Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q1 2020 Earnings Presentation
34 slides from Annaly Capital Management's earnings presentation, Apr 29, 2020
Slide 1: First Quarter 2020 Investor Presentation
First Quarter 2020 Investor Presentation April 29, 2020
Slide 2: Important Notices
Important Notices This presentation is issued by Annaly Capital Management, Inc. ("Annaly"), a 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 First Quarter 2020 quarterly report
Slide 3: Annaly is a Leading Diversified Capital Manager
Annaly is a Leading Diversified Capital Manager The diversification, scale and liquidity of Annaly’s complementary investment businesses provide a broad range of opportunities in today’s markets ~$13 billion 4 Investment Strategies Permanent Capital(2) Agency, Residential Credit, Commercial Real Est
Slide 4: How Annaly is Navigating the COVID-19 Pandemic
How Annaly is Navigating the COVID-19 Pandemic We are committed to supporting our operations, employees and communities through these unprecedented times Supporting our Operations and Employees Supporting our Communities 100% of our employees are working from home Our thoughts are with those imp
Slide 5: First Quarter 2020 Financial Highlights
First Quarter 2020 Financial Highlights Earnings (Loss) per Share Dividend per Share Net Interest Margin Net Interest Margin Core (ex. PAA)* $0.25 GAAP (ex. PAA)* 1.49% $(2.57) | $0.21 1.41% Earnings & 1.18% Book Value Book Value per Share Dividend Yield(1) 0.18% $7.50 19.7% Q4 2019 Q1 2020 Q4 2019
Slide 6: Recent Announcements
Recent Announcements Annaly has made a series of announcements since the beginning of Q1 2020 that demonstrate our leadership, commitment to robust governance and continued transparency for our shareholders Internalization Appointment of New CEO Update for Shareholders Announces Agreement to Names D
Slide 7: Market Environment & Annaly Positioning
Market Environment & Annaly Positioning
Slide 8: Monetary and Fiscal Policy Response
Monetary and Fiscal Policy Response The Federal Reserve and Congress have provided unprecedented stimulus measures to soften the adverse economic impact of the COVID-19 pandemic The Fed cut rates to the zero lower bound and expanded balance sheet… Policy makers step in Fed Funds Target Rate, % (lhs)
Slide 9: Fed Purchases Impact on MBS Market
Fed Purchases Impact on MBS Market The large amount of Fed purchases has meaningfully improved MBS market technicals Improved the supply/demand outlook Removed the fastest prepaying securities Has benefitted the MBS market The economic downturn and sizeable Given the Fed’s purchases occur in the
Slide 10: The Interest Rate Risk Outlook Has Improved
The Interest Rate Risk Outlook Has Improved With coordinated fiscal and monetary policy support, asset and financing markets have improved since mid-March and while challenges remain, we see positive tailwinds for investing in Agency MBS The monetary stimulus measures, combined Rare and swift in
Slide 11: Annaly’s Credit Businesses are Well-Positioned to Weather Current Volatility
Annaly’s Credit Businesses are Well-Positioned to Weather Current Volatility Annaly’s credit businesses have manageable exposure to industries and asset classes most heavily-affected by the COVID-19 Pandemic Current Investment Portfolio Characteristics Residential Credit, 3% Whole loan portfolio is
Slide 12: Business Update
Business Update ANNALY
Slide 13: 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 14: Agency | Business Update
Agency | Business Update Agency MBS spreads have rebounded post Fed intervention, though headwinds remain Strategic Approach Market Trends Annaly’s Agency Portfolio is made up of high quality and relatively We remain constructive on Agency MBS spreads given the extensive liquid securities, inclu
Slide 15: Agency | Portfolio Summary
Agency | Portfolio Summary Annaly Agency Portfolio: $92.0 billion in assets at the end of Q1 2020, a decrease of 24% from Q4 2019 given de-levering amid the COVID-19 pandemic Asset reduction in Q1 2020 was primarily in our pool position, with additional sales in ARMs and DUS – The majority of po
Slide 16: Residential Credit | Business Update
Residential Credit | Business Update Annaly’s Residential Credit strategy was actively managed throughout the market volatility Strategic Approach Market Trends A conservative portfolio stance cushioned volatility in the portfolio Significant disruption late in Q1 with both asset prices and liqu
Slide 17: Residential Credit | Portfolio Summary
Residential Credit | Portfolio Summary Annaly Residential Credit Portfolio: $2.6 billion in assets at the end of Q1 2020, comprised of a $1.3 billion securities portfolio and a $1.3 billion whole loan portfolio Two OBX securitizations closed during the quarter, a $375 million Agency Investor dea
Slide 18: 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 Portfolio Evolution (1) Cautious approach to new investments; premium on cash flow and Q1 2015 Q1 2
Slide 19: Commercial Real Estate | Portfolio Summary
Commercial Real Estate | Portfolio Summary Annaly Commercial Real Estate Portfolio: $2.6 billion(1) in assets at the end of Q1 2020, reflecting a decrease of 3% from Q4 2019 Navigated the market environment through prudent new investment origination and capital preservation through asset sales a
Slide 20: Middle Market Lending | Business Update
Middle Market Lending | Business Update AMML’s recent portfolio activity has been driven by growth from 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 Portfolio compri
Slide 21: 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 Q1 2020, relatively flat compared to Q4 2019 AMML’s portfolio is positioned to withstand the near-term effects caused by COVID–19, the cascading effects of OPEC+, U.S. dollar
Slide 22: Financial Highlights and Trends
Financial Highlights and Trends
Slide 23: Financial Highlights and Trends
Financial Highlights and Trends Unaudited For the quarters ended 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 (1) GAAP net income (loss) per average common share ($2.57) $0.82 ($0.54) ($1.24) ($0.63) Core earnings (excluding PAA) per average common share*(1) $0.21 $0.26 $0.21 $0.25 $0.29 Divid
Slide 24: Financial Highlights and Trends (cont’d)
Financial Highlights and Trends (cont’d) Unaudited, dollars in thousands For the quarters ended 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 Agency mortgage-backed securities $78,456,846 $112,893,367 $114,462,524 $118,202,040 $103,093,526 Credit risk transfer securities 222,871 531,322 474,765
Slide 25: Financial Highlights and Trends (cont’d)
Financial Highlights and Trends (cont’d) During Q1 2020, we recorded reserves of $136.7 million (4% of ACREG and AMML’s funded loan portfolio), which was largely driven by adoption of the new CECL accounting standard and COVID-19–related adverse economic scenario forecasting Credit Reserves on Funde
Slide 26: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 27: 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 and amortization expense on rea
Slide 28: 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 29: Non-GAAP Reconciliations (cont’d)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands For the quarters ended 3/31/2020 12/31/2019 9/30/2019 6/30/2019 3/31/2019 Premium Amortization Reconciliation Premium amortization expense $616,937 $171,447 $376,306 $318,587 $247,446 Less: PAA cost (benefit) 290,722 (83,892) 117,152
Slide 30: Glossary and Endnotes
Glossary and Endnotes ANNALY
Slide 31: Glossary
Glossary ACREG: Refers to Annaly Commercial Real Estate Group mREITs or mREIT Peers: Represents constituents of the BBREMTG Index*, excluding Annaly Agency Peers: Represents companies comprising the Agency sector NIM: Refers to Net Interest Margin within the BBREMTG Index*(1) Non-QM: Refers to a Non
Slide 32: Endnotes
Endnotes Page 3 Page 11 1. Assets represent Annaly’s investments that are on balance sheet, net of securitized debt of consolidated 1. Assets represent Annaly’s investments that are on balance sheet, net of securitized debt of consolidated VIEs, as well as investments that are off-balance sheet in w
Slide 33: Endnotes (cont’d)
Endnotes (cont’d) Page 17 Page 23 (cont’d) 1. Shown exclusive of securitized residential mortgage loans of a consolidated VIE and loans held by a 3. Average yield on interest earning assets represents annualized interest income divided by average master servicer in an MSR silo that is consolidated b
Slide 34: Endnotes (cont’d)
Endnotes (cont’d) Non-GAAP Reconciliations Page 28 1. Includes $0.7mm loss provision on the Company’s unfunded loan commitments as of March 31, 2020 which is reported in Other income (loss) in the Company’s Consolidated Statement of Comprehensive Income (Loss). 2. Amount includes depreciation and am
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