- GAAP net income of $669.7 million,
$0.69 per average common share
- Normalized core earnings of $0.31 per
average common share, excludes $0.02 of PAA
- Common stock book value of $11.73,
economic leverage of 6.0:1
- Executed share repurchases to date
totaling $217.0 million since November 2015
- Credit investment portfolio represents
23% of stockholders’ equity
- Updated capital allocation policy in
support of diversification strategy
- Enhanced disclosure of Commercial Real
Estate, Residential Credit and Middle Market Lending
businesses
Annaly Capital Management, Inc. (NYSE:NLY) (the “Company”) today
announced its financial results for the quarter and year ended
December 31, 2015.
“In the challenging market environment of 2015, Annaly delivered
over $1.2 billion in dividend distributions to shareholders while
producing an attractive return on equity with the lowest leverage
in the industry” commented Kevin Keyes, Chief Executive Officer and
President. “Annaly is not only the largest and most liquid mortgage
REIT in the world, the Company now operates a more efficient and
diverse investment platform positioned to uniquely benefit from
investment opportunities across numerous markets and asset
classes.
“Also this quarter, in an effort to continue to provide
increased transparency into our evolving business strategy and
capital allocation options, we have included enhanced disclosure of
our sizeable commercial real estate, residential credit and middle
market lending portfolios. As we have stated, these three
businesses complement our core Agency MBS strategies and now
comprise approximately 23% of our total equity capital.”
Updated Capital
Allocation Policy
As part of the Company’s diversification strategy, in February
2016, the Company’s board of directors (“Board”) adopted an updated
capital allocation policy. The updated policy allows the Company
greater flexibility to generate attractive returns for the
Company’s stockholders. Under the Company’s capital allocation
policy, subject to oversight by the Board, the Company may allocate
investments within its target asset classes as it determines is
appropriate from time to time. The following target assets have
been approved for investment under the Company’s capital allocation
policy.
Residential
Commercial
-- Agency mortgage-backed
securities
-- Commercial real estate,
including:
-- To-be-announced forward contracts
(or TBAs)
Commercial mortgage loans
-- Agency debentures
Commercial mortgage-backed securities
-- Residential credit investments,
including:
Preferred equity
Residential mortgage loans
Other real estate-related debt
investments
Residential mortgage-backed securities
Real property
Agency credit risk sharing transactions
-- Corporate debt including loans and
securities of
middle market companies
The Board may make changes to the Company’s capital allocation
policy and targeted assets as it deems appropriate at its
discretion.
Enhanced Financial
Disclosure
Beginning with the third quarter 2015, the Company introduced a
series of non-GAAP “normalized” financial metrics intended to
provide investors more details on the various components of the
Company’s financial performance. The Company’s traditional non-GAAP
“core earnings” 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”)). Normalized core earnings
presents the Company’s core earnings excluding the PAA.
Additionally, under the title “normalized” the Company discloses
other measures (such as net interest margin, annualized yield on
interest earning assets, net interest spread and core return on
average equity) which exclude the effect of the PAA. 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 a
substantial portion of its Residential Investment Securities
classified as available-for-sale. Premiums and discounts associated
with the purchase of Residential 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
date. 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 any given period.
The following table illustrates the impact of adjustments to
long-term CPR estimates on premium amortization expense for the
quarters ended December 31, 2015, September 30, 2015, and December
31, 2014:
December 31, 2015
September 30, 2015 December 31, 2014
(dollars in thousands) Premium amortization expense $
159,720 $ 255,123 $ 198,041 Less: PAA cost (benefit) (18,072
) 83,136 31,695 Premium amortization
expense exclusive of PAA $ 177,792 $ 171,987 $
166,346
December 31, 2015 September
30, 2015 December 31, 2014 (per common
share) Premium amortization expense $ 0.17 $ 0.27 $ 0.21 Less:
PAA cost (benefit) (0.02 ) 0.09
0.03 Premium amortization expense exclusive of PAA $ 0.19
$ 0.18 $ 0.18
In addition to the enhanced disclosures described above, the
Company is also providing additional and more detailed information
on its commercial real estate, residential credit and corporate
debt businesses in its Fourth Quarter 2015 Supplemental Information
available on the Company’s website www.annaly.com.
Financial
Performance
The following table summarizes certain key performance
indicators as of and for the quarters ended December 31, 2015,
September 30, 2015, and December 31, 2014:
December 31, 2015 September 30, 2015
December 31, 2014 Book value per common share $11.73 $11.99
$13.10 Economic leverage at period-end (1) 6.0:1 5.8:1 5.4:1 GAAP
net income (loss) per common share $0.69 ($0.68) ($0.71) Normalized
core earnings per common share (2) $0.31 $0.30 $0.33 Annualized
return (loss) on average equity 22.15% (20.18%) (19.91%) Annualized
normalized core return on average equity (2) 10.30% 9.67% 10.00%
Normalized net interest margin (2) (3) 1.71% 1.65% 1.74% Normalized
net interest spread (2) 1.37% 1.29% 1.50% Normalized average yield
on interest earning assets (2) 3.05% 2.94% 3.19% (1)
Computed as the sum of recourse debt, TBA derivative notional
outstanding and net forward purchases of investments divided by
total equity. Recourse debt consists of repurchase agreements,
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 normalized 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 GAAP net income for the quarter ended
December 31, 2015 of $669.7 million, or $0.69 per average common
share, compared to a GAAP net loss of ($627.5) million, or ($0.68)
per average common share, for the quarter ended September 30, 2015,
and a GAAP net loss of ($658.3) million, or ($0.71) per average
common share, for the quarter ended December 31, 2014. The increase
for the quarter ended December 31, 2015 compared to each of the
quarters ended September 30, 2015 and December 31, 2014 is
primarily the result of favorable market value changes on interest
rate swaps.
Normalized core earnings for the quarter ended December 31, 2015
was $311.1 million, or $0.31 per average common share, compared to
$300.7 million, or $0.30 per average common share, for the quarter
ended September 30, 2015, and $330.6 million, or $0.33 per average
common share, for the quarter ended December 31, 2014. Normalized
core earnings increased during the quarter ended December 31, 2015
compared to the quarter ended September 30, 2015 on higher interest
income earned on the Company’s commercial investment portfolio.
Normalized core earnings declined during the quarter ended December
31, 2015 compared to the quarter ended December 31, 2014 due to the
absence of investment advisory income and dividend income from
Chimera Investment Corp. (“Chimera”) following termination of our
relationship with Chimera as well as due to higher interest expense
on repurchase agreements on higher weighted average rates,
partially offset by lower average balances during the quarter ended
December 31, 2015. Core earnings for the quarter ended December 31,
2015 was $329.2 million, or $0.33 per average common share,
compared to $217.6 million, or $0.21 per average common share, for
the quarter ended September 30, 2015, and $298.9 million, or $0.30
per average common share, for the quarter ended December 31,
2014.
GAAP net income for the year ended December 31, 2015 was $465.7
million, or $0.42 per average common share and a GAAP net loss for
the year ended December 31, 2014 of ($842.3) million, or ($0.96)
per average common share. Normalized core earnings for the years
ended December 31, 2015 and 2014 were $1.3 billion, or $1.28 per
average common share, and $1.2 billion, or $1.16 per average common
share, respectively. Core earnings for the years ended December 31,
2015 and 2014 were $1.2 billion, or $1.20 per average common share,
and $1.1 billion, or $1.14 per average common share,
respectively.
The following table presents a reconciliation between GAAP net
income (loss), core earnings and normalized core earnings for the
quarters ended December 31, 2015, September 30, 2015, and December
31, 2014. Core earnings 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). Normalized core earnings presents the Company’s core
earnings excluding the PAA.
For the
quarters ended December 31, 2015 September 30,
2015 December 31, 2014 (dollars in
thousands) GAAP net income (loss) $ 669,666 $ (627,491 )
$ (658,272 ) Less: Unrealized (gains) losses on interest rate swaps
(463,126 ) 822,585 873,468 Net (gains) losses on disposal of
investments 7,259 7,943 (3,420 ) Net (gains) losses on trading
assets (42,584 ) (108,175 ) 57,454
Net unrealized (gains) losses on financial
instruments measured at fair value through earnings
62,703 24,501 29,520 Net (income) loss attributable to
noncontrolling interest 373 197 196 Plus: TBA dollar roll income
(1) 94,914 98,041
- Core earnings 329,205 217,601 298,946 Premium amortization
adjustment cost (benefit) (18,072 ) 83,136
31,695 Normalized core earnings $
311,133 $ 300,737 $ 330,641
GAAP net income (loss) per average common share $ 0.69
$ (0.68 ) $ (0.71 ) Core earnings per average
common share $ 0.33 $ 0.21 $ 0.30
Normalized core earnings per average common share $ 0.31
$ 0.30 $ 0.33 (1)
Represents a component of Net gains (losses) on trading assets.
The following table presents a reconciliation between GAAP net
income (loss), core earnings and normalized core earnings for the
years ended December 31, 2015 and 2014:
For the
years ended December 31, 2015 December 31,
2014 GAAP net income (loss) $ 465,747 $ (842,279 ) Less:
Realized (gains) losses on termination of interest rate swaps
226,462 779,333 Unrealized (gains) losses on interest rate swaps
124,869 948,755 Net (gains) losses on disposal of investments
(50,987 ) (93,716 ) Net (gains) losses on trading assets (29,623 )
245,495
Net unrealized (gains) losses on financial
instruments measured at fair value through earnings
103,169 86,172 Impairment of goodwill 22,966 - Other non-recurring
loss (1) - 23,783 GAAP net (income) loss attributable to
noncontrolling interest 809 196 Plus: TBA dollar roll income (2)
348,531 - Core earnings
1,211,943 1,147,739 Premium amortization adjustment cost (benefit)
73,365 25,538 Normalized core
earnings $ 1,285,308 $ 1,173,277 GAAP
net income (loss) per average common share $ 0.42 $
(0.96 ) Core earnings per average common share $ 1.20
$ 1.14 Normalized core earnings per average common share $
1.28 $ 1.16 (1) Represents a
one-time payment made by FIDAC to Chimera. 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 December
31, 2015, September 30, 2015, and December 31, 2014 was 1.71%,
1.65% and 1.74%, respectively. For the quarter ended December 31,
2015, the normalized average yield on interest earning assets was
3.05% and the average cost of interest bearing liabilities,
including interest expense on interest rate swaps used to hedge
cost of funds, was 1.68%, which resulted in a normalized net
interest spread of 1.37%. The normalized average yield on interest
earning assets for the quarter ended December 31, 2015 increased
when compared to the quarter ended September 30, 2015 on higher
weighted average coupons on residential and commercial investments
and decreased when compared to the quarter ended December 31, 2014
due to lower weighted average coupons on Residential Investment
Securities and higher premium amortization expense exclusive of
PAA, partially offset by higher interest income on commercial
investments. The rise in our average cost of interest bearing
liabilities for the quarter ended December 31, 2015 when compared
to the quarter ended September 30, 2015 is primarily attributable
to higher average costs of repurchase agreements, partially offset
by a reduction in interest expense on swaps. Our average cost of
interest bearing liabilities for the quarter ended December 31,
2015 when compared to the quarter ended December 31, 2014 was
relatively unchanged.
Asset
Portfolio
Residential Investment Securities
Residential Investment Securities, which are comprised of Agency
mortgage-backed securities, Agency debentures, credit risk transfer
securities and Non-Agency mortgage-backed securities, totaled $67.2
billion at December 31, 2015, compared to $67.0 billion at
September 30, 2015 and $82.9 billion at December 31, 2014. The
Company’s Residential Investment Securities portfolio at December
31, 2015 was comprised of 93% fixed-rate assets with the remainder
constituting adjustable or floating-rate investments.
The Company uses a third-party model and market information to
project prepayment speeds for purposes of determining amortization
of premiums and discounts on Residential 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 Residential Investment Securities for the
quarters ended December 31, 2015, September 30, 2015, and December
31, 2014, was $159.7 million (which included PAA benefit of $18.1
million), $255.1 million (which included PAA cost of $83.1
million), and $198.0 million (which included PAA cost of $31.7
million), respectively. The total net premium balance on
Residential Investment Securities at December 31, 2015, September
30, 2015, and December 31, 2014, was $5.0 billion, $4.8 billion,
and $5.3 billion, respectively. The weighted average amortized cost
basis of the Company’s non-interest-only Residential Investment
Securities at each of December 31, 2015, September 30, 2015, and
December 31, 2014, was 105.3. The weighted average amortized cost
basis of the Company’s interest-only Residential Investment
Securities at December 31, 2015, September 30, 2015, and December
31, 2014, was 16.0%, 16.1%, and 15.4%, respectively. The weighted
average experienced CPR on our Agency mortgage-backed securities
for the quarters ended December 31, 2015, September 30, 2015, and
December 31, 2014, was 9.7%, 11.5% and 8.4%, respectively. The
weighted average projected long-term CPR on our Agency
mortgage-backed securities at December 31, 2015, September 30,
2015, and December 31, 2014, was 8.8%, 9.2% and 8.7%,
respectively.
At December 31, 2015, the Company had outstanding $13.8 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 December 31, 2015:
Purchase and sale contracts for
derivative TBAs
Notional
Implied Cost Basis
Implied Market Value
Net Carrying Value
(dollars in thousands) Purchase contracts $ 13,761,000 $
14,177,338 $ 14,169,775 $ (7,563 ) Sale contracts -
- - - Net TBA derivatives
$ 13,761,000 $ 14,177,338 $ 14,169,775 $
(7,563 )
During the quarter ended December 31, 2015, the Company disposed
of $2.7 billion of Residential Investment Securities, resulting in
a net realized loss of ($7.5) million. During the quarter ended
September 30, 2015, the Company disposed of $3.7 billion of
Residential Investment Securities, resulting in a net realized gain
of $4.5 million. During the quarter ended December 31, 2014, the
Company disposed of $7.3 billion of Residential Investment
Securities, resulting in a net realized gain of $3.2 million.
During the year ended December 31, 2015, the Company disposed of
$23.9 billion of Residential Investment Securities, resulting in a
net realized gain of $63.3 million. During the year ended December
31, 2014, the Company disposed of $22.5 billion of Residential
Investment Securities, resulting in a net realized gain of $94.5
million.
Commercial Investments Portfolio
The Company’s commercial investments portfolio consists of
commercial real estate debt and equity 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 $278.6 million, totaled $4.5
billion and investments in commercial real estate totaled $535.9
million at December 31, 2015. Commercial real estate debt and
preferred equity, including securitized loans of consolidated 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. Corporate debt investments totaled $488.5
million as of December 31, 2015, up from $425.0 million at
September 30, 2015. The weighted average levered return on
commercial real estate debt and preferred equity, which includes
loans held for sale, as of December 31, 2015, September 30, 2015,
and December 31, 2014, was 7.60%, 6.79% and 9.54%, respectively.
Excluding loans held for sale, the weighted average levered return
on commercial real estate debt and preferred equity was 9.23% and
9.31% at December 31, 2015 and September 30, 2015, respectively.
The weighted average levered return on investments in commercial
real estate, excluding real estate held-for-sale, as of December
31, 2015, September 30, 2015, and December 31, 2014, was 10.59%,
11.36% and 12.98%, respectively.
During the fourth quarter, the Company originated or provided
additional funding on pre-existing commercial real estate debt
commitments totaling $412.8 million with a weighted average coupon
of 3.70%, of which $280.0 million ($278.6 million net of
unamortized origination fees) is held for sale at December 31,
2015. During the quarter, the Company received cash from its
commercial real estate investments of $578.6 million from loan
sales, partial paydowns, prepayments and maturities with a weighted
average coupon of 3.24%. During the quarter, the Company, through
joint venture arrangements, acquired two retail properties and a
multifamily property for a combined gross purchase price of $244.7
million and a net equity investment for $76.6 million. The Company
also acquired AAA-rated commercial mortgage-backed securities
during the quarter for a gross purchase price of $43.0 million and
a net equity investment for $7.3 million. During the quarter, the
Company grew its corporate debt portfolio by $63.5 million.
At December 31, 2015, September 30, 2015, and December 31, 2014,
residential and commercial credit assets (including loans held for
sale) comprised 23%, 22% and 11% of stockholders’ equity.
Capital and
Funding
At December 31, 2015, total stockholders’ equity was $11.9
billion. Leverage at December 31, 2015, September 30, 2015, and
December 31, 2014, was 5.1:1, 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 6.0:1 at December 31, 2015, compared
to 5.8:1 at September 30, 2015, and 5.4:1 at December 31, 2014. At
December 31, 2015, September 30, 2015, and December 31, 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 13.3%, 13.7%, and 15.1%,
respectively. On a GAAP basis, the Company produced an annualized
return (loss) on average equity for the quarters ended December 31,
2015, September 30, 2015, and December 31, 2014 of 22.15%,
(20.18%), and (19.91%), respectively. On a normalized core earnings
basis, the Company provided an annualized return on average equity
for the quarters ended December 31, 2015, September 30, 2015, and
December 31, 2014, of 10.30%, 9.67%, and 10.00%, respectively.
At December 31, 2015, September 30, 2015, and December 31, 2014,
the Company had a common stock book value per share of $11.73,
$11.99 and $13.10, respectively.
As previously announced, the Company’s Board authorized the
repurchase of up to $1 billion of its outstanding common shares
through December 31, 2016. Since the beginning of the fourth
quarter 2015, the Company repurchased 23.1 million shares of its
outstanding common stock for total proceeds of $217.0 million,
representing an average price per share of $9.40, of which 11.9
million shares for total proceeds of $114.3 million had settled as
of December 31, 2015.
At December 31, 2015, September 30, 2015, and December 31, 2014,
the Company had outstanding $56.2 billion, $56.4 billion, and $71.4
billion of repurchase agreements, with weighted average remaining
maturities of 151 days, 147 days, and 141 days, respectively, and
with weighted average borrowing rates of 1.83%, 1.75%, and 1.62%,
after giving effect to the Company’s interest rate swaps used to
hedge cost of funds. During the quarters ended December 31, 2015,
September 30, 2015, and December 31, 2014, the weighted average
rate on repurchase agreements was 0.78%, 0.73%, and 0.60%,
respectively.
The following table presents the principal balance and weighted
average rate of repurchase agreements by maturity at December 31,
2015:
Maturity
Principal Balance Weighted Average Rate
(dollars in thousands) Within 30 days $ 20,467,487 0.69 % 30
to 59 days 8,023,209 0.74 % 60 to 89 days 4,125,426 0.74 % 90 to
119 days 4,846,580 0.60 % Over 120 days(1) 18,768,158
1.33 % Total $ 56,230,860 0.90 % (1)
Approximately 14% of the total repurchase agreements have a
remaining maturity over 1 year.
The following table presents the principal balance, weighted
average rate and weighted average days to maturity on outstanding
debt at December 31, 2015:
Weighted Average Principal
Balance Rate
Days to Maturity (3)
(dollars in thousands)
Repurchase agreements $ 56,230,860 0.90 % 151 Other secured
financing (1) 1,845,048 0.59 % 1,423 Securitized debt of
consolidated VIEs (2) 2,536,473 0.78 % 2,537 Participation sold (2)
13,137 5.58 % 487 Mortgages payable (2) 338,444 4.16 % 3,155
Total indebtedness $ 60,963,962 (1)
Represents advances from the Federal Home Loan Bank of Des Moines.
(2) Non-recourse to the Company. (3) Determined based on estimated
weighted-average lives of the underlying debt instruments.
Hedge
Portfolio
At December 31, 2015, the Company had outstanding interest rate
swaps with a net notional amount of $30.2 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 December 31, 2015, the
swap portfolio, excluding forward starting swaps, had a weighted
average pay rate of 2.26%, a weighted average receive rate of 0.53%
and a weighted average maturity of 7.02 years.
The following table summarizes certain characteristics of the
Company’s interest rate swaps at December 31, 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 $ 3,240,436 1.85 % 0.36 %
1.80 3 - 6 years 11,675,000 1.82 % 0.55 % 4.25 6 - 10 years
11,635,250 2.44 % 0.57 % 7.92 Greater than 10 years
3,634,400 3.70 % 0.43 % 19.37 Total / Weighted
Average $ 30,185,086 2.26 % 0.53 % 7.02 (1)
Notional amount includes $0.5 billion in forward starting
pay fixed swaps, which settle in January 2016. (2) Excludes forward
starting swaps. (3) Weighted average fixed rate on forward starting
pay fixed swaps was 1.44%.
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
December 31, 2015:
Notional - Long Notional -
Short
Weighted Average
Positions Positions
Years to Maturity
(dollars in thousands) 2-year swap equivalent Eurodollar
contracts $ - $ (7,000,000 ) 2.00 U.S. Treasury futures - 5 year -
(1,847,200 ) 4.42 U.S. Treasury futures - 10 year and greater
- (655,600 ) 6.92 Total $ - $
(9,502,800 ) 2.81
At December 31, 2015, September 30, 2015, and December 31, 2014,
the Company’s hedge ratio was 57%, 58% and 48%, respectively. 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
December 31, 2015, September 30, 2015, and December 31, 2014 were
$0.30 per common share. The annualized dividend yield on the
Company’s common stock for the quarter ended December 31, 2015,
based on the December 31, 2015 closing price of $9.38, was 12.79%,
compared to 12.16% for the quarter ended September 30, 2015, and
11.10% for the quarter ended December 31, 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 December 31, 2015, September 30, 2015,
and December 31, 2014:
December 31, 2015 September
30, 2015 December 31, 2014
Portfolio Related
Metrics:
Fixed-rate Investment Securities as a percentage of total
Residential Investment Securities 93% 93% 95% Adjustable-rate and
floating-rate Investment Securities as a percentage of total
Investment Securities 7% 7% 5% Weighted average experienced CPR,
for the period 9.7% 11.5% 8.4% Weighted average projected long-term
CPR, as of period end 8.8% 9.2% 8.7% Weighted average levered
return on commercial real estate debt and preferred equity at
period-end (1) 7.60% 6.79% 9.54% Weighted average levered return on
investments in commercial real estate at period-end (2) 10.59%
11.36% 12.98%
Liabilities and
Hedging Metrics:
Weighted average days to maturity on repurchase agreements
outstanding at period-end 151 147 141 Hedge ratio (3) 57% 58% 48%
Weighted average pay rate on interest rate swaps at period-end (4)
2.26% 2.26% 2.49% Weighted average receive rate on interest rate
swaps at period-end (4) 0.53% 0.42% 0.22% Weighted average net rate
on interest rate swaps at period-end (4) 1.73% 1.84% 2.27% Leverage
at period-end (5) 5.1:1 4.8:1 5.4:1 Economic leverage at period-end
(6) 6.0:1 5.8:1 5.4:1 Capital ratio at period-end 13.3% 13.7% 15.1%
Performance
Related Metrics:
Book value per common share $11.73 $11.99 $13.10 GAAP net income
(loss) per common share $0.69 ($0.68) ($0.71) Core earnings per
common share $0.33 $0.21 $0.30 Normalized core earnings per common
share $0.31 $0.30 $0.33 Annualized return (loss) on average equity
22.15% (20.18%) (19.91%) Annualized core return on average equity
10.89% 7.00% 9.05% Annualized normalized core return on average
equity 10.30% 9.67% 10.00% Net interest margin 1.80% 1.27% 1.59%
Normalized net interest margin 1.71% 1.65% 1.74% Average yield on
interest earning assets (7) 3.15% 2.48% 3.04% Normalized average
yield on interest earning assets (7) 3.05% 2.94% 3.19% Average cost
of interest bearing liabilities (8) 1.68% 1.65% 1.69% Net interest
spread 1.47% 0.83% 1.35% Normalized net interest spread 1.37% 1.29%
1.50% (1) Includes loans held for sale. Excluding loans held
for sale, the weighted average levered return on commercial real
estate debt and preferred equity was 9.23% and 9.31% at December
31, 2015 and September 30, 2015, respectively. (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 investments
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 objectives are to generate net
income for distribution to its shareholders from its investments
and capital preservation. 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 fourth quarter 2015 earnings
conference call on February 25, 2016 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
3130649. 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 10080365. 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 our commercial business; our ability
to grow our residential mortgage credit business; credit risks
related to our investments in credit risk transfer securities,
residential mortgage-backed securities and related residential
mortgage credit assets, commercial real estate assets and corporate
debt; 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)
December 31,
September 30,
June 30, March 31,
December 31,
2015
2015 2015 2015
2014 (1)
(Unaudited) (Unaudited)
(Unaudited) (Unaudited)
ASSETS Cash and cash equivalents $ 1,769,258 $ 2,237,423 $
1,785,158 $ 1,920,326 $ 1,741,244 Investments, at fair value:
Agency mortgage-backed securities 65,718,224 65,806,640 67,605,287
69,388,001 81,565,256 Agency debentures 152,038 413,115 429,845
995,408 1,368,350 Credit risk transfer securities 456,510 330,727
214,130 108,337 - Non-Agency mortgage-backed securities 906,722
490,037 - - - Commercial real estate debt investments (2) 2,911,828
2,881,659 2,812,824 1,515,903 - Investment in affiliate - - 123,343
141,246 143,045 Commercial real estate debt and preferred equity,
held for investment (3) 1,348,817 1,316,595 1,332,955 1,498,406
1,518,165 Loans held for sale 278,600 476,550 - - - Investments in
commercial real estate 535,946 301,447 216,800 207,209 210,032
Corporate debt 488,508 424,974 311,640 227,830 166,464 Reverse
repurchase agreements - - - 100,000 100,000 Interest rate swaps, at
fair value 19,642 39,295 30,259 25,908 75,225 Other derivatives, at
fair value 22,066 87,516 38,074 113,503 5,499 Receivable for
investments sold 121,625 127,571 247,361 2,009,937 1,010,094
Accrued interest and dividends receivable 231,336 228,169 234,006
247,801 278,489 Receivable for investment advisory income - 3,992
10,589 10,268 10,402 Other assets 119,422 67,738 48,229 34,430
30,486 Goodwill 71,815 71,815 71,815 94,781 94,781 Intangible
assets, net 38,536 33,424
33,365 36,383
37,835 Total assets $ 75,190,893 $
75,338,687 $ 75,545,680 $ 78,675,677
$ 88,355,367
LIABILITIES AND STOCKHOLDERS’
EQUITY Liabilities: Repurchase agreements $ 56,230,860 $
56,449,364 $ 57,459,552 $ 60,477,378 $ 71,361,926 Other secured
financing 1,845,048 359,970 203,200 90,000 - Convertible Senior
Notes - - - 749,512 845,295 Securitized debt of consolidated VIEs
(4) 2,540,711 2,553,398 2,610,974 1,491,829 260,700 Participation
sold 13,286 13,389 13,490 13,589 13,693 Mortgages payable 334,707
166,697 146,359 146,470 146,553 Interest rate swaps, at fair value
1,677,571 2,160,350 1,328,729 2,025,170 1,608,286 Other
derivatives, at fair value 49,963 113,626 40,539 61,778 8,027
Dividends payable 280,779 284,348 284,331 284,310 284,293 Payable
for investments purchased 107,115 744,378 673,933 5,205 264,984
Accrued interest payable 151,843 145,554 131,629 155,072 180,501
Accounts payable and other liabilities 53,088
63,280 58,139
50,774 47,328 Total liabilities
63,284,971 63,054,354
62,950,875 65,551,087
75,021,586 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,
935,929,561, 947,826,176, 947,768,496,
947,698,431, and 947,643,079
issued and outstanding, respectively
9,359 9,478 9,478 9,477 9,476 Additional paid-in capital 14,675,768
14,789,320 14,788,677 14,787,117 14,786,509 Accumulated other
comprehensive income (loss) (377,596 ) 262,855 (354,965 ) 773,999
204,883 Accumulated deficit (3,324,616 )
(3,695,884 ) (2,766,250 ) (3,364,147 )
(2,585,436 ) Total stockholders’ equity 11,895,974
12,278,828 12,589,999 13,119,505 13,328,491 Noncontrolling
interest 9,948 5,505
4,806 5,085 5,290
Total equity 11,905,922
12,284,333 12,594,805
13,124,590 13,333,781 Total liabilities
and equity $ 75,190,893 $ 75,338,687 $
75,545,680 $ 78,675,677 $ 88,355,367
(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, $2.6 billion and $1.4 billion
at December 31, 2015, 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 $262.7
million, $314.9 million, $361.2 million, $361.2 million, and $398.6
million at December 31, 2015, September 30, 2015, June 30, 2015,
March 31, 2015 and December 31, 2014, respectively. (4) Includes
securitized debt of consolidated VIEs carried at fair value of $2.4
billion, $2.4 billion, $2.4 billion and $1.3 billion at December
31, 2015, 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 December 31, September 30,
June 30, March 31, December 31, 2015
2015 2015 2015
2014 Net interest income: Interest income $ 576,580 $
450,726 $ 624,277 $ 519,114 $ 648,088 Interest expense
118,807 110,297 113,072
129,420 134,512
Net interest income
457,773 340,429 511,205
389,694 513,576
Realized and
unrealized gains (losses): Realized gains (losses) on interest
rate swaps(1) (159,487 ) (162,304 ) (144,465 ) (158,239 ) (174,908
) Realized gains (losses) on termination of interest rate swaps - -
- (226,462 ) - Unrealized gains (losses) on interest rate swaps
463,126 (822,585 ) 700,792
(466,202 ) (873,468 )
Subtotal 303,639
(984,889 ) 556,327 (850,903 )
(1,048,376 ) Net gains (losses) on disposal of investments
(7,259 ) (7,943 ) 3,833 62,356 3,420 Net gains (losses) on trading
assets 42,584 108,175 (114,230 ) (6,906 ) (57,454 )
Net unrealized gains (losses) on financial
instruments measured at fair value
through earnings
(62,703 ) (24,501 ) 17,581 (33,546 ) (29,520 ) Impairment of
goodwill - - (22,966 ) -
-
Subtotal (27,378 )
75,731 (115,782 ) 21,904 (83,554
)
Total realized and unrealized gains (losses)
276,261 (909,158 ) 440,545
(828,999 ) (1,131,930 )
Other income (loss):
Investment advisory income - 3,780 10,604 10,464 10,858 Dividend
income from affiliate - - 4,318 4,318 4,048 Other income (loss)
(10,447 ) (13,455 ) (22,275 ) (1,024 )
3,421
Total other income (loss) (10,447
) (9,675 ) (7,353 ) 13,758
18,327
General and administrative expenses:
Compensation and management fee 37,193 37,450 37,014 38,629 38,734
Other general and administrative expenses 10,643
12,007 14,995 12,309
19,720
Total general and administrative
expenses 47,836 49,457
52,009 50,938 58,454
Income
(loss) before income taxes 675,751 (627,861 ) 892,388 (476,485
) (658,481 )
Income taxes 6,085
(370 ) (7,683 ) 14 (209 )
Net income
(loss) 669,666 (627,491 ) 900,071 (476,499 ) (658,272 )
Net
income (loss) attributable to noncontrolling interest
(373 ) (197 ) (149 ) (90 ) (196 )
Net income (loss) attributable to Annaly 670,039 (627,294 )
900,220 (476,409 ) (658,076 )
Dividends on preferred stock
17,992 17,992 17,992
17,992 17,992
Net income (loss)
available (related) to common stockholders $ 652,047 $
(645,286 ) $ 882,228 $ (494,401 ) $ (676,068 )
Net income
(loss) per share available (related) to common stockholders:
Basic $ 0.69 $ (0.68 ) $ 0.93 $ (0.52 ) $ (0.71 )
Diluted $ 0.69 $ (0.68 ) $ 0.93 $ (0.52 ) $ (0.71 )
Weighted average number of common shares outstanding: Basic
945,072,058 947,795,500
947,731,493 947,669,831 947,615,793
Diluted 945,326,098 947,795,500
947,929,762 947,669,831
947,615,793
Net income (loss) $ 669,666 $
(627,491 ) $ 900,071 $ (476,499 ) $ (658,272 )
Other
comprehensive income (loss): Unrealized gains (losses) on
available-for-sale securities (648,106 ) 609,725 (1,125,043 )
631,472 1,175,864 Reclassification adjustment for net (gains)
losses included in net income (loss) 7,655
8,095 (3,921 ) (62,356 ) (3,161 ) Other
comprehensive income (loss) (640,451 ) 617,820
(1,128,964 ) 569,116 1,172,703
Comprehensive income (loss) 29,215 (9,671 ) (228,893 ) 92,617
514,431 Comprehensive income (loss) attributable to noncontrolling
interest (373 ) (197 ) (149 ) (90 )
(196 )
Comprehensive income (loss) attributable to
Annaly $ 29,588 $ (9,474 ) $ (228,744 ) $ 92,707
$ 514,627 (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)
For the years ended December 31, December
31, 2015
2014 (2)
(Unaudited) Net interest income:
Interest income $ 2,170,697 $ 2,632,398 Interest expense
471,596 512,659
Net interest
income 1,699,101 2,119,739
Realized and unrealized gains (losses): Realized gains
(losses) on interest rate swaps(1) (624,495 ) (825,360 ) Realized
gains (losses) on termination of interest rate swaps (226,462 )
(779,333 ) Unrealized gains (losses) on interest rate swaps
(124,869 ) (948,755 )
Subtotal (975,826
) (2,553,448 ) Net gains (losses) on disposal of
investments 50,987 93,716 Net gains (losses) on trading assets
29,623 (245,495 )
Net unrealized gains (losses) on financial
instruments measured at fair value through earnings
(103,169 ) (86,172 ) Impairment of goodwill (22,966 )
-
Subtotal (45,525 )
(237,951 )
Total realized and unrealized gains (losses)
(1,021,351 ) (2,791,399 )
Other income
(loss): Investment advisory income 24,848 31,343 Dividend
income from affiliate 8,636 25,189 Other income (loss)
(47,201 ) (12,488 )
Total other income (loss)
(13,717 ) 44,044
General and
administrative expenses: Compensation and management fee
150,286 155,560 Other general and administrative expenses
49,954 53,778
Total general and
administrative expenses 200,240
209,338
Income (loss) before income taxes 463,793
(836,954 )
Income taxes (1,954 ) 5,325
Net income (loss) 465,747 (842,279 )
Net income
(loss) attributable to noncontrolling interest (809 )
(196 )
Net income (loss) attributable to
Annaly 466,556 (842,083 )
Dividends on preferred stock
71,968 71,968
Net income
(loss) available (related) to common stockholders $ 394,588
$ (914,051 )
Net income (loss) per share available
(related) to common stockholders: Basic $ 0.42 $
(0.96 ) Diluted $ 0.42 $ (0.96 )
Weighted average
number of common shares outstanding: Basic 947,062,099
947,539,294 Diluted 947,276,742
947,539,294
Net income (loss) $
465,747 $ (842,279 )
Other comprehensive income
(loss): Unrealized gains (losses) on available-for-sale
securities (531,952 ) 3,048,291 Reclassification adjustment for net
(gains) losses included in net income (loss) (50,527 )
(94,475 ) Other comprehensive income (loss)
(582,479 ) 2,953,816 Comprehensive income
(loss) (116,732 ) 2,111,537 Comprehensive income (loss)
attributable to noncontrolling interest (809 )
(196 )
Comprehensive income (loss) attributable to Annaly $
(115,923 ) $ 2,111,733 (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). (2) Derived from the
audited consolidated financial statements at December 31, 2014.
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Annaly Capital Management, Inc.Investor
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