Annaly Capital Management Inc. · NYSE:NLY
Annaly Capital Management — Q2 2019 Earnings Presentation
36 slides from Annaly Capital Management's earnings presentation, Jul 31, 2019
Slide 1: Second Quarter 2019 Investor Presentation
Second Quarter 2019 Investor Presentation July 31, 2019
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
Slide 3: Overview
Overview ANNALY
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
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
Slide 6: Recent Achievements
Recent Achievements Annaly has announced a number of strategic initiatives and achievements since the beginning of Q2 2019 Gender Diversity / Capital Optimization Ownership Culture Human Capital & Provides Update on Employee Stock Women’s Networks Host New York Ownership Guidelines and Recent City N
Slide 7: Investment Highlights
Investment Highlights ANNALY
Slide 8: Annaly Advantages
Annaly Advantages The diversification, scale and liquidity of Annaly’s established investment platform provide a unique opportunity in today’s markets Operating & Investment Growth Strategies Corporate Responsibility Platform & Performance & Governance Corporate Governance Size & Scale Liquidity & F
Slide 9: Annaly Advantages | Size & Scale
Annaly Advantages | Size & Scale Annaly continues to grow and further establish itself as a market leader while providing greater trading liquidity and more investment options than any other mREIT Peer Market Cap Liquidity (3-Month ADTV)(1) Number of Investment Options $ millions $ millions 12x larg
Slide 10: Annaly Advantages | Operating Efficiency Helps Drive Performance
Annaly Advantages | Operating Efficiency Helps Drive Performance Annaly continues to further scale its diversified platform while operating more efficiently than the Yield Sectors and mREIT Peers OpEx as % of Average Equity(1) Efficiency: More efficient than the S&P 80.4% 500, Yield Sectors and mR
Slide 11: Annaly Advantages | Diversified Financing Enhances Liquidity
Annaly Advantages | Diversified Financing Enhances Liquidity Annaly’s diversified financing sources and liquidity provide the Company with unique competitive advantages Total Capitalization Financing Options 6/30/2019: $127.8bn(1) Residential Commercial Middle Market Available Financing Agency Credi
Slide 12: Annaly Advantages | Residential Whole Loan Securitization Program
Annaly Advantages | Residential Whole Loan Securitization Program Annaly has continued its funding diversification strategy through seven successful residential whole loan securitizations for an aggregate issuance of $2.7 billion since the beginning of 2018 Annaly purchases residential whole loans
Slide 13: Annaly Advantages | External and Organic Growth
Annaly Advantages | External and Organic Growth Annaly continues to grow through strategic acquisitions and partnerships, the public markets and expanded origination capabilities Acquisitions & Partnerships Market Leading Capital Raises(2) 3 20+ $840 Million $442.5 Million Transformational Strategic
Slide 14: Annaly Advantages | Beta Comparison
Annaly Advantages | Beta Comparison Annaly’s beta of 0.52 has been lower than the Yield Sector average 100% of the time over the last year(1) Beta 1.13 1.00 0.98 Yield Sectors(2): 0.86 0.75 0.76 0.67 0.64 0.52 mREIT Peers Utilities Equity REITs Consumer Staples MLPs Select Financials S&P 500 Source:
Slide 15: Annaly Advantages | Corporate Responsibility & Governance
Annaly Advantages | Corporate Responsibility & Governance Annaly strives for best-in-class corporate responsibility and governance practices Corporate Governance Human Capital 45% of Directors are women, which compares 85% overall employee favorability score in 2018 to 26% on average for the S&P
Slide 16: Annaly’s Opportunity
Annaly’s Opportunity Annaly is positioned to capitalize on macro trends and industry developments Industry / Macro Factors Trend Overview Annaly Positioning Economic growth is expected to slow(1) ~40% lower beta than Yield Sectors and State of the Market/ 48% lower than the S&P 500 Investor ap
Slide 17: Annaly's Positioning & Impact
Annaly's Positioning & Impact
Slide 18: Annaly Demonstrated Resiliency During the Most Recent Fed Hiking Cycle
Annaly Demonstrated Resiliency During the Most Recent Fed Hiking Cycle… Through this challenging environment, Annaly has proven the value of its diversification strategy, returning 50% to shareholders and outperforming Agency Peers by 40% since the interest rate hiking cycle began in December 2015 7
Slide 19: …And Could Benefit From a More Accommodative Fed Over the Long Term
…And Could Benefit From a More Accommodative Fed Over the Long Term Financial markets have priced significant Fed easing, which has a number of potential implications for Annaly Near-Term Headwinds Long-Term Opportunities Fed rate cuts could benefit Annaly over the Certain near-term market chall
Slide 20: Annaly’s Latest Study on GSE Reform…
Annaly’s Latest Study on GSE Reform… Annaly continues to drive thought leadership with recently published study on GSE Reform with Barclays Key Takeaways & The study suggests that most policymakers, on either side of the political aisle, agree on three goals related to GSE Reform: Launch New Resea
Slide 21: …Highlights the Importance of Private Capital in Housing Finance
…Highlights the Importance of Private Capital in Housing Finance Annaly and other private sector participants have the necessary know-how to meaningfully support Congress and the U.S. Administration’s goal of GSE reform that expands the private market’s role in housing finance Annaly’s Opportunity &
Slide 22: Business Update
Business Update ANNALY
Slide 23: 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
Slide 24: 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
Slide 25: 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
Slide 26: 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
Slide 27: Performance Highlights and Trends
Performance Highlights and Trends Unaudited For the quarters ended 6/30/2019 3/31/2019 12/31/2018 9/30/2018 6/30/2018 (1) GAAP net income (loss) per average common share ($1.24) ($0.63) ($1.74) $0.29 $0.49 (1) Core earnings (excluding PAA) per average common share* $0.25 $0.29 $0.29 $0.30 $0.30 (1)
Slide 28: Performance Highlights and Trends (cont’d)
Performance Highlights and Trends (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 Agency mortgage-backed securities $118,202,040 $103,093,526 $90,752,995 $89,290,128 $86,593,058 Credit risk transfer securities 491,969 607,945 552,097
Slide 29: Appendix: Non-GAAP Reconciliations
Appendix: Non-GAAP Reconciliations
Slide 30: Non-GAAP Reconciliations
Non-GAAP Reconciliations Beginning with the quarter ended September 30, 2018, the Company 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 r
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
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
Slide 33: Glossary
Glossary ACREG: Refers to Annaly Commercial Real Estate Group GSE: Refers to Government Sponsored Enterprise Agency Peers: Represents companies comprising the Agency sector Hybrid Peers: Represents companies comprising the hybrid sector within the BBREMTG Index*(1) within the BBREMTG Index*(3) AMML:
Slide 34: Endnotes
Endnotes Page 4 Page 8 (cont’d) 1. Agency assets include to be announced (“TBA”) purchase contracts (market value) of $9.7bn and 6. As of June 30, 2019, 100% of employees subject to Annaly Employee Ownership Guidelines for over mortgage servicing rights (“MSRs”) of $425.3mm. Residential Credit asset
Slide 35: Endnotes (cont’d)
Endnotes (cont’d) Page 15 Page 26 1. S&P 500 board composition per ISS Corporate Solutions as of March 31, 2019. 1. Represents approved commitments within the quarter, the majority of which funded in Q3 2019. As of 2. Survey results based on annual internal surveys conducted by Perceptyx from 2015 t
Slide 36: 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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