Second Quarter 2018 Financial Summary August 1, 2018
Safe Harbor Notice This presentation, other written or oral communications, and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by 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, 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 mortgage 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 and policy affecting our business; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; and our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended and our ability to consummate the proposed MTGE Acquisition on a timely basis or at all, and potential business disruption following the MTGE Acquisition. 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. 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. Non-GAAP Financial Measures This presentation includes certain non-GAAP financial measures, including core earnings metrics, which are presented both inclusive and exclusive of 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 non-GAAP metrics, which include core earnings, and 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
Q2 2018 Financial Snapshot Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2018 3/31/2018 GAAP net income per average common share (1) $0.49 $1.12 Core earnings (excluding PAA) per average common share *(1)(2) $0.30 $0.30 Core earnings per average common share *(1)(2) $0.30 $0.41 Income Statement PAA cost (benefit) per average common share $— $(0.11) Annualized GAAP return (loss) on average equity 17.20% 36.86% Annualized core return on average equity (excluding PAA)* 11.05% 10.70% Book value per common share $10.35 $10.53 Leverage at period-end (3) 6.0x 6.1x Balance Sheet Economic leverage at period-end (4) 6.4x 6.5x Capital ratio at period-end (5) 13.2% 13.1% Agency mortgage-backed securities $86,593,058 $88,579,097 Mortgage servicing rights 599,014 596,378 Residential credit portfolio (6) 3,236,738 3,230,970 Portfolio Commercial real estate investments (7) 4,628,946 4,521,681 Corporate debt 1,256,276 1,152,745 Total residential and commercial investments $96,314,032 $98,080,871 Net interest margin (8) 1.53% 1.94% Net interest margin (excluding PAA) *(8) 1.56% 1.52% Average yield on interest earning assets (9) 3.04% 3.45% Key Statistics Average yield on interest earning assets (excluding PAA) *(9) 3.07% 2.99% Average cost of interest bearing liabilities (10) 1.89% 1.90% Net interest spread 1.15% 1.55% Net interest spread (excluding PAA) * 1.18% 1.09% Operating expenses to core earnings (excluding PAA) *(11) 16.66% 15.83% Efficiency Annualized operating expenses as a % of average assets (11) 0.26% 0.24% Annualized operating expenses as a % of average equity (11) 1.84% 1.69% Note: The endnotes for this page appear in the section entitled “Endnotes for Page 2” in the Appendix. 2
Portfolio Data Unaudited, dollars in thousands For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Agency mortgage-backed securities $86,593,058 $88,579,097 $90,551,763 $85,889,131 $73,963,998 Mortgage servicing rights 599,014 596,378 580,860 570,218 605,653 Residential credit portfolio (1) 3,236,738 3,230,970 3,187,380 2,706,092 2,619,564 Portfolio-Related Commercial real estate investments (1) 4,628,946 4,521,681 4,604,388 5,321,786 5,375,251 Data Corporate debt 1,256,276 1,152,745 1,011,275 856,110 773,957 Total residential and commercial investments $96,314,032 $98,080,871 $99,935,666 $95,343,337 $83,338,423 Total assets $98,832,997 $100,382,233 $101,760,050 $97,574,181 $84,976,578 Average TBA position $9,407,819 $12,050,341 $17,509,691 $19,291,834 $14,206,869 Residential Investment Securities: % Fixed-rate 91% 91% 90% 89% 86% % Adjustable-rate 9% 9% 10% 11% 14% Summary Portfolio Weighted average experienced CPR for the period 10.1% 8.9% 9.8% 10.3% 10.9% Statistics Weighted average projected long-term CPR at period-end 9.1% 9.2% 10.4% 10.4% 10.6% Net premium and discount balance in Residential Investment $5,896,755 $6,063,609 $6,024,347 $5,745,022 $5,164,105 Securities Net premium and discount balance as % of stockholders' equity 42.83% 43.51% 40.53% 40.60% 40.98% (1) Includes consolidated VIEs. 3
Financing and Capital Data Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Repurchase agreements $75,760,655 $78,015,431 $77,696,343 $69,430,268 $62,497,400 Other secured financing 3,760,487 3,830,075 3,837,528 3,713,256 3,785,543 Securitized debt of consolidated VIEs 2,728,692 2,904,873 2,971,771 3,357,929 3,438,675 Mortgages payable 309,878 309,794 309,686 311,886 311,810 Total debt $82,559,712 $85,060,173 $84,815,328 $76,813,339 $70,033,428 Financing Data Total liabilities $85,059,141 $86,439,298 $86,888,477 $83,418,963 $72,367,153 Cumulative redeemable preferred stock $1,723,168 $1,723,168 $1,720,381 $1,720,381 $1,200,559 Common equity(1) 12,045,422 12,214,096 13,145,092 12,428,377 11,401,955 Total Annaly stockholders' equity 13,768,590 13,937,264 14,865,473 14,148,758 12,602,514 Non-controlling interests 5,266 5,671 6,100 6,460 6,911 Total equity $13,773,856 $13,942,935 $14,871,573 $14,155,218 $12,609,425 Weighted average days to maturity of repurchase agreements 71 72 58 65 88 Weighted average rate on repurchase agreements, at period-end 2.17% 1.83% 1.61% 1.38% 1.38% Weighted average rate on repurchase agreements, for the quarter 1.99% 1.64% 1.41% 1.34% 1.25% Leverage at period-end 6.0x 6.1x 5.7x 5.4x 5.6x Economic leverage at period-end 6.4x 6.5x 6.6x 6.9x 6.4x Capital ratio at period-end 13.2% 13.1% 12.9% 12.3% 13.2% Key Capital and Hedging Metrics Book value per common share $10.35 $10.53 $11.34 $11.42 $11.19 Total common shares outstanding 1,164,334 1,159,657 1,159,585 1,088,084 1,019,028 Hedge ratio(2) 95% 94% 70% 67% 67% Weighted average pay rate on interest rate swaps, at period-end(3) 2.08% 2.00% 2.22% 2.27% 2.26% Weighted average receive rate on interest rate swaps, at period-end(3) 2.31% 2.13% 1.58% 1.35% 1.28% Weighted average net rate on interest rate swaps, at period-end(3) (0.23%) (0.13%) 0.64% 0.92% 0.98% (1) Consists of common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. (2) Measures total notional balances of interest rate swaps, interest rate swaptions and futures relative to repurchase agreements, other secured financing and to be announced (“TBA”) notional 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 4 liabilities. (3) Excludes forward starting swaps. Forward starting swaps represented $8.1 billion of the notional balance as of December 31, 2017; there were no forward starting swaps for any other period.
Income Statement Data Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Total interest income $776,806 $879,487 $745,423 $622,550 $537,426 Total interest expense 442,692 367,421 318,711 268,937 222,281 Net interest income $334,114 $512,066 $426,712 $353,613 $315,145 Total economic interest expense *(1) $411,217 $415,581 $392,668 $347,501 $306,533 Economic net interest income *(1) $365,589 $463,906 $352,755 $275,049 $230,893 Total interest income (excluding PAA) * $784,322 $761,092 $756,790 $662,449 $610,126 Economic net interest income (excluding PAA) *(1) $373,105 $345,511 $364,122 $314,948 $303,593 GAAP net income (loss) $595,887 $1,327,704 $746,771 $367,315 $14,522 Summary Income GAAP net income (loss) available (related) to common shareholders (2) $564,542 $1,294,034 $714,588 $337,192 $(8,849) Statement GAAP net income (loss) per average common share (2) $0.49 $1.12 $0.62 $0.31 ($0.01) Core earnings (excluding PAA) * $382,813 $385,272 $386,951 $353,546 $332,601 Core earnings (excluding PAA) available to common shareholders *(2) $351,436 $351,506 $354,617 $323,191 $309,128 Core earnings (excluding PAA) per average common share *(2) $0.30 $0.30 $0.31 $0.30 $0.30 Core earnings * $375,297 $503,667 $375,584 $313,647 $259,901 Core earnings available to common shareholders *(2) $343,920 $469,901 $343,250 $283,292 $236,428 Core earnings per average common share *(2) $0.30 $0.41 $0.30 $0.26 $0.23 PAA cost (benefit) $7,516 ($118,395) $11,367 $39,899 $72,700 PAA cost (benefit) per average common share $— ($0.11) $0.01 $0.04 $0.07 * Represents a non-GAAP financial measure. (1) Includes GAAP interest expense and the net interest component of interest rate swaps. Prior to the quarter ended March 31, 2018, this metric included the net interest component of interest rate swaps used to hedge cost of funds. Beginning with the quarter ended March 31, 2018, as a result of changes to the Company’s hedging portfolio, this metric reflects the net interest component of all interest rate swaps. 5 (2) Net of dividends on preferred stock. The quarter ended December 31, 2017 excludes, and the quarter ended September 30, 2017 includes, cumulative and undeclared dividends of $8.3 million on the Company's Series F Preferred Stock as of September 30, 2017.
Key Earnings Metrics Unaudited, dollars in thousands except per share amounts For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Dividends declared per common share $0.30 $0.30 $0.30 $0.30 $0.30 Total common and preferred dividends declared (1) $380,677 $381,663 $388,511 $348,479 $329,182 Annualized GAAP return (loss) on average equity 17.20% 36.86% 20.58% 10.98% 0.46% Annualized GAAP return (loss) on average equity per unit of economic leverage 2.69% 5.67% 3.12% 1.59% 0.07% Annualized core return on average equity (excluding PAA) * 11.05% 10.70% 10.67% 10.57% 10.54% Annualized core return on average equity per unit of economic leverage (excluding PAA) * 1.73% 1.65% 1.62% 1.53% 1.65% Key Earnings Net interest margin 1.53% 1.94% 1.47% 1.33% 1.23% Metrics Net interest margin (excluding PAA) * 1.56% 1.52% 1.51% 1.47% 1.53% Average yield on interest earning assets 3.04% 3.45% 2.97% 2.79% 2.58% Average yield on interest earning assets (excluding PAA) * 3.07% 2.99% 3.02% 2.97% 2.93% Average cost of interest bearing liabilities (2) 1.89% 1.90% 1.83% 1.82% 1.74% Net interest spread 1.15% 1.55% 1.14% 0.97% 0.84% Net interest spread (excluding PAA) * 1.18% 1.09% 1.19% 1.15% 1.19% * Represents a non-GAAP financial measure. (1) The quarter ended December 31, 2017 includes, and the quarter ended September 30, 2017 excludes, $8.3 million of dividends on the Company's Series F Preferred Stock, which were cumulative and undeclared as of September 30, 2017. 6 (2) Includes GAAP interest expense and the net interest component of interest rate swaps. Prior to the quarter ended March 31, 2018, this metric included the net interest component of interest rate swaps used to hedge cost of funds. Beginning with the quarter ended March 31, 2018, as a result of changes to the Company’s hedging portfolio, this metric reflects the net interest component of all interest rate swaps.
Components of Economic Net Interest Income Unaudited, dollars in thousands For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Interest income: Residential Investment Securities $662,750 $779,588 $654,387 $540,436 $459,308 Residential mortgage loans 18,868 15,505 10,750 8,509 7,417 Commercial investment portfolio 79,343 72,457 73,596 67,790 68,153 Reverse repurchase agreements 15,845 11,937 6,690 5,815 2,548 Total interest income $776,806 $879,487 $745,423 $622,550 $537,426 Economic interest expense: Net Interest Repurchase agreements $400,475 $331,374 $283,909 $237,669 $197,151 Income Net interest component of interest rate swaps (1) (31,475) 48,160 73,957 78,564 84,252 Securitized debt of consolidated VIEs 18,201 15,652 17,405 16,072 11,977 Participation sold — — — — 42 Other 24,016 20,395 17,397 15,196 13,111 Total economic interest expense * $411,217 $415,581 $392,668 $347,501 $306,533 Economic net interest income * $365,589 $463,906 $352,755 $275,049 $230,893 PAA cost (benefit) 7,516 (118,395) 11,367 39,899 72,700 Economic net interest income (excluding PAA) * $373,105 $345,511 $364,122 $314,948 $303,593 * Represents a non-GAAP financial measure. (1) Prior to the quarter ended March 31, 2018, this metric included the net interest component of interest rate swaps used to hedge cost of funds. Beginning with the quarter ended March 31, 2018, as a result of changes to the Company’s hedging portfolio, this metric reflects the net interest component of all interest rate swaps. 7
GAAP Net Income to Core Earnings Reconciliation Unaudited, dollars in thousands For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 GAAP net income (loss) $595,887 $1,327,704 $746,771 $367,315 $14,522 Less: Realized (gains) losses on termination or maturity of interest rate swaps — (834) 160,075 — 58 Unrealized (gains) losses on interest rate swaps (343,475) (977,285) (484,447) (56,854) 177,567 Net (gains) losses on disposal of investments 66,117 (13,468) (7,895) 11,552 5,516 Net (gains) losses on other derivatives (34,189) 47,145 (121,334) (154,208) 14,423 Net unrealized (gains) losses on instruments measured at fair value through earnings 48,376 51,593 12,115 67,492 (16,240) Core Earnings Transaction expenses (1) — 1,519 — — — Reconciliation Net (income) loss attributable to noncontrolling interest 32 96 151 232 102 Plus: TBA dollar roll income(2) 62,491 88,353 89,479 94,326 81,051 MSR amortization(3) (19,942) (21,156) (19,331) (16,208) (17,098) Core earnings * 375,297 503,667 375,584 313,647 259,901 Less: PAA cost (benefit) 7,516 (118,395) 11,367 39,899 72,700 Core earnings (excluding PAA) * $382,813 $385,272 $386,951 $353,546 $332,601 * Represents a non-GAAP financial measure. (1) Represents costs incurred in connection with a securitization of residential whole loans. (2) Represents a component of Net gains (losses) on other derivatives. 8 (3) Represents the portion of changes in fair value that is attributable to the realization of estimated cash flows on the Company’s mortgage servicing rights (“MSR”) portfolio and is reported as a component of Net unrealized gains (losses) on instruments measured at fair value through earnings.
Quarter-Over-Quarter Changes in Key Metrics Unaudited For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Book value per common share, beginning of period $10.53 $11.34 $11.42 $11.19 $11.23 Net income (loss) available (related) to common stockholders (1) 0.49 1.12 0.62 0.32 (0.01) Book Value Other comprehensive income (loss) attributable to common stockholders (0.37) (1.63) (0.42) 0.19 0.27 Rollforward Common dividends declared (0.30) (0.30) (0.30) (0.30) (0.30) Issuance of common stock / redemption of preferred stock 0.00 0.00 0.02 0.02 0.00 Book value per common share, end of period $10.35 $10.53 $11.34 $11.42 $11.19 Prior quarter net interest margin 1.94% 1.47% 1.33% 1.23% 1.47% Quarter-over-quarter changes in contribution: Coupon on average interest-earning assets (including average TBA dollar roll 0.08% 0.19% 0.13% (0.12%) (0.05%) balances) Net Interest Margin Net amortization of premiums (0.38%) 0.37% 0.10% 0.22% (0.18%) TBA dollar roll income (0.09%) 0.01% (0.04%) 0.01% 0.04% Interest expense and net interest component of interest rate swaps (0.02%) (0.10%) (0.05%) (0.01%) (0.05%) Current quarter net interest margin 1.53% 1.94% 1.47% 1.33% 1.23% Prior quarter net interest margin (excluding PAA) * 1.52% 1.51% 1.47% 1.53% 1.55% Quarter-over-quarter changes in contribution: Coupon on average interest-earning assets (including average TBA dollar roll 0.08% 0.19% 0.13% (0.12%) (0.05%) Net Interest balances) Margin (excluding Net amortization of premiums, excluding PAA 0.07% (0.09%) 0.00% 0.06% 0.04% PAA)* TBA dollar roll income (0.09%) 0.01% (0.04%) 0.01% 0.04% Interest expense and net interest component of interest rate swaps (0.02%) (0.10%) (0.05%) (0.01%) (0.05%) Current quarter net interest margin (excluding PAA) * 1.56% 1.52% 1.51% 1.47% 1.53% * Represents a non-GAAP financial measure. (1) For book value purposes, the quarter ended December 31, 2017 includes, and the quarter ended September 30, 2017 excludes, $8.3 million of dividends on the Company’s Series F Preferred stock, which were cumulative and undeclared as of September 30, 2017. 9
Quarter-Over-Quarter Changes in Key Metrics (cont’d) Unaudited For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Prior quarter net interest spread 1.55% 1.14% 0.97% 0.84% 1.15% Quarter-over-quarter changes in contribution: Net Interest Coupon on average interest earning assets 0.00% 0.03% 0.02% 0.00% 0.09% Spread Net amortization of premiums (0.41%) 0.45% 0.16% 0.21% (0.25%) Average cost of interest bearing liabilities(1) 0.01% (0.07%) (0.01%) (0.08%) (0.15%) Current quarter net interest spread 1.15% 1.55% 1.14% 0.97% 0.84% Prior quarter net interest spread (excluding PAA) * 1.09% 1.19% 1.15% 1.19% 1.24% Quarter-over-quarter changes in contribution: Net Interest Coupon on average interest earning assets 0.00% 0.03% 0.02% 0.00% 0.09% Spread (excluding PAA)* Net amortization of premiums, excluding PAA 0.08% (0.06%) 0.03% 0.04% 0.01% Average cost of interest bearing liabilities(1) 0.01% (0.07%) (0.01%) (0.08%) (0.15%) Current quarter net interest spread (excluding PAA) * 1.18% 1.09% 1.19% 1.15% 1.19% * Represents a non-GAAP financial measure. (1) Includes GAAP interest expense and the net interest component of interest rate swaps. Prior to the quarter ended March 31, 2018, this metric included the net interest component of interest rate swaps used to hedge cost of funds. Beginning with the quarter ended March 31, 2018, as a result of changes to the Company’s hedging portfolio, this metric reflects the net interest component of all interest rate swaps. 10
Quarter-Over-Quarter Changes in Return on Average Equity Unaudited For the quarters ended 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Prior quarter GAAP return (loss) on average equity 36.86% 20.58% 10.98% 0.46% 13.97% Quarter-over-quarter changes in contribution: Coupon income 1.10% 0.83% 1.04% 0.24% (0.14%) Net amortization of premiums and accretion of discounts (3.10%) 3.05% 0.90% 1.35% (1.48%) GAAP Return Interest expense and net interest component of interest rate swaps (0.33%) (0.49%) (0.38%) (0.58%) (0.50%) (Loss) on Average Realized (gains) losses on termination or maturity of interest rate (0.02%) 4.43% (4.41%) 0.00% 0.00% Equity swaps Unrealized (gains) / losses on interest rate swaps (17.22%) 13.78% 11.65% 7.32% (10.36%) Realized and unrealized (gains) / losses on investments and other derivatives 0.05% (5.59%) 0.98% 2.36% (1.04%) Other(1) (0.14%) 0.27% (0.18%) (0.17%) 0.01% Current quarter GAAP return (loss) on average equity 17.20% 36.86% 20.58% 10.98% 0.46% Prior quarter core return on average equity (excluding PAA) * 10.70% 10.67% 10.57% 10.54% 10.66% Quarter-over-quarter changes in contribution: Coupon income 1.10% 0.83% 1.04% 0.24% (0.14%) Core Return on Net amortization of premiums (excluding PAA) 0.41% (0.56%) 0.02% 0.24% 0.26% Average Equity (excluding PAA)* Interest expense and net interest component of interest rate swaps (0.33%) (0.49%) (0.38%) (0.58%) (0.50%) TBA dollar roll income (0.65%) (0.01%) (0.35%) 0.25% 0.35% Other(2) (0.18%) 0.26% (0.23%) (0.12%) (0.09%) Current quarter core return on average equity (excluding PAA) * 11.05% 10.70% 10.67% 10.57% 10.54% * Represents a non-GAAP financial measure. (1) Includes other income (loss), general and administrative expenses and income taxes. (2) Includes other income (loss), MSR amortization (a component of Net unrealized gains (losses) on instruments measured at fair value through earnings), general and administrative expenses (excluding 11 transaction related expenses) and income taxes.
Residential Investments and TBA Derivative Overview as of June 30, 2018 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 % (2) Coupon Amortized Cost Fair Value 3-Month CPR Fair Value <=15 years (1) $4,316,730 5.5% 3.16% 102.8% 99.8% 9.3% $4,305,940 20 years 4,166,716 5.3% 3.48% 104.6% 101.1% 10.3% 4,211,585 >=30 years 69,980,293 89.2% 3.83% 105.9% 101.6% 8.9% 71,098,852 Total/Weighted Avg. $78,463,739 100.0% 3.77% 105.7% 101.5% 9.0% $79,616,377 TBA Purchase Contracts Weighted Avg. Implied Cost Implied Market Type Notional Value % (3) Coupon Basis Value 15-year $2,191,000 27.4% 3.00% $2,167,567 $2,177,991 30-year 5,809,000 72.6% 4.30% 5,976,796 6,002,703 Total/Weighted Avg. $8,000,000 100.0% 3.95% $8,144,363 $8,180,694 Agency Adjustable-Rate Securities Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Months to Reset Face Value % (2) Coupon Amortized Cost Fair Value 3-Month CPR Fair Value 0 - 24 months $4,597,506 78.1% 3.04% 105.1% 102.9% 26.9% $4,729,693 25 - 40 months 413,613 7.0% 2.81% 104.0% 100.7% 19.0% 416,641 41 - 60 months 146,775 2.5% 2.88% 104.1% 100.4% 10.9% 147,332 61 - 90 months 673,718 11.5% 3.01% 103.5% 99.7% 14.1% 671,763 >90 months 51,117 0.9% 3.04% 103.1% 99.6% 13.2% 50,899 Total/Weighted Avg. $5,882,729 100.0% 3.02% 104.8% 102.3% 24.4% $6,016,328 (1) Includes Agency-backed multifamily securities with an estimated fair value of $794.4 million. (2) Weighted by current face value. (3) Weighted by notional value. 12
Residential Investments & TBA Derivative Overview as of June 30, 2018 (cont’d) 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 $2,604,168 39.8% 3.33% 14.0% 12.1% 8.2% $316,211 Inverse Interest-only 3,932,883 60.2% 4.03% 23.1% 16.4% 10.9% 644,142 Total/Weighted Avg. $6,537,051 100.0% 3.75% 19.5% 14.7% 9.8% $960,353 Mortgage Servicing Rights Unpaid Excess Weighted Avg. Principal Weighted Avg. Servicing Loan Age Estimated Type Balance Coupon Spread (months) Fair Value Total/Weighted Avg. $46,120,485 3.82% 0.24% 27.2 $599,014 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 $528,869 17.4% 5.45% 103.2% 106.6% $563,796 Alt-A 191,939 5.3% 4.56% 83.1% 89.0% 170,922 Prime 270,226 8.2% 4.71% 92.2% 97.9% 264,491 Subprime 449,644 13.2% 2.91% 84.5% 94.8% 426,449 NPL/RPL 3,431 0.1% 5.00% 98.7% 100.4% 3,447 Prime Jumbo 130,544 3.8% 3.61% 97.3% 95.1% 124,141 Prime Jumbo Interest-only 910,065 0.5% 0.45% 1.5% 1.9% 17,335 Residential Mortgage Loans 1,658,358 51.5% 4.53% 101.4% 100.5% 1,666,157 Total/Weighted Avg. $4,143,076 100.0% 3.56% $3,236,738 (1) Weighted by current notional value. (2) Weighted by estimated fair value. 13
(1) Residential Credit Investments Detail as of June 30, 2018 Unaudited, dollars in thousands Payment Structure Investment Characteristics Estimated Credit 60+ Product Fair Value Senior Subordinate Coupon Enhancement Delinquencies 3M VPR Agency Credit Risk Transfer $536,768 $— $536,768 5.34% 1.15% 0.30% 6.57% Private Label Credit Risk Transfer 27,028 — 27,028 7.78% 3.51% 1.65% 6.32% Alt-A 170,922 105,461 65,461 4.56% 10.71% 10.99% 10.53% Prime 264,491 108,641 155,850 4.71% 11.05% 9.86% 14.24% Subprime 426,449 159,019 267,430 2.91% 9.67% 18.93% 5.79% Non-Performing Loan Securitizations 3,447 — 3,447 5.00% 48.95% 52.51% 2.35% Prime Jumbo (>=2010 Vintage) 124,141 98,880 25,261 3.61% 14.45% 0.13% 8.63% Prime Jumbo (>=2010 Vintage) Interest-only 17,335 17,335 — 0.45% 0.00% 0.18% 8.95% Total $1,570,581 $489,336 $1,081,245 4.60% 7.69% 8.79% 13.48% Bond Coupon Estimated Fair Product Value ARM Fixed Floater Interest Only Agency Credit Risk Transfer $536,768 $— $— $536,768 $— Private Label Credit Risk Transfer 27,028 — — 27,028 — Alt-A 170,922 48,614 96,578 25,730 — Prime 264,491 145,837 118,654 — — Subprime 426,449 — 47,190 379,259 — Non-Performing Loan Securitizations 3,447 — 3,447 — — Prime Jumbo (>=2010 Vintage) 124,141 — 124,141 — — Prime Jumbo (>=2010 Vintage) Interest-only 17,335 — — — 17,335 Total $1,570,581 $194,451 $390,010 $968,785 $17,335 (1) Excludes residential mortgage loans. 14
Commercial Real Estate Overview as of June 30, 2018 Unaudited, dollars in thousands GAAP Non-GAAP Number of Weighted Avg Weighted Avg Life Economic Book Values (1) % of Portfolio Levered Return Mortgage Debt & Preferred Equity Investments Investments LTV (2) (3) (years) (4) Interest(5) (6) Financeable First Mortgages 20 $882,570 19.0% 67.4% 3.7 $378,137 8.9% Mezzanine Loan Investments 18 359,574 7.8% 75.2% 3.1 375,428 9.4% Preferred Equity Investments 1 8,994 0.2% 94.3% 0.4 8,994 11.2% Commercial Real Estate Debt and Preferred Equity, Held for 39 $1,251,138 27.0% 69.8% 3.5 $762,559 9.1% Investment Loans Held for Sale, Net 1 $42,458 0.9% 23.8% 4.9 $42,458 7.5% Securitized Whole Loans 48 $2,542,413 54.9% 68.9% 4.4 $52,019 28.2% AAA CMBS 6 150,401 3.2% 29.6% 1.1 20,401 12.1% Credit CMBS 7 164,649 3.6% 58.8% 3.9 128,507 8.9% Total Commercial Real Estate Debt Investments, at fair value 61 $2,857,463 61.7% 66.2% 4.2 $200,927 14.2% Total Debt Portfolio 101 $4,151,059 89.6% 67.6% 4.0 $1,005,944 10.1% Equity Investments Number of Book Value % of Portfolio Economic Levered Return Properties Interest(5) (7) Real Estate Held for Investment 26 $386,576 8.4% $150,831 10.3% Investment in Unconsolidated Joint Ventures(8) 27 91,311 2.0% 125,351 10.0% Total Equity Investments 53 $477,887 10.4% $276,182 10.2% Total 154 $4,628,946 100.0% $1,282,126 10.1% Derivatives Net Notional Range of Ratings Implied Weighted Average Market Value Coupon CMBX (9) 297,555 AAA to BBB- 297,459 1.3% (1) Commercial real estate debt and preferred equity, held for investment book values are net of unamortized net origination fees. (2) Total weighted based on carry value. (3) Based on an internal valuation or the most recent third party appraisal, which may be prior to loan origination/purchase date or at the time of underwriting. (4) Maturity dates assume all of the borrowers' extension options are exercised for the commercial real estate debt and preferred equity, held for investment portfolio. (5) Economic Interest is a non-GAAP measure to include gross asset values less related financings. Equity investments is adjusted to exclude depreciation and amortization. (6) Levered Return represents the current coupon plus accretion and amortization of origination fees and premium/discount and funding costs over investment economic interest. (7) Equity levered returns are calculated based on trailing twelve months cash-on-cash returns, updated on a one month lag. (8) Includes investment in unconsolidated debt fund of $21.1 million and investment in Community Investment Impact Fund of $20.3 million. (9) 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 the underlying CMBS. CMBX positions are accounted for as derivatives with changes in fair value presented in Net gains (losses) on other derivatives. 15
Middle Market Lending Overview as of June 30, 2018 Unaudited, dollars in thousands Industry Dispersion Size Dispersion Industry Fixed Rate Floating Rate Total Position Size Amount Percentage Aircraft and Parts $— $38,022 $38,022 $0 - $20 million $306,958 24.4% Coating, Engraving and Allied Services — 60,049 60,049 $20 - $40 million 324,080 25.8% Computer Programming, Data Processing & Other $40 - $60 million 350,708 27.9% Computer Related Services — 212,750 212,750 Greater than $60 million 274,530 21.9% Drugs — 38,730 38,730 Total $1,256,276 100.0% Electric Work — 39,457 39,457 Electronic Components & Accessories — 23,995 23,995 Tenor Dispersion Engineering, Architectural, and Surveying — 10,635 10,635 Remaining Term Amount Percentage Groceries and Related Products — 14,745 14,745 One year or less $— —% Grocery Stores — 23,486 23,486 One to three years 61,366 4.9% Insurance Agents, Brokers and Services — 49,480 49,480 Three to five years 293,415 23.4% Mailing, Reproduction, Commercial Art and Greater than five years 901,495 71.7% Photography, and Stenographic — 14,863 14,863 Total $1,256,276 100.0% Management and Public Relations Services — 210,511 210,511 Medical and Dental Laboratories — 26,904 26,904 Lien Position Amount Percentage Miscellaneous Business Services — 19,677 19,677 First lien loans 753,373 60.0% Miscellaneous Equipment Rental and Leasing — 49,375 49,375 Second lien loans 502,903 40.0% Miscellaneous Health and Allied Services, not Total 1,256,276 100.0% elsewhere classified — 54,196 54,196 Miscellaneous Plastic Products — 9,937 9,937 Motor Vehicles and Motor Vehicle Equipment — 17,138 17,138 Motor Vehicles and Motor Vehicle Parts and Supplies — 23,546 23,546 Offices and Clinics of Doctors of Medicine — 97,722 97,722 Offices and Clinics of Other Health Practitioners — 20,053 20,053 Public Warehousing and Storage — 55,057 55,057 Research, Development and Testing Services — 33,282 33,282 Schools and Educational Services, not elsewhere classified — 19,806 19,806 Services Allied with the Exchange of Securities — 14,909 14,909 Surgical, Medical, and Dental Instruments and Supplies — 16,658 16,658 Telephone Communications — 61,293 61,293 Total $— $1,256,276 $1,256,276 16
Hedging and Liabilities as of June 30, 2018 Unaudited, dollars in thousands Interest Rate Swaps (1) Interest Rate Swaptions Current Weighted Avg. Weighted Avg. Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Years to Underlying Underlying Underlying Underlying Months to Maturity Notional Pay Rate Receive Rate Maturity 0 to 3 years $32,086,800 1.76% 2.34% 1.62 Type Notional Pay Rate Receive Rate Years to Maturity Expiration >3 to 6 years 15,449,650 2.27% 2.31% 4.67 Long $3,250,000 2.75% 3M LIBOR 10.28 3.16 > 6 to 10 years 12,476,900 2.45% 2.24% 8.59 Greater than 10 years 4,076,400 3.58% 2.21% 17.48 Repurchase Agreements & Other Secured Financing Total / Weighted $64,089,750 2.08% 2.31% 4.43 Avg. Weighted Avg. Principal Rate Futures Positions Maturity Balance At Period End Notional Notional Weighted Avg. Within 30 days $30,922,430 2.15% Long Short Years to 30 to 59 days 6,328,941 2.11% Type Positions Positions Maturity(2) 60 to 89 days 14,275,263 2.15% U.S. Treasury Futures - 2 year — (480,000) 2.00 90 to 119 days 9,278,603 2.08% U.S. Treasury Futures - 5 year — (4,987,400) 4.42 Over 120 days(3) 18,715,905 2.35% U.S. Treasury Futures - 10 year & Greater — (10,274,500) 7.13 Total / Weighted Avg. $79,521,142 2.18% Total $— $(15,741,900) 6.12 Principal Weighted Average Rate Balance At Period End For the Quarter Days to Maturity (4) Repurchase agreements $75,760,655 2.17% 1.99% 71 Other secured financing 3,760,487 2.48% 2.57% 924 Securitized debt of consolidated VIEs 2,702,497 2.70% 2.62% 3,199 Mortgages payable 312,500 4.24% 4.36% 2,407 Total indebtedness $82,536,139 (1) There were no forward-starting interest rate swaps at June 30, 2018. (2) Weighted average years to maturity for futures positions are based on the U.S. Treasury contracts cheapest to deliver. (3) Approximately 5% of the total repurchase agreements and other secured financing have a remaining maturity over one year. 17 (4) Determined based on estimated weighted-average lives of the underlying debt instruments.
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, 2018 and March 31, 2018 ▪ 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, 2018 As of March 31, 2018 Interest Rate Estimated Percentage Estimated Change as a % Estimated Percentage Estimated Change as a % Change (bps) Change in Portfolio Value(2) of NAV(2)(3) Change in Portfolio Value(2) of NAV(2)(3) (75) 0.2% 1.8% 0.3% 2.5% (50) 0.3% 2.0% 0.3% 2.5% (25) 0.2% 1.3% 0.2% 1.5% 25 (0.3%) (1.9%) (0.3%) (2.0%) 50 (0.6%) (4.2%) (0.6%) (4.4%) 75 (0.9%) (7.0%) (0.9%) (7.2%) MBS Spread Sensitivity (1) As of June 30, 2018 As of March 31, 2018 MBS Spread Shock Estimated Change in Estimated Change as a % Estimated Change in Estimated Change as a % (bps) Portfolio Market Value (2) of NAV(2)(3) Portfolio Market Value (2) of NAV(2)(3) (25) 1.5% 11.5% 1.5% 11.5% (15) 0.9% 6.8% 0.9% 6.9% (5) 0.3% 2.3% 0.3% 2.3% 5 (0.3%) (2.3%) (0.3%) (2.3%) 15 (0.9%) (6.7%) (0.9%) (6.8%) 25 (1.5%) (11.2%) (1.5%) (11.3%) (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. 18
Appendix
Endnotes for Page 2 * Represents a non-GAAP financial measure. Core earnings (excluding PAA) per average share, core earnings per average common share, annualized core return on average equity (excluding PAA), net interest margin (excluding PAA), average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and operating expenses to core earnings (excluding PAA) represent non-GAAP measures. This presentation also includes additional non-GAAP measures, including interest income (excluding PAA), economic interest expense, economic net interest income (excluding PAA), core earnings (excluding PAA), core earnings (excluding PAA) available to common shareholders, core earnings, core earnings available to common shareholders and core earnings per average common share. See the section titled “Non-GAAP Reconciliations” in the Appendix for a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures. A reconciliation of GAAP net income (loss) to non-GAAP core earnings and non-GAAP core earnings (excluding PAA) is provided on page 8 of this financial summary. (1) Net of dividends on preferred stock. (2) Core earnings is defined as net income (loss) excluding gains or losses on disposals of investments and termination or maturity of interest rate swaps, unrealized gains or losses on interest rate swaps and instruments measured at fair value through earnings, net gains and losses on other derivatives, impairment losses, net income (loss) attributable to noncontrolling interest, transaction expenses and certain other non-recurring gains or losses, and inclusive of TBA dollar roll income (a component of Net gains (losses) on other derivatives) and realized amortization of MSRs (a component of net unrealized gains (losses) on instruments measured at fair value through earnings). Core earnings (excluding PAA) excludes the 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. (3) Computed as the sum of repurchase agreements, other secured financing, securitized debt and mortgages payable divided by total equity. Securitized debt and mortgages payable are non-recourse to the Company. (4) Computed as the sum of recourse debt, TBA derivative notional outstanding and net forward purchases of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing. Securitized debt and mortgages payable are non-recourse to the Company and are excluded from this measure. (5) Computed as the ratio of total equity to total assets (inclusive of total market value of TBA derivatives and exclusive of securitized debt of consolidated VIEs). (6) Comprised of non-Agency MBS, credit risk transfer securities and residential mortgage loans (includes securitized residential mortgage loans of consolidated VIEs). (7) Includes consolidated VIEs. (8) Net interest margin represents the sum of interest income plus TBA dollar roll 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 balances. Net interest margin (excluding PAA) is calculated using the sum of interest income (excluding PAA) plus TBA dollar roll 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 balances. (9) Represents annualized interest income divided by average interest earning assets. Interest earning assets reflects the average amortized cost of our investments during the period. Annualized yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA). (10) Includes GAAP interest expense and the net interest component of interest rate swaps. Prior to the quarter ended March 31, 2018, this metric included the net interest component of interest rate swaps used to hedge cost of funds. Beginning with the quarter ended March 31, 2018, as a result of changes to the Company’s hedging portfolio, this metric reflects the net interest component of all interest rate swaps. (11) Excludes costs incurred in connection with a securitization of residential whole loans for the quarter ended March 31, 2018. 20
Non-GAAP Reconciliations Unaudited, dollars in thousands * 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, 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 below and on the next page. A reconciliation of GAAP net income (loss) to non-GAAP core earnings for the quarters ended June 30, 2018, March 31, 2018, December 31, 2017, September 30, 2017 and June 30, 2017, is provided on page 8 of this financial summary. For the quarters ended, 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Premium Amortization Reconciliation Premium amortization expense $202,426 $95,832 $203,951 $220,636 $251,084 Less: PAA cost (benefit) 7,516 (118,395) 11,367 39,899 72,700 Premium amortization expense (excluding PAA) $194,910 $214,227 $192,584 $180,737 $178,384 Interest Income (excluding PAA) Reconciliation GAAP interest income $776,806 $879,487 $745,423 $622,550 $537,426 PAA cost (benefit) 7,516 (118,395) 11,367 39,899 72,700 Interest Income (excluding PAA) * $784,322 $761,092 $756,790 $662,449 $610,126 Economic Interest Expense Reconciliation GAAP interest expense $442,692 $367,421 $318,711 $268,937 $222,281 Add: Net interest component of interest rate swaps (1) (31,475) 48,160 73,957 78,564 84,252 Economic interest expense *(1) $411,217 $415,581 $392,668 $347,501 $306,533 Economic Net Interest Income (excluding PAA) Reconciliation Interest income (excluding PAA) * $784,322 $761,092 $756,790 $662,449 $610,126 Less: Economic interest expense *(1) 411,217 415,581 392,668 347,501 306,533 Economic net interest Income (excluding PAA) *(1) $373,105 $345,511 $364,122 $314,948 $303,593 * Represents a non-GAAP financial measure. (1) Includes GAAP interest expense and the net interest component of interest rate swaps. Prior to the quarter ended March 31, 2018, this metric included the net interest component of interest rate swaps used to hedge cost of funds. Beginning with the quarter ended March 31, 2018, as a result of changes to the Company’s hedging portfolio, this metric reflects the net interest component of all interest rate swaps. 21
Non-GAAP Reconciliations (cont'd) Unaudited, dollars in thousands For the quarters ended, 6/30/2018 3/31/2018 12/31/2017 9/30/2017 6/30/2017 Economic Metrics (excluding PAA) Average interest earning assets $102,193,435 $101,979,042 $100,247,589 $89,253,094 $83,427,268 Interest income (excluding PAA) * $784,322 $761,092 $756,790 $662,449 $610,126 Average yield on interest earning assets (excluding PAA) * 3.07% 2.99% 3.02% 2.97% 2.93% Average interest bearing liabilities $87,103,807 $87,376,452 $85,992,215 $76,382,315 $70,486,779 Economic interest expense * 411,217 415,581 392,668 347,501 306,533 Average cost of interest bearing liabilities(1) 1.89% 1.90% 1.83% 1.82% 1.74% Economic net interest income (excluding PAA)*(1) $373,105 $345,511 $364,122 $314,948 $303,593 Net interest spread (excluding PAA) * 1.18% 1.09% 1.19% 1.15% 1.19% Interest income (excluding PAA) * $784,322 $761,092 $756,790 $662,449 $610,126 TBA dollar roll income 62,491 88,353 89,479 94,326 81,051 Interest expense (442,692) (367,421) (318,711) (268,937) (222,281) Net interest component of interest rate swaps 31,475 (48,160) (82,271) (88,211) (96,470) Subtotal $435,596 $433,864 $445,287 $399,627 $372,426 Average interest earning assets $102,193,435 $101,979,042 $100,247,589 $89,253,094 $83,427,268 Average TBA contract balances 9,407,819 12,050,341 17,509,691 19,291,834 14,206,869 Subtotal $111,601,254 $114,029,383 $117,757,280 $108,544,928 $97,634,137 Net interest margin (excluding PAA) * 1.56% 1.52% 1.51% 1.47% 1.53% * Represents a non-GAAP financial measure. (1) Includes GAAP interest expense and the net interest component of interest rate swaps. Prior to the quarter ended March 31, 2018, this metric included the net interest component of interest rate swaps used to hedge cost of funds. Beginning with the quarter ended March 31, 2018, as a result of changes to the Company’s hedging portfolio, this metric reflects the net interest component of all interest rate swaps. 22