Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q4 2021 Earnings Presentation
34 slides from Annaly Capital Management's earnings presentation, Feb 10, 2022
Slide 1: Fourth Quarter 2021 Investor Presentation
ANNALY Fourth Quarter 2021 Investor Presentation February 9, 2022
Slide 2: Forward-Looking Statements
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 Fourth Quarter 2021 earnings rel
Slide 3: Fourth Quarter 2021 highlights
▪ Earnings available for distribution* of $0.28 per average common share for the quarter with dividend coverage of +125% ▪ Book value per common share of $7.97 ▪ Economic return (loss) and tangible economic return (loss) of (2.4%) for the fourth quarter ▪ Declared quarterly common stock cash dividen
Slide 4: Key metrics: earnings, book value, leverage and liquidity
Earnings per Share Dividend per Share Net Interest Margin (ex. PAA)* Earnings Available GAAP for Distribution* 2.04% 2.03% Book Value per Share Dividend Yield(1) Q3 2021 Q4 2021 Total Portfolio(2) Capital Allocation(3) Average Yield on Interest Earning Assets (ex. PAA)* ARC 2.63% 2.63% Agency Credit
Slide 5: $89.2 billion portfolio by cyclicality
$89.2 billion(1) ```` $13.2 billion $81.5 billion $2.0 billion $8.8 billion $1.1 billion Countercyclical / Defensive Non-Cyclical / Defensive $4.6 billion $3.1 billion Cyclical / Growth Source: Company filings. Financial data as of December 31, 2021. Detailed endnotes and a glossary of defined terms
Slide 6: 1. Market Environment & Annaly Positioning
1. Market Environment & Annaly Positioning ANNALY’ Zz
Slide 7: Macroeconomic environment
Change in Real Gross Domestic Product, % SAAR Employment to Population Ratio, % (lhs) vs. 10% Unemployed, reversed ('000)(2) ▪ Amidst strong fiscal and monetary policy +33.4% 66.0% 0 support, the U.S. economy recovered sharply in 6.3k Thousands 64.0% 2021 despite the ongoing pandemic 5% 62.0% 5 60
Slide 8: 2021 business accomplishments
▪ Efficiently built out MSR Platform ▪ Purchased $4.5 billion in whole loans ▪ Completed over $1.5 billion in gross including key hires and strategic throughout 2021 originations throughout 2021 partnerships ▪ Launched whole loan correspondent ▪ AMML holds lead arranger/agent role in ‐ Grew MSR port
Slide 9: Strategic diversification and portfolio positioning
▪ Strategic diversification of portfolio since onset of COVID ‐ Buildout of MSR platform and expansion of residential Mortgage Servicing Rights credit business intended to enhance stability of returns throughout various rate and macro environments Whole Loan Correspondent Channel ‐ MML Private Credi
Slide 10: 2. Business Update
2. Business Update ANNALY Zz
Slide 11: Agency portfolio overview
▪ Annaly’s Agency Portfolio is made up of high quality and liquid ▪ Agency MBS underperformed during the fourth quarter amid securities, predominately specified pools, TBAs and derivatives challenging demand technicals given the initiation of Fed taper and a ▪ Portfolio benefits from in-house propri
Slide 12: Annaly Agency Portfolio: $81.5 billion in assets
▪ Annaly Agency Portfolio: $81.5 billion in assets at the end of Q4 2021, a decrease of 6% compared to Q3 2021, primarily in TBAs, in light of potential spread widening as the Fed reduces their footprint − Portfolio composition (by asset and coupon type) was relatively unchanged quarter-over-quarter
Slide 13: Annaly MSR Portfolio: $645 million in assets
▪ Annaly MSR Portfolio: $645 million in assets at the end of Q4 2021, an increase of 12% compared to Q3 2021 (1) − Purchased $82 million of MSR during the fourth quarter through bulk and flow MSR relationships − Acquired over $500 million of MSR assets throughout 2021, increasing the total portfolio
Slide 14: Residential credit securitization program
▪ Programmatic securitization sponsor of new origination, residential ▪ Housing market fundamentals remain strong, though growth has whole loans with twenty-five deals comprising over $10 billion of decelerated slightly in recent months issuance priced since the beginning of 2018(1) − The Case-Shill
Slide 15: Annaly Residential Credit Portfolio: $4.6 billion
▪ Annaly Residential Credit Portfolio: $4.6 billion in assets at the end of Q4 2021, an increase of 8% compared to Q3 2021 − The composition consists of a $3.4 billion securities portfolio and $1.2 billion whole loan portfolio (1) − Settled $1.7 billion of whole loans and added approximately $270 mi
Slide 16: Middle market lending investment strategy
▪ Execute on a disciplined credit focused investment strategy comprised predominantly of 1st and 2nd lien loans ▪ Maintain strong relationships with top U.S. based private equity firms to generate repeat deal flow 28 46 $44mm Private Equity Portfolio Borrowers Avg. Investment ▪ Experienced investmen
Slide 17: Middle Market Lending Strategy: $2.4 billion in assets
▪ Middle Market Lending Strategy: $2.4 billion in assets at the end of Q4 2021, comprised of $2.0 billion (1) at AMML and $0.4bn at ACOM Fund − AMML closed nine deals in Q4 2021 totaling over $325 million in commitments while five borrowers repaid outstanding loans − ACOM Fund provides additional ca
Slide 18: Annaly CMBX & CMBS Portfolio: $931 million
▪ Annaly CMBX & CMBS Portfolio: $931 million in assets at the end of Q4 2021, an increase of 32% compared to Q3 2021 ▪ 2021 was characterized by increased new issue supply, particularly in Q3 and Q4, that was initially met with robust investor demand − Spreads widened throughout Q4 as macro headwind
Slide 19: 3. ESG Leadership
3. ESG Leadership ANNALY Zz
Slide 20: ESG impact metrics
American Homes of loans to self-employed, of Annaly Employees of our Scope 2 GHG Financed(1) creditworthy borrowers that Identify as Women or Emissions Offset(3) have challenges accessing Racially/Ethnically Diverse mortgage credit(2) Investments Supporting Community Developments Employee Sponsored
Slide 21: ESG progress and commitments
✓ Committed to further assess climate ✓ Annaly became a signatory of the ✓ Amended governance documents to change risks and opportunities CEO Action for Diversity and Inclusion reflect integrated oversight of ESG through the Task Force on Climate- across the Board and its Committees ✓ Expanded emplo
Slide 22: 4. Financial Highlights and Trends
4, Financial Highlights and ‘Trends ANNALY’ Zz
Slide 23: Quarterly financial highlights
Unaudited For the quarters ended 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 GAAP net income (loss) per average common share(1) $0.27 $0.34 ($0.23) $1.23 $0.60 Earnings available for distribution per average common share* (1) $0.28 $0.28 $0.30 $0.29 $0.30 Dividends declared per common share
Slide 24: Portfolio and balance sheet detail by quarter
Unaudited (dollars in thousands) For the quarters ended 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 Agency mortgage-backed securities $60,525,605 $62,818,079 $66,468,519 $69,637,229 $74,067,059 Residential credit risk transfer securities 936,228 787,235 827,328 930,983 532,403 Non-Agency mor
Slide 25: 5. Appendix | Non-GAAP Reconciliations
5. Appendix | Non-GAAP Reconciliations ANNALY' Zz
Slide 26: Earnings Available for Distribution definition
Beginning with the quarter ended June 30, 2021, the Company has relabeled “Core Earnings (excluding PAA)” as “Earnings Available for Distribution” (“EAD”). The definition of Earnings Available for Distribution is identical to the definition of Core Earnings (excluding PAA) from prior reporting perio
Slide 27: GAAP net income to Earnings Available for Distribution reconciliation
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 substitute for, or superior to, financ
Slide 28: Premium amortization and interest reconciliations
Unaudited (dollars in thousands) For the quarters ended 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 Premium Amortization Reconciliation Premium amortization expense $219,172 $233,429 $320,108 ($11,891) $239,118 Less: PAA cost (benefit) 57,395 60,726 153,607 (214,570) 39,101 Premium amortizat
Slide 29: Economic leverage ratio reconciliation
Unaudited (dollars in thousands) For the quarters ended 12/31/2021 9/30/2021 6/30/2021 3/31/2021 12/31/2020 Economic leverage ratio reconciliation Repurchase agreements $54,769,643 $55,475,420 $60,221,067 $61,202,477 $64,825,239 Other secured financing 903,255 729,555 909,655 922,605 917,876 Debt is
Slide 30: Glossary and Endnotes
Glossary and Endnotes ANNALY Zz
Slide 31: Glossary of defined terms
ACOM: Refers to Annaly Credit Opportunities Management MSR: Refers to Mortgage Servicing Rights AMML: Refers to Annaly Middle Market Lending Group NIM: Refers to Net Interest Margin ARC: Refers to Annaly Residential Credit Group Non-Performing Loan A loan that is close to defaulting or is in default
Slide 32: Endnotes
Page 3 Page 5 1. Includes a $454mm residential whole loan securitization in October 2021, a $344mm residential whole 1. Total portfolio represents Annaly’s investments that are on-balance sheet as well as investments that are loan securitization in October 2021, a $471mm residential whole loan secur
Slide 33: Endnotes (continued)
Page 13 Page 20 1. MSR assets include limited partnership interests in two MSR funds, one of which is reported in Other 1. Represents the estimated number of homes financed by Annaly’s holdings of Agency MBS, residential Assets. Q3 2021 MSR assets exclude $86mm of legacy MSR holdings that were held
Slide 34: Non-GAAP Reconciliations endnotes
Non-GAAP Reconciliations Page 27 1. Includes a loan loss (reversal)/provision of $1.7mm, ($0.6mm), $0.6mm, ($5.3mm) and ($1.0mm) on the Company’s unfunded loan commitments for the quarters ended December 31, 2021, September 30, 2021, June 30, 2021, March 31, 2021 and December 31, 2020, respectively,
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