Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q1 2018 Earnings Presentation
30 slides from Annaly Capital Management's earnings presentation, May 2, 2018
Slide 1: First Quarter 2018 Investor Presentation
First Quarter 2018 Investor Presentation May 2, 2018
Slide 2: Safe Harbor Notice
Safe Harbor Notice 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 referen
Slide 3: Overview
Overview ANNALY:
Slide 4: Annaly is a Leading Diversified Capital Manager
Annaly is a Leading Diversified Capital Manager Agency Residential Credit Commercial Real Estate Middle Market Lending The Annaly Agency Group The Annaly Commercial The Annaly Residential The Annaly Middle invests in agency MBS Real Estate Group Credit Group invests in Market Lending Group collatera
Slide 5: First Quarter 2018 Financial Highlights
First Quarter 2018 Financial Highlights Earnings per Share Dividend per Share Net Interest Margin (ex. PAA)* Core 1.52% GAAP (ex. PAA)* 1.51% $0.30 Earnings & $1.12 | $0.30 Book Value Book Value Per Share Dividend Yield(1) $10.53 11.51% Q4 2017 Q1 2018 Total Portfolio(2) Capital Allocation(3) Alloca
Slide 6: Investment Highlights
Investment Highlights ANNALY:
Slide 7: Advantages of Annaly's Shared Capital Model
Advantages of Annaly’s Shared Capital Model Annaly’s diversification, scale and liquidity coupled with an established investment platform, provide a unique opportunity in today’s markets Size & Scale ~20x the market capitalization of the median mREIT(1) Annaly utilizes a multitude of funding sources
Slide 8: Annaly Advantages | Extensive Size & Scale
Annaly Advantages | Extensive Size & Scale Since Annaly announced the acquisition of Hatteras Financial Corp. (“Hatteras”) in April 2016, the number of mREITs decreased by 18% while sector market capitalization grew ~$11bn, or ~24%(1) $12,000 $10,000 Growth Consolidation Size Annaly’s market An
Slide 9: Funding and Capital Optimization
Annaly Advantages | Funding and Capital Optimization During Q1’18, Annaly enhanced funding and capital efficiencies across different verticals of the business Fixed-Rate term funding RCap – Proprietary in-house broker dealer provides beneficial access to FICC Repo / Deep Access & market(1) Secur
Slide 10: Diversification through Internal Growth
Annaly Advantages | Diversification through Internal Growth Annaly’s diversification strategy is now made up of 36 investment options Notable Product 2013 2014 2015 2016 2017 Additions Commercial Completed Securitized Residential Agency and Real Estate Restructuring of Non-Agency Whole Loans Non-Age
Slide 11: Proven Efficiency of the Model
Annaly Advantages | Proven Efficiency of the Model Annaly produces superior dividends while operating at lower expense levels Operating Expenses as a % of Core Earnings Dividends Per Employee Across Select Yield Industries(3) (excluding PAA)(1) Annaly’s operating costs are demonstrably lower than sm
Slide 12: Human Capital, Governance and Engagement
Annaly Advantages | Human Capital, Governance and Engagement Annaly strategically manages all aspects of the business to best position the Company to achieve sustainable, long- term financial performance and value creation Human Capital Ownership Culture One of Annaly’s greatest assets and differe
Slide 13: Returns and Outperformance
Annaly Advantages | Returns and Outperformance Annaly has outperformed all other yield options since 2013 90.0% Cumulative 75.0% Total Return Annaly 66.5% S&P 56.6% 66.5% 60.0% mREITs 52.8% 56.6% Asset Managers 43.4% 52.8% 45.0% Utilities 41.5% 43.4% MLPs (24.9%) 41.5% Total Return (%) 30.0% 15.0% –
Slide 14: Annaly's Opportunity
Annaly’s Opportunity Annaly is positioned to capitalize on industry and macro evolution Industry/Macro Factors Annaly’s Business Annaly Positioning Provides: Permanent Capital Solution Fed Exit Agency Efficient Shared Capital Model Residential GSE Risk Sharing Credit Low Beta as Volatility Inc
Slide 15: Market Environment & Portfolio Positioning
Market Environment & Portfolio Positioning
Slide 16: Defensive Portfolio Positioning Given Higher Rates
Defensive Portfolio Positioning Given Higher Rates Annaly reduced interest rate exposure throughout Q1’18, strategically positioning the portfolio in light of the challenging interest rate environment Increased Treasury supply and ongoing unwind of QE has yielded Annaly reduced interest rate and con
Slide 17: Annaly Proactively and Efficiently Repositions Hedge Portfolio
Annaly Proactively and Efficiently Repositions Hedge Portfolio Annaly significantly benefitted from hedge reallocation and rising front-end rates Key Components of Hedge Portfolio Repositioning Net Rate(1) Continues to Decline Meaningfully Rotated out of legacy higher coupon swaps for current mark
Slide 18: Funding Market Dislocations Provide Opportunities
Funding Market Dislocations Provide Opportunities Annaly expects to benefit from recent trends in short term interest rates LIBOR / OIS Spread Widening Annaly Strategic Positioning Several factors drove LIBOR higher in Q1’18 Annaly benefits as the spread between LIBOR and OIS widens OIS(1) and
Slide 19: Asset Allocation Reflects Current Market Dynamics
Asset Allocation Reflects Current Market Dynamics The pace of Annaly’s diversification effort has moderated in recent quarters given continued pressure on credit spreads Annaly’s allocation to credit has been stable since 2H’16 as spreads across credit sectors remain tight Credit Growth Opportunisti
Slide 20: Continued Stability in Net Interest Margins
Continued Stability in Net Interest Margins Despite the continued yield curve flattening, Annaly has produced an attractive and stable net interest margin (“NIM”) ex-PAA(1) Yield curve flattened in the second half of the quarter as uncertainty Annaly has continued to provide an attractive, stable NI
Slide 21: Annaly Well Prepared for Market Uncertainty
Annaly Well Prepared for Market Uncertainty Defensive posturing strategically positions the portfolio for a range of market environments Annaly actively reduced interest rate and convexity risk and net sold $7 billion of Agency MBS(1) At higher rate levels, Annaly’s portfolio exhibits a healthier
Slide 22: Business Update
Business Update ANNALY:
Slide 23: Agency: Portfolio Summary
Agency: Portfolio Summary The Agency portfolio was $98.3 billion in assets at the end of Q1 2018 – a decrease of ~8% from Q4 2017(1) Most of the decline in the Agency portfolio was from the sale of lower coupon TBAs Active duration management helped offset portfolio extension amid market sello
Slide 24: Residential Credit: Portfolio Summary
Residential Credit: Portfolio Summary The Residential Credit portfolio was unchanged at $2.8 billion in assets during Q1 2018 – Whole loan portfolio grew by $10 million whereas securities were down $19 million Annaly priced its inaugural non-agency RMBS transaction in March 2018, totaling $327 m
Slide 25: Commercial Real Estate: Portfolio Summary
Commercial Real Estate: Portfolio Summary The Commercial Real Estate portfolio grew slightly to $2.0 billion in assets at the end of Q1 2018 Assets continue to perform as the supply/demand fundamentals in the U.S. commercial real estate market remain favorable New investment activity outpaced
Slide 26: Middle Market Lending: Portfolio Summary
Middle Market Lending: Portfolio Summary The Middle Market Lending portfolio grew to $1.2 billion in assets at the end of Q1 2018, a ~14% increase from Q4 2017 Diversified first and second lien portfolio with increased focus on lead arranger opportunities and more concentrated positions Funded
Slide 27: Performance Highlights and Trends
Performance Highlights and Trends Unaudited, dollars in thousands except per share amounts For the quarters ended March 31, December 31, September 30, June 30, March 31, 2018 2017 2017 2017 2017 (1) GAAP net income (loss) per average common share $1.12 $0.62 $0.31 ($0.01) $0.41 (1)(2) Core earnings
Slide 28: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 29: Non-GAAP Reconciliations
Non-GAAP Reconciliations 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,
Slide 30: Non-GAAP Reconciliations (cont'd)
Non-GAAP Reconciliations (cont’d) Unaudited, dollars in thousands except per share amounts For the quarters ended March 31, December 31, September 30, June 30, March 31, 2018 2017 2017 2017 2017 Premium Amortization Reconciliation Premium amortization expense $95,832 $203,951 $220,636 $251,084 $203,
Annaly Capital Management — Q1 2018 Earnings Presentation on 6ix