NLY - Earnings call transcript Q2 2018 | Annaly Capital Management, Inc.

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Operator

Good day, and welcome to the Q2 2018 Annaly Capital Management Earnings Conference Call and Webcast. All participants will be in a listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Ms. Investor of Head LaScala, Relations. Jessica Ms. is LaScala, ma'am. the floor yours,

Jessica LaScala

of consummate are ability welcome second all, Capital These limited a include, which the the proposed quarter you. to our today's annual in Inc. precedent Good in the to forward-looking and earnings are the filings. basis satisfaction timely in the We most and morning our call during release, these Risk of quarterly earnings made are Annaly but to, Thank and outlined XXXX in from events consummation statements. conditions and Factor read on SEC to forward-looking parties results encourage call uncertainties transaction recent forward-looking not annual statements statements proposed the risks materially to quarterly the filings. and subject to risks addition Any section may uncertainties, Management, the our or disclaimer for the and at Actual to differ transaction. of you and

obligation this this content not of as update information time-sensitive is that the the may disclaim contain revise conference only Additionally, date specifically any and call. or We accurate of undertake information. earnings do the call to of

nothing turn Statement are Annaly site these read Kevin MTGE they it filed at that now solicitation offer both a their or Chairman, regarding as to exchange the shares, securities before MTGE documents any Schedule TO, should no has a will this note making Head and During XXD-X S-X, The measures Gallagher, them. the securities. sell that to of offer at that carefully Letter Kevin free recorded. contain conference Financial to Real decision Keyes, common any stock the have Annaly made offer Exchange, at GAAP financial call release. been to is to expense is on earnings to merger this consider GAAP this important with MTGE to Officer; filed Credit Officer, documents, of MTGE for on of a Investment this The of Estate. with as have an the SEC with constitutes I exchanging merger exchange Please the subsidiary SEC's shareholders statement offer other its registration a being included because all are Schedule may Glenn related on its Commercial holders substitute Solicitation/Recommendation materials Officer; the of the Chief President; Coffey, call, offer David and available to Annaly Transmittal, holders measures. Executive Offer Participants Solicitation/Recommendation exchange Statement Keyes. Finkelstein, well to information available we present And nor Officer; certain filed and has that Timothy call include statement Chief These note is and Web a over Chief morning's respect Also non-GAAP non-GAAP on Chief event Tim also Votek, the an and and A reconciliation offer. of urged and in Form on subsidiary for purchase documents filed have tender www.sec.gov. SEC. also our

Kevin Keyes

and our I priorities opportunities and scrutinized it what and our capital were the XXXX. discuss diversification we to made welcome revised and your on initiatives main held five-year growth liquidity Jessica. goals. week, accomplished. diversified plan, current strategic achieve call, debated the Thanks, the external XXXX, Annaly aspects reviewed my our performance, role the Last we the efficiencies, of everyone, consolidation, and past management to We today's internal Good the operating required We three complementary our our as meeting and my market our both objectives and the assessed critically relates progress and management, projective. including morning end, environment, call. transition of In model. to capital We strategies, midyear organizational in on to in meetings

to risk First, biggest we we face, confirmed and the our them. manage strategies

and we Second, into a prioritizing numerous we manage solidified along opportunities, to we our both internal face growth to And for platform risk any to this motion simply value and the our reinforced adjusted With options this in We the our risk external returns less maximize clear built refused scaleable order optionality, challenged shareholders. on much views diversified performance more for in and confuse generating we progress. way with with how well-capitalized, shareholders. company other through into lower-leverage than our third, measure unforeseen.

system. We governments. Last week, in with has have mortgage total this corporate ago. we of debt outstanding $XXX for types the debt leverage and to from debt equating the as Aggregate slows and risk. $X.X XXXX. decade it financial which to chart QX crisis represented to on a share is now to the even of amount for plowing global like U.S. be approximately QX highs debt global GDP to just continues, today, grown XXX% than $X.XX the peak ever level XXXX last time Department's XX% points metrics level the in to current various and now higher than XXXX. July highest debt markets, has to the estimate GDP on debt corporate U.S. the the $X.X from trillion printed of today The issuance trillion, December Treasury the based leverage XX% over of And the but an the ballooned GDP its year trillion has projected looks excess reached amidst year, And to all-time of the XXXX. global from our of historical XX% of navigated prior cycles the net approximately QE through a pile and lot output, with government economies, really the of trillion that U.S. is equates pervades risk corporations measuring analyzed revisited to

leverage prioritized have increased All positioning disposition rates a or again and now picture ours XX% of planning paints or the are in generate companies XX% past upon solely gains you of pull. over that X% In long-term add market companies point and are And have the to alone, relying leverage has mortgage world short-term is leverage many over definition, increasingly lower the by leverage protection. a the most only including to lever earnings. maintain options, limited Too increased of overlevered of XX% in quarter-over-quarter. to REIT this strategic this in while portfolio short-term quarter average sector data the an of again over with XX% mortgage this When a trading is year. by sector

long-term from dedicated contrast, leverage extremely conservative an to is dangerous its obvious. Annaly higher in strategies. today's Going the and business limited high state remains increasingly markets By to diversification plan to

that leverage. We predictable, producing competitive more more consistently are are was significantly returns safer, less durable, and

to XXX% successive to than REIT lower XX% the this leverage less the upon sector was investments. proactively into floating leverage began As approximately Annaly years in strategy when lowering first return, higher peers. in system, Since we than mortgage we've those cumulative employed as economic our agency began leverage ago and the credit five portfolio rotate produced mover rebuild embarked a XXXX, our rate diversification we levered

mortgage sector a average the has tripled than difference difference. between same gap leverage REIT Annaly's the this a over and time peers Additionally, to more X.Xx X.XXx period, now times agency from

and our credit views than conservatism Our capital turn. only levered. yet optimizing three in and we $X.X how strategies capital in one less have businesses. precipitated have finance up influenced over made our our our of times liquidity That's in X.Xx and billion Today,

X.Xx versus for X.Xx Our market. residential credit portfolio is levered the

given the And is portfolio on only X.Xx our middle recently average engineering up passed. not Clearly, is upon which versus for new of the regulation our will investments financial levered for for now Our the real quality X.Xx market. are higher cash reliant portfolio market levered commercial to credit estate return. financial increase made market, versus flows, X.Xx X.Xx lending Xx

originated about one and credit of $X.X quarter. broad priorities organically using Our assets at over than demonstrated of of XX.X%, a businesses our of turn past billion across this return leverage. investment results options We three the in less levered successfully were

and our source unique and less credit complimentary where is quality enabling and investment competition to favorable, opportunities seasoning are maintained. now us and is investments scaling, partnerships ongoing Our relationships and acute, proprietary structures remain

a is and base equity our continued enhances quarter addition, million savings stature strategy of platform, $XXX In our provides growth this reinforces through our industry as to of shareholders, purchase investment This further well transaction market external cost consolidation and immediate our Corp. leading accretive the of announcement the continued It growth with to scale boxes. diversification increases for consolidator. Investment the as checks earnings, all MTGE our

of since strategies these combining highest in outperformance in our diversification ROE and XXXX. strategy XX%. level in efficiency initiation The return of capital Our resulted core the

time agency a Most look efficiency the illustrate ensure REIT management among its are and to are our profile multiple the constantly and There a few team initiated capital risk delivered at since analyzing results valuation leverage metrics we monoline Annaly models. methodologies, returns strategy. better Lastly, diversification to to Using differentials returns this. to various our strategies telling when over actually do ways shareholders. deployed, the has periods relative Annaly return vast value delivering outsized incremental different with risk-adjusted our

dividends our is we've on times cumulative per of over average basis, we the with normalized time agency return before over measures volatility. is which economic Measuring variant for effort that mortgage a economic in than leverage Since total sharp unit discussed Xx On average than higher REIT. cumulative plus is First, measure our of of return; the also slight total employed. the market consider is unit our this the this metric proxy mortgage performance agency A total Annaly's value Annaly's ratio, change that REIT. began, for return return diversification X.Xx book per average leverage. our

not that leverage, perspective, an a it, underutilized not illustrate per higher Annaly's by Annaly's earnings core is just ROE way the any adjusted and leverage XXXX, from a is nearly average helps the sector unit can XX%. declined at and relying than agency mortgage ROE Either has capital this methodology, absolute Second, are By sector. XX% in since increased higher analyze On on volatility greater quality QX on core levered we dividends. market yield for which average our to performance whereas basis, analyze produce of XX% than look REIT is measure, efficiency. core the or has ratios these earnings agency yield to solely you leverage over the XX% one and

Finally, on and our or an relevant yield the I'd like NIM interest of stability net to by strategies absolute dissect margins in comparing success time. assessing basis, over

sector. higher this interest XX% the is of was margin X.X% agency higher the than quarter average of than Our the and REITs any mortgage net for

it's stable higher, only not also proven is more NIM to time. Our be over

Over range the of band points mortgage XX net stable Annaly interest margin points quarters, has the spread the in versus maintained that average XX REIT. XXX for A basis a past only range narrow over is Xx more peers' portfolio's earnings we've of our than the for our to margins, past average net factor quality and large consistent been of that's the our XX ability a produced. quarters. $X.XX contributing volatility Obviously, manage our has dividend what to interest basis volatility

on agency stability our their sectors and outputs total have capital the mortgage risk cuts diversity of unmatched adjusted dividends period. representing of dividend XXX% While liquidity time factory. same of XX the total strategic over and cash our lowered have returns, environment. this The Higher risk our been rate the yield REIT which efficiency, credit in been leverage organic lack and levels risky assets to are outsized our Annaly's have differentiators floating undervalued predominantly ability market governed of flow's, reliance consolidate of growth

appreciated. historical higher our over and in its manufacturing and as yield means be exposed the market to become performance begins the in risk strategy understood sets the consistency and increasingly of reality out will time, revert As and models conservative to

discuss Now more to our and in activity I'll turn it investment over portfolio to detail. David

David Finkelstein

while credit yield of you, first continue to uncertainty the Thank second in light the exhibited market Fixed persisted were horizon. in of interest term relative expected was leverage as did income reasonably MTGE Agency increase longer roughly stability to allocation and to the spreads Kevin. of we the flattening economic Fed first on-boarding lower-levered quarter. curve remains also stable reduced a somewhat in added both in quarter quarter in the hiking Nonetheless, We were quarter and anticipation in maintain and to additional anchored rates rise rate modestly hedges the as committed portfolio the of unchanged the our of the and consequence greater credit year. this at relatively the businesses.

leverage portfolio. came both position quarter second and light. pool our well to our reduction specified The the as in result a in beginning agency, the as Turning activity the decrease was portfolio as with TBA in relatively of

However, we spread a sector widening position temporary and add that agency multi-family in to did created our opportunity.

adding active by securities loans us portfolio new We across our the of Shifting of enabled proprietary well whole again more to longer an the XX some sector, down side, shifting portfolio technical of our strong reducing swaps swap had each fundamentally from shape On XXXX tracks as expiring we portfolio. hedging present exercise out the in through roll of direct shorter favorable by normalization those as strong housing due quarter net the the in focused however backdrop continue rate our materialize post remains manage a of buying secondary billion negative saw accommodated near diversify specifically and the growth to majority our Fed over the XXX as this the and portfolio as a dated excess The on in now dealer. in activity kept $X.X CMBS versus market three likely spread through did in market average of hedges. first-half the environment financing would basis assets of since wider withstanding broker particularly dated was have in relationships certain securitize spread the improved spread supply the times past is for our of sector. as swaption credit to our materially function, than the to to selling driver as opportunities a counter average of characterizes we residential and remain supply. higher markets LIBOR light where opportunity to the LIBOR-OIS where runoff, on-boarding of from to CRT the repo agency agency more financing complexity loans parties in We credit portfolio months. tight it of of dislocation of crisis do the through environment with agency sector should and the points. the has much the double supply. We both spreads further the have points profile of approximately our that quality the This processing year. over profile the markets. then heavier the well sound of basis XXXX In in Linear XXX was Despite turned the CMBS assets we

look for portfolio, to to our priced ways this continue year. we have we securitizations As optimize two

and an Our second completed the securitized of just the credit and this on achieved focus week. The successful reflected FICO, execution of than of our quality. measured these securitizations our securitization strategy stronger endorsement DTI average on space were as in our our the is quality and we LTV, collateral credit the loans pricing RESI by

and of retention to of We rights aggregators. consisted horizontal our transaction While sourced tranches $XXX consisted our teens. of our March niches the legacy execution loans million required only $XX originators million through subordinate including returns prime levered of the low network in transaction organically recent risk with approximately loans predominantly season of through expanded RMBS, retained

assets asset market's sourcing primarily us viable source forward, channel FHLB space. new strong the financing and the our enabling returns credit renegotiate Going to seek for reliance remain and our and that second commercial gross yet portfolio. further existing debt million we in resulting attractive we compared across leverage. in the spreads, returns by channels In time, funding and At anticipate same yields, new capital will acquired able back low we totaled we on to a continue quality as In securitization over a the residential constructive investments portfolio. us risk reduce improvement funding cautious We on focus our ratings home XX% additional remain structure were existing modest real-estate, to In capital alone, high favorably quarter financing these the our loans. explore to on on without sources and LTVs, double-digit the to drive originations quality financing expanded deliver sacrificing relatively $XXX with markets. for to the stabilized

middle roughly this that respect with in Finally, were to billion quarter. X.XX we business, assets our to grow to portfolio lending able market

amongst have over tightening Our years, strongest believe less of businesses our susceptible to. spite MML corporate we the the broad in platform been has spreads, which past growth in been four we

which improved In our decreased considerably, fact, portfolio we origination and underlying top-quartile flow unleveraged equity have been over firms, with floating sources converge time deal rate not increasingly teams. credits want are yields, including investment Also while alike. the on of flow be companies size. most defensive focused in average a years, ratios in the coupon market where to generating the entirely earned reliable consistent four credit quality investments to in greater MML remain controlled treats loans that for with interest market and and year want under each which private we increased, middle reflects our by same an to the remain are we has increased our seven notable we fees persistent the size of These past past the loans holdings driving These has to the while CLO and approach have leverage is period. disciplined sectors. and And differentiating steadfast has machines, our what cash avoid diverse years, that

the over that, it with Glenn financials. to Now hand discuss to I will

Glenn Votek

lower primary results we $XXX Great. quarter factors GAAP the the swaps, expense, solid unrealized million long-term impacting higher compared meaningful million, or our million. flat share, PAA income per amortization the with Kevin projected $XXX had PAA the and $X.XX $X.X quarter GAAP rates at benefit, Core $X.XX per environment declined CPRs as $XXX approximately share. Beginning earnings, second which David. QX. per results, for was million, and another or challenging share was were to as were last interest quarter billion unchanged. gains prior excluding with Despite both delivered PAA approximately The that $XXX approximately combined David described, which were to Thanks, for and quarter largely quarter. the a net increased GAAP And $X.XX immaterial

quarter, largely the the XX% highlights expense modestly, up due sequentially. I income higher from were contributions PAA but up declined which was the excluding increased amortization to portfolios, mentioned, to for Moving driven credit by the that over interest

$XX declined Interest with net from positions costs. basis increased income average for average in roll million funding million and quarter points. QX expense higher $XX lover XX million $XX dollar rising TBA Our to on rate higher repo the in rates the

in our interest the actually as which position $XX expense, declined for Further evidence net by is income. the of our cost, LIBOR quarter, economic However, hedge which hedges factors in roughly the rates. full million impact basis our in quarter, effectiveness was by in portfolio funding in million the $X reflected of declined rise generating overall of swaps receipt actually despite our of a the point the

the Net Our benefiting -- operating have I metrics increased quarter, funding level for at key XX higher financial improved cost operating beginning yields third consecutive since XX.XX%, And metrics levels Core reaching points mentioned, scale PAA Kevin with efficiency our remained improved our favorable ex-PAA, the remained at basis strategy. diversification from Kevin mentioned, to the mentioned. the highest of that platform. margin, benefits interest consistent as our as excluding and asset both strong. ROE

down grew And estate from coming $XXX sheet, X%, was assets originations. over agency period X% approximately investments. million real portfolio just combined lending was in the million Each quarter. the billion with grew balance the under and credit just the or and Commercial decline which million $X billion. portfolios XX%, of middle portfolio, up TBA with to position a ended approximately portfolio $XXX million new down $XXX the market group of $X Turning or portfolio $XXX new of the or

slightly of respectively, And capital, Our leverage portfolios started standpoint, business to to capital the leverage from declined we and slightly balance XX% times declined allocated and XX% six value $XX.XX allocation loans. the grew growth prior from per regi the sheet with in up Both the year. credit and represented economic as concentrated quarter book and times whole currently preparatory we're diligence And to economics credit with XX% X.X the share in validated have our the of work, actively from $XX.XX on that, transaction the which initial prior the up the of an in is questions. been performing expect findings And close quarter. transaction, update lastly, in MTGE to integration business, a ready the open Mike, overall and QX. terms we fit by we a

Operator

Yes, sir.

We Instructions] session. question-and-answer Harter begin first Doug go of Please come Our the ahead. from Credit question Suisse. will will now [Operator

Doug Harter

your around kind Kevin, be credit return equal leverage that of lower else touch the per towards biased the to leverage, on to would look all imply as just does level allocation Thanks. of that that of unit comments more assets? higher kind of you would

Kevin Keyes

I it's know, Yeah, capital I and a headline think the you the overly don't our be unique. enough that's ROE risk we've a the look we isolated you're very I investments [Ph] for dollar, I apples, fashion, mentioned I mitigant our capital But it competition think to take that we efficiency. to that per businesses know, think, and this before, to one I shared unit which as last think from apples it's a across introduced to think you model think reason discipline not we're board I an -- and and talked which measuring is about, is that's measure -- and have and good leverage, in across is -- it's technical, that just of we have, good

selection we're yield our hedge You maximize better without utilizing leverage. know, maximizing to asset and

measure economic ratios, returns and way return, had which our but think another in is That's sharp talked capital it's look then about another businesses measures the relative variability consistency we return you of I And risk adjusted how board at part economic how at of of I others. across measured. per efficiency we the to stability, So just analyze the also I of there's look leverage. just unit like of to a that terms big not know,

look don't book project just bit get we to mean, measures. yield I a fine, pivoted capital. don't on ROE like Core adjusted at basis. at deploy going very is everything in is proxy deployment anticipating a basis, which kind how little bottoms look just tied capital we based for you a to just right stringent moves a -- these but our and we're credit And of value I lot indication So dividend we on the a these do now, risk relative good we of measures. of yield, to up, value we know,

at higher the So think tend the comments about headlines And my around the being end bit dominate. ROE in the stable other in of market ignored system, downplayed returns the parts day more leverage just to of as we're the producing it's different less leverage. with I or a

that's about but the measure, to it. how measures of all So think just one how and explanation my not comprehensive the interrelate we kind

Doug Harter

if then think liquid your just given the liquidity that you a move around how asset you tradeoffs into have more mean, just you like to I of factor context, know, portfolio I And wanted or guess, agencies enough the equation? would in liquidity, clearly are about size, guess, how you since feel I that do kind you the does still

Kevin Keyes

we're manage obviously the of in to tied some so the mean, can diversification, business company. unencumbered liquid. we've like and talk way but of we our been again it think Yes, our the a less this portfolio about speak as of to good liquid our is -- kind high really because higher that been that's a strategies agency history the their manage And credit credit assets to new liquidity liquid this a rate of is with never liquidity has that's and management, liquidity, product as the right, I bank leverage. we how interest we these we the where really there's how and of albeit measures kind the -- David valuation really describing more company how starting kind of merchant are pickup. and managing drive of a we're of I

flows where the predominantly risky, in. I curve have. we're we other the leverages, term our offset that credit and less that and businesses given the these world a in of is are levered think, That's that cash business more longer aspects is balance So that

measurement, but daily the -- where how run the think I a basis, liquidity on that's in box really business our So starts we from. it know, you and what's all

David Finkelstein

primary billion and is which And unencumbered assets. just That's Doug, day $X liquidity look for agency I'll And thing David, of the add, day. options also which first to our about the are at point in I'll the out majority over of assets are us are focus every consideration significant day that financing obviously, this is the out. we point

side have agency traditional direct our the repo dealer broker build to out. obviously On that we of to to we lot a diversity in financing and a from repo continue

whether or side, it's On the comments. we're in my credit those warehouse additional securitization lines constantly working on as I mentioned

look concern. out we like the in but it's that day and at first day nonetheless feel liquidity, and something we we ample so And have that's

Doug Harter

you. Thank

Kevin Keyes

Doug. Thanks,

Operator

KBW. we Next, of Bose George have

Bose George

about each you buckets? incremental you Good returns in morning. Can talk of your where the different best see

Kevin Keyes

to but among basic the levered decision unique value aspects agency each think versus a a of I value it's because little to think capital work. ourselves on yield one we general the the overlay, there is driving I credit in the more I'll Bose, put the headline the is the biggest do this again, a focused on Yes, relative to It's businesses. day. In every question just like we is it's ask quarter bit my comments tied valuation, of terms -- we the -- in what businesses the of agency return, are here terms the businesses, thing relative think

that in it others just it are to on know, a the are selling and buying we where just CRT brought on value You relative comments while his resi in spreads. in we David basis mentioned

Our grown, and our really partnerships access. whole function your loan growing of has proprietary a as business

without can off the where assets there our in capital speaks business So you how of and we competing business. securitized to couple and as we've the quarters in see really secondary market driver a efficiency pick that originate those the last

team origination joined that a real a of that Commercial mix invested had we the know, new we that really Tim strategy kind along on you we a others and capital of Gallagher haven't few it we've really has that's relationships recently a is focused with estate, So there. before. in, have part market have didn't us

So than in that's market. the more some stabilized of rest we're doing the there. the investments of things driving We're

grown, there's we're needed less so -- leverage And has by the So conservatively. and performed, there. has portfolio definition, it albeit

we in attracted which So that has helped better really returns. financing business,

the definition doing notice but business X.Xx matrix only or not, would that lot since So We're factors doing relationship handful we're here of which things which then And only performed, competed argue the business repeat that the can were has instance. lending, by XXXX, less the are business deals deciding unlevered BDCs that business it's people returns to market larger middle very I a public has on And be reason as a we're those really competitive. a levered by doing we are able really has know combination you it track we're for grown. a competitive. and the of has there. lot continued in the whether is there, think grow to been

but words it of that we've we risk place relative producing less of the themes our a because joint I we partners is one more where to businesses, be are to help across in under roof help a years, are proprietary even thing, which and now and us think, the origination we today. number really think public originate it's don't business partnerships lot, five are finance is power combination the this interest platform, public with origination. And mean, scaled, all should of about competitive. for more of The I talk of used it's So ventures XX rate this but the that some I had last and the it really those not seasoned

Bose George

sense. ROE? your the a the terms returns, low makes that in agencies they're the just that is quality say returns quarter versus Okay, Is this the say it in double-digits, higher allocation to that reflects look you mean when credit return also I credit, necessarily returns on increased of safe of of it the relative to at on

Kevin Keyes

competing returns competitive with are on they a Yes, less credit I think I lot leverage. mean

Bose George

Okay, great, that helps.

Kevin Keyes

there. scalable, continue That so opportunities relative that to going not it's is value it's

Bose George

Okay, your back beginning just leverages then, for cetera et think the to do just going in is lot economy tying okay, up do And the lot a or the going a you that's and company back risk given rates growing backdrop biggest you great. down to comments that? the your towards is a with just about it what how it think just rates, or

Kevin Keyes

terming I lot always we just of an have liquidity, look is are we our and for we we're risk things so that it biggest others down think opportunity, measure prepare doing. to a the have if

safe return definition So us a durable and and we're incremental think have without be this by and too what cash unless levering durable up and ours be to environment investment you is want cash giving much should but I in yielded levered. on

near-term financed don't the really others mean, or to things these have current one to frankly one doing our take look this can't that see We some that ability one a do the our may we model. higher we confuse I that's type market marketers, lever I with didn't business leverage But that is progress onboarding we're mean flows it of I as it. at down the so motion of that in type same not and of a other of think because get the in rate preparation for type term like do compared because though quarter want we for one biggest came type risk assets. is of for think don't is risk we're to instance because to they're of think and leverage think having MTGE to durable think where are even and that I of up mentioned yield think different lower a be risk asset this that company to I those a investor than reason mean, we lot investor onboarding so those competitive this just I model. get down class way I ours see it's produce not only strategies I albeit over do acquisition, that to skis it different in the mortgage taking model I line they out lot is we David lot in longer the a of way more is term way the shared quarterly the just stressing I our with any or capital I attract that going we're so the would in leverage, cash mentioned buy company company type of longer the different to as company at be of returns XXXX a in that planning I producing function plan where I that is future is but are in as our not problem

Bose George

can balance Thanks. third just as on that helpful. the about a roll one then down, looks being that's And the quarter? TBA you market Okay, the actually in in and specialist coming how talk dollar

David Finkelstein

Sure. This is David.

market has have balances the about we've down as their portfolio deliver taking the Fed our with currently the command the over a Fed is dissipating as do has a recent and talked cheapest specialness the pretty So as we creating unwinding and out that continue. just value past to brought lot bucket that's consequence dissipated is better having some and time specialist for and does in think we the the considerably well TBA of that no we've as past pools excess in created that problem fact so

about increase for coupon into as in originated there coupons say gravitated rates here X.X some are that that we specialists where and being as there. and they'll new is be specialness exhibited that about example has we've Although, I get some you or contract will

Bose George

Thanks more again just sneak in. one Okay, great.

you now rates ratio hedged do down? head positioning well or more worry is just you're XX%, given Your and up rates so going very about going your

David Finkelstein

the risk to from this profile those has convexity MBS. paid when below points seeing refinance the and raids the almost the currently basis on of assets, on important this market portfolio that the Well, it's overall were the down know appoint us just look turn the overall believe the XX about don't par so we the an of of pay and to hedged. is my of extension risk takeaway a our QX benefited our just is now the in away I'll side right There portfolio. are example market for discount assets of complexity we equation and we we fully the XX% in agency comments to in were over portfolio say roughly you The in is meaning performance that received symmetry profile on but we that very at having in justifiable where I accreted immediately agency where priced mention of more little color risk terms and to from portfolio feel somewhat like say that downside securities so me for a certainly we're it's in healthy much portfolio bear that so call far portfolio third of pretty convexity downs the would

Kevin Keyes

volatility we rates hit past anecdote just talk gone market up down happened rates this think if me credit or it not, about risk the investments, platform a when quarter there. is were off made and first messy hit of company or hyper some biggest have by sold the I what then or really We midst has the that's when about XXXX good Let getting finalize with first $X.X and or an you couple or but footprint when timely infrequently pretty in billion reward public XXXX things volatility. years whether has our very down of Hatteras up this when way, going a bought And a credit put out the company. sold in another quarter credits resi some bought of on we

when taken and the especially more opportunistic. become other we've volatility our not we players think of up risk, really we in what really interest from on, focus managing most talked any weaker sector is risky everything's see I So we advantage that's can I when relative why hits the insulated about we're be rate risk that's liquidity but market when

Bose George

for the Okay, great. Thanks answers.

Kevin Keyes

Thanks.

Operator

Next CompassPoint. of we have Agarwal Vivek

Vivek Agarwal

and questions. morning, good thanks Hi, taking for my

build opportunity So off years decision point versus between some on there. over you commercial talk REIT now and REIT including seeing side agency opportunities credit you've where the acquisitions five when middle last the and when done about and about market buy way REIT you can

Tim Coffey

Sure.

perspective from I new think relates we publicly so would portfolio comfortable relates the to to I competitors. also Coffey underline And where believe what our leverage are we pretty they our attractive cash and the you relative weighted basis, well yield underneath to an seeing originations, we tier it see are average public add the in as of flow and public the a yields set what our it considered an by of -- credit I like portfolio doing a that that are as getting organically. feel a is We from relates whole speaking, all lot those generating quality coverage well north seeing north perspective. leverage from what of of earnings things from are out a than and Tim it this it to would BDCs doing we're we're better feel standpoint, where on from generating they organically, so you're well we're more public what pretty think we're some from held as earnings they're is of well

outs opportunistic. were right liquidity may to are do risk there the we isn't trade extent done able just I to that that feel names that BDC characteristics with certain say up bind. or But organically Now being to pop to to that the say very now off asset that what the that described given about relative be we we've good wouldn't earlier, issues

Vivek Agarwal

bit to up in a the you keeping then, mindset, Thanks. take talked lower what And from here? would what you need leverage make would a see change you you little marketplace for Kevin, about leverage to

Kevin Keyes

be questions, I kind times the and think can of always the look well. certain a at debate prudent opportunistic mean, one. this certain David across I answer and We the I will the just sector question I think and it's it's look a levels. answer all in were very board, time. it's fundamental from we and as is the spread

consistently If leverage. the there talking think be that assuming to of not I'm it. we about want time, lower a I call we are that comes one regardless returns context comes anytime we there a whole is a going soon everybody platform we else -- have when leverage when we think of can that this produce with or time really able that is market, to

on crisis Well, just and by frankly leverage problem the on more got pre-crisis. longer these not commentary levels end building because are these XX market it, a lower the because because where XX saw a and diversified levels level a XX up used with back there too about ended for to reason talking then this levered operators. times with a companies up times had the So we no we high is term model. be or to we at dictated over We I are accident. some sector

capital want we waited also or acquisition my sees business a rate is efficiency opportunity interest what long So the else we we turn on answer have and we of can to the have can when opportunity an course increase an if leverage team credit is equation. or up leverage David if a different but we

create for think the times others have expecting from have don't that, return answer just that its we don't are not XX planning or So don't have we I going luxury. X or on to different because us, they X.X times normally to to

Vivek Agarwal

thanks question. my for answering Okay,

Kevin Keyes

Thanks.

Operator

next Ken have And America Lynch. Merrill of Bank Bruce of we

Ken Bruce

Good Thanks. everyone. morning

endure to universe of So job you think you've the cost you've mortgage in by are lower on with think have is to do good net we've morning interested understood have of kind this your about would a to haven't at or you in paraphrase I to managed in quarters, do and kind the you quite shareholders of of today guess a but to if is what you've a long reason, talked think market you lower better willing getting trying and taken to and I maybe it. what the that transition How risk that. value about would the past, models the previous for market and market certainly capital your making talked distinguishment that's what as and in are relative clearly to you've how of takes done I'm inferred that model this of broader that the a of to do peers not of investment you REIT quite the vehicles in as I created shares goal you if over case. it conglomerate whatever order the anyway? obviously has in in returns get lot the what difference need kind that's convince

Kevin Keyes

you questions What lot about we I of can your I talked overtime a as think -- know, are issues. -- the same we said

call and not levels this thinking always on the in and just no I'm why is among leverage that's our focused differentiating the reason the think in I not leverage quarters but but because epiphany, are I ahead, we is think market overall. sector market

not are focusing returns we the definition today. why especially to leverage it your the by differentiating So getting to that's I'm trying market credit on point on isn't valuation because

I doing, changed and thing. the In and term but just longer recognition because demand of their corrected. valuation not be other be supply values starting I look we got, had first we that are Maguire to about I'm the talked Jerry consolidation lifted we what think balance to for sector and is needs of like That's think any terms

to year raised and it class. the in times couple in book instance if lot known the last again before a past too too just value or expense disciplined and the at in and equity whether happening are about them been that a just and of arbitrage these asset a value an the they much at valuation. for governance years. sectors activities or for XX institution hadn't is advantage a I XX above the sector that year, models, We they I'm last the one many that's around company their around definite or see frankly them is of relative Capital example XXXX, Markets of historically holding these raised raised issuing have wrong to agency and reason we over-and-over we years agency instance valuations for The time, or over their I'm talk thing advantage, second look peek capital The start operating internal was on I external. point to ceiling your a structural six the companies

a I internal -- in, we think governance account really again in I grown not it's big So whether think is the part hasn't -- external our structured very taken how and been nicely. you and kind it, terms end factored leverage it's that's shareholder returns, right? at responsibility has corporate base or day of are of into of and of

are think a owners as XXX have more or here granted granted they picked I are is, whether are had especially million I've including have done look we and is look or know, end the years, sold they me. people a that stock, the I institutional And you top is management money in at management we years me people stock at couple meaning on are million that that. owners of personally not two actually have were long-term think, that perspective of dollars do and we are for mouth a here and stock, five with over another XX agreed to $XXX $XXX they've and I day the when the on to in shareholders been buyers think taxed it, next and team XX current buy the a other it past that getting of years sector last all teams they road we up shareholders where its lot like the investors to its putting the I

is more just diversified its', there the the The premium. more in the not with tend in So to tide out valuation the that. leverage and any a players all market to the many is, it I a it is much is has it and for options and larger better us reflect liquid and volatile industry our valuation enough big market place, the typically our tends there to have volatile to sector, boats too the boats long this grind lifted I market, if look jobs rising answer think but think continue too

Ken Bruce

my But Thank quarter. really all comments I congratulations That's your you. question another end for this good appreciate morning. and other on

Kevin Keyes

Ken. Thanks,

Operator

JP Morgan. Next we have of Rick Shane

Rick Shane

page XX question looking PowerPoint. the Hey, for I'm my guys. at taking and Thanks

the I business for of you mission that some you cyclical reference one it's Kevin, Look laugh you've done pro-cyclical businesses. layered is Maguire I counter there. was a to on the Now Jerry statement. have a model, to waiting in based things realize

How actually you increased Our expectation that? data do you think about as would slightly. be your equity that do that,

Kevin Keyes

I all, I'll think about of last as it part. answer -- the first

overtime half business I our it's data peace with been has cyclicality credit, Our counter credit as a us combining is the portfolio and years cyclicality frankly of function data and it an that think at look is isolation. something in we not the

with terms to why basis, which valuation. of of happening tenant growth of as some overvalued in been kind given of explain the level by but of trying So or You winded be by real-estate investment cyclical, to roll making definition right? anecdote an and and anecdote a typically increasing the on loan long occupancy tied based by then less increasing rent less sort some businesses of understated that those are on I'll aggressive we've here or risk the a commercial

not in middle is market but consumer. portfolio for Tim mean, instance there the business We and the I Tim corporate in company is and are for Tim tied lending Coffey that even stocks defensive, where to defense Coffey's are us services instance lending both highly America. healthcare can the Gallagher to though speak to

So economy investments, flows even natural measure of other in economies converse the or once those the regardless you macro businesses micro both and hedge. of those credit once cyclical what cyclical, a it's happens cash

able financial turned turn think volatility a business. we to know, we're I done do which we're to the to past you his have years, out maintain more to aggressive with it. and flow mention, we longer, is worked the portfolio over extra just lending everything lot of So cash five that hedging from in engineering may why it lower earnings property predecessors projected it, a "Exposure" the with albeit counterbalances I in understabilized with Tim, and We David rate has This just terms that. the there of how frankly of be to not floating on a juice company, more in what the less -- and easily there's squeezing or think agency matrix a out. longer the and beta has tech he Not want

we you we valued prior the for stuff know, think, debated are there we was So out, it. time getting all I balance question, and the a

more of know and of stimulus disconnect more we and made that I less think volatility. it more the all waiting fundamental. been when it happen we get kind has things valued market we've around kind there's the and in for for And sugarcoated to

my of answer countercyclicality to cyclicality. So that's kind and

Rick Shane

different financial Got yours, it. understand sort the the fiefdoms. terms your expand always a taking are but to incentives organization same want of that business from risk, of And perspective I building is businesses the time to within look, incentive designed excess to size at units in to the there leaders an their an business prevent of from

involved along in you really the perspective, of that say. process, way your thought from help understand capital allocating who's decision about talked terms framework the I'm You allocating for is capital about it the us an but curious making so administrative lines process, really

Kevin Keyes

to and because in this -- call a is it how me, it's everyone and softball that's question earnings sitting it's a and decision conference We're not in this great room. unique. today big it know, really a a having really this room room You defines maker we're

would leaders I with modeling group our a because which last argue over all really we every merchant don't place. the asset four make The committees out capital in have reference, as there's the senior not the -- allocation across not decision the -- outcome I of people but are globe -- there that's the three in We a this. and debate makers I'm bank that the flows and just room group, mean, single it cash businesses in in in of there's is investment room, acts constantly call and every that. the Switzerland risk frankly as an we debate the among So don't always along committee. we're in it get describe each liability of I terms businesses, investment and people committee debating four Look, or have deal. controls spread why we as

have the There's rigorous we each decision. things We day value. wrapped turned have of Very relative at with lot the about and down. my But risk said end it I where as -- the is the of now on fall metrics a David's and the in broad the financial things, with lot based we're we capital really that a what's best all return seven is teams building what doing years, we've to lot but but I argue instance, heated I and is doing, a on there it jury. a committee, out prepared of built No But remarks. debate we've an making record comes things consistency. he's done years. to around decision But -- not that investments, enterprise like it's it matrix we're with the to larger CIO, we're analysis I judge Each there risk debate. the working frequently. track -- And invested think think more sponsors, that down two liquidity, acts things tied leverage. people one for described not of three investment just we or larger six, of five have been and And have senior past the that or tied

Rick Shane

Great. Well, the it do meant really question, wasn't softball appreciate to thank I be but you. answer,

Kevin Keyes

you, Okay. Rick. Thank

Operator

time turn back the no would over further like go this closing questions. Kevin I have Sir? conclude call we at conference for Keyes Mr. remarks. question-and-answer now our the to Well, We'll ahead to session. and

Kevin Keyes

again, you. once and forward Annaly interest in again, to next look for we quarter. everyone you Thank your Thank speaking

Operator

your you a great lines. to management this sir, Again, disconnect the also. At call now for may you everyone. your time, thank team has you. rest have time and conference also care, day we the concluded. and Take of Thank And the

Annaly Capital Management (NLY) 2 Aug 182018 Q2 Earnings call transcript