Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q1 2016 Earnings Presentation
36 slides from Annaly Capital Management's earnings presentation, May 4, 2016
Slide 1: First Quarter 2016 Supplemental Information
May 4, 2016 First Quarter 2016 Supplemental Information
Slide 2: Forward-looking statements and non-GAAP disclaimer
* * 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 reference to a future p
Slide 3: 1Q 2016 Financial Overview
* * Note: The endnotes for this page appear in the section entitled “Endnotes for Page 2” in the Appendix. Core earnings, normalized core earnings, annualized core return on average equity, annualized normalized core return on average equity, normalized average yield on interest earning assets, norm
Slide 4: Strategy Overview
* * Includes loans held for sale.As of April 28, 2016. Strategy Overview PortfolioPositioning MarketOpportunities Liability andInterest RateManagement Unaudited Continue to actively diversify to achieve more durable earnings and book value in various interest rate environments; Hatteras acquisition
Slide 5: Annaly Sum-of-the-Parts Capital Diversification
* * Balancing the liquidity of the Agency strategies with the durability of multiple credit strategies Annaly Sum-of-the-Parts Capital Diversification Agency Residential Credit Commercial Real Estate Middle Market Lending Dedicated Capital $8.7bn $1.6bn $0.7bn $0.6bn % of Total Capital 75% 14%(1) 6%
Slide 6: Agency MBS: Interest Rate Market Performance
* * Source: Bloomberg Agency MBS: Interest Rate Market Performance Yield curve flattened in volatile first quarter, with 2-year and 10-year swap rates declining 34 and 55 bps, respectivelyRate rally reflective of change in monetary policy expectations, as three major developed market central banks s
Slide 7: Agency MBS: Market Backdrop
6 Source: JP Morgan, Credit Suisse, Annaly calculations (1) MBS relative performance vs. swaps reflects cumulative price performance of an MBS position hedged with a combination of 2-yr, 5-yr and 10-yr interest rate swaps to a one year duration gap on December 31, 2015. Calculations are based on Cre
Slide 8: Agency MBS: Portfolio
* * Pass Through Coupon Type Agency MBS: Portfolio Data as of March 31, 2016. Note: Percentages based on fair market value. 15yr and 20yr Fixed %’s are inclusive of TBA contracts.“High Quality” protection is defined as pools backed by original loan balances of up to $150K, higher LTV pools (CR/CQ),
Slide 9: Residential Credit: Market Backdrop
* * Market Performance Residential Credit: Market Backdrop Strong residential credit performance YTD reflective of improved market sentiment and continued strong fundamental performance, despite market driven volatility Source: Bloomberg Fundamental Performance Impacts from China, Emerging Markets,
Slide 10: Residential Credit: Portfolio
* * Residential Credit: Portfolio Data as of March 31, 2016.Note: Percentages based on fair market value. Through YTD 2016, the portfolio grew to approximately $1.7 billion, comprised of the following sectors:Credit Risk Transfer (CRT): floating rate assets originated by the GSEs in a high quality u
Slide 11: Annaly Commercial Real Estate Group
* * Annaly Commercial Real Estate Group Portfolio Data as of March 31, 2016.Note: Percentages based on economic interestOther includes 38 states, none of which represent more than 5% of total portfolio value. Providing capital for acquisitions and refinancings at higher leverage points in the capita
Slide 12: Middle Market Lending: Portfolio
* * Middle Market Lending: Portfolio Lien Position Industry (1) Sponsor Concentration Flexible capital provider to established control equity partnersWell-tenured relationships with private equity community fosters recurring deal flowCredit-first approach requiring first-level due diligence in targe
Slide 13: Last Five Quarters Financial Performance
* * Last Five Quarters Financial Performance Unaudited
Slide 14: Summary Balance Sheet and Applicable Information
* * Unaudited, numbers in thousands except per share amounts Summary Balance Sheet and Applicable Information Includes loans held for sale, commercial real estate debt and preferred equity and investments in commercial real estate.Commercial investment portfolio consists of commercial real estate in
Slide 15: Summary of Select GAAP and Non-GAAP Information
* * Unaudited, dollars in thousands except per share amounts Summary of Select GAAP and Non-GAAP Information Includes interest expense on interest rate swaps used to hedge cost of funds. Excludes interest expense on interest rate swaps used to hedge TBA dollar roll. For the quarters ended For the qu
Slide 16: Components of Economic Net Interest Income
* * Unaudited, dollars in thousands Components of Economic Net Interest Income Included within realized losses on interest rate swaps. Excludes interest expense on interest rate swaps used to hedge TBA dollar roll. For the quarters ended For the quarters ended For the quarters ended March 31, Decemb
Slide 17: Change in Normalized Net Interest Margin
* * Unaudited Change in Normalized Net Interest Margin Note: Graph shows relative changes in contribution from 4Q15 to 1Q16. For example, coupon on average interest earning assets decreased normalized net interest margin by 0.04% more in 1Q16 versus 4Q15.Represents economic interest expense and inte
Slide 18: Change in Normalized Net Interest Spread
* * Unaudited Change in Normalized Net Interest Spread Note: Graph shows relative changes in contribution from 4Q15 to 1Q16. For example, coupon on average interest-earning assets decreased normalized net interest spread by 0.02% more in 1Q16 versus 4Q15.Includes interest expense on interest rate sw
Slide 19: Reconciliation to Core Earnings and Normalized Core Earnings
* * Unaudited, dollars in thousands Reconciliation to Core Earnings and Normalized Core Earnings (1) Represents a component of Net gains (losses) on trading assets.
Slide 20: Change in Annualized GAAP Return on Average Equity
* * Unaudited Change in Annualized GAAP Return on Average Equity Note: Graph shows relative changes in contribution from 4Q15 to 1Q16. For example, coupon income increased annualized ROE by 0.87% more in 1Q16 versus 4Q15.Other includes other income (loss), general and administrative expenses, and in
Slide 21: Change in Annualized Normalized Core Return on Average Equity
* * Unaudited Change in Annualized Normalized Core Return on Average Equity Note: Graph shows relative changes in contribution from 4Q15 to 1Q16. For example, coupon income increased annualized core ROE by 0.88% more in 1Q16 versus 4Q15.(1) Other includes investment advisory income, dividend income
Slide 22: Residential Investment Securities Net Premium and Discount Balance and CPR
* * Unaudited, dollars in thousands Residential Investment Securities Portfolio Net Premium and Discount Balance and Constant Prepayment Rate
Slide 23: Interest Rate and Liability Management
* * Unaudited Interest Rate and Liability Management Excludes forward starting swaps; there were no forward starting swaps as of March 31, 2016.Note: Net rates do not take into consideration other secured financing, Convertible Senior Notes, securitized debt of consolidated VIEs , participation sold
Slide 24: Hedging and Liabilities as of March 31, 2016
* * Hedging and Liabilities as of March 31, 2016 Unaudited, dollars in thousands There were no forward starting pay fixed swaps as of March 31, 2016Weighted average years to maturity for futures positions are based off of the Treasury contracts cheapest to deliver.Approximately 17% of the total repu
Slide 25: Residential Investment Securities and TBA Derivative Overview
* * Unaudited, dollars in thousands Residential Investment Securities and TBA Derivative Overview as of March 31, 2016 Agency Fixed-Rate Securities (Pools) Agency Fixed-Rate Securities (Pools) Agency Fixed-Rate Securities (Pools) Agency Fixed-Rate Securities (Pools) Agency Fixed-Rate Securities (Poo
Slide 26: Residential Investment Securities and TBA Derivative Overview (cont'd)
* * Unaudited, dollars in thousands Residential Investment Securities and TBA Derivative Overview as of March 31, 2016 (cont’d) (1) Weighted by fair value. Agency Fixed-Rate and Floating-Rate Collateralized Mortgage-Backed Obligations Agency Fixed-Rate and Floating-Rate Collateralized Mortgage-Backe
Slide 27: Residential Credit Investments Detail
* * Residential Credit Investments Detail as of March 31, 2016 Unaudited, dollars in thousands By Sector Product By Sector Product By Sector Product By Sector Product By Sector Product By Sector Product Product Market Value Coupon Credit Enhancement 60+ Delinquencies 3M VPR Alt-A $167,967 4.16 6.84
Slide 28: Interest Rate and MBS Spread Sensitivity
* * Unaudited Quarter-Over-Quarter Interest Rate and MBS Spread Sensitivity Scenarios include Residential Investment Securities and derivative instruments.NAV represents book value of common equity. Assumptions:The interest rate sensitivity and spread sensitivity are based on the portfolios as of Ma
Slide 29: Commercial Real Estate Overview
* * Commercial Real Estate Overview as of March 31, 2016 (1) Book values include unamortized net origination fees.(2) Total weighted based on book value.(3) Based on most recent third party appraisal, which may be prior to loan origination/purchase date, and on an "as is" basis at the time of underw
Slide 30: Last Five Quarters Summary Data
* * Unaudited, dollars in thousands Last Five Quarters Summary Data Includes consolidated VIEs and loans held for sale. For the quarters ended For the quarters ended For the quarters ended For the quarters ended For the quarters ended March 31, December 31, September 30, June 30, March 31, 2016 2015
Slide 31: Last Five Quarters Summary Data (cont'd)
* * Unaudited, dollars in thousands except per share amounts Last Five Quarters Summary Data (cont’d) Measures total notional balances of interest rate swaps, interest rate swaptions and futures relative to repurchase agreements and TBA notional outstanding.Excludes forward starting swaps.Weighted a
Slide 32: Last Five Quarters Summary Data (cont'd)
* * Unaudited, dollars in thousands except per share amounts Last Five Quarters Summary Data (cont’d) For the quarters ended For the quarters ended For the quarters ended For the quarters ended For the quarters ended March 31, December 31, September 30, June 30, March 31, 2016 2015 2015 2015 2015 Pe
Slide 33: Appendix
ANNALY Appendix 32
Slide 34: Endnotes
* * Endnotes for Page 2 Represents a non-GAAP measure and is defined as net income (loss) excluding the estimated premium amortization adjustment due to quarter-over-quarter changes in long-term CPR estimates, gains or losses on disposals of investments and termination of interest rate swaps, unreal
Slide 35: Non-GAAP Reconciliations
* * Non-GAAP Reconciliations Unaudited, dollars in thousands except per share amounts For the quarters ended For the quarters ended For the quarters ended For the quarters ended For the quarters ended March 31, December 31, September 30, June 30, March 31, 2016 2015 2015 2015 2015 GAAP to Core Recon
Slide 36: Non-GAAP Reconciliations (continued)
* * Non-GAAP Reconciliations (continued) Unaudited, dollars in thousands except per share amounts For the quarters ended For the quarters ended For the quarters ended For the quarters ended For the quarters ended March 31, December 31, September 30, June 30, March 31, 2016 2015 2015 2015 2015 Normal
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