First Quarter 2022 Investor Presentation
April 27, 2022
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 First Quarter 2022 earnings release. This presentation is provided for investors in Annaly for informational purposes only and is not an offer to sell, or a solicitation of an offer to buy, any security or instrument.
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 period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," or similar terms or variations on those terms or the negative of those terms. Such statements include those relating to the Company's future performance, macro outlook, the interest rate and credit environments, tax reform and future opportunities. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions; changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities ("MBS") and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of the Company's assets; changes in business conditions and the general economy; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; the Company's ability to grow its residential credit business; the sale of our middle market lending business; credit risks related to the Company's investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets and corporate debt; risks related to investments in mortgage servicing rights; the Company's ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting the Company's business; the Company's ability to maintain its qualification as a REIT for U.S. federal income tax purposes; and the Company's ability to maintain its exemption from registration under the Investment Company Act of 1940. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law.
We routinely post important information for investors on our website,www.annaly.com. We intend to use this webpage as a means of disclosing material information, for complying with our disclosure obligations under Regulation FD and to post and update investor presentations and similar materials on a regular basis. Annaly encourages investors, analysts, the media and others interested in Annaly to monitor the Investors section of our website, in addition to following our press releases, SEC filings, public conference calls, presentations, webcasts and other information we post from time to time on our website. To sign-up for email-notifications, please visit the "Email Alerts" section of our website,www.annaly.com, under the "Investors" section and enter the required information to enable notifications. The information contained on, or that may be accessed through, our webpage is not incorporated by reference into, and is not a part of, this document.
Past performance is no guarantee of future results. There is no guarantee that any investment strategy referenced herein will work under all market conditions. Prior to making any investment decision, you should evaluate your ability to invest for the long-term, especially during periods of downturns in the market. You alone assume the responsibility of evaluating the merits and risks associated with any potential investment or investment strategy referenced herein. To the extent that this material contains reference to any past specific investment recommendations or strategies which were or would have been profitable to any person, it should not be assumed that recommendations made in the future will be profitable or will equal the performance of such past investment recommendations or strategies. The information contained herein is not intended to provide, and should not be relied upon for accounting, legal or tax advice or investment recommendations for Annaly or any of its affiliates.
Regardless of source, information is believed to be reliable for purposes used herein, but Annaly makes no representation or warranty as to the accuracy or completeness thereof and does not take any responsibility for information obtained from sources outside of Annaly. Certain information contained in the presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice.
Non-GAAP Financial Measures
This presentation includes certain non-GAAP financial measures, including earnings available for distribution. We believe the non-GAAP financial measures are useful for management, investors, analysts, and other interested parties in evaluating our performance but should not be viewed in isolation and are not a substitute for financial measures computed in accordance with U.S. generally accepted accounting principles ("GAAP"). In addition, we may calculate our non-GAAP metrics, such as earnings available for distribution, or the premium amortization adjustment, differently than our peers making comparative analysis difficult.
Recent Achievements and Performance Highlights
Market performance was challenged by substantial rate and spread volatility, though Annaly continued to generate strong earnings
Earnings available for distribution* of $0.28 per average common share for the quarter; unchanged from the prior quarter with dividend coverage of over 125%
Book value per common share of $6.77
Declared quarterly common stock cash dividend of $0.22 per share with yield of 12.5%
Economic return (loss) of (12.3%) for the first quarter
Annaly maintained substantial liquidity throughout market turbulence while continuing to be a programmatic securitization issuer
Economic leverage* of 6.4x, up from 5.7x quarter-over-quarter
$7.2 billion of unencumbered assets, including cash and unencumbered Agency MBS of $4.0 billion
Annaly Residential Credit Group is now the second largest non-bank issuer of Prime Jumbo and Expanded Credit MBS with six residential whole loan securitizations totaling ~$2.5 billion in proceeds priced during the first quarter(1)
Annaly Residential Credit Group expanded credit facility capacity by $250 million subsequent to quarter end
Financing costs increased with average GAAP cost of interest-bearing liabilities of 0.48%, up 10 basis points and average economic cost of interest-bearing liabilities* of 0.89%, up 14 basis points quarter-over-quarter
Annaly's portfolio decreased amidst a challenging fixed-income backdrop, though MSR assets continued to grow significantly
Total assets of $84.4 billion, including $76.1 billion in highly liquid Agency portfolio representing 90% of total assets(2)
Annaly's Mortgage Servicing Rights ("MSR") platform grew assets by 91% to $1.2 billion in the first quarter with MSR representing 9% of dedicated equity capital(3)
Annaly Residential Credit Group's correspondent channel achieved over $1 billion in aggregated expanded credit loans since launching last April
Increased hedge ratio from 95% to 109%, while actively delta hedging throughout the quarter and moving interest rate hedges further out the curve given higher rate environment
Annaly's recently announced Middle Market Lending sale underscores its focus on increasing shareholder value
Announced sale of Middle Market Lending portfolio for ~$2.4 billion, enhancing focus on all aspects of the housing finance market(4)
Amended bylaws to lower the threshold for shareholders to call a special meeting
Published disclosures outlining climate-related risks and opportunities across our business in the short-, medium- and long-term horizons taking into consideration the recommendations of the Task Force on Climate-related Financial Disclosures ("TCFD")
First Quarter 2022 Financial Highlights
Earnings per Share
GAAP for Distribution*
$1.37 | $0.28
Book Value per ShareDividend per Share
Dividend Yield(1)Net Interest Margin (ex. PAA)*
Total Stockholders' Equity
Average Yield on Interest Earning Assets (ex. PAA)*
Financing, Liquidity & Hedging
of cash and unencumbered Agency MBS
of total unencumbered assets
Total Hedge Portfolio(4)
Hedge portfolio, increased from $72bn in Q4'21 as we managed duration against the move higher in rates
Average Economic Cost of Funds*(7)
Annaly Middle Market Lending Portfolio Sale
On April 25, 2022, Annaly entered into a definitive agreement to sell substantially all of the assets that comprise the Annaly Middle Market Lending portfolio, including assets held on balance sheet as well as assets managed for third parties, to Ares Capital Management LLC on behalf of funds managed by the Credit Group of Ares Management Corporation for approximately $2.4 billion
The sale is expected to be accretive to book value and have an immaterial impact on other key financial metrics, including earnings available for distribution and the dividend
Upon closing of the transaction, the Company intends to use proceeds from the sale to:
- Repay financing facilities related to the middle market lending assets being sold
Purchase targeted housing finance assets in accordance with its capital allocation policy
Subject to customary closing conditions, the transaction is expected to be completed by the end of Q2 2022
"The sale of our Middle Market Lending portfolio represents a successful outcome for Annaly's shareholders and marks the latest in a series of strategic actions - including the disposition of our Commercial Real Estate business and investments into our Mortgage Servicing Rights and Residential Credit businesses - that have enhanced our focus and capabilities across our core housing finance strategy."
Source: Company filings. For more information, please see the 8-K filing.
Detailed endnotes and a glossary of defined terms are included at the end of this presentation.
David Finkelstein CEO & President
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