Attachment: 8-K


Exhibit
nlya11.jpg
ANNALY CAPITAL MANAGEMENT, INC. REPORTS 2nd QUARTER 2020 RESULTS
NEW YORK—July 29, 2020—Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the "Company") today announced its financial results for the quarter ended June 30, 2020.
Financial Highlights
GAAP net income of $0.58 per average common share for the quarter, up from ($2.57) in the prior quarter
Core earnings (excluding PAA) of $0.27 per average common share for the quarter, up 28.6% from the prior quarter
GAAP return on average equity of 25.8% and core return on average equity (excluding PAA) of 12.8% for the quarter
Book value per common share of $8.39, up 11.9% from the prior quarter
Economic leverage of 6.4x, down from 6.8x in the prior quarter
Declared quarterly common stock cash dividend of $0.22 per share
Economic return of 14.8% for the second quarter
Business Highlights
Well-Positioned Investment Portfolio
Capital allocation remains predominantly to Agency, with $96.3 billion Agency portfolio representing 93% of total assets and 75% of dedicated equity capital given favorable outlook for the sector(1)
Credit businesses are well-positioned with relatively low leverage and high-quality portfolios
Annaly Residential Credit Group continues to add and expand residential whole loan partnerships, which support the growth of its conservatively positioned whole loan portfolio comprised of borrowers with comparatively high FICOs and strong LTVs
Annaly Commercial Real Estate Group navigated the market environment through continued focus on asset management, prudent new investment screening and capital preservation
Annaly Middle Market Lending Group's growth within the current portfolio and long-standing private equity relationships have enabled continued highly selective deal execution amidst the pandemic
Focus on Shareholder Value
Completed management internalization enhancing corporate governance and more strongly aligning management with shareholders
Repurchased approximately $175 million in common stock since the beginning of the second quarter(2)    
Driving Funding Efficiency and Diversity
$7.9 billion of unencumbered assets, including cash and unencumbered Agency MBS of $5.3 billion
Average GAAP cost of interest bearing liabilities declined 90 basis points to 0.96% and average economic cost of interest bearing liabilities declined 62 basis points to 1.29%
Annaly Residential Credit Group priced a $489.4 million residential whole loan securitization in July 2020, bringing aggregate issuance to approximately $4.5 billion since the beginning of 2018(3)
Annaly Residential Credit Group added $1.125 billion of capacity across two new credit facilities since the beginning of the quarter(4) 
Maintaining Organizational Resilience and Continuity
Continued to utilize extensive business continuity planning in response to COVID-19, including ongoing successful remote-working capabilities as well as modifications to headquarters for eventual return to office
Appointed Steve Campbell as Chief Operating Officer; Glenn Votek to retire as Senior Advisor and remain a Director
“We are pleased with the rebound in our results this quarter as we posted our strongest quarterly book value growth since the start of the Great Recession and our core earnings per share outperformed our recently declared dividend,” remarked David Finkelstein, Annaly’s Chief Executive Officer and Chief Investment Officer. “Our portfolio performed well due to the relative attractiveness of the MBS sector as well as accommodative monetary policy and fiscal support for the economy. While we are optimistic about our outlook and ability to generate attractive returns, Annaly will remain nimble and conservatively positioned as we prepare for a variety of potential economic scenarios.
“In line with our capital allocation philosophy, we've repurchased $175 million in common stock since the beginning of the second quarter given our discount to book value and strong performance fundamentals. Additionally, we closed our management internalization as planned, which will better align us with our shareholders, drive long-term cost savings and provide greater strategic flexibility. This is the latest in a series of corporate responsibility and governance enhancements, which continues to be an area of significant focus for the Company.”

1



(1)  
Assets represent Annaly’s investments that are on balance sheet, net of securitized debt of consolidated VIEs, as well as investments that are off-balance sheet in which the Company has economic exposure. Assets include TBA purchase contracts (market value) of $19.1 billion and CMBX derivatives (market value) of $460.3 million and are shown net of securitized debt of consolidated VIEs of $6.5 billion.
(2)  
Share repurchases are under Annaly’s current authorized share repurchase program that expires in December 2020. Amount excludes fees and commissions and includes $31.3 million of repurchases that settled subsequent to quarter end.
(3) 
Includes three residential whole loan securitizations totaling $1.1 billion in 2018, five residential whole loan securitizations totaling $2.1 billion in 2019 and three residential whole loan securitizations totaling approximately $1.3 billion in 2020 (with the July 2020 securitization expected to close on July 30, 2020).
(4)  
Represents an $875 million credit facility closed during the second quarter and a $250 million credit facility closed subsequent to quarter end.



Financial Performance
The following table summarizes certain key performance indicators as of and for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019:
 
June 30, 2020
 
March 31, 2020
 
June 30, 2019
Book value per common share
$
8.39

 
$
7.50

 
$
9.33

Economic leverage at period-end (1)
6.4:1

 
6.8:1

 
7.6:1

GAAP net income (loss) per average common share (2)
$
0.58

 
$
(2.57
)
 
$
(1.24
)
Annualized GAAP return (loss) on average equity
25.84
%
 
(102.17
%)
 
(45.13
%)
Net interest margin (3)
1.89
%
 
0.18
%
 
0.58
%
Average yield on interest earning assets (4)
2.77
%
 
1.91
%
 
3.03
%
Average GAAP cost of interest bearing liabilities (5)
0.96
%
 
1.86
%
 
2.71
%
Net interest spread
1.81
%
 
0.05
%
 
0.32
%
Non-GAAP metrics *
 
 
 
 
 
Core earnings (excluding PAA) per average common share (2)
$
0.27

 
$
0.21

 
$
0.25

Annualized core return on average equity (excluding PAA)
12.82
%
 
9.27
%
 
9.94
%
Net interest margin (excluding PAA) (3)
1.88
%
 
1.18
%
 
1.28
%
Average yield on interest earning assets (excluding PAA) (4)
3.01
%
 
2.91
%
 
3.48
%
Average economic cost of interest bearing liabilities (5)
1.29
%
 
1.91
%
 
2.41
%
Net interest spread (excluding PAA)
1.72
%
 
1.00
%
 
1.07
%
*    Represents a non-GAAP financial measure. Please refer to the "Non-GAAP Financial Measures" section for additional information.
(1)    Computed as the sum of recourse debt, cost basis of to-be-announced ("TBA") and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Securitized debt, certain credit facilities (included within other secured financing) and mortgages payable are non-recourse to the Company and are excluded from this measure.
(2)    Net of dividends on preferred stock. The quarter ended June 30, 2019 includes cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.
(3)    Net interest margin represents interest income less interest expense divided by average Interest Earning Assets. Net interest margin (excluding PAA) represents the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average Interest Earning Assets plus average outstanding TBA contract and CMBX balances. PAA represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities.
(4)    Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).
(5)    Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.



2



Other Information
This news release 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. 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 and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of our assets; changes in business conditions and the general economy; our ability to grow our commercial real estate business; our ability to grow our residential credit business; our ability to grow our middle market lending business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets, commercial real estate assets and corporate debt; risks related to investments in mortgage servicing rights; our ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting our business; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940 and the risk that the expected benefits, including long-term cost savings, of the internalization are not achieved. 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. We do not undertake, and specifically disclaim 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.
Annaly is a leading diversified capital manager that invests in and finances residential and commercial assets. Annaly’s principal business objective is to generate net income for distribution to its stockholders and to optimize its returns through prudent management of its diversified investment strategies. Annaly is internally managed and has elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. Additional information on the company can be found at www.annaly.com.
Annaly routinely posts important information for investors on the Company’s website, www.annaly.com. Annaly intends to use this webpage as a means of disclosing material, non-public information, for complying with the Company’s 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 Company’s website, in addition to following Annaly’s press releases, SEC filings, public conference calls, presentations, webcasts and other information it posts from time to time on its 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, the Company’s webpage is not incorporated by reference into, and is not a part of, this document.
The Company prepares a supplemental investor presentation and a financial summary for the benefit of its shareholders. Both the Second Quarter 2020 Investor Presentation and the Second Quarter 2020 Financial Summary can be found at the Company’s website (www.annaly.com) in the Investors section under Investor Presentations.

Conference Call
The Company will hold the second quarter 2020 earnings conference call on July 30, 2020 at 9:00 a.m. Eastern Time. Participants are encouraged to pre-register for the conference call to receive a unique PIN to gain immediate access to the call and bypass the live operator.  Pre-registration may be completed by accessing the Pre-Registration link found on the homepage or "Investors" section of the Company's website at www.annaly.com, or by using the following link: http://dpregister.com/10146025.
Pre-registration may be completed at any time, including up to and after the call start time. 
For participants who would like to join the call but have not pre-registered, access is available by dialing 844-735-3317 within the U.S., or 412-317-5703 internationally, and requesting the "Annaly Earnings Call."
There will also be an audio webcast of the call on www.annaly.com. A replay of the call will be available for one week following the conference call. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10146025. If you would like to be added to the e-mail distribution list, please visit www.annaly.com, click on Investors, then select Email Alerts and complete the email notification form.

3



Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019 (1)

 
September 30, 2019
 
June 30, 2019
 
(unaudited)
 
(unaudited)
 
 
 
(unaudited)
 
(unaudited)
Assets
 
 
 
 
 
 
 
 
 
Cash and cash equivalents
$
1,393,910

 
$
2,823,521

 
$
1,850,729

 
$
1,793,921

 
$
1,982,311

Securities
77,805,743

 
79,357,596

 
114,833,580

 
116,094,061

 
119,926,869

Loans, net
3,972,671

 
4,068,189

 
4,462,350

 
3,946,614

 
3,546,468

Mortgage servicing rights
227,400

 
280,558

 
378,078

 
386,051

 
425,328

Assets transferred or pledged to securitization vehicles
7,690,451

 
7,671,662

 
7,002,460

 
4,688,144

 
4,211,582

Real estate, net
746,067

 
751,738

 
725,638

 
725,508

 
733,196

Derivative assets
165,642

 
238,776

 
113,556

 
168,755

 
75,142

Receivable for unsettled trades
747,082

 
1,006,853

 
4,792

 
193,229

 
5,322

Principal and interest receivable
300,089

 
335,170

 
449,906

 
483,744

 
440,940

Goodwill and intangible assets, net
137,680

 
98,293

 
92,772

 
94,904

 
96,591

Other assets
271,918

 
284,918

 
381,220

 
381,189

 
357,027

Total assets
$
93,458,653

 
$
96,917,274

 
$
130,295,081

 
$
128,956,120

 
$
131,800,776

Liabilities and stockholders’ equity
 
 
 
 
 
 
 
 
 
Liabilities
 
 
 
 
 
 
 
 
 
Repurchase agreements
$
67,163,598

 
$
72,580,183

 
$
101,740,728

 
$
102,682,104

 
$
105,181,241

Other secured financing
1,538,996

 
1,805,428

 
4,455,700

 
4,466,030

 
4,127,989

Debt issued by securitization vehicles
6,458,130

 
6,364,949

 
5,622,801

 
3,856,082

 
3,470,168

Mortgages payable
508,565

 
484,762

 
485,005

 
485,657

 
498,772

Derivative liabilities
1,257,038

 
1,331,188

 
803,866

 
972,415

 
1,043,197

Payable for unsettled trades
2,122,735

 
923,552

 
463,387

 
245,626

 
620,784

Interest payable
180,943

 
261,304

 
476,335

 
565,797

 
691,327

Dividends payable
309,686

 
357,606

 
357,527

 
359,491

 
364,066

Other liabilities
121,359

 
100,772

 
93,388

 
99,214

 
95,825

Total liabilities
79,661,050

 
84,209,744

 
114,498,737

 
113,732,416

 
116,093,369

Stockholders’ equity
 
 
 
 
 
 
 
 
 
Preferred stock, par value $0.01 per share (2)
1,982,026

 
1,982,026

 
1,982,026

 
1,982,026

 
2,110,346

Common stock, par value $0.01 per share (3)
14,077

 
14,304

 
14,301

 
14,380

 
14,562

Additional paid-in capital
19,827,216

 
19,968,372

 
19,966,923

 
20,034,970

 
20,195,419

Accumulated other comprehensive income (loss)
3,842,074

 
3,121,371

 
2,138,191

 
2,313,815

 
1,365,003

Accumulated deficit
(11,871,927
)
 
(12,382,648
)
 
(8,309,424
)
 
(9,125,895
)
 
(7,982,649
)
Total stockholders’ equity
13,793,466

 
12,703,425

 
15,792,017

 
15,219,296

 
15,702,681

Noncontrolling interests
4,137

 
4,105

 
4,327

 
4,408

 
4,726

Total equity
13,797,603

 
12,707,530

 
15,796,344

 
15,223,704

 
15,707,407

Total liabilities and equity
$
93,458,653

 
$
96,917,274

 
$
130,295,081

 
$
128,956,120

 
$
131,800,776

 
(1) 
Derived from the audited consolidated financial statements at December 31, 2019.
(2) 
7.625% Series C Cumulative Redeemable Preferred Stock - Includes 0 shares authorized, issued and outstanding at June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019. Includes 7,000,000 shares authorized, issued and outstanding at June 30, 2019.
7.50% Series D Cumulative Redeemable Preferred Stock - Includes 18,400,000 shares authorized, issued and outstanding.
6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock - Includes 28,800,000 shares authorized, issued and outstanding.
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock - Includes 19,550,000 shares authorized and 17,000,000 shares issued and outstanding.
6.75% Series I Preferred Stock - Includes 18,400,000 shares authorized and 17,700,000 issued and outstanding at June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019. Includes 18,400,000 shares authorized and 16,000,000 issued and outstanding at June 30, 2019.
(3) 
Includes 2,914,850,000 shares authorized at June 30, 2020, March 31, 2020, December 31, 2019 and September 30, 2019, and 2,907,850,000 shares authorized at June 30, 2019. Includes 1,407,662,483 shares issued and outstanding at June 30, 2020; 1,430,424,398 shares issued and outstanding at March 31, 2020; 1,430,106,199 shares issued and outstanding at December 31, 2019; 1,437,964,466 shares issued and outstanding at September 30, 2019; and 1,456,263,410 shares issued and outstanding at June 30, 2019.

4



ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
(Unaudited)
 
For the quarters ended
 
June 30, 2020
 
March 31, 2020
 
December 31, 2019
 
September 30, 2019
 
June 30, 2019
Net interest income
 
 
 
 
 
 
 
 
 
Interest income
$
584,812

 
$
555,026

 
$
1,074,214

 
$
919,299

 
$
927,598

Interest expense
186,032

 
503,473

 
620,058

 
766,905

 
750,217

Net interest income
398,780

 
51,553

 
454,156

 
152,394

 
177,381

Realized and unrealized gains (losses)
 
 
 
 
 
 
 
 
 
Net interest component of interest rate swaps
(64,561
)
 
(13,980
)
 
45,221

 
88,466

 
83,653

Realized gains (losses) on termination or maturity of interest rate swaps
(1,521,732
)
 
(397,561
)
 
(4,615
)
 
(682,602
)
 
(167,491
)
Unrealized gains (losses) on interest rate swaps
1,494,628

 
(2,827,723
)
 
782,608

 
(326,309
)
 
(1,276,019
)
Subtotal
(91,665
)
 
(3,239,264
)
 
823,214

 
(920,445
)
 
(1,359,857
)
Net gains (losses) on disposal of investments and other
246,679

 
206,583

 
17,783

 
66,522

 
(38,333
)
Net gains (losses) on other derivatives
170,916

 
206,426

 
(42,312
)
 
(16,888
)
 
(506,411
)
Net unrealized gains (losses) on instruments measured at fair value through earnings
254,772

 
(730,160
)
 
(5,636
)
 
(1,091
)
 
(4,881
)
Loan loss provision
(68,751
)
 
(99,326
)
 
(7,362
)
 
(3,504
)
 

Subtotal
603,616

 
(416,477
)
 
(37,527
)
 
45,039

 
(549,625
)
Total realized and unrealized gains (losses)
511,951

 
(3,655,741
)
 
785,687

 
(875,406
)
 
(1,909,482
)
Other income (loss)
15,224

 
14,926

 
42,656

 
35,074

 
28,181

General and administrative expenses
 
 
 
 
 
 
 
 
 
Compensation and management fee
37,036

 
40,825

 
40,403

 
41,161

 
44,231

Other general and administrative expenses
30,630

 
36,804

 
32,948

 
24,977

 
34,177

Total general and administrative expenses
67,666

 
77,629

 
73,351

 
66,138

 
78,408

Income (loss) before income taxes
858,289

 
(3,666,891
)
 
1,209,148

 
(754,076
)
 
(1,782,328
)
Income taxes
2,055

 
(26,702
)
 
(594
)
 
(6,907
)
 
(5,915
)
Net income (loss)
856,234

 
(3,640,189
)
 
1,209,742

 
(747,169
)
 
(1,776,413
)
Net income (loss) attributable to noncontrolling interests
32

 
66

 
68

 
(110
)
 
(83
)
Net income (loss) attributable to Annaly
856,202

 
(3,640,255
)
 
1,209,674

 
(747,059
)
 
(1,776,330
)
Dividends on preferred stock (1)
35,509

 
35,509

 
35,509

 
36,151

 
32,422

Net income (loss) available (related) to common stockholders
$
820,693

 
$
(3,675,764
)
 
$
1,174,165

 
$
(783,210
)
 
$
(1,808,752
)
Net income (loss) per share available (related) to common stockholders
 
 
 
 
 
 
 
 
Basic
$
0.58

 
$
(2.57
)
 
$
0.82

 
$
(0.54
)
 
$
(1.24
)
Diluted
$
0.58

 
$
(2.57
)
 
$
0.82

 
$
(0.54
)
 
$
(1.24
)
Weighted average number of common shares outstanding
 
 
 
 
 
 
 
 
Basic
1,423,909,112

 
1,430,994,319

 
1,431,079,108

 
1,453,359,211

 
1,456,038,736

Diluted
1,423,909,112

 
1,430,994,319

 
1,431,079,108

 
1,453,359,211

 
1,456,038,736

Other comprehensive income (loss)
 
 
 
 
 
 
 
 
Net income (loss)
$
856,234

 
$
(3,640,189
)
 
$
1,209,742

 
$
(747,169
)
 
$
(1,776,413
)
Unrealized gains (losses) on available-for-sale securities
986,146

 
1,374,796

 
(153,192
)
 
1,034,873

 
1,654,783

Reclassification adjustment for net (gains) losses included in net income (loss)
(265,443
)
 
(391,616
)
 
(22,432
)
 
(86,061
)
 
29,596

Other comprehensive income (loss)
720,703

 
983,180

 
(175,624
)
 
948,812

 
1,684,379

Comprehensive income (loss)
1,576,937

 
(2,657,009
)
 
1,034,118

 
201,643

 
(92,034
)
Comprehensive income (loss) attributable to noncontrolling interests
32

 
66

 
68

 
(110
)
 
(83
)
Comprehensive income (loss) attributable to Annaly
1,576,905

 
(2,657,075
)
 
1,034,050

 
201,753

 
(91,951
)
Dividends on preferred stock (1)
35,509

 
35,509

 
35,509

 
36,151

 
32,422

Comprehensive income (loss) attributable to common stockholders
$
1,541,396

 
$
(2,692,584
)
 
$
998,541

 
$
165,602

 
$
(124,373
)
 
(1) 
The quarter ended September 30, 2019 excludes, and the quarter ended June 30, 2019 includes, cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.

5



ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
 
For the six months ended
 
June 30, 2020
 
June 30, 2019
Net interest income
 
 
 
Interest income
$
1,139,838

 
$
1,793,784

Interest expense
689,505

 
1,397,912

Net interest income
450,333

 
395,872

 
 
 
 
Realized and unrealized gains (losses)
 
 
 
Net interest component of interest rate swaps
(78,541
)
 
217,688

Realized gains (losses) on termination or maturity of interest rate swaps
(1,919,293
)
 
(755,747
)
Unrealized gains (losses) on interest rate swaps
(1,333,095
)
 
(1,666,575
)
Subtotal
(3,330,929
)
 
(2,204,634
)
Net gains (losses) on disposal of investments
453,262

 
(132,249
)
Net gains (losses) on other derivatives
377,342

 
(621,570
)
Net unrealized gains (losses) on instruments measured at fair value through earnings
(475,388
)
 
42,748

Loan loss provision
(168,077
)
 
(5,703
)
Subtotal
187,139

 
(716,774
)
Total realized and unrealized gains (losses)
(3,143,790
)
 
(2,921,408
)
Other income (loss)
30,150

 
58,683

General and administrative expenses
 
 
 
Compensation and management fee
77,861

 
89,064

Other general and administrative expenses
67,434

 
73,081

Total general and administrative expenses
145,295

 
162,145

Income (loss) before income taxes
(2,808,602
)
 
(2,628,998
)
Income taxes
(24,647
)
 
(3,334
)
Net income (loss)
(2,783,955
)
 
(2,625,664
)
Net income (loss) attributable to noncontrolling interests
98

 
(184
)
Net income (loss) attributable to Annaly
(2,784,053
)
 
(2,625,480
)
Dividends on preferred stock (1)
71,018

 
64,916

Net income (loss) available (related) to common stockholders
$
(2,855,071
)
 
$
(2,690,396
)
Net income (loss) per share available (related) to common stockholders
 
 
Basic
$
(2.00
)
 
$
(1.88
)
Diluted
$
(2.00
)
 
$
(1.88
)
Weighted average number of common shares outstanding
 
 
Basic
1,427,451,716

 
1,427,485,102

Diluted
1,427,451,716

 
1,427,485,102

Other comprehensive income (loss)
 
 
Net income (loss)
$
(2,783,955
)
 
$
(2,625,664
)
Unrealized gains (losses) on available-for-sale securities
2,360,942

 
3,254,181

Reclassification adjustment for net (gains) losses included in net income (loss)
(657,059
)
 
90,687

Other comprehensive income (loss)
1,703,883

 
3,344,868

Comprehensive income (loss)
(1,080,072
)
 
719,204

Comprehensive income (loss) attributable to noncontrolling interests
98

 
(184
)
Comprehensive income (loss) attributable to Annaly
(1,080,170
)
 
719,388

Dividends on preferred stock (1)
71,018

 
64,916

Comprehensive income (loss) attributable to common stockholders
$
(1,151,188
)
 
$
654,472

 
 
 
 
(1) 
The six months ended June 30, 2019 includes cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.





6



Key Financial Data
The following table presents key metrics of the Company’s portfolio, liabilities and hedging positions, and performance as of and for the quarters ended June 30, 2020, March 31, 2020, and June 30, 2019:
 
June 30,
2020
 
March 31,
2020
 
June 30,
2019
Portfolio related metrics
 
 
 
 
 
Fixed-rate Residential Securities as a percentage of total Residential Securities
98
%
 
99
%
 
96
%
Adjustable-rate and floating-rate Residential Securities as a percentage of total Residential Securities
2
%
 
1
%
 
4
%
Weighted average experienced CPR for the period
19.5
%
 
13.6
%
 
11.2
%
Weighted average projected long-term CPR at period-end
18.0
%
 
17.7
%
 
14.5
%
Liabilities and hedging metrics
 
 
 
 
 
Weighted average days to maturity on repurchase agreements outstanding at period-end
74

 
48

 
70

Hedge ratio (1)
40
%
 
19
%
 
74
%
Weighted average pay rate on interest rate swaps at period-end (2)
1.01
%
 
1.63
%
 
2.12
%
Weighted average receive rate on interest rate swaps at period-end (2)
0.75
%
 
1.16
%
 
2.46
%
Weighted average net rate on interest rate swaps at period-end (2)
0.26
%
 
0.47
%
 
(0.34
%)
Leverage at period-end (3)
5.5:1

 
6.4:1

 
7.2:1

Economic leverage at period-end (4)
6.4:1

 
6.8:1

 
7.6:1

Capital ratio at period-end
13.0
%
 
12.3
%
 
11.4
%
Performance related metrics
 
 
 
 
 
Book value per common share
$
8.39

 
$
7.50

 
$
9.33

GAAP net income (loss) per average common share (5)
$
0.58

 
$
(2.57
)
 
$
(1.24
)
Annualized GAAP return (loss) on average equity
25.84
%
 
(102.17
%)
 
(45.13
%)
Net interest margin (6)
1.89
%
 
0.18
%
 
0.58
%
Average yield on interest earning assets (7)
2.77
%
 
1.91
%
 
3.03
%
Average GAAP cost of interest bearing liabilities (8)
0.96
%
 
1.86
%
 
2.71
%
Net interest spread
1.81
%
 
0.05
%
 
0.32
%
Dividend declared per common share
$
0.22

 
$
0.25

 
$
0.25

Annualized dividend yield (9)
13.41
%
 
19.72
%
 
10.95
%
Non-GAAP metrics *
 
 
 
 
 
Core earnings (excluding PAA) per average common share (5)
$
0.27

 
$
0.21

 
$
0.25

Annualized core return on average equity (excluding PAA)
12.82
%
 
9.27
%
 
9.94
%
Net interest margin (excluding PAA) (6)
1.88
%
 
1.18
%
 
1.28
%
Average yield on interest earning assets (excluding PAA) (7)
3.01
%
 
2.91
%
 
3.48
%
Average economic cost of interest bearing liabilities (8)
1.29
%
 
1.91
%
 
2.41
%
Net interest spread (excluding PAA)
1.72
%
 
1.00
%
 
1.07
%
*
Represents a non-GAAP financial measure. Please refer to the "Non-GAAP Financial Measures" section for additional information.
(1) 
Measures total notional balances of interest rate swaps, interest rate swaptions (excluding receiver swaptions) and futures relative to repurchase agreements, other secured financing and cost basis of TBA derivatives outstanding; excludes MSRs and the effects of term financing, both of which serve to reduce interest rate risk. Additionally, the hedge ratio does not take into consideration differences in duration between assets and liabilities.
(2) 
Excludes forward starting swaps.
(3) 
Debt consists of repurchase agreements, other secured financing, securitized debt and mortgages payable. Certain credit facilities (included within other secured financing), securitized debt and mortgages payable are non-recourse to the Company.
(4) 
Computed as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity.
(5) 
Net of dividends on preferred stock. The quarter ended June 30, 2019 includes cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.
(6) 
Net interest margin represents interest income less interest expense divided by average interest earning assets. Net interest margin (excluding PAA) represents the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances.
(7) 
Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).
(8) 
Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
(9) 
Based on the closing price of the Company’s common stock of $6.56, $5.07 and $9.13 at June 30, 2020, March 31, 2020 and June 30, 2019, respectively.

7



The following table contains additional information on our residential and commercial investments as of the dates presented:
 
For the quarters ended
 
June 30,
2020
 
March 31,
2020
 
June 30,
2019
Agency mortgage-backed securities
$
76,761,800

 
$
78,456,846

 
$
118,202,040

Credit risk transfer securities
362,901

 
222,871

 
491,969

Non-agency mortgage-backed securities
619,840

 
585,954

 
1,097,752

Commercial mortgage-backed securities
61,202

 
91,925

 
135,108

Total securities
$
77,805,743

 
$
79,357,596

 
$
119,926,869

Residential mortgage loans
$
1,168,521

 
$
1,268,083

 
$
1,061,124

Commercial real estate debt and preferred equity
618,886

 
649,843

 
623,705

Corporate debt
2,185,264

 
2,150,263

 
1,792,837

Loans held for sale

 

 
68,802

Total loans, net
$
3,972,671

 
$
4,068,189

 
$
3,546,468

Mortgage servicing rights
$
227,400

 
$
280,558

 
$
425,328

Agency mortgage-backed securities transferred or pledged to securitization vehicles
$
1,832,708

 
$
1,803,608

 
$

Residential mortgage loans transferred or pledged to securitization vehicles
2,832,502

 
3,027,188

 
2,106,981

Commercial real estate debt investments transferred or pledged to securitization vehicles
2,150,623

 
1,927,575

 
2,104,601

Commercial real estate debt and preferred equity transferred or pledged to securitization vehicles
874,618

 
913,291

 

Assets transferred or pledged to securitization vehicles
$
7,690,451

 
$
7,671,662

 
$
4,211,582

Real estate, net
$
746,067

 
$
751,738

 
$
733,196

Total residential and commercial investments
$
90,442,332

 
$
92,129,743

 
$
128,843,443

 


8



Non-GAAP Financial Measures
To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles ("GAAP"), the Company provides the following non-GAAP measures:
core earnings (excluding PAA);
core earnings (excluding PAA) attributable to common stockholders;
core earnings (excluding PAA) per average common share;
annualized core return on average equity (excluding PAA);
interest income (excluding PAA);
 
economic interest expense;
economic net interest income (excluding PAA);
average yield on interest earning assets (excluding PAA);
average economic cost of interest bearing liabilities;
net interest margin (excluding PAA); and
net interest spread (excluding PAA).

These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with GAAP. While intended to offer a fuller understanding of the Company’s results and operations, non-GAAP financial measures also have limitations. For example, the Company may calculate its non-GAAP metrics, such as core earnings (excluding PAA), or the PAA, differently than its peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which the Company will amortize the remaining unamortized premium. Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results.
These non-GAAP measures provide additional detail to enhance investor understanding of the Company’s period-over-period operating performance and business trends, as well as for assessing the Company’s performance versus that of industry peers. Additional information pertaining to the Company’s use of these non-GAAP financial measures, including discussion of how each such measure may be useful to investors, and reconciliations to their most directly comparable GAAP results are provided below.
Core earnings (excluding PAA), core earnings (excluding PAA) attributable to common stockholders, core earnings (excluding PAA) per average common share and annualized core return on average equity (excluding PAA)
The Company's principal business objective is to generate net income for distribution to its stockholders and to preserve capital through prudent selection of investments and continuous management of its portfolio. The Company generates net income by earning a net interest spread on its investment portfolio, which is a function of interest income from its investment portfolio less financing, hedging and operating costs.  Core earnings (excluding PAA), which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSRs, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-core income allocated to equity method investments and other non-core components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-core income (loss) items) and excludes (g) the premium amortization adjustment ("PAA") representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities is used by the Company's management and, the Company believes, used by analysts and investors to measure its progress in achieving its principal business objective.
The Company seeks to fulfill this objective through a variety of factors including portfolio construction, the degree of market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of the Company's capital allocation policy and risk governance framework.
The Company believes these non-GAAP measures provide management and investors with additional details regarding the Company’s underlying operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive income (loss) and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to provide additional transparency into the operating performance of the Company’s portfolio. Annualized core return on average equity (excluding PAA), which is calculated by dividing core earnings (excluding PAA) over average stockholders’ equity, provides investors with additional detail on the core earnings (excluding PAA) generated by the Company’s invested equity capital.

9



The following table presents a reconciliation of GAAP financial results to non-GAAP core earnings (excluding PAA) for the periods presented:
 
For the quarters ended
 
June 30,
2020
 
March 31,
2020
 
June 30,
2019
 
(dollars in thousands, except per share data)
GAAP net income (loss)
$
856,234

 
$
(3,640,189
)
 
$
(1,776,413
)
Net income (loss) attributable to noncontrolling interests
32

 
66

 
(83
)
Net income (loss) attributable to Annaly
856,202

 
(3,640,255
)
 
(1,776,330
)
Adjustments to exclude reported realized and unrealized (gains) losses
 
 
 
 
 
Realized (gains) losses on termination or maturity of interest rate swaps
1,521,732

 
397,561

 
167,491

Unrealized (gains) losses on interest rate swaps
(1,494,628
)
 
2,827,723

 
1,276,019

Net (gains) losses on disposal of investments and other
(246,679
)
 
(206,583
)
 
38,333

Net (gains) losses on other derivatives
(170,916
)
 
(206,426
)
 
506,411

Net unrealized (gains) losses on instruments measured at fair value through earnings
(254,772
)
 
730,160

 
4,881

Loan loss provision (1)
72,544

 
99,993

 

Other adjustments
Depreciation expense related to commercial real estate and amortization of intangibles
8,714

 
7,934

 
10,147

Non-core (income) loss allocated to equity method investments (2)
4,218

 
19,398

 
11,327

Transaction expenses and non-recurring items (3)
1,075

 
7,245

 
3,046

Income tax effect of non-core income (loss) items
3,353

 
(23,862
)
 
(3,507
)
TBA dollar roll income and CMBX coupon income (4)
97,524

 
44,904

 
33,229

MSR amortization (5)
(25,529
)
 
(18,296
)
 
(19,657
)
Plus:
 
 
 
 
 
Premium amortization adjustment cost (benefit)
51,742

 
290,722

 
139,763

Core earnings (excluding PAA) *
424,580

 
330,218

 
391,153

Dividends on preferred stock
35,509

 
35,509

 
32,422

Core earnings (excluding PAA) attributable to common stockholders *
$
389,071

 
$
294,709

 
$
358,731

GAAP net income (loss) per average common share
$
0.58

 
$
(2.57
)
 
$
(1.24
)
Core earnings (excluding PAA) per average common share *
$
0.27

 
$
0.21

 
$
0.25

Annualized GAAP return (loss) on average equity
25.84
%
 
(102.17
%)
 
(45.13
%)
Annualized core return on average equity (excluding PAA) *
12.82
%
 
9.27
%
 
9.94
%
*
Represents a non-GAAP financial measure.
(1) 
Includes $3.8 million and $0.7 million of loss provision on the Company’s unfunded loan commitments for the quarters ended June 30, 2020 and March 31, 2020, respectively, which is reported in Other income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss).
(2) 
The Company excludes non-core (income) loss allocated to equity method investments, which represents the unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is a component of Other income (loss).
(3) 
The quarters ended June 30, 2020 and March 31, 2020 include costs incurred in connection with the Internalization and costs incurred in connection with the CEO transition. The quarter ended March 31, 2020 also includes costs incurred in connection with securitizations of Agency mortgage-backed securities and residential whole loans. The quarter ended June 30, 2019 includes costs incurred in connection with securitizations of residential whole loans.
(4) 
TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives. CMBX coupon income totaled $1.6 million, $1.2 million and $0.8 million for the quarters ended June 30, 2020, March 31, 2020 and June 30, 2019, respectively.
(5) 
MSR amortization represents the portion of changes in fair value that is attributable to the realization of estimated cash flows on the Company’s MSR portfolio and is reported as a component of Net unrealized gains (losses) on instruments measured at fair value.















 
 
 
 



10



From time to time, the Company enters into TBA forward contracts as an alternate means of investing in and financing Agency mortgage-backed securities. A TBA contract is an agreement to purchase or sell, for future delivery, an Agency mortgage-backed security with a specified issuer, term and coupon. A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are simultaneously bought and sold. The TBA contract settling in the later month typically prices at a discount to the earlier month contract with the difference in price commonly referred to as the "drop". The drop is a reflection of the expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing cost, that would be foregone as a result of settling the contract in the later month rather than in the earlier month. The drop between the current settlement month price and the forward settlement month price occurs because in the TBA dollar roll market, the party providing the financing is the party that would retain all principal and interest payments accrued during the financing period. Accordingly, TBA dollar roll income generally represents the economic equivalent of the net interest income earned on the underlying Agency mortgage-backed security less an implied financing cost.
TBA dollar roll transactions are accounted for under GAAP as a series of derivatives transactions. The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities. The Company records TBA derivatives at fair value on its Consolidated Statements of Financial Condition and recognizes periodic changes in fair value in Net gains (losses) on other derivatives in the Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives (excluding interest rate swaps).
TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different settlement dates multiplied by the notional amount of the TBA contract. Although accounted for as derivatives, TBA dollar rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency mortgage-backed security (interest income less an implied cost of financing). TBA dollar roll income is reported as a component of Net gains (losses) on other derivatives in the Consolidated Statements of Comprehensive Income (Loss).
The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities ("CMBS") of a particular rating and vintage. The CMBX index allows investors to take a long exposure (referred to as selling protection) or short exposure (referred to as buying protection) on the respective basket of CMBS securities and is structured as a "pay-as-you-go" contract whereby the protection buyer pays to the protection seller a standardized running coupon on the contracted notional amount. The Company reports income (expense) on CMBX positions in Net gains (losses) on other derivatives in the Consolidated Statements of Comprehensive Income (Loss). The coupon payments received or paid on CMBX positions are equivalent to interest income (expense) and therefore included in core earnings (excluding PAA).
Premium Amortization Expense
In accordance with GAAP, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities, excluding interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the calculation of the effective yield. The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third-party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.
The Company’s GAAP metrics include the unadjusted impact of amortization and accretion associated with this method. Certain of the Company’s non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term CPR.
The following table illustrates the impact of the PAA on premium amortization expense for the Company’s Residential Securities portfolio and residential securities transferred or pledged to securitization vehicles, for the quarters ended June 30, 2020, March 31, 2020, and June 30, 2019:
 
For the quarters ended
 
June 30,
2020
 
March 31,
2020
 
June 30,
2019
 
(dollars in thousands)
Premium amortization expense (accretion)
$
270,688

 
$
616,937

 
$
318,587

Less: PAA cost (benefit)
51,742

 
290,722

 
139,763

Premium amortization expense (excluding PAA)
$
218,946

 
$
326,215

 
$
178,824

 
 
 
 
 
 
 





11



Interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA)
Interest income (excluding PAA) represents interest income excluding the effect of the PAA, and serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA), which are discussed below. The Company believes this measure provides management and investors with additional detail to enhance their understanding of the Company’s operating results and trends by excluding the component of premium amortization expense representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio.
Economic interest expense includes GAAP interest expense and the net interest component of interest rate swaps. The Company uses interest rate swaps to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. Accordingly, adding the net interest component of interest rate swaps to interest expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with additional information about the cost of the Company's financing strategy. The Company may use market agreed coupon (“MAC”) interest rate swaps in which the Company may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-market nature of such interest rate swap. In accordance with GAAP, upfront payments associated with MAC interest rate swaps are not reflected in the net interest component of interest rate swaps in the Company's Consolidated Statements of Comprehensive Income (Loss). The Company did not enter into any MAC interest rate swaps during the quarter ended June 30, 2020.
Similarly, economic net interest income (excluding PAA), as computed below, provides investors with additional information to enhance their understanding of the net economics of our primary business operations.
 
For the quarters ended
 
June 30,
2020
 
March 31,
2020
 
June 30,
2019
Interest income (excluding PAA) reconciliation
(dollars in thousands)
GAAP interest income
$
584,812

 
$
555,026

 
$
927,598

Premium amortization adjustment
51,742

 
290,722

 
139,763

Interest income (excluding PAA) *
$
636,554

 
$
845,748

 
$
1,067,361

Economic interest expense reconciliation
 
 
 
 
 
GAAP interest expense
$
186,032

 
$
503,473

 
$
750,217

Add:
 
 
 
 
 
Net interest component of interest rate swaps
64,561

 
13,980

 
(83,653
)
Economic interest expense *
$
250,593

 
$
517,453

 
$
666,564

Economic net interest income (excluding PAA) reconciliation
 
 
 
 
Interest income (excluding PAA) *
$
636,554

 
$
845,748

 
$
1,067,361

Less:
 
 
 
 
 
Economic interest expense *
250,593

 
517,453

 
666,564

Economic net interest income (excluding PAA) *
$
385,961

 
$
328,295

 
$
400,797

 
*    Represents a non-GAAP financial measure.


Average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA), net interest margin (excluding PAA) and average economic cost of interest bearing liabilities
Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances, provide management with additional measures of the Company’s profitability that management relies upon in monitoring the performance of the business.







12




Disclosure of these measures, which are presented below, provides investors with additional detail regarding how management evaluates the Company’s performance.
 
For the quarters ended
 
June 30,
2020
 
March 31,
2020
 
June 30,
2019
Economic metrics (excluding PAA)
(dollars in thousands)
Average interest earning assets
$
84,471,839

 
$
116,063,895

 
$
122,601,881

Interest income (excluding PAA) *
$
636,554

 
$
845,748

 
$
1,067,361

Average yield on interest earning assets (excluding PAA) *
3.01
%
 
2.91
%
 
3.48
%
Average interest bearing liabilities
$
76,712,894

 
$
107,029,466

 
$
109,628,007

Economic interest expense *
$
250,593

 
$
517,453

 
$
666,564

Average economic cost of interest bearing liabilities *
1.29
%
 
1.91
%
 
2.41
%
Economic net interest income (excluding PAA) *
$
385,961

 
$
328,295

 
$
400,797

Net interest spread (excluding PAA) *
1.72
%
 
1.00
%
 
1.07
%
Interest income (excluding PAA) *
$
636,554

 
$
845,748

 
$
1,067,361

TBA dollar roll income and CMBX coupon income
97,524

 
44,904

 
33,229

Interest expense
(186,032
)
 
(503,473
)
 
(750,217
)
Net interest component of interest rate swaps
(64,561
)
 
(13,980
)
 
83,653

Subtotal
$
483,485

 
$
373,199

 
$
434,026

Average interest earnings assets
$
84,471,839

 
$
116,063,895

 
$
122,601,881

Average TBA contract and CMBX balances
18,628,343

 
9,965,142

 
12,757,975

Subtotal
$
103,100,182

 
$
126,029,037

 
$
135,359,856

Net interest margin (excluding PAA) *
1.88
%
 
1.18
%
 
1.28
%
*    Represents a non-GAAP financial measure.


13


a2020q2nlyex992
Second Quarter 2020 Financial Summary July 29, 2020


 
Important Notices 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 Second Quarter 2020 quarterly report. 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. 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 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 our 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 our assets; changes in business conditions and the general economy; our ability to grow our commercial real estate business; our ability to grow our residential credit business; our ability to grow our middle market lending business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets, commercial real estate assets and corporate debt; risks related to investments in mortgage servicing rights ("MSR"); our ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting our business; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended; and the risk that the expected benefits, including long-term cost savings, of the Internalization are not achieved. 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. We do not undertake, and specifically disclaim 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 core earnings excluding the premium amortization adjustment (“PAA”). 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 core earnings (excluding PAA), or the PAA, differently than our peers making comparative analysis difficult. Please see the section entitled “Non-GAAP Reconciliations” in the attached Appendix for a reconciliation to the most directly comparable GAAP financial measures. 1


 
Financial Snapshot Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2020 3/31/2020 GAAP net income (loss) per average common share (1) $0.58 ($2.57) Core earnings (excluding PAA) per average common share *(1) $0.27 $0.21 Income Statement Annualized GAAP return (loss) on average equity 25.84% (102.17%) Annualized core return on average equity (excluding PAA)* 12.82% 9.27% Book value per common share $8.39 $7.50 Leverage at period-end (2) 5.5x 6.4x Balance Sheet Economic leverage at period-end *(3) 6.4x 6.8x Capital ratio at period-end (4) 13.0% 12.3% Securities $77,805,743 $79,357,596 Loans, net 3,972,671 4,068,189 Mortgage servicing rights 227,400 280,558 Portfolio Assets transferred or pledged to securitization vehicles 7,690,451 7,671,662 Real estate, net 746,067 751,738 Total residential and commercial investments $90,442,332 $92,129,743 Net interest margin (5) 1.89% 0.18% GAAP Average yield on interest earning assets (6) 2.77% 1.91% Key Statistics Average GAAP cost of interest bearing liabilities (7) 0.96% 1.86% Net interest spread 1.81% 0.05% Net interest margin (excluding PAA) *(5) 1.88% 1.18% Non-GAAP Average yield on interest earning assets (excluding PAA) *(6) 3.01% 2.91% Key Statistics Average economic cost of interest bearing liabilities *(7) 1.29% 1.91% Net interest spread (excluding PAA) * 1.72% 1.00% Operating expenses to core earnings (excluding PAA) *(8) 15.68% 21.31% Efficiency Annualized operating expenses as a % of average total assets (8) 0.28% 0.25% Annualized operating expenses as a % of average total equity (8) 2.01% 1.98% * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. 2


 
Portfolio Data Unaudited, dollars in thousands For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Agency mortgage-backed securities $76,761,800 $78,456,846 $112,893,367 $114,462,524 $118,202,040 Credit risk transfer securities 362,901 222,871 531,322 474,765 491,969 Non-agency mortgage-backed securities 619,840 585,954 1,135,868 1,015,921 1,097,752 Commercial mortgage-backed securities 61,202 91,925 273,023 140,851 135,108 Total securities $77,805,743 $79,357,596 $114,833,580 $116,094,061 $119,926,869 Residential mortgage loans $1,168,521 $1,268,083 $1,647,787 $1,219,402 $1,061,124 Commercial real estate debt and preferred equity 618,886 649,843 669,713 611,429 623,705 Corporate debt 2,185,264 2,150,263 2,144,850 2,115,783 1,792,837 Loans held for sale — — — — 68,802 Portfolio- Total loans, net $3,972,671 $4,068,189 $4,462,350 $3,946,614 $3,546,468 Related Mortgage servicing rights $227,400 $280,558 $378,078 $386,051 $425,328 Data Agency mortgage-backed securities transferred or pledged to securitization vehicles $1,832,708 $1,803,608 $1,122,588 $— $— Residential mortgage loans transferred or pledged to securitization vehicles 2,832,502 3,027,188 2,598,374 2,376,731 2,106,981 Commercial real estate debt investments transferred or pledged to securitization vehicles 2,150,623 1,927,575 2,345,120 2,311,413 2,104,601 Commercial real estate debt and preferred equity transferred or pledged to securitization vehicles 874,618 913,291 936,378 — — Assets transferred or pledged to securitization vehicles $7,690,451 $7,671,662 $7,002,460 $4,688,144 $4,211,582 Real estate, net $746,067 $751,738 $725,638 $725,508 $733,196 Total residential and commercial investments $90,442,332 $92,129,743 $127,402,106 $125,840,378 $128,843,443 Total assets $93,458,653 $96,917,274 $130,295,081 $128,956,120 $131,800,776 Average TBA contract and CMBX balances $18,628,343 $9,965,142 $6,878,502 $9,248,502 $12,757,975 % Fixed-rate 98% 99% 97% 97% 96% Residential % Adjustable-rate 2% 1% 3% 3% 4% Securities Weighted average experienced CPR for the period 19.5% 13.6% 17.8% 14.6% 11.2% Summary Portfolio Weighted average projected long-term CPR at period-end 18.0% 17.7% 13.9% 16.3% 14.5% Statistics Net premium and discount balance in Residential Securities $3,679,639 $3,815,149 $5,185,797 $5,262,316 $5,625,788 Net premium and discount balance as % of stockholders' equity 26.68% 30.03% 32.84% 34.58% 35.83% 3


 
Financing and Capital Data Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Repurchase agreements $67,163,598 $72,580,183 $101,740,728 $102,682,104 $105,181,241 Other secured financing 1,538,996 1,805,428 4,455,700 4,466,030 4,127,989 Debt issued by securitization vehicles 6,458,130 6,364,949 5,622,801 3,856,082 3,470,168 Mortgages payable 508,565 484,762 485,005 485,657 498,772 Total debt $75,669,289 $81,235,322 $112,304,234 $111,489,873 $113,278,170 Financing Data Total liabilities $79,661,050 $84,209,744 $114,498,737 $113,732,416 $116,093,369 Cumulative redeemable preferred stock $1,982,026 $1,982,026 $1,982,026 $1,982,026 $2,110,346 Common equity(1) 11,811,440 10,721,399 13,809,991 13,237,270 13,592,335 Total Annaly stockholders' equity 13,793,466 12,703,425 15,792,017 15,219,296 15,702,681 Non-controlling interests 4,137 4,105 4,327 4,408 4,726 Total equity $13,797,603 $12,707,530 $15,796,344 $15,223,704 $15,707,407 Weighted average days to maturity of repurchase agreements 74 48 65 45 70 Weighted average rate on repurchase agreements, for the quarter(2)(3) 0.79% 1.78% 2.09% 2.53% 2.66% Weighted average rate on repurchase agreements, at period-end(3) 0.49% 1.23% 2.03% 2.48% 2.69% Leverage at period-end 5.5x 6.4x 7.1x 7.3x 7.2x Economic leverage at period-end * 6.4x 6.8x 7.2x 7.7x 7.6.x Key Capital and Capital ratio at period-end 13.0% 12.3% 12.0% 11.2% 11.4% Hedging Metrics Book value per common share $8.39 $7.50 $9.66 $9.21 $9.33 Total common shares outstanding 1,407,662 1,430,424 1,430,106 1,437,964 1,456,263 Hedge ratio(4) 40% 19% 75% 73% 74% Weighted average pay rate on interest rate swaps, at period-end 1.01% 1.63% 1.84% 1.88% 2.12% Weighted average receive rate on interest rate swaps, at period-end 0.75% 1.16% 1.89% 2.16% 2.46% Weighted average net rate on interest rate swaps, at period-end 0.26% 0.47% (0.05%) (0.28%) (0.34%) * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. 4


 
Income Statement Data Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Total interest income $584,812 $555,026 $1,074,214 $919,299 $927,598 Total interest expense 186,032 503,473 620,058 766,905 750,217 Net interest income $398,780 $51,553 $454,156 $152,394 $177,381 Total economic interest expense *(1) $250,593 $517,453 $574,837 $678,439 $666,564 Economic net interest income * $334,219 $37,573 $499,377 $240,860 $261,034 Total interest income (excluding PAA) * $636,554 $845,748 $990,322 $1,036,451 $1,067,361 Summary Income Economic net interest income (excluding PAA) * $385,961 $328,295 $415,485 $358,012 $400,797 Statement GAAP net income (loss) $856,234 ($3,640,189) $1,209,742 ($747,169) ($1,776,413) GAAP net income (loss) available (related) to common stockholders (2) $820,693 ($3,675,764) $1,174,165 ($783,210) ($1,808,752) GAAP net income (loss) per average common share (2) $0.58 ($2.57) $0.82 ($0.54) ($1.24) Core earnings (excluding PAA) * $424,580 $330,218 $409,157 $341,931 $391,153 Core earnings (excluding PAA) available to common stockholders *(2) $389,071 $294,709 $373,648 $305,780 $358,731 Core earnings (excluding PAA) per average common share *(2) $0.27 $0.21 $0.26 $0.21 $0.25 PAA cost (benefit) $51,742 $290,722 ($83,892) $117,152 $139,763 * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. 5


 
Key Earnings Metrics Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Dividends declared per common share $0.22 $0.25 $0.25 $0.25 $0.25 Total common and preferred dividends declared (1) $345,481 $393,328 $393,203 $396,187 $396,388 Annualized GAAP return (loss) on average equity 25.84% (102.17%) 31.20% (19.32%) (45.13%) Annualized GAAP return (loss) on average equity per unit of economic leverage 4.04% (15.03%) 4.33% (2.51%) (5.94%) Key GAAP Earnings Metrics Net interest margin 1.89% 0.18% 1.49% 0.48% 0.58% Average yield on interest earning assets 2.77% 1.91% 3.53% 2.89% 3.03% Average GAAP cost of interest bearing liabilities 0.96% 1.86% 2.17% 2.58% 2.71% Net interest spread 1.81% 0.05% 1.36% 0.31% 0.32% Annualized core return on average equity (excluding PAA) * 12.82% 9.27% 10.56% 8.85% 9.94% Annualized core return on average equity per unit of economic leverage (excluding PAA) * 2.00% 1.36% 1.47% 1.15% 1.31% Net interest margin (excluding PAA) * 1.88% 1.18% 1.41% 1.10% 1.28% Key Non-GAAP Earnings Metrics Average yield on interest earning assets (excluding PAA) * 3.01% 2.91% 3.25% 3.26% 3.48% Average economic cost of interest bearing liabilities * 1.29% 1.91% 2.01% 2.28% 2.41% Net interest spread (excluding PAA) * 1.72% 1.00% 1.24% 0.98% 1.07% * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. 6


 
Components of Economic Net Interest Income * Unaudited, dollars in thousands For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Interest income: Residential Securities $457,684 $410,380 $923,653 $784,228 $777,891 Residential mortgage loans 42,871 47,557 47,377 37,673 35,025 Commercial investment portfolio 84,208 95,676 97,366 87,946 92,131 Reverse repurchase agreements 49 1,413 5,818 9,452 22,551 Total interest income $584,812 $555,026 $1,074,214 $919,299 $927,598 Economic interest expense: Economic Net Interest Income * Repurchase agreements $136,962 $434,021 $550,283 $699,838 $683,647 Net interest component of interest rate swaps 64,561 13,980 (45,221) (88,466) (83,653) Debt issued by securitization vehicles 38,757 42,119 39,099 34,524 34,151 Other 10,313 27,333 30,676 32,543 32,419 Total economic interest expense * $250,593 $517,453 $574,837 $678,439 $666,564 Economic net interest income * $334,219 $37,573 $499,377 $240,860 $261,034 PAA cost (benefit) 51,742 290,722 (83,892) 117,152 139,763 Economic net interest income (excluding PAA) * $385,961 $328,295 $415,485 $358,012 $400,797 * Represents a non-GAAP financial measure. 7


 
GAAP Net Income to Core Earnings (excluding PAA)* Reconciliation Unaudited, dollars in thousands For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 GAAP net income (loss) $856,234 ($3,640,189) $1,209,742 ($747,169) ($1,776,413) Net income (loss) attributable to noncontrolling interests 32 66 68 (110) (83) Net income (loss) attributable to Annaly 856,202 (3,640,255) 1,209,674 (747,059) (1,776,330) Adjustments to exclude reported realized and unrealized (gains) losses: Realized (gains) losses on termination or maturity of interest rate swaps 1,521,732 397,561 4,615 682,602 167,491 Unrealized (gains) losses on interest rate swaps (1,494,628) 2,827,723 (782,608) 326,309 1,276,019 Net (gains) losses on disposal of investments and other (246,679) (206,583) (17,783) (66,522) 38,333 Net (gains) losses on other derivatives (170,916) (206,426) 42,312 16,888 506,411 Net unrealized (gains) losses on instruments measured at fair value through earnings (254,772) 730,160 5,636 1,091 4,881 Loan loss provision (1) 72,544 99,993 7,362 3,504 — Core Earnings Other adjustments: (excluding PAA)* (2) Reconciliation Depreciation expense related to commercial real estate and amortization of intangibles 8,714 7,934 9,823 9,974 10,147 Non-core (income) loss allocated to equity method investments (3) 4,218 19,398 (3,979) 4,541 11,327 Transaction expenses and non-recurring items (4) 1,075 7,245 3,634 2,622 3,046 Income tax effect of non-core income (loss) items 3,353 (23,862) (418) (2,762) (3,507) TBA dollar roll income and CMBX coupon income (5) 97,524 44,904 36,901 15,554 33,229 MSR amortization (6) (25,529) (18,296) (22,120) (21,963) (19,657) Plus: Premium amortization adjustment cost (benefit) 51,742 290,722 (83,892) 117,152 139,763 Core earnings (excluding PAA) * 424,580 330,218 409,157 341,931 391,153 Dividends on preferred stock (7) 35,509 35,509 35,509 36,151 32,422 Core earnings (excluding PAA) attributable to common stockholders * $389,071 $294,709 $373,648 $305,780 $358,731 * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. 8


 
Quarter-Over-Quarter Changes in Key Metrics Unaudited For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Book value per common share, beginning of period $7.50 $9.66 $9.21 $9.33 $9.67 Net income (loss) available (related) to common stockholders 0.58 (2.57) 0.82 (0.54) (1.24) Other comprehensive income (loss) attributable to common stockholders 0.51 0.69 (0.12) 0.66 1.15 Book Value Common dividends declared (0.22) (0.25) (0.25) (0.25) (0.25) Rollforward Issuance / buyback of common stock / redemption of preferred stock 0.02 — — 0.01 — Other adjustment (1) — (0.03) — — — Book value per common share, end of period $8.39 $7.50 $9.66 $9.21 $9.33 Prior quarter net interest margin 0.18% 1.49% 0.48% 0.58% 0.79% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.03% (0.04%) 0.02% (0.02%) 0.03% Net Interest Margin Net amortization of premiums 0.83% (1.58%) 0.62% (0.12%) (0.15%) GAAP interest expense 0.85% 0.31% 0.37% 0.04% (0.09%) Current quarter net interest margin 1.89% 0.18% 1.49% 0.48% 0.58% Prior quarter net interest spread 0.05% 1.36% 0.31% 0.32% 0.44% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.03% (0.04%) 0.02% (0.02%) 0.03% Net Interest Spread Net amortization of premiums 0.83% (1.58%) 0.62% (0.12%) (0.15%) Average GAAP cost of interest bearing liabilities 0.90% 0.31% 0.41% 0.13% 0.00% Current quarter net interest spread 1.81% 0.05% 1.36% 0.31% 0.32% Detailed endnotes are included within the Appendix at the end of this presentation. 9


 
Quarter-Over-Quarter Changes in Key Metrics (continued) Unaudited For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Prior quarter net interest margin (excluding PAA) * 1.18% 1.41% 1.10% 1.28% 1.51% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets (including average TBA dollar roll and CMBX balances) (0.39%) (0.14%) 0.08% 0.09% 0.12% Net Interest Margin (excluding PAA)* Net amortization of premiums (excluding PAA) 0.18% (0.26%) (0.04%) (0.20%) (0.01%) TBA dollar roll income and CMBX coupon income 0.24% 0.03% 0.07% (0.05%) (0.02%) Interest expense and net interest component of interest rate swaps 0.67% 0.14% 0.20% (0.02%) (0.32%) Current quarter net interest margin (excluding PAA) * 1.88% 1.18% 1.41% 1.10% 1.28% Prior quarter net interest spread (excluding PAA) * 1.00% 1.24% 0.98% 1.07% 1.30% Quarter-over-quarter changes in contribution: Net Interest Spread Coupon on average interest earning assets 0.03% (0.04%) 0.02% (0.02%) 0.03% * (excluding PAA) Net amortization of premiums (excluding PAA) 0.07% (0.30%) (0.03%) (0.20%) 0.00% Average economic cost of interest bearing liabilities 0.62% 0.10% 0.27% 0.13% (0.26%) Current quarter net interest spread (excluding PAA) * 1.72% 1.00% 1.24% 0.98% 1.07% * Represents a non-GAAP financial measure. 10


 
Quarter-Over-Quarter Changes in Annualized Return on Average Equity Unaudited For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Prior quarter annualized GAAP return (loss) on average equity (102.17%) 31.20% (19.32%) (45.13%) (22.72%) Quarter-over-quarter changes in contribution: Coupon income (7.00%) 0.88% (1.36%) 1.67% 2.00% Net amortization of premiums and accretion of discounts 9.08% (13.00%) 5.29% (1.46%) (1.61%) Interest expense and net interest component of interest rate swaps 6.96% 0.30% 2.72% (0.61%) (3.19%) Annualized GAAP Return (Loss) on Realized gains (losses) on termination or maturity of interest rate swaps (34.77%) (11.04%) 17.54% (13.40%) 11.48% Average Equity Unrealized gains (losses) on interest rate swaps 124.48% (99.56%) 28.62% 23.98% (21.97%) Realized and unrealized gains (losses) on investments and other derivatives 29.20% (8.12%) (2.04%) 15.22% (9.64%) Loan loss provision 0.71% (2.60%) (0.10%) (0.09%) 0.15% Other(1) (0.65%) (0.23%) (0.15%) 0.50% 0.37% Current quarter annualized GAAP return (loss) on average equity 25.84% (102.17%) 31.20% (19.32%) (45.13%) Prior quarter annualized core return on average equity (excluding PAA) * 9.27% 10.56% 8.85% 9.94% 11.59% Quarter-over-quarter changes in contribution: Coupon income (7.00%) 0.88% (1.36%) 1.67% 2.00% Annualized Core Return on Average Net amortization of premiums (excluding PAA) 2.48% (2.68%) 0.09% (1.98%) (0.25%) Equity (excluding Interest expense and net interest component of interest rate swaps 6.96% 0.30% 2.72% (0.61%) (3.19%) PAA)* TBA dollar roll income and CMBX coupon income 1.68% 0.31% 0.56% (0.44%) (0.18%) Other(2) (0.57%) (0.10%) (0.30%) 0.27% (0.03%) Current quarter core return on annualized average equity (excluding PAA) * 12.82% 9.27% 10.56% 8.85% 9.94% * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. 11


 
Residential Investments & TBA Derivative Overview as of June 30, 2020 Unaudited, dollars in thousands Agency Fixed-Rate Securities (Pools) Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Years to Maturity Face Value % (3) Coupon Amortized Cost Fair Value 3-Month CPR Fair Value <=15 years (1) $4,222,504 6.0% 3.13% 101.6% 110.7% 11.9% $4,673,352 20 years 3,019,573 4.3% 3.17% 103.4% 106.5% 13.7% 3,215,849 >=30 years (2) 63,277,685 89.7% 3.85% 104.6% 109.9% 20.0% 69,534,018 Total/Weighted Avg. $70,519,762 100.0% 3.78% 104.4% 109.8% 19.5% $77,423,219 TBA Contracts Weighted Avg. Implied Cost Implied Market Type Notional Value % (4) Coupon Basis Value 15-year $2,253,000 12.3% 2.11% $2,327,402 $2,337,049 30-year 16,128,000 87.7% 2.54% 16,703,103 16,811,652 Total/Weighted Avg. $18,381,000 100.0% 2.49% $19,030,505 $19,148,701 Agency Adjustable-Rate Securities Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Months to Reset Face Value % (3) Coupon Amortized Cost Fair Value 3-Month CPR Fair Value 0 - 24 months $468,704 76.2% 3.57% 101.3% 105.5% 24.0% $494,373 25 - 40 months 49,958 8.1% 2.53% 99.0% 104.1% 14.1% 52,005 41 - 60 months 4,770 0.8% 2.94% 100.9% 105.7% 14.5% 5,044 61 - 90 months 91,440 14.9% 2.97% 101.2% 106.0% 26.4% 96,933 Total/Weighted Avg. $614,872 100.0% 3.39% 101.1% 105.4% 23.5% $648,355 Detailed endnotes are included within the Appendix at the end of this presentation. 12


 
Residential Investments & TBA Derivative Overview as of June 30, 2020 (continued) Unaudited, dollars in thousands Agency Interest-Only Collateralized Mortgage-Backed Obligations Current Notional Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated  Type Value % (1)  Coupon Amortized Cost Fair Value 3-Month CPR Fair Value Interest-only $1,283,842 38.2% 3.38% 14.3% 8.6% 17.3% $110,761 Inverse interest-only 2,079,254 61.8% 5.91% 21.9% 19.8% 18.3% 412,173 Total/Weighted Avg. $3,363,096 100.0% 4.94% 19.0% 15.5% 17.9% $522,934 Mortgage Servicing Rights Unpaid Excess Weighted Avg. Principal Weighted Avg. Servicing Loan Age Estimated Type Balance Coupon Spread (months) Fair Value Total/Weighted Avg. $31,209,219 3.82% 0.24% 51 $227,400 Residential Credit Portfolio Current Face / Weighted Avg. Weighted Avg. Weighted Avg. Estimated  Sector Notional Value % (2)  Coupon Amortized Cost Fair Value Fair Value Credit Risk Transfer $423,284 7.3% 4.65% 99.1% 85.7% $362,901 Alt-A 106,758 1.8% 3.69% 80.8% 84.9% 90,652 Prime 179,368 3.6% 4.22% 94.2% 98.7% 177,045 Prime Interest-only 280,259 0.1% 0.46% 1.0% 0.7% 1,932 Subprime 135,160 2.4% 1.05% 84.6% 89.3% 120,687 NPL/RPL 191,529 3.7% 3.96% 99.7% 99.5% 190,515 Prime Jumbo 39,977 0.7% 3.83% 88.4% 89.0% 35,587 Prime Jumbo Interest-only 448,980 0.1% 0.37% 1.8% 0.8% 3,422 Residential Mortgage Loans 3,989,923 80.3% 4.90% 101.2% 100.3% 4,001,023 Total/Weighted Avg. $5,795,238 100.0% 4.69% $4,983,764 Detailed endnotes are included within the Appendix at the end of this presentation. 13


 
Residential Credit Investments Detail as of June 30, 2020 (1) Unaudited, dollars in thousands Payment Structure Investment Characteristics Estimated Credit Product Fair Value Senior Subordinate Coupon Enhancement 60+ Delinquencies 3M VPR Agency Credit Risk Transfer $347,845 $— $347,845 4.61% 0.62% 1.98% 30.31% Private Label Credit Risk Transfer 15,056 — 15,056 5.64% 17.66% 0.21% 21.28% Alt-A 90,652 25,742 64,910 3.69% 8.08% 19.03% 15.36% Prime 177,045 29,042 148,003 4.22% 8.44% 10.98% 19.10% Prime Interest-only 1,932 1,932 — 0.46% —% 4.12% 42.15% Subprime 120,687 69,078 51,609 1.05% 8.55% 19.54% 5.61% Re-Performing Loan Securitizations 190,515 59,238 131,277 3.96% 26.56% 28.43% 6.18% Prime Jumbo 35,587 — 35,587 3.83% 1.87% 3.35% 45.14% Prime Jumbo Interest-only 3,422 3,422 — 0.37% —% 2.44% 36.04% Total (2) $982,741 $188,454 $794,287 3.88% 8.61% 12.11% 19.96% Bond Coupon Estimated Fair Product Value ARM Fixed Floater Interest Only Agency Credit Risk Transfer $347,845 $— $— $347,845 $— Private Label Credit Risk Transfer 15,056 — — 15,056 — Alt-A 90,652 28,567 46,338 15,747 — Prime 177,045 30,113 120,479 26,453 — Prime Interest-only 1,932 — — — 1,932 Subprime 120,687 — 4,088 116,501 98 Re-Performing Loan Securitizations 190,515 — 190,515 — — Prime Jumbo 35,587 — 35,587 — — Prime Jumbo Interest-only 3,422 — — — 3,422 Total $982,741 $58,680 $397,007 $521,602 $5,452 Detailed endnotes are included within the Appendix at the end of this presentation. 14


 
Commercial Real Estate Overview as of June 30, 2020 Unaudited, dollars in thousands GAAP Non-GAAP Number of Weighted Avg Weighted Avg Economic Levered Investment Portfolio Investments Book Values % of Portfolio LTV (1) Life (years) (2) Interest (3) Return (4) Loans Senior Mortgages 19 $496,765 11.2% 77.6% 3.5 $189,068 9.0% Mezzanine Loans 12 122,121 2.7% 75.1% 2.4 76,866 7.3% Total Loans 31 618,886 13.9% 77.1% 3.3 265,934 8.5% Securities CMBS (Credit) 2 28,557 0.6% 63.1% 5.8 11,820 15.2% SASB 14 32,645 0.7% 64.3% 4.3 7,680 7.2% Total Securities 16 $61,202 1.3% 63.7% 5.0 $19,500 12.1% Assets transferred or pledged to securitization vehicles NLY 2019-FL2 25 793,712 17.8% 83.9% 3.1 170,024 14.7% NLY 2019 - OAKS 1 80,906 1.8% 74.0% 4.6 15,072 22.4% Commercial Trusts 64 2,150,623 48.4% 44.0% 4.6 119,853 9.2% Total Assets transferred or pledged to securitization vehicles 90 $3,025,241 68.0% 55.3% 4.2 $304,949 12.9% Total Debt Investments 137 $3,705,329 83.2% 59.0% 4.1 $590,383 10.9% Equity Investments Real Estate Held for Investment 46 641,583 14.5% 253,837 11.7% Investment in Unconsolidated Joint Ventures (5) 32 104,484 2.3% 155,931 8.8% Total Equity Investments 78 746,067 16.8% 409,768 10.6% Total Investment Portfolio 215 $4,451,396 100.0% $1,000,151 10.9% Range of Implied Net Weighted Derivatives Net Notional Ratings Market Value Average Coupon CMBX (6) $495,000 AAA to BBB- $460,289 1.2% Detailed endnotes are included within the Appendix at the end of this presentation. 15


 
Middle Market Lending Overview as of June 30, 2020 Industry Dispersion Unaudited, dollars in thousands Industry Total (1) Size Dispersion Computer Programming, Data Processing & Other Computer Related Services 406,827 Management and Public Relations Services 277,511 Position Size Amount Percentage Industrial Inorganic Chemicals 147,622 $0 - $20 million $204,652 9.4% Miscellaneous Business Services 122,279 $20 - $40 million 442,342 20.2% Public Warehousing and Storage 116,967 $40 - $60 million 330,945 15.1% Engineering, Architectural, and Surveying 110,926 Greater than $60 million 1,207,325 55.3% Metal Cans & Shipping Containers 108,333 Total $2,185,264 100.0% Offices and Clinics of Doctors of Medicine 104,000 Surgical, Medical, and Dental Instruments and Supplies 99,657 Tenor Dispersion Electronic Components & Accessories 77,788 Remaining Term Amount Percentage Insurance Agents, Brokers and Services 70,978 One year or less $42,763 2.0% Telephone Communications 57,482 Miscellaneous Health and Allied Services, not elsewhere classified 52,177 One to three years 315,829 14.5% Miscellaneous Equipment Rental and Leasing 49,505 Three to five years 650,157 29.8% Electric Work 40,642 Greater than five years 1,176,515 53.7% Medical and Dental Laboratories 35,231 Total $2,185,264 100.0% Metal Forgings and Stampings 29,739 Research, Development and Testing Services 29,541 Lien Position Amount  Percentage Home Health Care Services 28,896 First lien loans $1,357,123 62.1% Motor Vehicles and Motor Vehicle Parts and Supplies 28,415 Second lien loans 828,141 37.9% Legal Services 27,923 Total $2,185,264 100.0% Petroleum and Petroleum Products 24,745 Grocery Stores 22,948 Coating, Engraving and Allied Services 20,298 Schools and Educational Services, not elsewhere classified 19,331 Drugs 15,856 Chemicals & Allied Products 14,844 Machinery, Equipment, and Supplies 12,419 Mailing, Reproduction, Commercial Art and Photography, and Stenographic 12,356 Offices and Clinics of Other Health Practitioners 10,091 Miscellaneous Plastic Products 9,937 Total $2,185,264 16


 
Hedging and Liabilities as of June 30, 2020 Unaudited, dollars in thousands Current Weighted Avg. Weighted Avg. Weighted Avg. Maturity Notional (1)(2) Pay Rate Receive Rate Years to Maturity(3) 0 to 3 years $ 15,469,400 0.20% 0.42% 2.37 Interest Rate >3 to 6 years 6,215,450 0.73% 0.15% 4.09 Swaps > 6 to 10 years 5,456,500 1.51% 1.18% 8.22 Greater than 10 years 1,709,000 3.16% 0.57% 19.60 Total / Weighted Avg. $ 28,850,350 1.01% 0.75% 4.87 Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Underlying Underlying Underlying Underlying Months to Interest Rate Type Notional Fixed Rate Floating Rate Years to Maturity Expiration Swaptions Long Pay $ 4,625,000 1.60% 3M LIBOR 10.45 6.60 Long Receive $ 250,000 1.66% 3M LIBOR 10.53 6.27 Futures Weighted Avg. Years to Type Long Contracts Short Contracts Net Positions Maturity Positions U.S. Treasury Futures - 10 year & Greater $ — $ (1,847,800) $ (1,847,800) 6.87 Principal Weighted Avg. Rate Maturity Balance At Period End Repurchase Within 30 days $ 33,176,872 0.33% Agreements 30 to 59 days 4,992,032 0.67% and Other 60 to 89 days 5,436,637 0.47% Secured 90 to 119 days 8,671,500 0.58% Financing Over 120 days(4) 16,425,553 0.86% Total / Weighted Avg. $ 68,702,594 0.52% Weighted Average Rate Principal Balance At Period End For the Quarter Days to Maturity(5) Repurchase agreements $ 67,163,598 0.49% 0.79% 74 Total Indebtedness Other secured financing 1,538,996 1.99% 2.50% 990 Debt issued by securitization vehicles 6,441,326 2.30% 2.32% 7,315 Mortgages payable 514,005 3.99% 4.08% 4,274 Total indebtedness $ 75,657,925 Detailed endnotes are included within the Appendix at the end of this presentation. 17


 
Quarter-Over-Quarter Interest Rate and MBS Spread Sensitivity Unaudited Assumptions: ▪ The interest rate sensitivity and MBS spread sensitivity are based on the portfolios as of June 30, 2020 and March 31, 2020 ▪ The interest rate sensitivity reflects instantaneous parallel shifts in rates ▪ The MBS spread sensitivity shifts MBS spreads instantaneously and reflects exposure to MBS basis risk ▪ All tables assume no active management of the portfolio in response to rate or spread changes Interest Rate Sensitivity (1) As of June 30, 2020 As of March 31, 2020 Estimated Percentage Change in Estimated Change as a % of Estimated Percentage Change in Estimated Change as a % of Interest Rate Change (bps) Portfolio Value(2) NAV(2)(3) Portfolio Value(2) NAV(2)(3) (75) —% (0.2%) 0.1% 0.9% (50) 0.1% 0.9% 0.3% 1.9% (25) 0.3% 1.7% 0.3% 1.8% 25 (0.1%) (0.9%) (0.2%) (1.7%) 50 (0.3%) (2.3%) (0.5%) (4.0%) 75 (0.6%) (4.2%) (1.0%) (6.9%) MBS Spread Sensitivity (1) As of June 30, 2020 As of March 31, 2020 Estimated Change in Portfolio Estimated Change as a % of Estimated Change in Portfolio Estimated Change as a % of MBS Spread Shock (bps) Market Value (2) NAV(2)(3) Market Value (2) NAV(2)(3) (25) 1.3% 8.8% 1.3% 9.1% (15) 0.8% 5.3% 0.8% 5.5% (5) 0.3% 1.8% 0.2% 1.8% 5 (0.3%) (1.7%) (0.2%) (1.8%) 15 (0.8%) (5.2%) (0.7%) (5.4%) 25 (1.3%) (8.7%) (1.2%) (9.0%) Detailed endnotes are included within the Appendix at the end of this presentation. 18


 
Appendix


 
Non-GAAP Reconciliations 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, financial measures computed in accordance with GAAP. While intended to offer a fuller understanding of the Company’s results and operations, non-GAAP financial measures also have limitations. For example, the Company may calculate its non-GAAP metrics, such as core earnings (excluding PAA), or the PAA, differently than its peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which the Company will amortize the remaining unamortized premium. Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results. These non-GAAP measures provide additional detail to enhance investor understanding of the Company’s period-over-period operating performance and business trends, as well as for assessing the Company’s performance versus that of industry peers. Additional information pertaining to these non-GAAP financial measures and reconciliations to their most directly comparable GAAP results are provided on the following pages. A reconciliation of GAAP net income (loss) to non-GAAP core earnings (excluding PAA) for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, is provided on page 8 of this financial summary. Core earnings (excluding PAA), a non-GAAP measure, is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSRs, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-core income allocated to equity method investments and other non-core components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items) and (f) income taxes (excluding the income tax effect of non-core income (loss) items) and excludes (g) the premium amortization adjustment representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities ("PAA"). 20


 
Non-GAAP Reconciliations (continued) Unaudited, dollars in thousands For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Premium Amortization Reconciliation Premium amortization expense $270,688 $616,937 $171,447 $376,306 $318,587 Less: PAA cost (benefit) 51,742 290,722 (83,892) 117,152 139,763 Premium amortization expense (excluding PAA) $218,946 $326,215 $255,339 $259,154 $178,824 Interest Income (excluding PAA) Reconciliation GAAP interest income $584,812 $555,026 $1,074,214 $919,299 $927,598 PAA cost (benefit) 51,742 290,722 (83,892) 117,152 139,763 Interest income (excluding PAA) * $636,554 $845,748 $990,322 $1,036,451 $1,067,361 Economic Interest Expense Reconciliation GAAP interest expense $186,032 $503,473 $620,058 $766,905 $750,217 Add: Net interest component of interest rate swaps 64,561 13,980 (45,221) (88,466) (83,653) Economic interest expense * $250,593 $517,453 $574,837 $678,439 $666,564 Economic Net Interest Income (excluding PAA) Reconciliation Interest income (excluding PAA) * $636,554 $845,748 $990,322 $1,036,451 $1,067,361 Less: Economic interest expense * 250,593 517,453 574,837 678,439 666,564 Economic net interest income (excluding PAA) * $385,961 $328,295 $415,485 $358,012 $400,797 * Represents a non-GAAP financial measure. 21


 
Non-GAAP Reconciliations (continued) Unaudited, dollars in thousands For the quarters ended 6/30/2020 3/31/2020 12/31/2019 9/30/2019 6/30/2019 Economic Metrics (excluding PAA) Average interest earning assets $84,471,839 $116,063,895 $121,801,951 $127,207,668 $122,601,881 Interest income (excluding PAA) * $636,554 $845,748 $990,322 $1,036,451 $1,067,361 Average yield on interest earning assets (excluding PAA) * 3.01% 2.91% 3.25% 3.26% 3.48% Average interest bearing liabilities $76,712,894 $107,029,466 $111,873,379 $116,391,094 $109,628,007 Economic interest expense * 250,593 517,453 574,837 678,439 666,564 Average economic cost of interest bearing liabilities * 1.29% 1.91% 2.01% 2.28% 2.41% Economic net interest income (excluding PAA)* $385,961 $328,295 $415,485 $358,012 $400,797 Net interest spread (excluding PAA) * 1.72% 1.00% 1.24% 0.98% 1.07% Interest income (excluding PAA) * $636,554 $845,748 $990,322 $1,036,451 $1,067,361 TBA dollar roll income and CMBX coupon income 97,524 44,904 36,901 15,554 33,229 Interest expense (186,032) (503,473) (620,058) (766,905) (750,217) Net interest component of interest rate swaps (64,561) (13,980) 45,221 88,466 83,653 Subtotal $483,485 $373,199 $452,386 $373,566 $434,026 Average interest earning assets $84,471,839 $116,063,895 $121,801,951 $127,207,668 $122,601,881 Average TBA contract and CMBX balances 18,628,343 9,965,142 6,878,502 9,248,502 12,757,975 Subtotal $103,100,182 $126,029,037 $128,680,453 $136,456,170 $135,359,856 Net interest margin (excluding PAA) * 1.88% 1.18% 1.41% 1.10% 1.28% * Represents a non-GAAP financial measure. 22


 
Endnotes Page 2 Page 4 (continued) (1) Net of dividends on preferred stock. (4) Measures total notional balances of interest rate swaps, interest rate swaptions (excluding receiver (2) Debt consists of repurchase agreements, other secured financing, securitized debt and mortgages swaptions) and futures relative to repurchase agreements, other secured financing and cost basis payable. Certain credit facilities (included within other secured financing), securitized debt and of TBA derivatives outstanding; excludes MSRs and the effects of term financing, both of which mortgages payable are non-recourse to the Company. serve to reduce interest rate risk. Additionally, the hedge ratio does not take into consideration (3) Computed as the sum of recourse debt, cost basis of to be announced ("TBA") derivatives and credit differences in duration between assets and liabilities. derivatives referencing the commercial mortgage-backed securities index ("CMBX") outstanding and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of Page 5 repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). (1) Includes GAAP interest expense and the net interest component of interest rate swaps. Securitized debt, certain credit facilities (included within other secured financing) and mortgages (2) Net of dividends on preferred stock. The quarter ended September 30, 2019 excludes, and the payable are non-recourse to the Company and are excluded from this measure. quarter ended June 30, 2019 includes, cumulative and undeclared dividends of $0.3 million on (4) Computed as the ratio of total equity to total assets (inclusive of total market value of TBA derivatives the Company's Series I Preferred Stock as of June 30, 2019. and CMBX positions and exclusive of securitized debt of consolidated variable interest entities ("VIEs")). Page 6 (5) Net interest margin represents interest income less interest expense divided by average interest earning (1) Includes dividend equivalents on share-based awards. assets. Net interest margin (excluding PAA) represents the sum of the Company's interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and Page 8 the net interest component of interest rate swaps divided by the sum of average interest earning assets (1) Includes $3.8 million and $0.7 million loss provision on the Company’s unfunded loan commitments plus average TBA contract and CMBX balances. as of June 30, 2020 and March 31, 2020, respectively, which is reported in Other income (loss) in (6) Average yield on interest earning assets represents annualized interest income divided by average the Company’s Consolidated Statement of Comprehensive Income (Loss). interest earning assets. Average interest earning assets reflects the average amortized cost of our (2) Amount includes depreciation and amortization expense related to equity method investments. investments during the period. Average yield on interest earning assets (excluding PAA) is calculated (3) The Company excludes non-core (income) loss allocated to equity method investments, which using annualized interest income (excluding PAA). represents the unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which (7) Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by is a component of Other income (loss). average interest bearing liabilities. Average interest bearing liabilities reflects the average balances (4) The quarter ended June 30, 2020 includes costs incurred in connection with the Internalization and during the period. Average economic cost of interest bearing liabilities represents annualized costs incurred in connection with the CEO transition. The quarter ended March 31, 2020 includes economic interest expense divided by average interest bearing liabilities. Economic interest expense costs incurred in connection with securitizations of Agency mortgage-backed securities and is comprised of  GAAP interest expense and the net interest component of interest rate swaps. residential whole loans as well as costs incurred in connection with the Internalization and costs (8) Excludes costs incurred in connection with the Internalization and costs incurred in connection with incurred in connection with the CEO transition. The quarter ended December 31, 2019 includes the CEO transition for the quarter ended June 30, 2020 and excludes costs incurred in connection costs incurred in connection with securitizations of Agency mortgage-backed securities and with securitizations of Agency mortgage-backed securities and residential whole loans as well as residential whole loans. The quarters ended September 30, 2019 and June 30, 2019 include costs costs incurred in connection with the Internalization and costs incurred in connection with the CEO incurred in connection with securitizations of residential whole loans. transition for the quarter ended March 31, 2020. (5) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives. CMBX coupon income totaled $1.6 million, $1.2 million, $1.3 million, $1.5 Page 4 million and $0.8 million for the quarters ended June 30, 2020, March 31, 2020, December 31, 2019, (1) Consists of common stock, additional paid-in capital, accumulated other comprehensive income September 30, 2019 and June 30, 2019. (loss) and accumulated deficit. (6) MSR amortization represents the portion of changes in fair value that is attributable to the realization (2) Utilizes an actual/360 factor. of estimated cash flows on the Company’s MSR portfolio and is reported as a component of Net (3) The average and period-end rates are net of reverse repurchase agreements. Without netting reverse unrealized gains (losses) on instruments measured at fair value. repurchase agreements, the average rate was 0.79%, 1.77%, 2.10%, 2.53% and 2.65% and the period- (7) The quarter ended September 30, 2019 excludes, and the quarter ended June 30, 2019 includes, end rate was 0.49%, 1.23%, 2.03%, 2.48% and 2.69% for the quarters ended June 30, 2020, March cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as 31, 2020, December 31, 2019, September 30, 2019 and June 30, 2019, respectively. of June 30, 2019. 23


 
Endnotes (continued) Page 9 Page 15 (1) Represents the opening adjustment to retained earnings upon adoption of Accounting Standards (1) Based on an internal valuation or the most recent third party appraisal, which may be prior to loan Update 2016-13 Financial instruments - Credit losses (Topic 326): Measurement of credit losses origination/purchase date or at the time of underwriting. on financial instruments, commonly referred to as CECL. (2) Maturity dates assume all of the borrowers' extension options are exercised for the loan portfolio. (3) Economic interest is a non-GAAP measure to include gross asset values less related financings. Equity Page 11 investments are adjusted to exclude depreciation and amortization and grosses up real estate investments (1) Includes other income (loss), general and administrative expenses and income taxes. accounted for under equity method accounting. (4) Levered returns for equity investments comprise a trailing twelve-month (“TTM”) distribution yield (2) Includes other income (loss) (excluding non-core items), MSR amortization (a component of Net for joint venture investments and core return for wholly owned properties. unrealized gains (losses) on instruments measured at fair value through earnings), general and (5) Includes investment in unconsolidated debt fund of $43.9 million, investments in Community administrative expenses (excluding transaction related expenses) and income taxes (excluding Investment Impact Funds of $26.6 million and a portfolio of real estate properties of $34.0 million. non-core income tax). (6) The Company sells/buys protection on CMBX tranches referencing baskets of Conduit CMBS bonds with various ratings. Positive net notional indicates selling protection and being long the exposure to Page 12 the underlying CMBS. CMBX positions are accounted for as derivatives with changes in fair value (1) Includes Agency-backed multifamily securities with an estimated fair value of $3.0 billion ($1.8 presented in Net gains (losses) on other derivatives. billion of which have been transferred or pledged to securitization vehicles). (2) Includes fixed-rate collateralized mortgage obligations with an estimated fair value of $162.7 Page 16 million. (1) All Middle Market Lending positions are floating rate. (3) Weighted by current face value. (4) Weighted by current notional value. Page 17 (1) Current notional is presented net of receiver swaps. Page 13 (2) As of June 30, 2020, 17%, 80% and 3% of the Company's interest rate swaps were linked to LIBOR, (1) Weighted by current notional value. the Federal funds rate and the Secured Overnight Financing Rate, respectively. (2) Weighted by estimated fair value. (3) The weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity Page 14 for each maturity bucket may fall outside of the range listed. (1) Excludes residential mortgage loans. (4) Approximately 3% of the total repurchase agreements and other secured financing have a remaining (2) Total investment characteristics exclude interest-only securities. maturity over one year. (5) Determined based on estimated weighted average lives of the underlying debt instruments. Page 18 (1) Interest rate and MBS spread sensitivity are based on results from third party models in conjunction with internally derived inputs. Actual results could differ materially from these estimates. (2) Scenarios include Residential Investment Securities, residential mortgage loans, MSRs and derivative instruments. (3) Net asset value (“NAV”) represents book value of common equity. 24


 

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Attachment: XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT


nly-20200729_cal.xml
Attachment: XBRL TAXONOMY EXTENSION CALCULATION LINKBASE DOCUMENT


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Attachment: XBRL TAXONOMY EXTENSION DEFINITION LINKBASE DOCUMENT


nly-20200729_lab.xml
Attachment: XBRL TAXONOMY EXTENSION LABEL LINKBASE DOCUMENT


nly-20200729_pre.xml
Attachment: XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE DOCUMENT