- GAAP net loss of ($627.5) million,
($0.68) loss per average common share
- Core earnings of $217.6 million, $0.21
earnings per average common share
- Normalized core earnings of $0.30 per
average common share, excludes $0.09 of premium amortization
adjustment cost due to change in long-term CPR estimate
- Common stock book value of $11.99,
economic leverage of 5.8:1
- 26% increase in credit investment
portfolio, represents 18% of total stockholders’ equity
- Enhanced disclosure of financial
results and portfolio details
Annaly Capital Management, Inc. (NYSE:NLY) (the “Company”) today
announced its financial results for the quarter ended September 30,
2015.
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“Annaly’s third quarter results continue to exemplify the
stability and resilience of our business model amidst one of the
most unique and volatile time periods in the history of fixed
income markets,” commented Kevin Keyes, Chief Executive Officer and
President. “Our diversified investment platform continues to grow
while producing stable risk-adjusted returns in a challenging
market environment. Annaly’s commercial real estate and non-Agency
residential credit portfolios grew by approximately 26% over the
previous quarter and now constitute approximately 18% of our total
equity capital. The credit investment portfolio, which is
predominantly made up of low-levered, floating rate, longer term
cash flows, complements our Agency MBS strategy in this current
environment of heightened interest rate volatility. As we proceed
in anticipation of eventual Federal Reserve policy action and
continued market dislocation, we remain prepared with a strong
capital position to take advantage of multiple investment
opportunities.”
“Also, in an effort to provide increased transparency into our
evolving business strategy and performance, we have enhanced our
disclosure of our growing non-Agency and commercial asset
portfolios; and also provided a more detailed discussion of our
core financial earnings to now include the effects of long term
prepayment estimates upon our results. Normalized core earnings,
excluding premium amortization adjustments, is intended to provide
investors with a reference point for each quarter’s dividend
payment. ”
Enhanced Financial
Disclosure
Beginning with this quarterly earnings release, the Company has
added an additional non-GAAP disclosure in order to provide
investors and stakeholders additional detail and insight into the
Company’s results. The Company’s traditional non-GAAP “core
earnings” (which 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)) measure
includes a component of premium amortization representing the
change in estimated long-term constant prepayment rates (“CPR”)
(referred to herein as the premium amortization adjustment
(“PAA”)). In addition to the existing core earnings measure, the
Company is now providing a non-GAAP “normalized core earnings”
measure which presents the Company’s core earnings excluding the
PAA. Additionally, under the title “normalized” the Company will
disclose other measures (such as net interest margin, annualized
yield on interest earnings assets, net interest spread and core
return on average equity) which exclude the effect of the PAA. The
Company believes these additional metrics will permit investors and
stakeholders to evaluate the various components of its financial
performance in a more detailed manner. Discussions of
period-over-period fluctuations within the following ‘Financial
Performance’ section are presented based on GAAP and normalized
results.
The Company’s GAAP and core earnings metrics (that are not
normalized) include the PAA because in accordance with GAAP the
Company recognizes income under the retrospective method on
substantially all of its Investment Securities classified as
available-for-sale. Premiums and discounts associated with the
purchase of Investment Securities are amortized or accreted into
income over the remaining projected lives of the securities. Using
a third-party supplied model and market information to project
future cash flows and expected remaining lives of securities, the
effective interest rate determined for each security is applied as
if it had been in place from the security’s acquisition. The
amortized cost of the investment is then adjusted to the amount
that would have existed had the new effective yield been applied
since the acquisition. The adjustment to amortized cost is offset
with a charge or credit to interest income. Changes in interest
rates and other market factors will impact prepayment speed
projections and the amount of premium amortization recognized in a
period.
The following table illustrates the impact of adjustments to
long-term CPR estimates on premium amortization expense for the
periods presented:
September 30, 2015
June 30, 2015 September 30, 2014
(dollars in thousands) Premium amortization expense $
255,123 $ 94,037 $ 197,709 Less: PAA cost (benefit) 83,136
(79,582 ) 25,992 Premium
amortization expense exclusive of PAA $ 171,987 $
173,619 $ 171,717
September 30,
2015 June 30, 2015
September 30, 2014 (per common share) Premium
amortization expense $ 0.27 $ 0.10 $ 0.21 Less: PAA cost (benefit)
0.09 (0.08 ) 0.02
Premium amortization expense exclusive of PAA $ 0.18
$ 0.18 $ 0.19
In addition to the enhanced disclosures described above,
beginning with this quarterly earnings release the Company is also
providing additional and more detailed portfolio information,
including information on the Company’s non-Agency residential
credit assets and commercial real estate portfolio (see Third
Quarter 2015 Supplemental Information available on the Company’s
website www.annaly.com).
The following represents an example of augmented disclosures on
our residential and commercial credit assets as of September 30,
2015:
Residential Credit Portfolio
(aggregate fair value of $820.8 million):
Sector Type Coupon Type STACR
20% Fixed 48% CAS 18% Floating 48% NPL 17% ARM 3% Jumbo 2.0
14% IO 1% Prime 10% Total 100% Subprime 7% Alt-A 6% RPL 5% L-Street
CRT 2% Jumbo 2.0 IO 1% Total 100%
Commercial Credit Portfolio
(aggregate economic interest of $1.9 billion):
Sector Type Geographic Concentration
Multifamily 54% NY 40% Office 17% CA 13% Retail 12%
TX 6% Hotel 7% FL 5% Industrial 4% Other 36% Other 6% Total 100%
Total 100%
Financial
Performance
The following table summarizes certain key performance
indicators as of and for the quarters ended September 30, 2015,
June 30, 2015, and September 30, 2014:
September 30, 2015
June 30, 2015 September 30, 2014 Book
value per common share $11.99 $12.32 $12.87 Economic leverage at
period-end (1) 5.8:1 5.6:1 5.4:1 GAAP net income (loss) per common
share ($0.68) $0.93 $0.36 Core earnings per common share $0.21
$0.41 $0.31 Normalized core earnings per common share (2) $0.30
$0.33 $0.33 Annualized return (loss) on average equity (20.18%)
28.00% 10.69% Annualized core return on average equity 7.00% 12.79%
9.30% Annualized normalized core return on average equity (2) 9.67%
10.31% 10.08% Net interest margin (3) 1.24% 2.01% 1.61% Normalized
net interest margin (2) 1.62% 1.67% 1.74% Net interest spread 0.76%
1.64% 1.35% Normalized net interest spread (2) 1.21% 1.23% 1.47%
Average yield on interest earning assets 2.41% 3.23% 2.99%
Normalized average yield on interest earning assets (2) 2.86% 2.82%
3.11% (1) Computed as the sum of recourse debt, TBA
derivative notional outstanding and net forward purchases of
Investment Securities divided by total equity. Recourse debt
consists of repurchase agreements, other secured financing and
Convertible Senior Notes. Securitized debt, participation sold and
mortgages payable are non-recourse to the Company and are excluded
from this measure. (2) Excludes effect of the PAA due to changes in
long-term CPR estimates. (3) 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. Average interest earning assets reflects the average
amortized cost of our investments during the period.
The Company reported a GAAP net loss for the quarter ended
September 30, 2015 of ($627.5) million, or ($0.68) per average
common share, compared to GAAP net income of $900.1 million, or
$0.93 per average common share, for the quarter ended June 30,
2015, and GAAP net income of $354.9 million, or $0.36 per average
common share, for the quarter ended September 30, 2014. The
decrease for the quarter ended September 30, 2015 compared to each
of the quarters ended June 30, 2015 and September 30, 2014 is
primarily the result of unfavorable market value changes on
interest rate swaps.
Core earnings for the quarter ended September 30, 2015 was
$217.6 million, or $0.21 per average common share, compared to
$411.1 million, or $0.41 per average common share, for the quarter
ended June 30, 2015, and $308.6 million, or $0.31 per average
common share, for the quarter ended September 30, 2014. Normalized
core earnings, which excludes the PAA, for the quarter ended
September 30, 2015 was $300.7 million, or $0.30 per average common
share, compared to $331.5 million, or $0.33 per average common
share, for the quarter ended June 30, 2015, and $334.6 million, or
$0.33 per average common share, for the quarter ended September 30,
2014. Normalized core earnings declined during the quarter ended
September 30, 2015 compared to the quarter ended June 30, 2015 on
higher swap costs in the current quarter due to increased notional
balances as well as due to a reduction in investment advisory
income and dividend income resulting from Chimera’s internalization
of its management and the Company’s disposition of its investment
in Chimera during the quarter. Normalized core earnings declined
during the quarter ended September 30, 2015 compared to the quarter
ended September 30, 2014 as a result of lower average interest
earning assets and lower weighted average coupons.
The following table presents a reconciliation between GAAP net
income (loss), core earnings and normalized core earnings for the
quarters ended September 30, 2015, June 30, 2015, and September 30,
2014:
For the quarters ended September 30, 2015
June 30, 2015 September 30, 2014
(dollars in thousands) GAAP net income (loss) $ (627,491 )
$ 900,071 $ 354,856 Less: Unrealized (gains) losses on
interest rate swaps 822,585 (700,792 ) (98,593 ) Net (gains) losses
on disposal of investments 7,943 (3,833 ) (4,693 ) Net (gains)
losses on trading assets (108,175 ) 114,230 (4,676 ) Net unrealized
(gains) losses on financial instruments measured at fair value
through earnings 24,501 (17,581 ) 37,944 Other non-recurring loss
(1) - - 23,783 Impairment of goodwill - 22,966 - GAAP net (income)
loss attributable to noncontrolling interest 197 149 - Plus: TBA
dollar roll income (2) 98,041 95,845
- Core earnings 217,601 411,055 308,621
Premium amortization adjustment cost (benefit) 83,136
(79,582 ) 25,992 Normalized core
earnings $
300,737
$ 331,473 $ 334,613 GAAP
net income (loss) per average common share $ (0.68 ) $ 0.93
$ 0.36 Core earnings per average common share
$ 0.21 $ 0.41 $ 0.31 Normalized
core earnings per average common share $ 0.30 $ 0.33
$ 0.33 (1) Represents a one-time
payment made by FIDAC to Chimera Investment Corp. (Chimera) to
resolve issues raised in derivative demand letters sent to
Chimera’s board of directors. This amount is a component of Other
income (loss) in the Company’s Consolidated Statements of
Comprehensive Income (Loss). (2) Represents a component of Net
gains (losses) on trading assets.
Normalized net interest margin for the quarters ended September
30, 2015, June 30, 2015, and September 30, 2014 was 1.62%, 1.67%
and 1.74%, respectively. For the quarter ended September 30, 2015,
the normalized average yield on interest earning assets was 2.86%
and the average cost of interest bearing liabilities, including
interest expense on interest rate swaps used to hedge cost of
funds, was 1.65%, which resulted in a normalized net interest
spread of 1.21%. The normalized average yield on interest earning
assets for the quarter ended September 30, 2015 increased
incrementally when compared to the quarter ended June 30, 2015 due
to higher weighted average coupons on Investment Securities and
decreased when compared to the quarter ended September 30, 2014 due
to lower weighted average coupons on Investment Securities. Our
average cost of interest bearing liabilities increased for the
quarter ended September 30, 2015 when compared to the quarter ended
June 30, 2015 on higher swap costs and reduced average repurchase
agreement balances. Our average cost of interest bearing
liabilities for the quarter ended September 30, 2015 when compared
to the quarter ended September 30, 2014 was relatively
unchanged.
Asset
Portfolio
Investment Securities, which are comprised of Agency
mortgage-backed securities, Agency debentures, credit risk transfer
securities and Non-Agency mortgage-backed securities, totaled $67.0
billion at September 30, 2015, compared to $68.2 billion at June
30, 2015 and $82.8 billion at September 30, 2014. The Company’s
Investment Securities portfolio at September 30, 2015 was comprised
of 93% fixed-rate assets with the remainder constituting adjustable
or floating-rate investments. During the quarter ended September
30, 2015, the Company disposed of $3.7 billion of Investment
Securities, resulting in a net realized gain of $4.5 million.
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 September 30, 2014,
the Company disposed of $4.2 billion of Investment Securities,
resulting in a net realized gain of $4.7 million.
At September 30, 2015, the Company had outstanding $14.1 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 September 30, 2015:
Purchase and sale contracts for
derivative TBAs
Notional
Implied Cost Basis Implied Market Value
Net Carrying Value (dollars in thousands)
Purchase contracts $ 14,055,000 $ 14,490,220 $ 14,577,736 $ 87,516
Sale contracts - - -
- Net TBA derivatives $ 14,055,000 $ 14,490,220
$ 14,577,736 $ 87,516
The Company uses a third-party model and market information 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
to the results. The net amortization of premiums and accretion of
discounts on Investment Securities for the quarters ended September
30, 2015, June 30, 2015, and September 30, 2014, was $255.1 million
(which included PAA cost of $83.1 million), $94.0 million (which
included PAA benefit of $79.6 million), and $197.7 million (which
included PAA cost of $26.0 million), respectively. The total net
premium balance on Investment Securities at September 30, 2015,
June 30, 2015, and September 30, 2014, was $4.8 billion, $4.8
billion, and $5.5 billion, respectively. The weighted average
amortized cost basis of the Company’s non-interest-only Investment
Securities at September 30, 2015, June 30, 2015, and September 30,
2014, was 105.3%, 105.4%, and 105.4%, respectively. The weighted
average amortized cost basis of the Company’s interest-only
Investment Securities at September 30, 2015, June 30, 2015, and
September 30, 2014, was 16.1%, 16.0%, and 15.2%, respectively. The
weighted average experienced CPR on our Agency mortgage-backed
securities for the quarters ended September 30, 2015, June 30,
2015, and September 30, 2014, was 12%, 12% and 9%, respectively.
The weighted average long-term CPR on our Agency mortgage-backed
securities at September 30, 2015, June 30, 2015, and September 30,
2014, was 9.2%, 7.7% and 6.9%, 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”) and loans held
for sale of $476.6 million, totaled $4.7 billion and investments in
commercial real estate totaled $301.4 million at September 30,
2015. Commercial real estate debt and preferred equity, including
securitized loans of consolidated VIEs, totaled $4.1 billion and
investments in commercial real estate totaled $216.8 million at
June 30, 2015. Corporate debt investments totaled $425.0 million as
of September 30, 2015, up from $311.6 million at June 30, 2015. The
weighted average yield on commercial real estate debt and preferred
equity, which includes loans held for sale, as of September 30,
2015, June 30, 2015, and September 30, 2014, was 6.82%, 8.29% and
9.23%, respectively. Excluding loans held for sale, the weighted
average yield on commercial real estate debt and preferred equity
was 7.63% at September 30, 2015. The weighted average levered
return on investments in commercial real estate, excluding real
estate held-for-sale, as of September 30, 2015, June 30, 2015, and
September 30, 2014, was 11.59%, 12.53% and 11.46%,
respectively.
During the quarter, the Company originated or provided
additional funding on pre-existing debt commitments totaling $652.8
million with a weighted average coupon of 3.74%, of which $480.0
million ($476.6 net of unamortized origination fees) is held for
sale at September 30, 2015. During the quarter, the Company
received gross cash of $162.5 million from partial paydowns,
prepayments and maturities with a weighted average coupon of 8.90%.
During the quarter, the Company purchased three retail properties
for a gross purchase price of $244.5 million and a net equity
investment of $67.9 million with an expected levered return of
9.60%. The Company also acquired AAA rated commercial
mortgage-backed securities during the quarter for a gross purchase
price of $91.3 million and a net equity investment of $15.5 million
with a levered return of 8.12%. During the quarter, the Company
grew its corporate debt portfolio by $113.3 million.
At September 30, 2015, June 30, 2015, and September 30, 2014,
residential and commercial credit assets (excluding loans held for
sale) comprised 18%, 14% and 11% of stockholders’ equity.
Capital and
Funding
At September 30, 2015, total stockholders’ equity was $12.3
billion. Leverage at September 30, 2015, June 30, 2015, and
September 30, 2014, was 4.8:1, 4.8:1 and 5.4:1, 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 excludes
non-recourse debt and includes other forms of financing such as TBA
dollar roll transactions, was 5.8:1 at September 30, 2015, compared
to 5.6:1 at June 30, 2015, and 5.4:1 at September 30, 2014. At
September 30, 2015, June 30, 2015, and September 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 13.7%, 14.2%, and 15.0%,
respectively. On a GAAP basis, the Company produced an annualized
return (loss) on average equity for the quarters ended September
30, 2015, June 30, 2015, and September 30, 2014 of (20.18%),
28.00%, and 10.69%, respectively. On a normalized core earnings
basis, the Company provided an annualized return on average equity
for the quarters ended September 30, 2015, June 30, 2015, and
September 30, 2014, of 9.67%, 10.31%, and 10.08%, respectively.
At September 30, 2015, June 30, 2015, and September 30, 2014,
the Company had a common stock book value per share of $11.99,
$12.32 and $12.87, respectively.
At September 30, 2015, June 30, 2015, and September 30, 2014,
the Company had outstanding $56.4 billion, $57.5 billion, and $69.6
billion of repurchase agreements, with weighted average remaining
maturities of 147 days, 149 days, and 159 days, respectively, and
with weighted average borrowing rates of 1.75%, 1.73%, and 1.61%,
after giving effect to the Company’s interest rate swaps used to
hedge cost of funds. During the quarters ended September 30, 2015,
June 30, 2015, and September 30, 2014, the weighted average rate on
repurchase agreements was 0.73%, 0.67%, and 0.58% respectively.
The following table presents the principal balance and weighted
average rate of repurchase agreements by maturity at June 30,
2015:
Maturity Principal Balance Weighted Average
Rate (dollars in thousands) Within 30 days $ 19,880,862
0.50 % 30 to 59 days 4,846,173 0.52 % 60 to 89 days 8,840,129 0.57
% 90 to 119 days 3,957,380 0.52 % Over 120 days(1)
18,924,820 1.29 % Total $ 56,449,364 0.78 %
(1) Approximately 14% of the total
repurchase agreements have a remaining maturity over 1 year.
Hedge
Portfolio
At September 30, 2015, the Company had outstanding interest rate
swaps with a net notional amount of $29.7 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 September 30, 2015,
the swap portfolio, excluding forward starting swaps, had a
weighted average pay rate of 2.26%, a weighted average receive rate
of 0.42% and a weighted average maturity of 7.28 years.
The following table summarizes certain characteristics of the
Company’s interest rate swaps at September 30, 2015:
Weighted
Weighted
Weighted
Average Pay
Average Receive
Average Years
Maturity
Current Notional (1)
Rate (2)(3)
Rate (2)
to Maturity (2)
(dollars in thousands) 0 - 3 years $ 3,202,454 1.85 % 0.22 %
2.04 3 - 6 years 11,113,000 1.81 % 0.46 % 4.49 6 - 10 years
11,743,300 2.45 % 0.47 % 8.20 Greater than 10 years
3,634,400 3.70 % 0.26 % 19.62 Total / Weighted
Average $ 29,693,154 2.26 % 0.42 % 7.28
(1) Notional amount includes $0.5 billion in forward
starting pay fixed swaps, which settle in December 2015. (2)
Excludes forward starting swaps. (3) Weighted average fixed rate on
forward starting pay fixed swaps was 2.04 %
.
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
September 30, 2015:
Notional - Long Notional - Short
Weighted Average
Positions Positions
Years to Maturity
(dollars in thousands) 2-year swap equivalent Eurodollar
contracts $ - $ (8,000,000 ) 2.00 U.S. Treasury futures - 5 year -
(2,273,000 ) 4.41 U.S. Treasury futures - 10 year and greater
- (655,600 ) 6.92 Total $ - $
(10,928,600 ) 2.80
At September 30, 2015, June 30, 2015, and September 30, 2014,
the Company’s hedge ratio was 58%, 54% and 50%. 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
September 30, 2015, June 30, 2015, and September 30, 2014 were
$0.30 per common share. The annualized dividend yield on the
Company’s common stock for the quarter ended September 30, 2015,
based on the September 30, 2015 closing price of $9.87, was 12.16%,
compared to 13.06% for the quarter ended June 30, 2015, and 11.24%
for the quarter ended September 30, 2014.
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 September 30, 2015, June 30, 2015, and
September 30, 2014:
September 30, 2015 June 30, 2015
September 30, 2014
Portfolio Related
Metrics:
Fixed-rate Investment Securities as a percentage of
total Investment Securities 93% 94% 95% Adjustable-rate and
floating-rate Investment Securities as a percentage of total
Investment Securities 7% 6% 5% Weighted average experienced CPR,
for the period 12% 12% 9% Weighted average projected long-term CPR,
as of period end 9.2% 7.7% 6.9% Weighted average yield on
commercial real estate debt and preferred equity at period-end (1)
6.82% 8.29% 9.23% Weighted average levered return on investments in
commercial real estate at period-end (2) 11.59% 12.53%
11.46%
Liabilities and
Hedging Metrics:
Weighted average days to maturity on repurchase agreements
outstanding at period-end 147 149 159 Hedge ratio (3) 58% 54% 50%
Weighted average pay rate on interest rate swaps at period-end (4)
2.26% 2.29% 2.48% Weighted average receive rate on interest rate
swaps at period-end (4) 0.42% 0.40% 0.21% Weighted average net rate
on interest rate swaps at period-end (4) 1.84% 1.89% 2.27% Leverage
at period-end (5) 4.8:1 4.8:1 5.4:1 Economic leverage at period-end
(6) 5.8:1 5.6:1 5.4:1 Capital ratio at period-end 13.7%
14.2% 15.0%
Performance
Related Metrics:
Book value per common share $11.99 $12.32 $12.87 GAAP net income
(loss) per common share ($0.68) $0.93 $0.36 Core earnings per
common share $0.21 $0.41 $0.31 Normalized core earnings per common
share $0.30 $0.33 $0.33 Annualized return (loss) on average equity
(20.18%) 28.00% 10.69% Annualized core return on average equity
7.00% 12.79% 9.30% Annualized normalized core return on average
equity 9.67% 10.31% 10.08% Net interest margin 1.24% 2.01% 1.61%
Normalized net interest margin 1.62% 1.67% 1.74% Average yield on
interest earning assets (7) 2.41% 3.23% 2.99% Normalized average
yield on interest earning assets (7) 2.86% 2.82% 3.11% Average cost
of interest bearing liabilities (8) 1.65% 1.59% 1.64% Net interest
spread 0.76% 1.64% 1.35% Normalized net interest spread 1.21%
1.23% 1.47% (1) Includes loans held for
sale. Excluding loans held for sale, the weighted average yield on
commercial real estate debt and preferred equity was 7.63% at
September 30, 2015. (2) Excludes real estate held-for-sale. (3)
Measures total notional balances of interest rate swaps, interest
rate swaptions and futures relative to repurchase agreements and
TBA notional outstanding. (4) Excludes forward starting swaps. (5)
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. (6) Computed as
the sum of recourse debt, TBA derivative notional outstanding and
net forward purchases of Investment Securities divided by total
equity. (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.
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 Investors
section under Investor Presentations.
Conference
Call
The Company will hold the third quarter 2015 earnings conference
call on November 5, 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 5317373. 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
10074993. 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)
September 30,
June 30, March 31,
December 31,
September 30,
2015 2015 2015
2014(1)
2014 (Unaudited) (Unaudited)
(Unaudited) (Unaudited) ASSETS
Cash and cash equivalents $ 2,237,423 $ 1,785,158 $ 1,920,326 $
1,741,244 $ 1,178,621 Reverse repurchase agreements - - 100,000
100,000 - Investments, at fair value: Agency mortgage-backed
securities 65,806,640 67,605,287 69,388,001 81,565,256 81,462,387
Agency debentures 413,115 429,845 995,408 1,368,350 1,334,181
Credit risk transfer securities 330,727 214,130 108,337 - -
Non-Agency mortgage-backed securities 490,037 - - - - Commercial
real estate debt investments (2) 2,881,659 2,812,824 1,515,903 - -
Investment in affiliate - 123,343 141,246 143,045 136,748
Commercial real estate debt and preferred equity, held for
investment (3) 1,316,595 1,332,955 1,498,406 1,518,165 1,554,958
Loans held for sale 476,550 - - - - Investments in commercial real
estate 301,447 216,800 207,209 210,032 73,827 Corporate debt
424,974 311,640 227,830 166,464 144,451 Receivable for investments
sold 127,571 247,361 2,009,937 1,010,094 855,161 Accrued interest
and dividends receivable 228,169 234,006 247,801 278,489 287,231
Receivable for investment advisory income 3,992 10,589 10,268
10,402 8,369 Goodwill 71,815 71,815 94,781 94,781 94,781 Interest
rate swaps, at fair value 39,295 30,259 25,908 75,225 198,066 Other
derivatives, at fair value 87,516 38,074 113,503 5,499 19,407 Other
assets 101,162 81,594 70,813
68,321 39,798 Total
assets $ 75,338,687 $ 75,545,680 $ 78,675,677
$ 88,355,367 $ 87,387,986
LIABILITIES AND
STOCKHOLDERS’ EQUITY Liabilities: Repurchase agreements $
56,449,364 $ 57,459,552 $ 60,477,378 $ 71,361,926 $ 69,610,722
Other secured financing 359,970 203,200 90,000 - - Securities
loaned - - - - 7 Convertible Senior Notes - - 749,512 845,295
836,625 Securitized debt of consolidated VIEs (4) 2,553,398
2,610,974 1,491,829 260,700 260,700 Mortgages payable 166,697
146,359 146,470 146,553 42,635 Participation sold 13,389 13,490
13,589 13,693 13,768 Payable for investments purchased 744,378
673,933 5,205 264,984 2,153,789 Accrued interest payable 145,554
131,629 155,072 180,501 180,345 Dividends payable 284,348 284,331
284,310 284,293 284,278 Interest rate swaps, at fair value
2,160,350 1,328,729 2,025,170 1,608,286 857,658 Other derivatives,
at fair value 113,626 40,539 61,778 8,027 - Accounts payable and
other liabilities 63,280 58,139
50,774 47,328 36,511 Total
liabilities 63,054,354 62,950,875
65,551,087 75,021,586 74,277,038
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,
947,826,176, 947,768,496, 947,698,431,
947,643,079 and 947,591,766
issued and outstanding, respectively
9,478 9,478 9,477 9,476 9,476 Additional paid-in capital 14,789,320
14,788,677 14,787,117 14,786,509 14,781,308 Accumulated other
comprehensive income (loss) 262,855 (354,965 ) 773,999 204,883
(967,820 ) Accumulated deficit (3,695,884 )
(2,766,250 ) (3,364,147 ) (2,585,436 )
(1,625,075 ) Total stockholders’ equity 12,278,828 12,589,999
13,119,505 13,328,491 13,110,948 Noncontrolling interest
5,505 4,806 5,085 5,290
- Total equity 12,284,333
12,594,805 13,124,590 13,333,781
13,110,948 Total liabilities and equity $ 75,338,687
$ 75,545,680 $ 78,675,677 $ 88,355,367
$ 87,387,986 (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, $2.6
billion and $1.4 billion at September 30, 2015, June 30, 2015 and
March 31, 2015, respectively. (3) Includes senior securitized
commercial mortgage loans of consolidated VIE with a carrying value
of $314.9 million, $361.2 million, $361.2 million, $398.6 million
and $398.4 million at September 30, 2015, June 30, 2015, March 31,
2015, December 31, 2014, and September 30, 2014, respectively. (4)
Includes securitized debt of consolidated VIEs carried at fair
value of $2.4 billion, $2.4 billion and $1.3 billion at September
30, 2015, 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
September 30,
June 30, March 31,
December 31,
September 30,
2015 2015 2015 2014 2014 Net
interest income: Interest income $ 450,792 $ 624,346 $ 519,172
$ 648,144 $ 644,640 Interest expense 110,297
113,072 129,420 134,512
127,069
Net interest income 340,495
511,274 389,752 513,632
517,571
Realized and unrealized gains
(losses): Realized gains (losses) on interest rate swaps(1)
(162,304 ) (144,465 ) (158,239 ) (174,908 ) (169,083 ) Realized
gains (losses) on termination of interest rate swaps - - (226,462 )
- - Unrealized gains (losses) on interest rate swaps
(822,585 ) 700,792 (466,202 ) (873,468
) 98,593
Subtotal (984,889 )
556,327 (850,903 ) (1,048,376 ) (70,490
) Net gains (losses) on disposal of investments (7,943 ) 3,833
62,356 3,420 4,693 Net gains (losses) on trading assets 108,175
(114,230 ) (6,906 ) (57,454 ) 4,676 Net unrealized gains (losses)
on financial instruments measured at fair value through earnings
(24,501 ) 17,581 (33,546 ) (29,520 ) (37,944 ) Impairment of
goodwill - (22,966 ) - -
-
Subtotal 75,731
(115,782 ) 21,904 (83,554 ) (28,575 )
Total realized and unrealized gains (losses) (909,158
) 440,545 (828,999 ) (1,131,930 )
(99,065 )
Other income (loss): Investment
advisory income 3,780 10,604 10,464 10,858 8,253 Dividend income
from affiliate - 4,318 4,318 4,048 4,048 Other income (loss)
(13,521 ) (22,344 ) (1,082 ) 3,365
(22,249 )
Total other income (loss) (9,741 )
(7,422 ) 13,700 18,271
(9,948 )
General and administrative expenses:
Compensation and management fee 37,450 37,014 38,629 38,734 39,028
Other general and administrative expenses 12,007
14,995 12,309 19,720
12,289
Total general and administrative
expenses 49,457 52,009
50,938 58,454 51,317
Income (loss) before income taxes (627,861 ) 892,388
(476,485 ) (658,481 ) 357,241
Income taxes
(370 ) (7,683 ) 14 (209 ) 2,385
Net income (loss) (627,491 ) 900,071 (476,499
) (658,272 ) 354,856
Net income (loss) attributable to
noncontrolling interest (197 ) (149 ) (90
) (196 ) -
Net income (loss)
attributable to Annaly (627,294 ) 900,220 (476,409 ) (658,076 )
354,856
Dividends on preferred stock 17,992
17,992 17,992 17,992
17,992
Net income (loss) available
(related) to common stockholders $ (645,286 ) $ 882,228
$ (494,401 ) $ (676,068 ) $ 336,864
Net income
(loss) per share available (related) to common stockholders:
Basic $ (0.68 ) $ 0.93 $ (0.52 ) $ (0.71 ) $ 0.36
Diluted $ (0.68 ) $ 0.93 $ (0.52 ) $ (0.71 ) $ 0.35
Weighted average number of common shares outstanding:
Basic 947,795,500 947,731,493
947,669,831 947,615,793 947,565,432
Diluted 947,795,500 947,929,762
947,669,831 947,615,793
987,315,527
Net income (loss) $ (627,491 ) $
900,071 $ (476,499 ) $ (658,272 ) $ 354,856
Other
comprehensive income (loss): Unrealized gains (losses) on
available-for-sale securities 609,725 (1,125,043 ) 631,472
1,175,864 (390,871 ) Reclassification adjustment for net (gains)
losses included in net income (loss) 8,095
(3,921 ) (62,356 ) (3,161 ) (4,693 ) Other
comprehensive income (loss) 617,820 (1,128,964
) 569,116 1,172,703 (395,564 )
Comprehensive income (loss) (9,671 ) (228,893 ) 92,617 514,431
(40,708 ) Comprehensive income (loss) attributable to
noncontrolling interest (197 ) (149 ) (90 )
(196 ) -
Comprehensive income (loss)
attributable to Annaly $ (9,474 ) $ (228,744 ) $ 92,707
$ 514,627 $ (40,708 ) (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 nine
months September 30, September 30, 2015
2014 Net interest income: Interest
income $ 1,594,310 $ 1,984,503 Interest expense 352,789
378,147
Net interest income
1,241,521 1,606,356
Realized and unrealized
gains (losses): Realized gains (losses) on interest rate
swaps(1) (465,008 ) (650,452 ) Realized gains (losses) on
termination of interest rate swaps (226,462 ) (779,333 ) Unrealized
gains (losses) on interest rate swaps (587,995 )
(75,287 )
Subtotal (1,279,465 ) (1,505,072 )
Net gains (losses) on disposal of investments 58,246 90,296 Net
gains (losses) on trading assets (12,961 ) (188,041 ) Net
unrealized gains (losses) on financial instruments measured at fair
value through earnings (40,466 ) (56,652 ) Impairment of goodwill
(22,966 ) -
Subtotal (18,147 )
(154,397 )
Total realized and unrealized gains
(losses) (1,297,612 ) (1,659,469 )
Other
income (loss): Investment advisory income 24,848 20,485
Dividend income from affiliate 8,636 21,141 Other income (loss)
(36,947 ) (16,102 )
Total other income (loss)
(3,463 ) 25,524
General and administrative
expenses: Compensation and management fee 113,093 116,826 Other
general and administrative expenses 39,311
34,058
Total general and administrative expenses
152,404 150,884
Income (loss) before
income taxes (211,958 ) (178,473 )
Income taxes
(8,039 ) 5,534
Net income (loss)
(203,919 ) (184,007 )
Net income (loss) attributable to
noncontrolling interest (436 ) -
Net
income (loss) attributable to Annaly (203,483 )
(184,007 )
Dividends on preferred stock 53,976
53,976
Net income (loss) available (related) to
common stockholders $ (257,459 ) $ (237,983 )
Net
income (loss) per share available (related) to common
stockholders: Basic $ (0.27 ) $ (0.25 ) Diluted $ (0.27 ) $
(0.25 )
Weighted average number of common shares
outstanding: Basic 947,732,735 947,513,514
Diluted 947,732,735 947,513,514
Net income (loss) $ (203,919 ) $ (184,007 )
Other
comprehensive income (loss): Unrealized gains (losses) on
available-for-sale securities 116,154 1,872,427 Reclassification
adjustment for net (gains) losses included in net income (loss)
(58,182 ) (91,314 ) Other comprehensive income (loss)
57,972 1,781,113 Comprehensive income
(loss) (145,947 ) 1,597,106 Comprehensive income (loss)
attributable to noncontrolling interest (436 ) -
Comprehensive income (loss) attributable to Annaly $
(145,511 ) $ 1,597,106 (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).
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