NLY - Earnings call transcript Q2 2019 | Annaly Capital Management, Inc.

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Operator

Good morning, and welcome to the Annaly Capital Management Quarterly Conference Call. All participants will be in a listen-only mode. [Operator Instructions] Please note, this event is being recorded.

I would now like to turn the conference over to Purvi Kamdar, Head of Investor Relations. Please go ahead.

Purvi Kamdar

you. Thank welcome Management quarter Inc. and for earnings the Capital Annaly to morning, XXXX second call Good outlined Factors Any are annual risks are subject statements and to the forward-looking made certain and during quarterly SEC uncertainties most in our section today’s filings. call in recent Risk which forward-looking events Actual these results differ may and from materially statements. We earnings filings. to addition and annual release, to our the statements forward-looking read you in encourage disclaimer our in quarterly

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

During reconciliation earnings both present of release. measures. GAAP this to is we A our financial non-GAAP may in GAAP and call, measures non-GAAP included

Annaly for Company’s information reminder, a investors important posts at website routinely the www.annaly.com. on As

from encourages and Company’s calls, parties presentations, on regular presentations recorded. SEC investors, to conference is today’s public Content note being can of use financial presentation non-public to and on quarter releases, others disclosure time filings, for intends website. in XXXX quarter this our in a time to Please investor also information, following and disclosing webcasts both Annaly presentation update found obligations section analysts, information found Company’s second with addition be XXXX to basis. materials media a post and complying FD means under webpage the website Annaly and as Regulation the second its the posts it our and supplement, event referenced similar investor interested under the material, in of monitor our call website. Annaly’s other press to

President; Officer; Head Real Executive Chief include Chairman, Fania, Chief Gallagher, David Credit Head Officer; Estate. Officer; Annaly’s Chief Votek, Tim of morning’s Kevin Glenn Mike and Annaly’s this Credit; Tim Officer call on Financial Chief Finkelstein, of Residential Participants Coffey, Investment Keyes, and Commercial

over to the Kevin And Keyes. I’ll conference turn with that,

Kevin Keyes

spoke which in to same welcome I the and XXXX, morning back began Federal Yesterday Good our Thanks cycle, Purvi. call. started as officially marked the the second late of hiking end earnings everyone tenure the Chief quarter my time on exhibiting ago. Reserve’s time was Fed quarter as as extreme incoming Executive the years earnings Annaly. beginning At paranoia of exactly cycle call second market that four hiking of Officer our I approached. CEO the

course To diversified I recall, out a two, investment of years. external the set growth business lift the for joint our ventures strategies number while, the over Annaly interest by off ourselves aggressive capital initiation successful on and rates. laid times one, highlighted has I most of infrastructure. environments corporate Number the three ways past the our Fed’s for including largely we in plan. and and and internal positioning the upcoming arguably in build been the Number acquisitions. out hiking marked And specific rates The prioritization Fed planned of operating strategy nine quite one teams of difficult shared four three,

peers has by almost Summarizing total and broader XX% shareholders, by agency XX% delivered our over since of our XX%. a to efforts the outperforming Annaly sectors yield return XXXX,

exclusive grown also and our billion have less REITs for mortgage two by out paid over over dividends, $X.X in We $X.X acquired market formed cap efficient XX partnerships. and XX%, billion strategic investment

selling ever. the purchased while open not $XX market a members share single nearly since finally, voluntarily XXXX, million stock management this of team have And of in

our recent firm. model our we’ve the an hiking over built at human capital endorsement and performance Annaly’s capital is advantage of cycle shared

well. the to years benefit a Annaly coming new monetary we policy, will as as efforts our that we enter past phase four years of believe taken the in Now over serve

rates over. The with intentions gained the the hiking in Fed While cut further clarity. The no tightening of highs spreads at cycle time dissects Fed’s was XXXX. yesterday’s we doubt XXX have July and following S&P market all is time the the there’s credit cut, last

spreads tighten two just below Over $X.XX continued basis XX XX to the years, curve XX% basis the grade points to points. treasury remained following credit on and investment

crisis mortgage funding industry time, the long-term in of XXXX of broader this the to the XX% the in easing by and in com the reduction by respectively years XX% outperformed emerging broader burst outperformed dot periods the one initial declining the every and the capital XXXX, in the and in demise rate from benefiting of levels the in market XX%, XXXX, years the fall that Then and Fed market of XXX%, each REIT management During bubble rates. subsequent subsequent Annaly volatility. monetary followed interest in attractive two after financial of

market paradoxically, to rising to record other certain actually to after has higher hunt combined the trillion continued borrowing the another policies accommodation banks order fast XXX following forward this effects low central second of of selective from with year. of hypnotizing amnesia to produced Global bound continued increase zero fundamentals. reaching today, levels by binge fueled for So volatility contributed debt leverage, All and high the the monetary yield.

GDP record. This is the the trillion, economic for inventory yielding negative term. is over a global at serious equivalent unprecedented of new the outlook level the now global near long debt Furthermore, of raising XXX% of and implications $XX.X

by irrefutable. wall with has market been been the have While scenarios resilient economy, U.S. past masked hitting over also are downturns credit of by as deteriorating broad of growth slowed. growing levels threat quality The levered the subsectors preempted historically debt the credit

In sector precipitated that the growth telecom XXXXs, crisis. housing real a the the XXXXs, credit estate the telecom XXX% that fueled companies activity LBO by approximately grew In crash. to in in to fund and over-investment for XXX% debt industry the of leverage leading expansion

again, this nearly BBB and and time XXX% up non-financial respectively. are Now over XXXX since rated has which credit ballooned by loans leverage corporate led XXX% debt minus XXX%

to So has got something give.

weakness They XX-month ISM the weak an summer. have continued deteriorating added The low. ratings in we’ve a Other economic course area lights reaching uncertainty future of inflation low, data, economy manufacturing index year since about continue global the has quarter outlook. alarming. the is XX-month hit seen The economic crisis last growth. and Germany, in flashing this to post PMI high red Domestically, the trade the data global it’s over in all that Euro second while include decline just manufacturing unresolved

The business, Fed and growing to capital we’ve along our with our also other central recognizing more in why as market, these have risks liquid, a we is banks globally higher increasingly to increased investment options. cycle premium about allocation agency attributing vocal agnostic the quality have, which become

to basis de understood is balance and fact the market. the still market tightening appreciating much the we out facto are accounting for be increases point impact cycle of online, sheet think XXX also the the has that coming the rate under which in of We a of yet Fed

we’re The America. service recession debt reality This earnings XXXX. of meeting current with impaired Board in December the I combination end the and headwinds capabilities in in constraint an year Annaly at corporate to previewed fundamentals macroeconomic led witnessing, of have our

quarter, decline. For S&P board with approximately the to expect a Analyst sectors earnings XX to drop share per eight report X% expected industry the second of across the

fourth original first dramatically estimates growth expectations of issuing and the highest – much This the XXXX XXXX they quarter, cut reduced of made are this beginning the have at three since guidance quarters, companies of forecast the this like number been half quarter year’s the year. and first second forward marks now

future. this the more for remain of euphoric near equity for equity market are adjusted book at earnings rates rally times defensive low value signs returns producing the output option deterioration investors attractive risk placing rest and discount approximately in bet the a market. growth the high outlook, despite However, while markets cheering high remains maintaining Annaly the mode the and and on the versus in one margin, of ignoring valued lower In Fed beta investors slower conservatively and and chips effectively liquidity,

conditions continue to and Against the we proactively take any this have times advantage we volatile market backdrop, ensure before. remain to navigate nimble, as to prepared opportunities we of in current

return As quarter. of management. our top commitment Back and during we these the and capital the growth make billion program while are shares, June, capital not in priorities of have goals past program to significant justifying partnerships repurchase continued reached capital the $X.X progress responsible optimization, to underscores levels buyback and efficiency and the I authorized this we earlier the each on for discussed firm we’ve year,

million during we $XXX loans beginning equity XXXX continue existing more of quarter. issuance Additionally, reduce over And the residential to totaling bringing securitizations XX% XXXs aggregate whole network, the of redemption last. successful to loan $X.X resulting issuance a This of the originators in in the our the whole which cost over in access preferred program capital finally, our now to securitization through the to completed $X.X network credit volume to us our stock three year capabilities quarter preferred is the expensive this place and partners since business, of times by we testament this billion, increased and within and expensive three provides and over quality of loan of quarterly versus billion.

I this now for as whole a diversified non-bank and RMBS that ease We funding recognizes five it risk outlet impacted is reality in in the yet have equity economies all not priced and corporate slowing over levels market. negatively began Fed the issuer The term represents just are described business. higher alternative top non-recourse This record the higher high world. at loan has the debt reflected earnings

easing it reduction to operate our to opportunities defensively we latest conservatively and cycle costs the in business. we any the demonstrated numerous of may uncertainties of these take. the primary hiking We’ve upcoming outperformance look recognizes form growth continue and Annaly we doing welcome and will in the during and forward cycle as

turn discuss and I’ll investment that, the Finkelstein our to David activity outlook. With call over to

David Finkelstein

Kevin. you, Thank

aware, basis second across Fed in curve quarter. the turn action steepening the rates yield refinancing as fixed lower into U.S. Interest perform in well rallied XX to the modestly income Agency as As are as higher of assets a XX all price well while points quarter. risk the agency market markets however, points basis rate current reintroduction of levels. at consequence lagged, reasonably the risk MBS volatility on drove

value adversely performance QX. in our impact Agency did book

thus quarter. deterioration over the However, that third is worth far noting it just has of in half this reversed

Our times spreads additional both to X.X to of equity water portfolio as value. assets the as to added in due portfolio light leverage decline the agency in well increased

pools. second portion in Specified quarter deliverable beginning into characterize focused pricing is while as deterioration were our the specified additions and pool as the TBA we float do the given our both with market activity TBA is sector, portfolio that outperformed year. agency continued to the a the in interest rate pools Turning we TBAs also in environment continued holdings well that of reallocated justified that of feel pools, this

as is in the seasonal peak factors. effect assets our given as well of higher portfolio protected the mortgage our prepayments we exhibit expect third well XX% do lagging protection, of rates While quarter from lower prepayment as both

and investments years We are focused continue the in value the feel convexity people pay In over with therefore our have additions today’s our in prepayment and both tradeoff are two we between balancing differentiator. risks we technology in up the cohorts, the the to that last believe factors. exposure appropriate relative elevate quarter few have we an market, a expertise significantly our made to

for a sheet which remains Fed market term rates runoff wind in Financing on been going agency relative ease third balance far the repo other rates the elevated short of forward. pressures to policy XXXX end to though accommodate in have modest we so of expect head quarter, to MBS the in

is it so continue environment shock yield quality With curve volatility if we on provided hedges XX%, as market hedges, respect our in ratio rate swap to depending hedge remain not as in but only to we Despite supplement. strategically our rate economic lower across stress our of the indicated reduction by reflect the hedges, of to quantity interest. the rate our we our well-insulated the best to from and interest reallocate our outlook tables rate do the we our

size $XXX Shifting credit, active discussed, decline nearly explains holdings. million Kevin the our residential in was as the securitized securitization as very this our of in to million whole program roughly $XXX quarter credit we which past residential loans,

$XXX deal June completed over our by in investor whole Our the low value have an mid prime in double $X.X generated in prime retained sheet the transaction securities now loans was July, on collateral. backed of transaction to beginning levered eligible XXXX market the additional billion expanded loans of yields agency we April digits. securitized consisted just over since of expanded which while has balance with With million

be our at model FHLB the platform resi securitization further the for will securitization FHLB programmatic financing has remains valuable a sponsorship. resource to reduced business, development but show investors credit our as considerably and expect reliance our towards to on our further we continue of gravitate the attracts

our we credit the has earning been business remain like mechanism the creation will to Secondary leverage. attractive market securities only credit spreads of to and residential grow with returns tight in continue relatively modest still be organic while resi

have acquisitions the is the and channel why steadily has loan expanded foreseeable liquidity, which to additional Our with as securitization accelerated execution further the residential developed has sector future. we for remain enhanced in for participants dominant this strategy expect business prime improved XXXX our and

In which explains to our economic ramp CLO, a in our modest commercial business, the continue portfolio. in we decline very interest

remains however. in Assets acquired our combination in returns Double to rule in challenging on exception assets the exceed the CRE the for return the of CLO remain and high levered more portfolio optimized quality did sector pricing roughly through improved assets runoff the digit new an XX.X%. financing of as levered

selectively that on risks we up able the are products or In liquid spite more and been capital on to the higher sponsors tier have lower structure assets add end higher focused financing better environment, markets. of are we as

We the the the portfolio accept market over and health return maintain the term. are if looking lower long the of prepared the to modestly are for to assets, lower offers to we portfolio attractive grow returns

experienced market middle new growth runoff. outpaced additions Our portfolio as very modest quarter-over-quarter lending

in Our pipeline business is not as we business, private last our and continue portfolio given stage the to the to with we cycle, said pace And in grow our partners in however. equity solid. lending years. robust be active a expect corporate remains quarter, the essential do prior experienced Disciplined

we on in that investments industries first we for – quality CRE, not and low exhibit asset the We lean emphasis environment. current will cyclicality, tend to to maintain sacrifice our in will will growth credit similar remain

monetary third relatively in quarter. environment we foreseeable Now for lastly, rate as turning spreads have Accommodative inflation given thus the of far subdued low remaining seen this anticipate discussed. supportive be growth the to our should outlook, the Kevin that and we do global already low policy agency future in

MBS and Higher continue prevail lag term. will to very this the prepayments other near markets may short-term rate summer financing rates over

the to sector. However, looking very agency carry expect improve beyond our the third exposure in do with current comfortable the are quarter, we and we environment

While as agency, value given declined equation close of diversification the relative number to shifted our past over has residential present lower quarters on are credit the the the has to we allocation of limits credit the towards benefits reality as to does risk less a ability Maintaining credit adjusted securitization. yield exposed returns. given are portfolio exposure and overall through generate spreads attractive our the tight challenge through not of we to

of middle and attractive path Annaly sacrifice pay is portfolio generate lending resilience diversity a we but price businesses this keeps believe commercial our nourishing our market small quality for However, of may necessitate in and for ensure asset of and spreads, to longer-term a return returns us face shareholders. a to the tighter modest on overall the relatively

the financials. that, over with to discuss now And I’ll hand Glenn to it

Glenn Votek

Thanks David.

non-GAAP metrics Our on our this and focusing primarily release excluding results. earnings while be both discloses I’ll non-GAAP GAAP morning financial PAA.

results, losses decline which portfolio per our the contributed mark-to-market loss to GAAP on in rates GAAP on at gains mark-to-market of the loss our with Offsetting a agency swaps quarter $X.XX for comprehensive lead reducible beginning during to share. reported $X.XX a basis share. run per So which equity in portfolio the

core our or factors quarter. $X.XX had We generated $XXX and was that PAA increase to investments up prior driven $XXX just the in on beginning with or A few million million $X.XX Return mentioned quarter basis the results discussed. impacted core at or income. compared David in agency by XX% interest a million $XXX earnings adjusted share this

which a asset million sequentially $XX three partially was interest adjusted income Additional PAA’s increase slightly basis about premium amortization. up by factors higher in impacting offset average in yield points were the improvement

from projected expense magnitude greater higher attributable adjustment higher was was the A interest a the CPR change, to of is And QX increasing also to the a expense amortization due balances. XX.X% interest increased in premium by towards the quarter. income for repo XX.X% with improved offset amortization contributing

in factor the had between on funding dislocation and costs repo LIBOR our meaningful we the was last most persistent But that call. quarter foreshadowed

resets received While decline relatively factor the the income core declined declines. $XX and earnings of component causing quarter, margin the the about to interest points is to unchanged our rates which in legs million based interest were basis XX LIBOR of swaps. key our contributed on for net repo This swaps both generated

we three comparing points, per our Agency this turns Despite leverage just ROE peers. in to of using two core was roughly headwind, generated attractive to relatively returns Core conservative leverage peers. using with earnings levels, been leveraged leverage importantly was judicious enhance we’ve XXX our returns ROE basis favorably under unit economic XX% and below and

annualized is delivering is dividend today's model, with produce yield, Our that yield year-to-date with our goal deal the that our for line income attractive volatility stable minimizing which comes to in of of environment. an the able such XX.X% return while economic in being low

And capital finally, to was issued July, overallotment X.XX% size of in for $XXX mentioned, on bringing for offering focus The approximately million continued exercised the option as part of the Kevin management, we million. stock. our as $XXX total

$XX or Additionally, capital a in of these a as our we the additional And past the we've preferred. X.XXX% X%. also And we XX two million, call announced reduced cost [ph] Series by the cumulatively XXX preferred years now million X.XX% approximately actions, of with remaining result, Cs. H Series called points basis on

And that with open to up we're ready Ian, the questions.

Operator

first question-and-answer proceed. line the Eric, begin [Operator Hagen question Instructions] from now is comes proceed. KBW. please live. of will your Please Our Eric session. This Eric,

Eric Hagen

I Hello, coming am through?

Kevin Keyes

Eric. Hi

Eric Hagen

and the to just relative your now what that thoughts or the types and specified Hi. pools it generics right of happened there. specified I'm sure you on see you not between as like. I morning. value get Good TBAs, wanted pools,

a the that premium follow-up a equity. of total that, shareholder notes in is more presentation the total portfolio as than to third And your

devoted think MBS prepayment Agency you Annaly? how of And Thanks. time? how guys percentage that factors curious into overall that just over the I'm longer about have risk So capital the term you at to

David Finkelstein

is Eric, pools year. this I have the TBA obviously David. our relatively but question as allocation which about in swaps between within specified specified deterioration flat. occurred function driven TBA done is the comments, my coupon in on past of said continuously it's – by that Sure over To interest the seen deliverable, TBAs environment, is pretty in again, pools, with the quite a rate the start sector, What market and we've it your has are also well, obviously prepared

advantageous to rate number one. coupons, higher originators lower for mortgages it's loan So or more deliver profitable, coupons into

Number two, UMBS as given they been the really able the the similarity one essential, with GSEs toward are created. model, this or have identical securities that gravitated another, to haven't compete

in So with aggressive into they more also And higher originators based their have to to themselves aggressive IO aggressiveness out about borrowers which of in buying coupons. them, their rate originators been refinancing. on loan those getting are on refinance. deliver a of lot differentiated there incentivized terms from that loans originators There's originators has have addition, very

that so deliverable from worse isn’t much standpoint. the And that

a by driven pools, specified so what the in but not also it's like. So function richness of the much deliverable looks

Now we within of very certainly specified and sensitive ups, to we are pools, cognizant are pay that.

the high pools, too exposure our lower pay we lower of pay considerable marginal and mindset on to going TBAs pools. has elevating protection. and not up that hold pools, the to think largely amount overall been been so the those small but out that relatively of gross transition value on quality dollars compared differentiating get in But WAC premium need focus pay we specified up We're and we what focused, not that we've much. is because to That's lower last spent pay servicer, where pools. very of do we're paying And between the good relative up up quarter over

we quite terms very concern have a and is But of the have environment in rate premium standpoint your to also do lower portfolio. coupon the that equity, obviously about we hedged, down a that in portfolio up rate duration a our premium, given scenarios. relative in both and understand fact well are premium dynamically Now a to from and in question certainly it's lot we rate hedged of

that off, market exposure aware actively obviously and manage diminish, of it relative we're will equity. we so to ups And manage the if we exposure. certainly And sells pay but actively

Kevin Keyes

points premium. Eric I’ll to terms in that the add well just of three

the redirect Looking commentary versus well valuations forward, value the Agency my obvious chosen or credit arbitrage the our because to quarter so past there. of about business. is Agency we’ve into in just And

that’s positioning. So the

billion, Going flow $X.X allocation, dwarfs sector. forward, it us of any liquidity gives certainly our company And to in our capital position is extreme month a roughly more $X flexibility billion flexibility. our redirect cash

second point levered. less we're The third is a

So we do we additional, capital. have incremental our shift capabilities to financing that want

the dramatic other debt corporate I Agency impacted that is of with My combined is in mean, are we're our impacted more the credit signaling And too Fed of central now high it has been other a never lot at in economy position are businesses. as most really uncertainty lastly, differential where has a growth arbitrage, signaling, a sectors. has slowing the a regarding the terms earnings and and banks of overall three the commentary other valuation high valuations versus

then the So fundamentally we're again valuations hit would impact shifting that the And market. credit, into better we waiting frankly. just in anticipate for to

once view of of opportunity on our to that dynamic. will bank accordingly. portfolio on be more always the valuation just accordion, see going classes. with not and you'll advantage the an enough think, and adjust and as this take begins focus visibility I the the sitting fundamentals market there And capital I us is the it's the asset So central across And focus, to redirect portfolio today here

Eric Hagen

Thank color. helpful that's it, you. Got

Kevin Keyes

Eric. Thanks

Eric Hagen

it yield new priced call Fed where it maturity. do year that curve I'm policy Yes, end? basis sense thanks. percentage on is makes And the like think add the appropriately the what views have average or curve strong you you not. over months. a And on or about swap year maybe curious just hedges? XX is and average blended give the you then portfolio that's whether to along looks us it don't rollover most And next, do forward by But, in half rolling the weighted

Kevin Keyes

questions. hedges, with and constantly to maintain respect close push hedges we'll our that get we two Look Yes we as do to roll-off, good out. short term

have lower duration we'll I the think certainly in that. bucket. or or XX we And thereabouts shorter maintain billion

with just outlook, respect very our rate over near not overall of the function Now the term, to really a that's hedges well but out new horizon.

if forward, right the look tens basis relatively swaps about priced four, it's you year flat, XX basis points. curve So now, roughly One at is twos, five around it's points.

So that says that points. a year from now to the market XX be is priced twos, basis tens

Now our necessitated we've for to press of view the point the points Fed obviously conference Fed is And to sensitive communication certainly surrounding think XX with is experienced a volatility uncertainty example, we And are two-year is very policies. uncertainty I basis had seen that just there during range how we that. for example to an much note, the we respect policy. which basis yesterday, is trading XX

bit than view. like feel far we cycle. are little in do XX the curve horizon, should steeper a a an easing is our in little when out The implying. points light year basis look what we the now a from be probably we But are forwards

And we like bet. strong view so pretty because it's a do bit out the we're hedges not is further but feel curve feel do little and marginal spread marginally the hedge better the we are longer curve, term like across a pushed

are pay rates which your in term a potential higher well. And and for help some the specified up as question ups hedges consistent in longer prior having of drift longer in duration, with dissipation manage terms does in pools pay those exposure

Eric Hagen

so Thank it. Thanks much. for Got the comments. you

Kevin Keyes

You bet.

Operator

from Matthew Nomura. Our please of Howlett next proceed. question comes Matthew,

Matthew Howlett

Thanks for taking my question.

happen? leverage interest in in with increase what quarter-over-quarter sensitivity Just the reduction explains rate the that the

Kevin Keyes

around Shorter the assets, duration asset is of years. duration our three-and-a-quarter

longer, is bit Our years. a closer little to four duration hedge

but So at the rate in are less slightly to spread shocks, driving that's you shorter, have with better leverage, ratio, actually assets last than quarter. they're that. we when protection, do the better And more shocks XX% the protection spite respect to same of hedge look have changes. spread duration, factor sensitive or Shorter we the because the same or

Matthew Howlett

any – Got if do repo it. quickly, time real And then curious rates? on quotes you you today? over know Just just any there give is repo rolled

Kevin Keyes

XXX. it we Overnight set around Sure.

the better Fed all where decrease and would LIBOR. to inside elevated in the five points about like be else With it should equal. it's level. We basis that little basis things rates it a rate relative a expect as on to funds get be you bit ultimately basis do repo feel near to term overnight of will an settle, relative But we yesterday

Matthew Howlett

in next it. one last point sort question I then of to And might of at Got look you about Kevin, I the on Agency You carry do the mean, reallocating some side. just credit. how is, trajectory improve the couple quarters? said

and into allocation? And it portfolio what of cadence, the of you some can the some grow So and can would And into credit. you you're then, it how higher? leverage MBS to do few – credit you to sell we sort expect quarters that go leverage Agency grow – moving – at point if do trends next spreads normalize, do

Kevin Keyes

allocate of the and again, sell the we is relative more mean, strategies us all to have credit. have. I think the that are of. Yes, we I you on could to given agency available kind agencies that We to certainly don't But take necessarily levers hit valuation liquidity advantage that

I our think origination just were seasoned full our and they are partnerships. our the more for in credit last time today they're terms and have businesses three than of the two to this pipelines is our of capabilities biggest because more businesses thing matured, times basically year

invest more frankly ability have cheapens into up. as to we So when more credit, we'll it do the It's that. as simple

are under levered, relative businesses to they're thing virtually our way is the The second credit market.

relatively we this whole decide on efficient the higher earnings becomes the thing, very and more there, we These which shrink the reflected quality two commentary book, given levered, model, incremental balanced what's want the is if my credit, the are – towards by more of two returns, the credit prepared So earnings, more expensive of we on businesses. leverage power of terms can't, definition three in to our of whole of markets. credit. just of buckets increase don't frankly company financing to we this not overstep, in then goal Agency and in three the certainly But

of I like the But for, quarter the set time when for wait of before to other I waiting day, XX% are another years. I to we're kind think, with first that end periods, cycle an XX% XXXX, as four at like you the us much we're we company calm last appreciation And Matt made storm potential again. really paying And wings, we're this now XXXX in the similar the before us. you've we easing to we're pretty the capital heard talk in of feel believe acquisition, versus in up there's

So, throw based company undervalued, I on three look I credit them businesses our when means their frankly the Agency these when where could and of I the and levels are and But just take there, they're out things. at parts how returns. volatility our comes undervalued we view things would have any in recognize gone. for records some you the sport of under monetize the track that we businesses levered credit businesses advantage one in of of of think, gain time, their over that's bank, normalize, terms as as

the there's are necessarily we our yield and over about relative the say, credit apply the you and the because when relative strategies in to that different But pave a valuation and metrics the portfolios Not where But opportunities soon? time all take sectors, talked going fundamental, durability to do appreciation to to demand believe returns most valuation in we've the strategy valued when marketplace. businesses time having definitely we’ll any the to credit to market. capital and Are together. reasonable way undervalued sufficed are grid we overall, of long-term I

Matthew Howlett

it throw Right, you nice of buyback. makes And I have have lot strategy I like hear question. sense. the a the it's and on in that I'll guess the – you I to

You all it, other the these said all that’s hurdles, does because hasn't of mentioned, what reached point businesses these being buyback not in that your value the intrinsic things recognized. – quite all return you

Kevin Keyes

first worth, weeks later because the XXX a are put the value else's repurchase bought we’re buying purchased of relative the XXXX quarter we shares about the up of shares XXXX. shares we You between Hatteras., stock first someone can way and buyback along repurchased in and a to repurchasing In then in at we've couple look stock. we million historically shares, is repurchased or company when

In more you terms across if or or to do relative value our really if me to it's stock, buy giving shareholders of accretive options. for And when our it's translating preview returns XX down of shrink we like we'll liquidity it, I it. said, than if higher are the that we But generating were pipelines soon company. do were we cash-on-cash if right we now have, to to than and

Matthew Howlett

Right. Thank you.

Kevin Keyes

you. Thank

Operator

[Operator proceed. Instructions] Rick, next Rick comes Morgan. please of question Shane Our JP from

Rick Shane

up might morning. for in to is I look think, term when Annaly be push Agency the we questions choices, you say the hearing thanks the heard bucket. volatility, in this near in towards at Hey taking that I guys, is, wheel think be the that but of levered my tactic we're lower Look, also bucket. I returns, what strategic that David, a

a a You you Where range, volatility out period this little playing to you as potentially the bit of up through guys see do giving transitory Agency XX% sort by of show opportunity. return? dampening that in go of XX%

David Finkelstein

Yes.

So would XX%, that at the a the quarter fourth on to that little third to is the return we starts to the forwards, return out credit, of Agency when XX% first all, attractive. from and Agency more look XX%, when the the separate beyond, really quarter term, look over say closer but to I that's near

near-term So elevates after bit and the that. range is over little this quarter a lower it's appropriate but

of is about substituting few for as the the on quarters. on at past In broad what range look we low we portfolio. that's engine risk and we're adjusted Kevin where And the dominant is portfolio end mention, have activity look feel liquidity that the in credit the allocation, credit, like given the the I just Agency certainly. talked of credit the Agency diversification And at reduced in returns returns in basis our didn't out a when allocation over lower the we capital terms benefits. horizon, But like do

we quality Agency a lower adjusted those run just have businesses, we'll compliment move we're and going correlation. re-investing to sacrificing from In is necessitate the in tighter view. of and so at lack as the more a yield, as our slightly simply maintain the except risk chase portfolio, of exposure, the total up not in And Agency. we're light going return cycle, will runoff And credit we business where some going spreads, better it again, return, to on to towards extent re-invest, not But return. given the gravitate to to outcome a want we're then

Rick Shane

guys allocation, example, you particularly perfect great. senior seems side, in at when That's move to with it that outlook on real is for to second on some me the your we up into AAA your CLOs question, of commercial of stack one segue for going and more which I'm estate for a more expect at the the allocations, CMBS to opportunity It's look your see, it forward? super security really example, Should credit. that strikes that is my portfolio I part actually when looking consistent

David Finkelstein

Yes. And it hand who Business Commercial Gallagher, heads help he over Tim you. and can to to our going Rick, I'm

Tim Gallagher

Yes. Hey Rick, Tim it's Gallagher.

think I spot that. on with you're

been it at to that of assets have tight and and persist to continue levels. continue spreads already some degree doing rich the to We

adjusted in on we in areas We CMBX will to products more risk basis. that the like look to up capital the feel we make better a need structure make we returns grow where CMBS, liquid can

Rick Shane

what but in – and Tim York question, one Hey rules change right. in to any asking my to peers All for apologize exposure the I last the New portfolio?

Tim Gallagher

that. don't we have material any to No, exposure

Rick Shane

you guys. thank Great,

Kevin Keyes

Thanks.

Operator

session. over the back Kevin question-and-answer closing Keyes like This any concludes to conference to I our would turn for remarks. now

Kevin Keyes

your support for speaking you look for next everyone you. and call Thank again of forward the Annaly. all Thanks quarter. to We joining to today

Operator

concluded. you Thank The now is conference for presentation. today's attending

You may now disconnect.

Annaly Capital Management (NLY) 1 Aug 192019 Q2 Earnings call transcript