency sector within the LLPA: Refers to loan level price adjustments

  35. Slide 35: Endnotes

    Endnotes Page 3 Page 7 1. Agency assets include to be announced (“TBA”) purchase contracts (market value) of $9.7bn and 1. Reflects limited and general partnership interests in a commercial loan investment fund that is mortgage servicing rights (“MSRs”) of $425.3mm. Residential Credit assets exclude

  36. Slide 36: Endnotes

    Endnotes Page 3 Page 8 1. Agency assets include to be announced (“TBA”) purchase contracts (market value) of $9.7bn and 1. Represents approved commitments within the quarter, the majority of which funded in Q3 2019. As of mortgage servicing rights (“MSRs”) of $425.3mm. Residential Credit assets excl

  37. Slide 37: Endnotes (cont'd)

    Endnotes (cont’d) Non-GAAP Reconciliations Page 31 1. Includes depreciation and amortization expense related to equity method investments. 2. Beginning with the quarter ended September 30, 2018, the Company excludes non-core (income) loss allocated to equity method investments, which represents the

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