_________________________________________________
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
August 5, 2015
| Annaly Capital Management, Inc. |
| (Exact Name of Registrant as Specified in its Charter) |
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Maryland
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1-13447
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22-3479661
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State or Other Jurisdiction
Of Incorporation)
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(Commission
File Number)
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(I.R.S. Employer
Identification No.)
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1211 Avenue of the Americas
New York, New York
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10036
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(Address of Principal Executive Offices)
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(Zip Code)
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Registrant’s telephone number, including area code: (212) 696-0100
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
[ ] Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[ ] Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[ ] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[ ] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On August 5, 2015, the registrant issued a press release announcing its financial results for the quarter ended June 30, 2015. A copy of the press release is furnished as Exhibit 99.1 to this report.
On August 5, 2015, the registrant posted supplemental financial information on the Investor Relations section of its website (www.annaly.com). A copy of the supplemental financial information is furnished as Exhibit 99.2 to this report and incorporated herein by reference.
Item 9.01. Financial Statements and Exhibits
(d) Exhibits
99.1 Press Release, dated August 5, 2015, issued by Annaly Capital Management, Inc.
99.2 Supplemental Financial Information for the quarter ended June 30, 2015
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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ANNALY CAPITAL MANAGEMENT, INC. |
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By: |
/s/ Glenn A. Votek |
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Name: |
Glenn A. Votek |
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Title: |
Chief Financial Officer |
Dated: August 5, 2015
Exhibit 99.1
FOR IMMEDIATE RELEASE
ANNALY CAPITAL MANAGEMENT, INC. REPORTS 2nd QUARTER 2015 RESULTS
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GAAP net income of $900.1 million, $0.93 earnings per common share
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Core earnings of $411.1 million, $0.41 earnings per common share
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Common stock book value of $12.32, leverage of 4.8:1, economic leverage of 5.9:1
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Share repurchase program of up to $1 billion authorized
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Diversification strategy advancing with internalization of Chimera’s management
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New York, New York–August 5, 2015–Annaly Capital Management, Inc. (NYSE: NLY) today announced its financial results for the quarter ended June 30, 2015.
Financial Performance
The Company reported GAAP net income for the quarter ended June 30, 2015 of $900.1 million, or $0.93 per average common share, compared to a GAAP net loss of $476.5 million, or $0.52 loss per average common share, for the quarter ended March 31, 2015, and a GAAP net loss of $335.5 million, or $0.37 loss per average common share, for the quarter ended June 30, 2014. The increase for the quarter ended June 30, 2015 compared to each of the quarters ended March 31, 2015 and June 30, 2014 is the result of favorable changes in realized and unrealized losses on our interest rate swaps given the higher interest rate environment.
Core earnings for the quarter ended June 30, 2015 was $411.1 million, or $0.41 per average common share, compared to $254.1 million, or $0.25 per average common share, for the quarter ended March 31, 2015, and $300.4 million, or $0.30 per average common share, for the quarter ended June 30, 2014. Core earnings improved during the quarter ended June 30, 2015 compared to the quarter ended March 31, 2015 due to lower amortization expense on Investment Securities, a result of higher interest rates and slower prepayment expectations. Core earnings increased during the quarter ended June 30, 2015 compared to the quarter ended June 30, 2014 due to lower amortization expense on Investment Securities and a decline in interest expense on swaps due to a shift in the Company’s hedging strategy. "Core earnings" represents a non-GAAP measure and is defined as net income (loss) excluding gains or losses on disposals of investments and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and financial instruments measured at fair value through earnings, net gains and losses on trading assets, impairment losses, net income (loss) attributable to noncontrolling interest, and certain other non-recurring gains or losses, and inclusive of dollar roll income (a component of Net gains (losses) on trading assets).
Net interest margin, inclusive of TBA dollar rolls, for the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014 was 2.01%, 1.26% and 1.57%, respectively. Net interest margin represents the sum of the Company's annualized economic net interest income, inclusive of interest expense on interest rate swaps used to hedge cost of funds, plus TBA dollar roll income less interest expense on swaps used to hedge dollar roll transactions divided by the sum of its average interest-earning assets plus average outstanding TBA contract balances. For the quarter ended June 30, 2015, the average yield on interest earning assets was 3.23% and the average cost of interest bearing liabilities, including interest expense on interest rate swaps used to hedge cost of funds, was 1.59%, which resulted in a net interest spread of 1.64%. The growth in average yield on interest earning assets for the quarter ended June 30, 2015 when compared to the quarters ended March 31, 2015 and June 30, 2014 is attributable to lower amortization expense in the current quarter due to slower estimated prepayment speeds. Our average cost of interest bearing liabilities decreased for the quarter ended June 30, 2015 when compared to the quarter ended March 31, 2015 due to lower weighted average coupons on securitized debt of consolidated VIEs. Our average cost of interest bearing liabilities declined for the quarter ended June 30, 2015 when compared to the quarter ended June 30, 2014 due to a reduction in swap costs for the current period.
"Our quarterly results are a strong reminder of the positive impacts higher rates can have on our earnings. We are very comfortable with our portfolio and look forward to the opportunities ahead," remarked Wellington Denahan, Annaly's Chief Executive Officer and incoming Executive Chairman.
Share Repurchase Program
Annaly separately announced today that its Board of Directors has authorized the repurchase of up to $1 billion of its outstanding common shares through December 31, 2016. Purchases made pursuant to the program will be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing, manner, price and amount of any repurchases will be determined by the Company in its discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate the Company to acquire any particular amount of common shares and the program may be suspended or discontinued at the Company's discretion without prior notice. The Board will assess the effects of this program at its completion.
Kevin Keyes, President and incoming Chief Executive Officer of Annaly commented, "I want to congratulate our investment teams for their performance in the quarter. While we believe our diversification strategy uniquely positions us to generate attractive risk-adjusted returns, we also feel it is prudent to have a share repurchase program in place as a capital allocation option as we approach periods of increased volatility tied to a potential shift in monetary policy."
Internalization of Chimera’s Management
Annaly today announced the termination of the management agreement between its wholly-owned subsidiary Fixed Income Discount Advisory Company (“FIDAC”) and Chimera Investment Corporation (“Chimera”) so that Annaly can directly invest in non-Agency residential mortgages and securities. This transaction advances Annaly’s build-out and capital deployment in residential mortgage credit investments and is expected to accelerate growth and diversification. As a result of the internalization, FIDAC personnel who focus their efforts on Chimera will become employees of Chimera. In connection with the transaction, Chimera will purchase Annaly’s 4.4% stake in Chimera for a purchase price of $126.4 million ($14.05 per share).
Mr. Keyes made the following remarks: “As we have grown our investment teams and corporate infrastructure, we have consistently evaluated and selectively expanded Annaly’s targeted investment classes. Investing directly in the non-Agency sector allows Annaly to more efficiently expand our portfolio into assets with complementary risk and return characteristics and better positions us to manage various interest rate cycles in the future.”
Mr. Keyes continued: “The U.S. residential credit market offers Annaly a compelling opportunity as the composition of the housing finance market continues to change. Issuance has climbed to post-crisis highs with the emergence of new products primarily established to transfer risk to the private sector. In addition, significant assets are emerging from legacy sellers given the new regulatory environment and evolution of housing finance reform. Our size, liquidity and expertise provide us with significant growth prospects in this sector.”
Ms. Denahan commented: “When we were a smaller company it was sufficient to achieve exposure to mortgage and commercial credit investments through our stock holdings in the companies we managed through FIDAC. With the growth of our capital base and the changing market landscape, we see greater opportunity to leverage our balance sheet to directly participate in the non-government agency mortgage markets.”
Ms. Denahan added: “While investing in the Agency sector will remain the core of our business, we are excited about the broad opportunities to produce strong risk adjusted returns in the non-Agency residential mortgage credit market.”
Key Metrics
The following table presents key metrics of the Company’s portfolio, liabilities and hedging positions, and performance as of and for the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014:
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June 30, 2015
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March 31, 2015
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June 30, 2014
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Portfolio Related Metrics:
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Fixed-rate Investment Securities as a percentage of total Investment Securities
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94%
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94%
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95%
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Adjustable-rate and floating-rate Investment Securities as a percentage of total Investment Securities
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6%
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6%
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5%
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Weighted average yield on commercial real estate debt and preferred equity at period-end
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8.29%
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8.75%
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8.93%
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Weighted average net equity yield on investments in commercial real estate at period-end (1)
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12.53%
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13.09%
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9.71%
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Liabilities and Hedging Metrics:
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Weighted average days to maturity on repurchase agreements outstanding at period-end
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149
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149
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173
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Hedge ratio (2)
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54%
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48%
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48%
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Weighted average pay rate on interest rate swaps at period-end (3)
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2.29%
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2.37%
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2.48%
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Weighted average receive rate on interest rate swaps at period-end (3)
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0.40%
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0.35%
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0.21%
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Weighted average net rate on interest rate swaps at period-end (3)
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1.89%
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2.02%
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2.27%
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Leverage at period-end (4)
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4.8:1
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4.8:1
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5.3:1
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Economic leverage at period-end (5)
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5.9:1
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5.7:1
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5.3:1
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Capital ratio at period end
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14.2%
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14.1%
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15.4%
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Performance Related Metrics:
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Net interest margin (6)
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2.01%
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1.26%
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1.57%
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Average yield on interest earning assets (7)
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3.23%
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2.47%
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3.20%
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Average cost of interest bearing liabilities (8)
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1.59%
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1.64%
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1.94%
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Net interest spread
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1.64%
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0.83%
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1.26%
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Annualized return (loss) on average equity
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28.00%
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(14.41%)
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(10.32%)
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Annualized Core return on average equity
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12.79%
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7.69%
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9.24%
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Common dividend declared during the quarter
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$0.30
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$0.30
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$0.30
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Book value per common share
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$12.32
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$12.88
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$13.23
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| (1) |
Excludes real estate held-for-sale.
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| (2) |
Measures total notional balances of interest rate swaps, interest rate swaptions and futures relative to repurchase agreements and TBA notional outstanding. |
| (3) |
Excludes forward starting swaps. |
| (4) |
Debt consists of repurchase agreements, other secured financing, Convertible Senior Notes, securitized debt, participation sold and mortgages payable. Securitized debt, participation sold and mortgages payable are non-recourse to the Company. |
| (5) |
Computed as the sum of debt, TBA derivative notional outstanding and net forward purchases of Investment Securities divided by total equity. |
| (6) |
Represents the sum of the Company’s annualized economic net interest income, inclusive of interest expense on interest rate swaps used to hedge cost of funds, plus TBA dollar roll income less interest expense on swaps used to hedge dollar roll transactions divided by the sum of its average interest-earning assets plus average outstanding TBA derivative balances. |
| (7) |
Average interest earning assets reflects the average amortized cost of our investments during the period. |
| (8) |
Includes interest expense on interest rate swaps used to hedge cost of funds. |
The following table presents a reconciliation between GAAP net income and core earnings for the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014:
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For the quarters ended
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June 30, 2015
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March 31, 2015
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June 30, 2014
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(dollars in thousands)
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GAAP net income (loss)
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$ |
900,071 |
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$ |
(476,499 |
) |
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$ |
(335,512 |
) |
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Less:
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Realized (gains) losses on termination of interest rate swaps
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- |
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226,462 |
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772,491 |
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Unrealized (gains) losses on interest rate swaps
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(700,792 |
) |
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466,202 |
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(175,062 |
) |
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Net (gains) losses on disposal of investments
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(3,833 |
) |
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(62,356 |
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(5,893 |
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Net (gains) losses on trading assets
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114,230 |
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6,906 |
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46,489 |
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Net unrealized (gains) losses on financial instruments measured at fair value through earnings
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(17,581 |
) |
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33,546 |
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(2,085 |
) |
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Impairment of goodwill
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22,966 |
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- |
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- |
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GAAP net (income) loss attributable to noncontrolling interest
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149 |
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90 |
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- |
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Plus:
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TBA dollar roll income (1)
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95,845 |
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59,731 |
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- |
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Core earnings
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$ |
411,055 |
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$ |
254,082 |
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$ |
300,428 |
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GAAP net income (loss) per average basic common share
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$ |
0.93 |
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$ |
(0.52 |
) |
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$ |
(0.37 |
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Core earnings per average basic common share
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$ |
0.41 |
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$ |
0.25 |
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$ |
0.30 |
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| (1) |
Represents a component of Net gains (losses) on trading assets.
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Asset Portfolio
Investment Securities, which are comprised of Agency mortgage-backed securities, Agency debentures and Agency CRT securities, totaled $68.2 billion at June 30, 2015, compared to $70.5 billion at March 31, 2015 and $82.4 billion at June 30, 2014. The Company’s Investment Securities portfolio at June 30, 2015 was comprised of 94% fixed-rate assets with the remainder constituting adjustable or floating-rate investments. During the quarter ended June 30, 2015, the Company disposed of $2.5 billion of Investment Securities, resulting in a net realized gain of $3.9 million. During the quarter ended March 31, 2015, the Company disposed of $14.9 billion of Investment Securities, resulting in a net realized gain of $62.3 million. During the quarter ended June 30, 2014, the Company disposed of $6.1 billion of Investment Securities, resulting in a net realized gain of $5.9 million.
At June 30, 2015 the Company had outstanding $13.0 billion in notional balances of TBA derivative positions. Realized and unrealized gains (losses) on TBA derivatives are recorded in Net gains (losses) on trading assets in the Company’s Consolidated Statements of Comprehensive Income (Loss). The following table summarizes certain characteristics of the Company’s TBA derivatives at June 30, 2015:
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Purchase and sale contracts for
derivative TBAs
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Notional
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Implied Cost Basis
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Implied Market Value
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Net Carrying Value
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(dollars in thousands)
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Purchase contracts
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$ |
13,000,000 |
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$ |
13,311,297 |
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$ |
13,317,254 |
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$ |
5,957 |
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Sale contracts
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- |
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- |
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- |
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- |
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Net TBA derivatives
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$ |
13,000,000 |
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$ |
13,311,297 |
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$ |
13,317,254 |
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$ |
5,957 |
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The Company uses a third-party model to project prepayment speeds for purposes of determining amortization of related premiums and discounts on Investment Securities. Changes to model assumptions, including interest rates and other market data, as well as periodic revisions to the model may cause changes in the results. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014, was $94.0 million, $284.8 million, and $149.6 million, respectively. The total net premium balance on Investment Securities at June 30, 2015, March 31, 2015, and June 30, 2014, was $4.8 billion, $4.7 billion, and $5.4 billion, respectively. The weighted average amortized cost basis of the Company’s non-interest-only Investment Securities at June 30, 2015, March 31, 2015, and June 30, 2014, was 105.4%, 105.1%, and 105.5%, respectively. The weighted average amortized cost basis of the Company’s interest-only Investment Securities at June 30, 2015, March 31, 2015, and June 30, 2014, was 16.0%, 15.7%, and 15.1%, respectively. The weighted average experienced constant prepayment rate on our Agency mortgage-backed securities for the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014, was 12%, 9% and 7%, respectively.
The Company’s commercial investment portfolio consists of commercial real estate investments and corporate debt. Commercial real estate debt and preferred equity, including securitized loans of consolidated variable interest entities (“VIEs”) totaled $4.1 billion and investments in commercial real estate totaled $216.8 million at June 30, 2015. Commercial real estate debt and preferred equity, including securitized loans of consolidated VIEs, totaled $3.0 billion and investments in commercial real estate totaled $207.2 million at March 31, 2015. Corporate debt investments totaled $311.6 million as of June 30, 2015, up from $227.8 million at March 31, 2015. The commercial investment portfolio, net of financing, represented 13% of stockholders’ equity at June 30, 2015 and March 31, 2015. The weighted average yield on commercial real estate debt and preferred equity as of June 30, 2015, March 31, 2015, and June 30, 2014, was 8.29%, 8.75% and 8.93%, respectively. The weighted average levered equity yield on investments in commercial real estate, excluding real estate held-for-sale, as of June 30, 2015, March 31, 2015, and June 30, 2014, was 12.53%, 13.09% and 9.71%, respectively.
During the quarter, the Company acquired the junior-most tranche totaling $89.4 million issued by the Freddie Mac K-Series, and was required to consolidate $1.2 billion of assets and $1.1 billion of liabilities of the issuing trust as of June 30, 2015. The Company also acquired AAA rated commercial mortgage-backed securities totaling $90.0 million. In addition, the Company originated new debt and preferred equity investments totaling $119.8 million, at a weighted average coupon of 5.27%, and recorded $286.3 million of principal reductions from investments that repaid or sold with a weighted average coupon of 9.09%. During the quarter, the Company grew its corporate debt portfolio by $83.8 million.
Capital and Funding
At June 30, 2015, total stockholders’ equity was $12.6 billion. Leverage at June 30, 2015, March 31, 2015, and June 30, 2014, was 4.8:1, 4.8:1 and 5.3:1, respectively. For purposes of calculating the Company’s leverage ratio, debt consists of repurchase agreements, other secured financing, Convertible Senior Notes, securitized debt, participation sold and mortgages payable. Securitized debt, participation sold and mortgages payable are non-recourse to the Company. Economic leverage, which also considers other forms of financing, was 5.9:1 at June 30, 2015, compared to 5.7:1 at March 31, 2015. Economic leverage is computed as the sum of debt, TBA derivative notional outstanding and net forward purchases of Investment Securities divided by total equity. At June 30, 2015, March 31, 2015, and June 30, 2014, the Company’s capital ratio, which represents the ratio of stockholders’ equity to total assets (inclusive of total market value of TBA derivatives), was 14.2%, 14.1%, and 15.4%, respectively. On a GAAP basis, the Company produced an annualized return (loss) on average equity for the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014 of 28.00%, (14.41%), and (10.32%), respectively. On a core earnings basis, the Company provided an annualized return on average equity for the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014, of 12.79%, 7.69%, and 9.24%, respectively.
At June 30, 2015, March 31, 2015, and June 30, 2014, the Company had a common stock book value per share of $12.32, $12.88 and $13.23, respectively.
At June 30, 2015, March 31, 2015, and June 30, 2014, the Company had outstanding $57.5 billion, $60.5 billion, and $70.4 billion of repurchase agreements, respectively, with weighted average remaining maturities of 149 days, 149 days, and 173 days, respectively, and with weighted average borrowing rates of 1.73%, 1.65%, and 1.59%, respectively, after giving effect to the Company’s interest rate swaps used to hedge cost of funds. During the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014, the weighted average rate on repurchase agreements was 0.67%, 0.60%, and 0.59% respectively.
The following table presents the principal balance and weighted average rate of repurchase agreements by maturity at June 30, 2015:
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Maturity
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Principal Balance
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Weighted Average Rate
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(dollars in thousands)
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Within 30 days
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$ |
23,163,749 |
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|
|
0.55 |
% |
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30 to 59 days
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8,157,729 |
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|
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0.52 |
% |
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60 to 89 days
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|
|
7,132,012 |
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0.42 |
% |
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90 to 119 days
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|
|
1,507,387 |
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|
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0.43 |
% |
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Over 120 days(1)
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|
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17,498,675 |
|
|
|
1.32 |
% |
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Total
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|
$ |
57,459,552 |
|
|
|
0.76 |
% |
| (1) |
Approximately 17% of the total repurchase agreements have a remaining maturity over 1 year.
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Hedge Portfolio
At June 30, 2015, the Company had outstanding interest rate swaps with a net notional amount of $29.0 billion. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss). The Company enters into interest rate swaps to mitigate the risk of rising interest rates that affect the Company’s cost of funds or its dollar roll transactions. As of June 30, 2015, the swap portfolio, excluding forward starting swaps, had a weighted average pay rate of 2.29%, a weighted average receive rate of 0.40% and a weighted average maturity of 7.76 years.
At June 30, 2015, the Company had outstanding interest rate swaptions with a net notional amount of $0.5 billion. Changes in the unrealized gains or losses on the interest rate swaptions are reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss). The interest rate swaptions provide the Company with the option to enter into an interest rate swap agreement for a specified notional amount, duration, and pay and receive rates. As of June 30, 2015, the long swaption portfolio had a weighted average pay rate of 2.87% and weighted average expiration of 0.47 months. As of June 30, 2015, there were no short swaption positions.
The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2015:
|
Maturity
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|
Current
Notional (1)
|
|
Weighted
Average Pay
Rate (2) (3)
|
|
Weighted
Average Receive
Rate (2)
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|
Weighted
Average Years
to Maturity (2)
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| |
(dollars in thousands) |
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0 - 3 years
|
|
$ |
2,852,471 |
|
|
|
1.78 |
% |
|
|
0.20 |
% |
|
|
2.20 |
|
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3 - 6 years
|
|
|
11,163,000 |
|
|
|
1.81 |
% |
|
|
0.46 |
% |
|
|
4.77 |
|
|
6 - 10 years
|
|
|
11,201,350 |
|
|
|
2.45 |
% |
|
|
0.44 |
% |
|
|
8.36 |
|
|
Greater than 10 years
|
|
|
3,734,400 |
|
|
|
3.70 |
% |
|
|
0.23 |
% |
|
|
19.87 |
|
|
Total / Weighted Average
|
|
$ |
28,951,221 |
|
|
|
2.29 |
% |
|
|
0.40 |
% |
|
|
7.76 |
|
| (1) |
Notional amount includes $2.6 billion in forward starting pay fixed swaps.
|
| (2) |
Excludes forward starting swaps. |
| (3) |
Weighted average fixed rate on forward starting pay fixed swaps was 1.77%.
|
The following table summarizes certain characteristics of the Company’s interest rate swaptions at June 30, 2015:
| |
|
Current Underlying Notional
|
|
Weighted Average Underlying Pay
Rate
|
|
Weighted Average Underlying Receive
Rate
|
|
Weighted Average Underlying Years to Maturity
|
|
Weighted Average
Months to Expiration
|
| |
|
(dollars in thousands)
|
|
Long
|
|
$ |
500,000 |
|
|
|
2.87 |
% |
|
3M LIBOR
|
|
|
|
8.55 |
|
|
|
0.47 |
|
The Company enters into U.S. Treasury and Eurodollar futures contracts to hedge a portion of its interest rate risk. The following table summarizes outstanding futures positions as of June 30, 2015:
| |
|
Notional - Long Positions
|
|
Notional - Short Positions
|
|
Weighted Average
Years to Maturity
|
| |
|
(dollars in thousands)
|
|
2-year swap equivalent Eurodollar contracts
|
|
$ |
- |
|
|
$ |
(5,000,000 |
) |
|
|
2.00 |
|
|
U.S. Treasury futures - 5 year
|
|
|
- |
|
|
|
(2,273,000 |
) |
|
|
4.42 |
|
|
U.S. Treasury futures - 10 year and greater
|
|
|
- |
|
|
|
(1,007,500 |
) |
|
|
6.92 |
|
|
Total
|
|
$ |
- |
|
|
$ |
(8,280,500 |
) |
|
|
3.26 |
|
At June 30, 2015, March 31, 2015, and June 30, 2014, the Company’s hedge ratio was 54%, 48% and 48%. Our hedge ratio measures total notional balances of interest rate swaps, interest rate swaptions and futures relative to repurchase agreements and TBA notional outstanding.
Dividend Declarations
Common dividends declared for each of the quarters ended June 30, 2015, March 31, 2015, and June 30, 2014 were $0.30 per common share. The annualized dividend yield on the Company’s common stock for the quarter ended June 30, 2015, based on the June 30, 2015 closing price of $9.19, was 13.06%, compared to 11.54% for the quarter ended March 31, 2015, and 10.50% for the quarter ended June 30, 2014.
Other Information
Annaly’s principal business objective is to generate net income for distribution to its shareholders from its investments. Annaly is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”). Annaly is managed and advised by Annaly Management Company LLC.
The Company prepares a supplement to provide additional quarterly information for the benefit of its shareholders. The supplement can be found at the Company’s website in the Investor Relations section under “Quarterly Supplemental Information”.
Conference Call
The Company will hold the second quarter 2015 earnings conference call on August 6, 2015 at 10:00 a.m. Eastern Time. The number to call is 888-317-6003 for domestic calls and 412-317-6061 for international calls. The conference passcode is 8288727. There will also be an audio webcast of the call on www.annaly.com. The replay of the call is available for one week following the conference call. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10069760. If you would like to be added to the e-mail distribution list, please visit www.annaly.com, click on Investor Relations, then select Email Alerts and complete the email notification form.
This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities and other securities for purchase; the availability of financing and, if available, the terms of any financings; changes in the market value of our assets; changes in business conditions and the general economy; our ability to grow the commercial mortgage business; credit risks related to our investments in Agency CRT securities, residential mortgage-backed securities and related residential mortgage credit assets, commercial real estate assets and corporate debt; our ability to grow our residential mortgage credit business; our ability to consummate any contemplated investment opportunities; changes in government regulations affecting our business; our ability to maintain our qualification as a REIT for federal income tax purposes; and our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
|
|
|
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
|
|
|
(dollars in thousands, except per share data)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
| |
|
2015
|
|
2015
|
|
2014(1)
|
|
2014
|
|
2014
|
| |
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$ |
1,785,158 |
|
|
$ |
1,920,326 |
|
|
$ |
1,741,244 |
|
|
$ |
1,178,621 |
|
|
$ |
1,320,666 |
|
|
Reverse repurchase agreements
|
|
|
- |
|
|
|
100,000 |
|
|
|
100,000 |
|
|
|
- |
|
|
|
- |
|
|
Investments, at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Agency mortgage-backed securities
|
|
|
67,605,287 |
|
|
|
69,388,001 |
|
|
|
81,565,256 |
|
|
|
81,462,387 |
|
|
|
81,055,337 |
|
|
Agency debentures
|
|
|
429,845 |
|
|
|
995,408 |
|
|
|
1,368,350 |
|
|
|
1,334,181 |
|
|
|
1,348,727 |
|
|
Agency CRT securities
|
|
|
214,130 |
|
|
|
108,337 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Commercial real estate debt investments (2)
|
|
|
2,812,824 |
|
|
|
1,515,903 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Investment in affiliate
|
|
|
123,343 |
|
|
|
141,246 |
|
|
|
143,045 |
|
|
|
136,748 |
|
|
|
143,495 |
|
|
Commercial real estate debt and preferred equity, held for investment (3)
|
|
|
1,332,955 |
|
|
|
1,498,406 |
|
|
|
1,518,165 |
|
|
|
1,554,958 |
|
|
|
1,586,169 |
|
|
Investments in commercial real estate
|
|
|
216,800 |
|
|
|
207,209 |
|
|
|
210,032 |
|
|
|
73,827 |
|
|
|
74,355 |
|
|
Corporate debt
|
|
|
311,640 |
|
|
|
227,830 |
|
|
|
166,464 |
|
|
|
144,451 |
|
|
|
151,344 |
|
|
Receivable for investments sold
|
|
|
247,361 |
|
|
|
2,009,937 |
|
|
|
1,010,094 |
|
|
|
855,161 |
|
|
|
856,983 |
|
|
Accrued interest and dividends receivable
|
|
|
234,006 |
|
|
|
247,801 |
|
|
|
278,489 |
|
|
|
287,231 |
|
|
|
283,423 |
|
|
Receivable for investment advisory income
|
|
|
10,589 |
|
|
|
10,268 |
|
|
|
10,402 |
|
|
|
8,369 |
|
|
|
6,380 |
|
|
Goodwill
|
|
|
71,815 |
|
|
|
94,781 |
|
|
|
94,781 |
|
|
|
94,781 |
|
|
|
94,781 |
|
|
Interest rate swaps, at fair value
|
|
|
30,259 |
|
|
|
25,908 |
|
|
|
75,225 |
|
|
|
198,066 |
|
|
|
170,604 |
|
|
Other derivatives, at fair value
|
|
|
38,074 |
|
|
|
113,503 |
|
|
|
5,499 |
|
|
|
19,407 |
|
|
|
7,938 |
|
|
Other assets
|
|
|
81,594 |
|
|
|
70,813 |
|
|
|
68,321 |
|
|
|
39,798 |
|
|
|
50,743 |
|
|
Total assets
|
|
$ |
75,545,680 |
|
|
$ |
78,675,677 |
|
|
$ |
88,355,367 |
|
|
$ |
87,387,986 |
|
|
$ |
87,150,945 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Repurchase agreements
|
|
$ |
57,459,552 |
|
|
$ |
60,477,378 |
|
|
$ |
71,361,926 |
|
|
$ |
69,610,722 |
|
|
$ |
70,372,218 |
|
|
Other secured financing
|
|
|
203,200 |
|
|
|
90,000 |
|
|
|
- |
|
|
|
- |
|
|
|
5,000 |
|
|
Securities loaned
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7 |
|
|
|
7 |
|
|
Convertible Senior Notes
|
|
|
- |
|
|
|
749,512 |
|
|
|
845,295 |
|
|
|
836,625 |
|
|
|
831,167 |
|
|
Securitized debt of consolidated VIEs (4)
|
|
|
2,610,974 |
|
|
|
1,491,829 |
|
|
|
260,700 |
|
|
|
260,700 |
|
|
|
260,700 |
|
|
Mortgages payable
|
|
|
146,359 |
|
|
|
146,470 |
|
|
|
146,553 |
|
|
|
42,635 |
|
|
|
30,316 |
|
|
Participation sold
|
|
|
13,490 |
|
|
|
13,589 |
|
|
|
13,693 |
|
|
|
13,768 |
|
|
|
13,866 |
|
|
Payable for investments purchased
|
|
|
673,933 |
|
|
|
5,205 |
|
|
|
264,984 |
|
|
|
2,153,789 |
|
|
|
781,227 |
|
|
Accrued interest payable
|
|
|
131,629 |
|
|
|
155,072 |
|
|
|
180,501 |
|
|
|
180,345 |
|
|
|
157,782 |
|
|
Dividends payable
|
|
|
284,331 |
|
|
|
284,310 |
|
|
|
284,293 |
|
|
|
284,278 |
|
|
|
284,261 |
|
|
Interest rate swaps, at fair value
|
|
|
1,328,729 |
|
|
|
2,025,170 |
|
|
|
1,608,286 |
|
|
|
857,658 |
|
|
|
928,789 |
|
|
Other derivatives, at fair value
|
|
|
40,539 |
|
|
|
61,778 |
|
|
|
8,027 |
|
|
|
- |
|
|
|
6,533 |
|
|
Accounts payable and other liabilities
|
|
|
58,139 |
|
|
|
50,774 |
|
|
|
47,328 |
|
|
|
36,511 |
|
|
|
30,160 |
|
|
Total liabilities
|
|
|
62,950,875 |
|
|
|
65,551,087 |
|
|
|
75,021,586 |
|
|
|
74,277,038 |
|
|
|
73,702,026 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’ Equity:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7.875% Series A Cumulative Redeemable Preferred Stock:
7,412,500 authorized, issued and outstanding
|
|
|
177,088 |
|
|
|
177,088 |
|
|
|
177,088 |
|
|
|
177,088 |
|
|
|
177,088 |
|
|
7.625% Series C Cumulative Redeemable Preferred Stock
12,650,000 authorized, 12,000,000 issued and outstanding
|
|
|
290,514 |
|
|
|
290,514 |
|
|
|
290,514 |
|
|
|
290,514 |
|
|
|
290,514 |
|
|
7.50% Series D Cumulative Redeemable Preferred Stock:
18,400,000 authorized, issued and outstanding
|
|
|
445,457 |
|
|
|
445,457 |
|
|
|
445,457 |
|
|
|
445,457 |
|
|
|
445,457 |
|
|
Common stock, par value $0.01 per share, 1,956,937,500 authorized,
947,768,496, 947,698,431, 947,643,079, 947,591,766 and 947,540,823
issued and outstanding, respectively
|
|
|
9,478 |
|
|
|
9,477 |
|
|
|
9,476 |
|
|
|
9,476 |
|
|
|
9,475 |
|
|
Additional paid-in capital
|
|
|
14,788,677 |
|
|
|
14,787,117 |
|
|
|
14,786,509 |
|
|
|
14,781,308 |
|
|
|
14,776,302 |
|
|
Accumulated other comprehensive income (loss)
|
|
|
(354,965 |
) |
|
|
773,999 |
|
|
|
204,883 |
|
|
|
(967,820 |
) |
|
|
(572,256 |
) |
|
Accumulated deficit
|
|
|
(2,766,250 |
) |
|
|
(3,364,147 |
) |
|
|
(2,585,436 |
) |
|
|
(1,625,075 |
) |
|
|
(1,677,661 |
) |
|
Total stockholders’ equity
|
|
|
12,589,999 |
|
|
|
13,119,505 |
|
|
|
13,328,491 |
|
|
|
13,110,948 |
|
|
|
13,448,919 |
|
|
Noncontrolling interest
|
|
|
4,806 |
|
|
|
5,085 |
|
|
|
5,290 |
|
|
|
- |
|
|
|
- |
|
|
Total equity
|
|
|
12,594,805 |
|
|
|
13,124,590 |
|
|
|
13,333,781 |
|
|
|
13,110,948 |
|
|
|
13,448,919 |
|
|
Total liabilities and equity
|
|
$ |
75,545,680 |
|
|
$ |
78,675,677 |
|
|
$ |
88,355,367 |
|
|
$ |
87,387,986 |
|
|
$ |
87,150,945 |
|
| (1) |
Derived from the audited consolidated financial statements at December 31, 2014.
|
| (2) |
Includes senior securitized commercial mortgage loans of consolidated VIEs with a carrying value of $2.6 billion and $1.4 billion at June 30, 2015 and March 31, 2015, respectively. |
| (3) |
Includes senior securitized commercial mortgage loans of consolidated VIE with a carrying value of $361.2 million, $361.2 million, $398.6 million, $398.4 million, and $398.3, respectively. |
| (4) |
Includes securitized debt of consolidated VIEs carried at fair value of $2.4 billion and $1.3 billion at June 30, 2015 and March 31, 2015, respectively.
|
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
(UNAUDITED)
|
|
|
(dollars in thousands, except per share data)
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
For the quarters ended
|
| |
|
June 30,
|
|
March 31,
|
|
December 31,
|
|
September 30,
|
|
June 30,
|
| |
|
2015
|
|
2015
|
|
2014
|
|
2014
|
|
2014
|
|
Net interest income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
624,346 |
|
|
$ |
519,172 |
|
|
$ |
648,144 |
|
|
$ |
644,640 |
|
|
$ |
683,962 |
|
|
Interest expense
|
|
|
113,072 |
|
|
|
129,420 |
|
|
|
134,512 |
|
|
|
127,069 |
|
|
|
126,107 |
|
|
Net interest income
|
|
|
511,274 |
|
|
|
389,752 |
|
|
|
513,632 |
|
|
|
517,571 |
|
|
|
557,855 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on interest rate swaps(1)
|
|
|
(144,465 |
) |
|
|
(158,239 |
) |
|
|
(174,908 |
) |
|
|
(169,083 |
) |
|
|
(220,934 |
) |
|
Realized gains (losses) on termination of interest rate swaps
|
|
|
- |
|
|
|
(226,462 |
) |
|
|
- |
|
|
|
- |
|
|
|
(772,491 |
) |
|
Unrealized gains (losses) on interest rate swaps
|
|
|
700,792 |
|
|
|
(466,202 |
) |
|
|
(873,468 |
) |
|
|
98,593 |
|
|
|
175,062 |
|
|
Subtotal
|
|
|
556,327 |
|
|
|
(850,903 |
) |
|
|
(1,048,376 |
) |
|
|
(70,490 |
) |
|
|
(818,363 |
) |
|
Net gains (losses) on disposal of investments
|
|
|
3,833 |
|
|
|
62,356 |
|
|
|
3,420 |
|
|
|
4,693 |
|
|
|
5,893 |
|
|
Net gains (losses) on trading assets
|
|
|
(114,230 |
) |
|
|
(6,906 |
) |
|
|
(57,454 |
) |
|
|
4,676 |
|
|
|
(46,489 |
) |
|
Net unrealized gains (losses) on financial instruments measured at fair value through earnings
|
|
|
17,581 |
|
|
|
(33,546 |
) |
|
|
(29,520 |
) |
|
|
(37,944 |
) |
|
|
2,085 |
|
|
Impairment of goodwill
|
|
|
(22,966 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
Subtotal
|
|
|
(115,782 |
) |
|
|
21,904 |
|
|
|
(83,554 |
) |
|
|
(28,575 |
) |
|
|
(38,511 |
) |
|
Total realized and unrealized gains (losses)
|
|
|
440,545 |
|
|
|
(828,999 |
) |
|
|
(1,131,930 |
) |
|
|
(99,065 |
) |
|
|
(856,874 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment advisory income
|
|
|
10,604 |
|
|
|
10,464 |
|
|
|
10,858 |
|
|
|
8,253 |
|
|
|
6,109 |
|
|
Dividend income from affiliate
|
|
|
4,318 |
|
|
|
4,318 |
|
|
|
4,048 |
|
|
|
4,048 |
|
|
|
4,048 |
|
|
Other income (loss)
|
|
|
(22,344 |
) |
|
|
(1,082 |
) |
|
|
3,365 |
|
|
|
(22,249 |
) |
|
|
4,687 |
|
|
Total other income (loss)
|
|
|
(7,422 |
) |
|
|
13,700 |
|
|
|
18,271 |
|
|
|
(9,948 |
) |
|
|
14,844 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation and management fee
|
|
|
37,014 |
|
|
|
38,629 |
|
|
|
38,734 |
|
|
|
39,028 |
|
|
|
39,277 |
|
|
Other general and administrative expenses
|
|
|
14,995 |
|
|
|
12,309 |
|
|
|
19,720 |
|
|
|
12,289 |
|
|
|
12,912 |
|
|
Total general and administrative expenses
|
|
|
52,009 |
|
|
|
50,938 |
|
|
|
58,454 |
|
|
|
51,317 |
|
|
|
52,189 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
892,388 |
|
|
|
(476,485 |
) |
|
|
(658,481 |
) |
|
|
357,241 |
|
|
|
(336,364 |
) |
|
Income taxes
|
|
|
(7,683 |
) |
|
|
14 |
|
|
|
(209 |
) |
|
|
2,385 |
|
|
|
(852 |
) |
|
Net income (loss)
|
|
|
900,071 |
|
|
|
(476,499 |
) |
|
|
(658,272 |
) |
|
|
354,856 |
|
|
|
(335,512 |
) |
|
Net income (loss) attributable to noncontrolling interest
|
|
|
(149 |
) |
|
|
(90 |
) |
|
|
(196 |
) |
|
|
- |
|
|
|
- |
|
|
Net income (loss) attributable to Annaly
|
|
|
900,220 |
|
|
|
(476,409 |
) |
|
|
(658,076 |
) |
|
|
354,856 |
|
|
|
(335,512 |
) |
|
Dividends on preferred stock
|
|
|
17,992 |
|
|
|
17,992 |
|
|
|
17,992 |
|
|
|
17,992 |
|
|
|
17,992 |
|
|
Net income (loss) available (related) to common stockholders
|
|
$ |
882,228 |
|
|
$ |
(494,401 |
) |
|
$ |
(676,068 |
) |
|
$ |
336,864 |
|
|
$ |
(353,504 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share available (related) to common stockholders:
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.93 |
|
|
$ |
(0.52 |
) |
|
$ |
(0.71 |
) |
|
$ |
0.36 |
|
|
$ |
(0.37 |
) |
|
Diluted
|
|
$ |
0.93 |
|
|
$ |
(0.52 |
) |
|
$ |
(0.71 |
) |
|
$ |
0.34 |
|
|
$ |
(0.37 |
) |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
947,731,493 |
|
|
|
947,669,831 |
|
|
|
947,615,793 |
|
|
|
947,565,432 |
|
|
|
947,515,127 |
|
|
Diluted
|
|
|
947,929,762 |
|
|
|
947,669,831 |
|
|
|
947,615,793 |
|
|
|
987,315,527 |
|
|
|
947,515,127 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$ |
900,071 |
|
|
$ |
(476,499 |
) |
|
$ |
(658,272 |
) |
|
$ |
354,856 |
|
|
$ |
(335,512 |
) |
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
(1,125,043 |
) |
|
|
631,472 |
|
|
|
1,175,864 |
|
|
|
(390,871 |
) |
|
|
1,522,126 |
|
|
Reclassification adjustment for net (gains) losses included in net income (loss)
|
|
|
(3,921 |
) |
|
|
(62,356 |
) |
|
|
(3,161 |
) |
|
|
(4,693 |
) |
|
|
(5,903 |
) |
|
Other comprehensive income (loss)
|
|
|
(1,128,964 |
) |
|
|
569,116 |
|
|
|
1,172,703 |
|
|
|
(395,564 |
) |
|
|
1,516,223 |
|
|
Comprehensive income (loss)
|
|
|
(228,893 |
) |
|
|
92,617 |
|
|
|
514,431 |
|
|
|
(40,708 |
) |
|
|
1,180,711 |
|
|
Comprehensive income (loss) attributable to noncontrolling interest
|
|
|
(149 |
) |
|
|
(90 |
) |
|
|
(196 |
) |
|
|
- |
|
|
|
- |
|
|
Comprehensive income (loss) attributable to Annaly
|
|
$ |
(228,744 |
) |
|
$ |
92,707 |
|
|
$ |
514,627 |
|
|
$ |
(40,708 |
) |
|
$ |
1,180,711 |
|
| (1) |
Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).
|
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
|
|
|
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
|
|
|
(dollars in thousands, except per share data)
|
|
|
(Unaudited)
|
|
| |
|
|
|
|
|
|
| |
|
For the six months ended
|
| |
|
June 30,
|
|
June 30,
|
| |
|
2015
|
|
2014
|
|
Net interest income:
|
|
|
|
|
|
|
|
Interest income
|
|
$ |
1,143,518 |
|
|
$ |
1,339,863 |
|
|
Interest expense
|
|
|
242,492 |
|
|
|
251,078 |
|
|
Net interest income
|
|
|
901,026 |
|
|
|
1,088,785 |
|
| |
|
|
|
|
|
|
|
|
|
Realized and unrealized gains (losses):
|
|
|
|
|
|
|
|
|
|
Realized gains (losses) on interest rate swaps(1)
|
|
|
(302,704 |
) |
|
|
(481,369 |
) |
|
Realized gains (losses) on termination of interest rate swaps
|
|
|
(226,462 |
) |
|
|
(779,333 |
) |
|
Unrealized gains (losses) on interest rate swaps
|
|
|
234,590 |
|
|
|
(173,880 |
) |
|
Subtotal
|
|
|
(294,576 |
) |
|
|
(1,434,582 |
) |
|
Net gains (losses) on disposal of investments
|
|
|
66,189 |
|
|
|
85,603 |
|
|
Net gains (losses) on trading assets
|
|
|
(121,136 |
) |
|
|
(192,717 |
) |
|
Net unrealized gains (losses) on financial instruments measured at fair value
through earnings
|
|
|
(15,965 |
) |
|
|
(18,708 |
) |
|
Impairment of goodwill
|
|
|
(22,966 |
) |
|
|
- |
|
|
Subtotal
|
|
|
(93,878 |
) |
|
|
(125,822 |
) |
|
Total realized and unrealized gains (losses)
|
|
|
(388,454 |
) |
|
|
(1,560,404 |
) |
| |
|
|
|
|
|
|
|
|
|
Other income (loss):
|
|
|
|
|
|
|
|
|
|
Investment advisory income
|
|
|
21,068 |
|
|
|
12,232 |
|
|
Dividend income from affiliate
|
|
|
8,636 |
|
|
|
17,093 |
|
|
Other income (loss)
|
|
|
(23,426 |
) |
|
|
6,147 |
|
|
Total other income (loss)
|
|
|
6,278 |
|
|
|
35,472 |
|
| |
|
|
|
|
|
|
|
|
|
General and administrative expenses:
|
|
|
|
|
|
|
|
|
|
Compensation and management fee
|
|
|
75,643 |
|
|
|
77,798 |
|
|
Other general and administrative expenses
|
|
|
27,304 |
|
|
|
21,769 |
|
|
Total general and administrative expenses
|
|
|
102,947 |
|
|
|
99,567 |
|
| |
|
|
|
|
|
|
|
|
|
Income (loss) before income taxes
|
|
|
415,903 |
|
|
|
(535,714 |
) |
|
Income taxes
|
|
|
(7,669 |
) |
|
|
3,149 |
|
|
Net income (loss)
|
|
|
423,572 |
|
|
|
(538,863 |
) |
|
Net income (loss) attributable to noncontrolling interest
|
|
|
(239 |
) |
|
|
- |
|
|
Net income (loss) attributable to Annaly
|
|
|
423,811 |
|
|
|
(538,863 |
) |
|
Dividends on preferred stock
|
|
|
35,984 |
|
|
|
35,984 |
|
|
Net income (loss) available (related) to common stockholders
|
|
$ |
387,827 |
|
|
$ |
(574,847 |
) |
| |
|
|
|
|
|
|
|
|
|
Net income (loss) per share available (related) to common stockholders:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$ |
0.41 |
|
|
$ |
(0.61 |
) |
|
Diluted
|
|
$ |
0.41 |
|
|
$ |
(0.61 |
) |
| |
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
947,700,832 |
|
|
|
947,487,125 |
|
|
Diluted
|
|
|
947,878,958 |
|
|
|
947,487,125 |
|
| |
|
|
|
|
|
|
|
|
|
Dividends Declared Per Share of Common Stock
|
|
$ |
0.60 |
|
|
$ |
0.60 |
|
|
Net income (loss)
|
|
$ |
423,572 |
|
|
$ |
(538,863 |
) |
|
Other comprehensive income (loss):
|
|
|
|
|
|
|
|
|
|
Unrealized gains (losses) on available-for-sale securities
|
|
|
(493,571 |
) |
|
|
2,263,298 |
|
|
Reclassification adjustment for net (gains) losses included in net income (loss)
|
|
|
(66,277 |
) |
|
|
(86,621 |
) |
|
Other comprehensive income (loss)
|
|
|
(559,848 |
) |
|
|
2,176,677 |
|
|
Comprehensive income (loss)
|
|
|
(136,276 |
) |
|
|
1,637,814 |
|
|
Comprehensive income (loss) attributable to noncontrolling interest
|
|
|
(239 |
) |
|
|
- |
|
|
Comprehensive income (loss) attributable to Annaly
|
|
$ |
(136,037 |
) |
|
$ |
1,637,814 |
|
| (1) |
Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).
|
9
Exhibit 99.2
August 5, 2015 2Q 2015 Stockholder Supplement
Safe Harbor Notice This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities and other securities for purchase; the availability of financing and, if available, the terms of any financings; changes in the market value of our assets; changes in business conditions and the general economy; our ability to grow the commercial mortgage business; credit risks related to our investments in Agency CRT securities, residential mortgage-backed securities and related residential mortgage credit assets, commercial real estate assets and corporate debt; our ability to grow our residential mortgage credit business; our ability to consummate any contemplated investment opportunities; changes in government regulations affecting our business; our ability to maintain our qualification as a REIT for federal income tax purposes; and our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. 1
2Q15 Financial Overview Unaudited Income Statement Balance Sheet Portfolio (1) "Core earnings" represents a non-GAAP measure and is defined as net income (loss) excluding gains or losses on disposals of investments and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net gains and losses on trading assets, impairment losses, net income (loss) attributable to noncontrolling interest, and certain other nonrecurring gains or losses and inclusive of dollar roll income (a component of net gains and losses on trading assets). (2) For purposes of calculating the Company’s leverage ratio, debt consists of repurchase agreements, other secured financing, Convertible Senior Notes, securitized debt, participation sold and mortgages payable. Securitized debt, participation sold and mortgages payable are non-recourse to the Company. (3) Computed as the sum of debt, TBA derivative notional outstanding and net forward purchases of Investment Securities divided by total equity. (4) Total stockholders’ equity divided by total assets inclusive of outstanding market value of TBA positions. (5) Consists of Investment Securities, U.S. Treasury Securities, securities borrowed, commercial real estate debt and preferred equity, corporate debt, reverse repurchase agreements and cash and cash equivalents. Interest earning assets reflects the average amortized cost of our investments during the period. (6) Represents the sum of the Company’s annualized economic net interest income, inclusive of interest expense on interest rate swaps used to hedge cost of funds, plus dollar roll income less interest expense on swaps used to hedge dollar roll transactions divided by the sum of its average interest-earning assets plus average outstanding TBA derivative balances. (7) Investment Securities consist of Agency mortgage-backed securities, Agency debentures and Agency CRT securities. GAAP net income of $900.1 million, or $0.93 earnings per average common share, resulting in an annualized GAAP return on average equity of 28.00% Core earnings(1) of $411.1 million, or $0.41 per average common share, generating an annualized core return on average equity of 12.79% Declared a $0.30 dividend per common share Common stock book value per share of $12.32 End of period total debt to equity of 4.8x(2); economic leverage ratio of 5.9x(3) End of period capital ratio of 14.2%(4) Weighted average days to maturity on repurchase agreements of 149 days Average yield on interest earning assets(5) of 3.23% and net interest spread of 1.64% during the quarter; net interest margin(6) of 2.01% End of period Investment Securities(7) of $68.2 billion End of period commercial real estate portfolio value of approximately $1.8 billion with a net economic equity investment of $1.3 billion, producing a levered yield of 9.92% 2
Strategy Overview Unaudited Portfolio Positioning Market Opportunities Liability and Interest Rate Management Federal Reserve is likely to raise rates before the end of 2015, although we expect a shallow tightening path going forward and continued portfolio reinvestments well into 2016 to be generally supportive of the Agency mortgage-backed securities (“Agency MBS”) market During the second quarter of 2015, economic leverage was up modestly. We purchased $4.2 billion and disposed of $2.5 billion of Investment Securities, with the increase in purchases largely reflecting reinvestment of runoff Commercial assets remain at 13% of stockholders’ equity Expected levered return on equity of 9% to 11% on purchase of Agency MBS in current market environment Specified pool pay-ups declined during the quarter as investors demanded less call protection in a modestly higher rate environment. Despite the lower pay-up levels, TBAs remain attractive given favorable financing conditions In addition to Agency MBS and commercial real estate, we see opportunities across a broader spectrum of residential credit assets, which is in line with our philosophy of diversifying across business strategies that offer attractive returns and help us better manage interest rate cycles Expected unlevered return of 3.0% to 4.5% for commercial first mortgages pre-securitization with opportunity to hold subordinated tranches yielding 8% to 10% post-securitization, and 7% to 9% unlevered return on equity through commercial mezzanine investments Expected unlevered stabilized return on commercial real estate property investments of 6% to 7% with opportunity to attractively finance with debt that increases cash-on-cash return to 9%+, not including the potential for asset price appreciation Maintain current relatively conservative portfolio leverage in anticipation of taking advantage of future market opportunities that may arise Continue to maintain focus on longer term funding agreements to manage short term interest rate uncertainty Selectively utilize derivatives to hedge against higher interest rates and spikes in volatility 3
Interest Rate Market Performance Following significant rate declines earlier this year, longer-dated interest rates rose and the yield curve steepened in Q2 Rising rates were driven by moderate increases in inflation expectations and term premium Risk events around Greek debt and concerns around global growth prospects resulted in elevated volatility during the quarter Central bank actions, including prospects of the Fed raising rates later this year amid continued improvement in the U.S. labor market, should continue to drive interest rates We expect that the Federal Reserve will raise rates in the second half of 2015; pace of tightening beyond lift-off is far more important than the timing of the first hike We anticipate that the pace of Fed tightening will be gradual given the current growth and inflation outlook Treasury Yield Changes Change Over Q2'15 Change 3/31/15 to date (Through 07/28/2015) U.S. vs. German 10-year Yields Percent bps Source: Bloomberg 4
MBS Market Performance MBS basis underperformed in Q2 2015 driven by higher rates and elevated volatility Underperformance was led by lower coupons; 15-year sector generally performed in line with 30-year securities Prepayment speeds peaked in the early spring and have declined since Given higher rates and lower projected prepayment speeds, specified pool pay-ups declined as demand for prepayment protection moderated Dollar rolls continue to exhibit pockets of specialness, particularly close to TBA settlement dates Fed reinvestment purchases continue to provide support to dollar roll valuations as Fed continues to take out a large portion of cheapest-to-deliver MBS with worst prepayment characteristics MBS Hedge-Adjusted Price Performance 2015 Q2 to Date Specified Pool Payups Source: Credit Suisse, Citigroup (payups data), Annaly calculations. * MBS relative performance vs. swaps reflects cumulative price performance of an MBS position hedged with a combination of 2-yr, 5-yr and 10-yr interest rate swaps on March 31, 2015. Calculations are based on Credit Suisse’ model MBS partial duration profile. Cumulative performance does not include net coupon earnings and assumes no rebalancing of swap hedges. Cumulative performance is through July 28, 2015. 5
Last Five Quarters Financial Performance Unaudited Core EPS Annualized Core Return on Equity Average Yield on Interest Earning Assets Capital Ratio 6
Summary Balance Sheet and Applicable Information Unaudited, numbers in thousands except per share amounts (1) Includes consolidated VIEs. (2) Consists of commercial real estate debt and preferred equity, investments in commercial real estate and corporate debt. (3) Consists of common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. For the quarters ended June 30, March 31, June 30, 2015 2015 2014 Investment Securities $68,249,262 $70,491,746 $82,404,064 Commercial real estate investments(1) 4,362,579 3,221,518 1,660,524 Corporate debt, held for investment 311,640 227,830 151,344 Total Investment Securities and commercial investment portfolio(1) $72,923,481 $73,941,094 $84,215,932 Total assets $75,545,680 $78,675,677 $87,150,945 Average TBA position $14,624,862 $8,319,920 - Repurchase agreements $57,459,552 $60,477,378 $70,372,218 Other secured financing $203,200 $90,000 - Convertible Senior Notes - 749,512 831,167 Securitized debt of consolidated VIEs 2,610,974 1,491,829 260,700 Mortgages payable 146,359 146,470 30,316 Participation sold 13,490 13,589 13,866 Total debt $60,433,575 $62,968,778 $71,508,267 Total liabilities $62,950,875 $65,551,087 $73,702,026 Cumulative redeemable preferred stock $913,059 $913,059 $913,059 Common equity(2) 11,676,940 12,206,446 12,535,860 Total stockholders' equity $12,589,999 $13,119,505 $13,448,919 Non-controlling interest 4,806 5,085 - Total equity $12,594,805 $13,124,590 $13,448,919 Total debt to total equity 4.8x 4.8x 5.3x Economic leverage ratio 5.9x 5.7x 5.3x Capital ratio 14.2% 14.1% 15.4% Common stock book value per share $12.32 $12.88 $13.23 Total common shares outstanding 947,768 947,698 947,541 7
Summary Income Statement and Applicable Information Unaudited, dollars in thousands except per share amounts (1) Includes interest expense on interest rate swaps used to hedge cost of funds. For the quarters ended June 30, March 31, June 30, 2015 2015 2014 Total interest income $624,346 $519,172 $683,962 Total economic interest expense(1) 252,845 287,659 347,041 Economic net interest income(1) $371,501 $231,513 $336,921 GAAP Net income (loss) $900,071 ($476,499) ($335,512) GAAP Net income (loss) available (related) to common shareholders 882,228 (494,401) (353,504) GAAP Earnings per common share $0.93 ($0.52) ($0.37) Core earnings (loss) $411,055 $254,082 $300,428 Core earnings (loss) available (related) to common shareholders 393,063 236,090 282,436 Core earnings per common share $0.41 $0.25 $0.30 Dividends declared per common share $0.30 $0.30 $0.30 Annualized GAAP return on average equity 28.00% (14.41%) (10.32%) Annualized core return on average equity 12.79% 7.69% 9.24% Annualized core return on average equity per unit of economic leverage 2.17% 1.35% 1.74% Net interest margin 2.01% 1.26% 1.57% Average yield on interest earning assets 3.23% 2.47% 3.20% Average cost of interest bearing liabilities 1.59% 1.64% 1.94% Net interest spread 1.64% 0.83% 1.26% Weighted average three-month constant prepayment rate (CPR) 12% 9% 7% Book value per common share rollforward: Book value per common share, beginning of period $12.88 $13.10 $12.30 Net income (loss) attributable to common stockholders $0.93 ($0.52) ($0.37) Other comprehensive income (loss) attributable to common stockholders ($1.19) $0.60 $1.60 Common dividends declared ($0.30) ($0.30) ($0.30) Book value per common share, end of period $12.32 $12.88 $13.23 8
Components of Economic Net Interest Income Unaudited, dollars in thousands (1) Includes interest expense on interest rate swaps used to hedge cost of funds. For the quarters ended June 30, March 31, June 30, 2015 2015 2014 Interest income: Investment Securities $570,493 $478,239 $640,287 Commercial investment portfolio 52,429 40,336 43,325 Reverse repurchase agreements 1,355 539 271 Other 69 58 79 Total interest income $624,346 $519,172 $683,962 Economic interest expense: Repurchase agreements $101,225 $102,748 $103,773 Realized losses on interest rate swaps(1) 139,773 158,239 220,934 Convertible Senior Notes 6,113 23,627 20,319 Securitized debt of consolidated VIEs 5,475 2,882 1,853 Participation sold 159 159 162 Other 100 4 - Total economic interest expense $252,845 $287,659 $347,041 Economic net interest income $371,501 $231,513 $336,921 9
Change in Net Interest Margin Unaudited Change from 1Q15 to 2Q15 Note: Graph shows relative changes in contribution from 1Q15 to 2Q15. For example, TBA dollar roll income increased net interest margin by 0.16% more in 2Q15 versus 1Q15. (1) Represents economic interest expense and interest expense on swaps used to hedge dollar roll transactions. 10 1Q15 Net interest margin Net amortization of premiums and accretion of discounts TBA dollar roll income Economic interest expense and other swaps expense(1) Coupon on average interest-earning assets 2Q15 Net interest margin 10
Change in Net Interest Spread Unaudited Change from 1Q15 to 2Q15 Note: Graph shows relative changes in contribution from 1Q15 to 2Q15. For example, average cost of interest bearing liabilities increased net interest spread by 0.05% more in 2Q15 versus 1Q15. (1) Includes interest expense on interest rate swaps used to hedge cost of funds. 1Q15 Net interest spread Net amortization of premiums Average cost of interest bearing liabilities(1) Coupon on average interest earning assets 2Q15 Net interest spread 11
Reconciliation to Core Earnings Unaudited, dollars in thousands Reconciliation of 2Q15 GAAP Net Income to Core Earnings (1) Represents a component of Net gains (losses) on trading assets. GAAP net income Net (gains) / losses on trading assets Impairment of goodwill Loss attributable to non-controlling interests Net (gains) / losses on disposal of investments Net unrealized (gains) losses on financial instruments measured at fair value through earnings Unrealized (gains) / losses on interest rate swaps Add back: TBA Dollar Roll Income(1) Core earnings 12
Change in Annualized GAAP Return on Average Equity Unaudited Change from 1Q15 to 2Q15 Note: Graph shows relative changes in contribution from 1Q15 to 2Q15. For example, unrealized (gains)/losses on interest rate swaps increased annualized ROE by 35.89% more in 2Q15 versus 1Q15. (1) Other includes investment advisory income, dividend income from affiliates, other income (loss), general and administrative expenses, and income taxes. 1Q15 GAAP ROE Unrealized (gains) / losses on interest rate swaps Realized (gains) losses on termination of interest rate swaps Net amortization of premiums and accretion of discounts Economic interest expense and other swaps expense Other(1) Impairment of goodwill Coupon income Realized / unrealized (gains) / losses on inv. and trading assets 2Q15 GAAP ROE 13
Change in Annualized Core Return on Average Equity Unaudited Change from 1Q15 to 2Q15 Note: Graph shows relative changes in contribution from 1Q15 to 2Q15. For example, TBA dollar roll income increased annualized core ROE by 1.17% more in 2Q15 versus 1Q15. (1) Other includes investment advisory income, dividend income from affiliates, other income (loss) excluding non-recurring gains or losses, general and administrative expenses, and income taxes. 1Q15 Core ROE Net amortization of premiums and accretion of discounts TBA dollar roll income Economic interest expense and other swaps expense Other(1) Coupon income 2Q15 Core ROE 14
Investment Securities Portfolio Net Premium and Discount Balance and Constant Prepayment Rate Unaudited, dollars in thousands Net premium and discount balance Net premium and discount balance as % of stockholders' equity Weighted average three-month constant prepayment rate 15
Interest Rate and Liability Management Unaudited (1) Excludes forward starting swaps. Note: Net rates do not take into consideration other secured financing, Convertible Senior Notes, securitized debt of consolidated VIEs , participation sold or mortgages payable. Weighted average days to maturity on repurchase agreements Weighted average net rate on interest rate swaps (1) Weighted average rate on repurchase agreements 16
Hedging and Liabilities as of June 30, 2015 Unaudited, dollars in thousands (1) Notional amount includes $2.6 billion in forward starting pay fixed swaps, all of which begin in July 2015. (2) Excludes forward starting swaps. (3) Weighted average fixed rate on forward starting pay fixed swaps was 1.77%. (4) Weighted average years to maturity for futures positions are based off of the Treasury contracts cheapest to deliver. (5) Approximately 17% of the total repurchase agreements have a remaining maturity over one year. Interest Rate Swaps Current Weighted Avg. Weighted Avg. Weighted Avg. Maturity Notional(1) Pay Rate(2)(3) Receive Rate(2) Years to Maturity(2) 0 to <3 years $2,852,471 1.78% 0.20% 2.20 >=3 to <6 years 11,163,000 1.81% 0.46% 4.77 >= 6 to <10 years 11,201,350 2.45% 0.44% 8.36 Greater than 10 years 3,734,400 3.70% 0.23% 19.87 Total / Weighted Avg. $28,951,221 2.29% 0.40% 7.76 Futures Positions Notional Notional Long Short Weighted Avg. Type Positions Positions Years to Maturity(4) 2-year Swap Equivalent Eurodollar Contracts - (5,000,000) 2.00 U.S. Treasury Futures - 5 year - (2,273,000) 4.42 U.S. Treasury Futures - 10 year & Greater - (1,007,500) 6.92 Total - ($8,280,500) 3.26 Interest Rate Swaptions Current Weighted-Avg. Weighted-Avg. Weighted Avg. Weighted Avg. Underlying Underlying Underlying Underlying Months to Type Notional Pay Rate Receive Rate Years to Maturity Expiration Long $500,000 2.87% 3M LIBOR 8.55 0.47 Repurchase Agreements Principal Weighted Avg. Maturity Balance Rate Within 30 days $23,163,749 0.55% 30 to 59 days 8,157,729 0.52% 60 to 89 days 7,132,012 0.42% 90 to 119 days 1,507,387 0.43% Over 120 days(5) 17,498,675 1.32% Total / Weighted Avg. $57,459,552 0.76% 17
Agency MBS and Debentures Overview as of June 30, 2015 Unaudited, dollars in thousands Agency Fixed-Rate Securities (Pools) Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Years to Maturity Face Value % Coupon Amortized Cost Fair Value 3-Month CPR Fair Value <=15 years $11,960,332 20.4% 3.13% 104.1% 104.2% 7.7% $12,459,773 20 years 6,120,071 10.4% 3.55% 104.9% 104.8% 12.5% 6,416,668 >=30 years 40,402,647 68.9% 3.88% 106.3% 105.3% 12.9% 42,535,362 Callables 158,803 0.3% 3.16% 99.6% 94.2% 0.0% 149,630 Total/Weighted Avg. $58,641,853 100.0% 3.69% 105.7% 105.0% 11.8% $61,561,433 TBA Purchase Contracts Weighted Avg. Implied Cost Implied Market Type Notional Value % Coupon Basis Value 15-year $4,500,000 34.6% 2.92% $4,637,666 $4,643,203 30-year 8,500,000 65.4% 3.37% 8,673,633 8,674,051 Total/Weighted Avg. $13,000,000 100.0% 3.21% $13,311,299 $13,317,254 Agency Adjustable-Rate Securities Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Months to Reset Face Value % Coupon Amortized Cost Fair Value 3-Month CPR Fair Value 0 - 24 months $1,377,435 43.7% 2.56% 100.0% 106.1% 12.0% $1,460,985 25 - 40 months 58,366 1.9% 4.85% 99.5% 105.5% 27.4% 61,591 41 - 60 months 30,869 1.0% 4.34% 103.0% 106.8% 37.2% 32,966 61 - 90 months 643,568 20.4% 3.12% 103.1% 103.8% 16.8% 667,813 >90 months 757,145 24.0% 3.07% 103.3% 103.0% 11.8% 779,995 Step-Ups 285,000 9.0% 2.47% 99.9% 98.3% 0.0% 280,215 Total/Weighted Avg. $3,152,383 100.0% 2.85% 101.4% 104.2% 13.6% $3,283,565 18
Agency MBS and Debentures Overview as of June 30, 2015 (cont’d) Unaudited, dollars in thousands Agency Fixed-Rate and Floating-Rate Collateralized Mortgage-Backed Obligations Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Type Face Value % Coupon Amortized Cost Fair Value 3-Month CPR Fair Value Fixed-Rate $1,777,887 100.0% 3.19% 102.2% 102.1% 18.4% $1,814,996 Floating-Rate - 0.0% 0.00% 0.0% 0.0% 0.0% - Total/Weighted Avg. $1,777,887 100.0% 3.19% 102.2% 102.1% 18.4% $1,814,996 Agency Interest-Only Collateralized Mortgage-Backed Obligations Current Notional Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Type Value % Coupon Amortized Cost Fair Value 3-Month CPR Fair Value Interest-Only $6,229,066 71.5% 3.30% 13.5% 13.2% 11.9% $819,189 Inverse Interest-Only 2,482,182 28.5% 6.05% 22.5% 22.4% 12.2% 555,949 Total/Weighted Avg. $8,711,248 100.0% 4.08% 16.1% 15.8% 12.0% $1,375,138 Agency CRT Securities Current Weighted Avg. Weighted Avg. Estimated Type Face Value Amortized Cost Fair Value Fair Value Agency CRT Securities $216,971 100.2% 98.7% $214,130 19
Quarter-Over-Quarter Interest Rate and MBS Spread Sensitivity Unaudited (1) Scenarios include Investment Securities and derivative instruments. (2) NAV represents book value of common equity. Assumptions: The interest rate sensitivity and spread sensitivity are based on the portfolios as of June 30, 2015 and March 31, 2015 The interest rate sensitivities reflect instantaneous parallel shifts in rates The spread sensitivity shifts MBS spreads instantaneously and reflects exposure to MBS basis risk All tables assume no active management of the portfolio in response to rate or spread changes Interest Rate Sensitivity As of June 30, 2015 As of March 31, 2015 Interest Rate Change (bps) Estimated Percentage Change in Portfolio Value(1) Estimated Change as a % of NAV(1)(2) Estimated Percentage Change in Portfolio Value(1) Estimated Change as a % of NAV(1)(2) (75) 0.7% 4.2% 0.1% 0.5% (50) 0.7% 3.8% 0.2% 1.1% (25) 0.4% 2.5% 0.2% 1.1% 25 (0.5%) (3.1%) (0.3%) (1.7%) 50 (1.2%) (6.8%) (0.7%) (4.1%) 75 (1.9%) (11.0%) (1.3%) (7.3%) MBS Spread Sensitivity As of June 30, 2015 As of March 31, 2015 MBS Spread Shock (bps) Estimated Change in Portfolio Market Value Estimated Change as a % of NAV(1)(2) Estimated Change in Portfolio Market Value Estimated Change as a % of NAV(1)(2) (25) 1.4% 8.3% 1.3% 7.5% (15) 0.9% 5.0% 0.8% 4.5% (5) 0.3% 1.6% 0.3% 1.5% 5 (0.3%) (1.6%) (0.3%) (1.5%) 15 (0.9%) (4.9%) (0.8%) (4.4%) 25 (1.4%) (8.1%) (1.3%) (7.3%) 20
Commercial Real Estate Overview as of June 30, 2015 Unaudited, dollars in thousands (1) Book values and yields include unamortized net origination fees. (2) Total weighted based on book value. (3) Based on most recent third party appraisal, which may be prior to loan origination/purchase date, and on an “as is” basis at the time of underwriting. (4) Maturity dates assume all of the borrowers’ extension options are exercised. (5) Represents annualized cash-on-cash return based on current in-place rents and forecasted annual operating expenses. (6) Represents anticipated average 5-year leveraged cash-on-cash yield. (7) Weighted based on net equity investment. Debt Investments Number of Loans Book Values (1) % of Respective Portfolio Yield (1) (2) Weighted Avg LTV (2) (3) Weighted Avg Maturity (years) (2) (4) Financeable Debt Investments 7 231,444 17% 5.29% 76% 4.34 Securitized Whole Loans at Amortized Cost 9 361,216 28% 5.55% 75% 2.70 Balance Sheet Debt Investments: Senior Whole Loans 2 30,240 2% 2.71% 66% 0.36 Mezzanine Loan Investments 26 498,331 37% 10.70% 76% 3.54 Preferred Equity Investments 5 211,724 16% 11.37% 85% 5.05 Balance Sheet Debt Investment Subtotal: 33 740,295 55% 10.56% 78% 3.85 Total Debt Investments 49 1,332,955 100% 8.29% 77% 3.62 Securitized Whole Loans at Fair Value Number of Loans Fair Value % of Respective Portfolio GAAP Unlevered Yield Economic Levered Yield Weighted Avg Maturity (years) (4) Seuritized Whole Loans at Fair Value 51 2,579,687 100% 2.07% 8.14% 6.56 Total Securitized Whole Loans at Fair Value 51 2,579,687 100% 2.07% 8.14% 6.56 CMBS Investments Number of Bonds Fair Value % of Respective Portfolio GAAP Unlevered Yield Anticipated Levered Yield Weighted Average Life (years) AAA CMBS Investments - Fixed 2 51,003 22% 2.47% 13.16% 2.65 AAA CMBS Investments - Floaters 5 182,134 78% 1.47% 7.53% 1.44 Total CMBS Investments 7 233,137 100% 1.69% 8.88% 1.70 Equity Investments Number of Properties Book Value % of Respective Portfolio Yield Real Estate Held for Investment 16 204,390 94% 13.03%(5) Investment in Unconsolidated Joint Ventures 1 12,410 6% 9.00%(6) Total Equity Investments 17 216,800 100% 12.53%(7) 21
Last Five Quarters Summary Data Unaudited, dollars in thousands (1) Includes consolidated VIEs. For the quarters ended June 30, March 31, December 31, September 30, June 30, 2015 2015 2014 2014 2014 Portfolio-Related Data: Investment Securities $68,249,262 $70,491,746 $82,933,606 $82,796,568 $82,404,064 Commercial real estate investments(1) $4,362,579 $3,221,518 $1,728,197 $1,628,785 $1,660,524 Corporate debt $311,640 $227,830 $166,464 $144,451 $151,344 Total Investment Securities and commercial investment portfolio $72,923,481 $73,941,094 $84,828,267 $84,569,804 $84,215,932 Total assets $75,545,680 $78,675,677 $88,355,367 $87,387,986 $87,150,945 Average TBA position $14,624,862 $8,319,920 - - - Agency mortgage-backed securities and debentures: % Fixed-rate 94% 94% 95% 95% 95% % Adjustable-rate 6% 6% 5% 5% 5% Weighted-average three-month constant prepayment rate (CPR) 12% 9% 8% 9% 7% Net premium and discount balance in Investment Securities $4,822,332 $4,677,033 $5,349,150 $5,487,733 $5,437,108 Net premium and discount balance as % of stockholder's equity 38.30% 35.65% 40.13% 41.86% 40.43% 22
Last Five Quarters Summary Data (cont’d) Unaudited, dollars in thousands except per share amounts (1) Measures total notional balances of interest rate swaps, interest rate swaptions and futures relative to repurchase agreements and TBA notional outstanding. (2) Excludes forward starting swaps. (3) Weighted average fixed rate on forward starting pay fixed swaps was 1.77%, 1.88%, 3.25%, 3.24% and 3.10% as of June 30, 2015,March 31, 2015, December 31, 2014, September 30, 2014 and June 30, 2014, respectively. For the quarters ended June 30, March 31, December 31, September 30, June 30, 2015 2015 2014 2014 2014 Liabilities, Capital and Hedging Data: Repurchase agreements $57,459,552 $60,477,378 $71,361,926 $69,610,722 $70,372,218 Other secured financing $203,200 $90,000 - - - Convertible Senior Notes - $749,512 $845,295 $836,625 $831,167 Securitized debt of consolidated VIEs $2,610,974 $1,491,829 $260,700 $260,700 $260,700 Mortgages payable $146,359 $146,470 $146,553 $42,635 $30,316 Participation sold $13,490 $13,589 $13,693 $13,768 $13,866 Total debt $60,433,575 $62,968,778 $72,628,167 $70,764,450 $71,508,267 Total liabilities $62,950,875 $65,551,087 $75,021,586 $74,277,038 $73,702,026 Cumulative redeemable preferred stock $5,000 $913,059 $913,059 $913,059 $913,059 $913,059 Common equity $11,676,940 $12,206,446 $12,415,432 $12,197,889 $12,535,860 Total Annaly stockholders' equity $12,589,999 $13,119,505 $13,328,491 $13,110,948 $13,448,919 Non-controlling interests $4,806 $5,085 $5,290 - - Total equity $12,594,805 $13,124,590 $13,333,781 $13,110,948 $13,448,919 Weighted average days to maturity of repurchase agreements 149 149 141 159 173 Weighted average rate on repurchase agreements, at period end 0.76% 0.70% 0.61% 0.58% 0.59% Weighted average rate on repurchase agreements, average during period 0.67% 0.60% 0.60% 0.58% 0.59% Total debt to total stockholders' equity 4.8x 4.8x 5.4x 5.4x 5.3x Economic leverage ratio 5.9x 5.7x 5.4x 5.4x 5.3x Capital ratio 14.2% 14.1% 15.1% 15.0% 15.4% Common stock book value per share $12.32 $12.88 $13.10 $12.87 $13.23 Total common stock shares outstanding 947,768 947,698 947,643 947,592 947,541 Interest rate swaps: Hedge ratio(1) 54% 48% 48% 50% 48% Weighted average pay rate on interest rate swaps(2)(3) 2.29% 2.37% 2.49% 2.48% 2.48% Weighted average receive rate on interest rate swaps(2) 0.40% 0.35% 0.22% 0.21% 0.21% Weighted average net rate on interest rate swaps 1.89% 2.02% 2.27% 2.27% 2.27% 23
Last Five Quarters Summary Data (cont’d) Unaudited, dollars in thousands except per share amounts For the quarters ended June 30, March 31, December 31, September 30, June 30, 2015 2015 2014 2014 2014 Performance-Related Data: Total interest income $624,346 $519,172 $648,144 $644,640 $683,962 Total economic interest expense $252,845 $287,659 $309,420 $296,152 $347,041 Economic net interest income $371,501 $231,513 $338,724 $348,488 $336,921 GAAP Net income (loss) $900,071 ($476,499) ($658,272) $354,856 ($335,512) GAAP Net income (loss) available (related) to common shareholders $882,228 ($494,401) ($676,068) $336,864 ($353,504) GAAP Earnings per common share $0.93 ($0.52) ($0.71) $0.36 ($0.37) Core earnings $411,055 $254,082 $298,946 $308,621 $300,428 Core earnings available to common shareholders $393,063 $236,090 $280,954 $290,629 $282,436 Core earnings per common share $0.41 $0.25 $0.30 $0.31 $0.30 Dividends declared per common share $0.30 $0.30 $0.30 $0.30 $0.30 Total common and preferred dividends declared $302,323 $302,302 $302,285 $302,270 $302,253 Annualized GAAP return on average equity 28.00% (14.41%) (19.91%) 10.69% (10.32%) Annualized core return on average equity 12.79% 7.69% 9.05% 9.30% 9.24% Annualized core return on average equity per unit of economic leverage 2.17% 1.35% 1.66% 1.72% 1.74% Net interest margin 2.01% 1.26% 1.56% 1.61% 1.57% Net interest spread during the quarter: Average yield on interest earning assets 3.23% 2.47% 2.98% 2.99% 3.20% Average cost of interest bearing liabilities 1.59% 1.64% 1.69% 1.64% 1.94% Net interest spread 1.64% 0.83% 1.29% 1.35% 1.26% 24
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