Annaly Capital Management, Inc. (NYSE:NLY) (the “Company” or
“Annaly”) today announced its financial results for the quarter
ended March 31, 2017.
- Improvement in earnings quality and
growth in book value for the quarter ended March 31, 2017
- GAAP net income was $440.4 million,
$0.41 per average common share
- Core earnings was $318.0 million, $0.29
per average common share, which was reduced by a premium
amortization adjustment (“PAA”) cost of $0.02 per average common
share. Comparatively, core earnings for the fourth quarter of 2016
was $0.53 per average common share, which was increased by a PAA
benefit of $0.23 per average common share for that period
- Common stock book value per share
increased to $11.23 as compared to $11.16 per share at December 31,
2016
- Declared common dividend of $0.30 for
the 14th consecutive fiscal quarter
- GAAP return on average equity was
13.97% and core return on average equity was 10.09%
- Economic leverage decreased to 6.1x as
compared to 6.4x at December 31, 2016
“I am very pleased with our continued strong results for the
first quarter highlighted by our growth in book value and the
improved quality of our earnings,” commented Kevin Keyes, Chief
Executive Officer and President. “We continue to benefit from our
enhanced size, conservative leverage profile and portfolio
diversification; we are now 19x the size of the median mREIT and
our economic leverage of 6.1x remained nearly 20% lower than the
agency industry average. As we've consistently stressed, liquidity
is of paramount importance when operating in this marketplace and,
as of quarter end, we have maintained $7.4 billion in unencumbered
assets to opportunistically invest at attractive entry points. As a
direct result of our enhanced hedging strategies and comprehensive
diversification efforts, which now include approximately 30
investment options across four investment groups, Annaly's interest
rate sensitivity has been meaningfully reduced and potential for
growth further expanded.
“In addition, our prudent risk management is reflective of the
fact that within our shared capital model, our investment teams’
interests are aligned with our shareholders. While numerous other
management teams in the industry have been selling stock recently -
our people have been purchasing stock through our Employee Stock
Ownership Program -- whereby over 40% of all our employees were not
granted stock, but rather, have been asked to purchase
predetermined amounts of shares in the open market. Establishing a
long term ownership culture throughout the Firm is extremely
important to me and I’m pleased that as of March 31, 2017, all
individuals subject to these guidelines either met or, within the
applicable period, are expected to meet these stock ownership
guidelines. This broad-based initiative is not just unique in our
industry, it is unique in all of corporate America.”
“Our quarterly financial results demonstrated sequential
improvement in both earnings quality and book value,” added Glenn
Votek, Chief Financial Officer. “Of note, the fourth quarter’s GAAP
and core earnings included a significant PAA benefit versus our
first quarter results which reflected a PAA cost. While we no
longer exclude the PAA from our core results, we continue to
separately disclose this amount to help investors better understand
our performance.”
Disclosure of Non-GAAP
Financial Measures
To supplement its consolidated financial statements, which are
prepared and presented in accordance with U.S. generally accepted
accounting principles (“GAAP”), the Company provides non-GAAP
financial measures to enhance investor understanding of the
Company’s period-over-period operating performance and business
trends, as well as for assessing the Company’s performance versus
that of industry peers. Prior to the fourth quarter 2016, the
Company’s definition of “core earnings”, a non-GAAP measure,
excluded the PAA resulting from the quarter-over-quarter change in
estimated long-term constant prepayment rate (“CPR”).
Based upon recent regulatory guidance and interpretations on the
use of non-GAAP financial measures, in its fourth quarter 2016
filings, news releases and presentations, the Company furnished
both unrevised non-GAAP financial measures that excluded the PAA as
well as revised non-GAAP financial measures that included the PAA.
In addition, the Company indicated that the fourth quarter 2016
would be the final quarter that the Company would report core
earnings metrics that exclude the PAA. Beginning with the first
quarter 2017, the Company is no longer disclosing non-GAAP
financial measures that exclude the PAA. However, given its
usefulness in evaluating the Company’s financial performance, the
Company is continuing to separately disclose the PAA. Additionally,
comparative prior period results reported in the current and future
periods will conform to the revised presentation.
The Company believes its non-GAAP financial measures are useful
for management, investors, analysts, and other interested parties
in evaluating the Company’s performance but should not be viewed in
isolation and are not a substitute for financial measurements
computed in accordance with GAAP. Please refer to the “Non-GAAP
Financial Measures” section for additional information.
Financial
Performance
The following table summarizes certain key performance
indicators as of and for the quarters ended March 31, 2017,
December 31, 2016, and March 31, 2016:
March 31, 2017 December 31,
2016 March 31, 2016 Book value per common
share $11.23 $11.16 $11.61 Economic
leverage at period-end (1) 6.1:1 6.4:1 6.2:1 GAAP net income (loss)
per average common share $0.41 $1.79 ($0.96) Core earnings per
average common share (2)* $0.29 $0.53 $0.11 PAA cost (benefit) per
average common share $0.02 ($0.23) $0.19 Annualized return (loss)
on average equity 13.97% 57.23% (29.47%) Annualized core return on
average equity * 10.09% 17.53% 4.19% Net interest margin (3) 1.47%
2.49% 0.79% Net interest spread 1.15% 2.28% 0.36% Average yield on
interest earning assets 2.74% 3.81% 2.09%
*
Represents a non-GAAP financial measure.
Please refer to the ‘Non-GAAP Financial Measures’ section for
additional information.
(1)
Computed as the sum of recourse debt,
to-be-announced (“TBA”) derivative notional outstanding and net
forward purchases of investments divided by total equity. Recourse
debt consists of repurchase agreements and other secured financing.
Securitized debt, participation sold and mortgages payable are
non-recourse to the Company and are excluded from this measure.
(2)
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 investments measured at fair value through
earnings, net gains and losses on trading assets, impairment
losses, net income (loss) attributable to noncontrolling interest,
corporate acquisition related expenses and certain other
non-recurring gains or losses, and inclusive of TBA dollar roll
income (a component of Net gains (losses) on trading assets) and
realized amortization of MSRs (a component of net unrealized gains
(losses) on investments measured at fair value through
earnings).
(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 TBA 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 following table illustrates the cost (benefit) impact of the
PAA on certain key performance indicators as of and for the
quarters ended March 31, 2017, December 31, 2016 and March 31,
2016:
March 31, 2017 December 31, 2016
March 31, 2016 As reported
PAA impact: cost /
(benefit)
As reported
PAA impact: cost /
(benefit)
As reported
PAA impact: cost /
(benefit)
Annualized core return on average equity * 10.09%
0.57% 17.53% (7.40%) 4.19% 5.72% Net
interest margin 1.47% 0.08% 2.49% (0.96%) 0.79% 0.75% Net interest
spread 1.15% 0.09% 2.28% (1.13%) 0.36% 0.91% Average yield on
interest earning assets 2.74% 0.09% 3.81% (1.13%) 2.09% 0.91%
*
Represents a non-GAAP financial measure.
Please refer to the ‘Non-GAAP Financial Measures’ section for
additional information.
Amortization
In accordance with GAAP, the Company amortizes or accretes
premiums or discounts into interest income for its Agency
mortgage-backed securities, excluding interest-only securities,
taking into account estimates of future principal prepayments in
the calculation of the effective yield. The Company recalculates
the effective yield as differences between anticipated and actual
prepayments occur. Using third-party 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 date of the
security’s acquisition. The amortized cost of the security 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 Company’s GAAP metrics include the unadjusted impact of
amortization and accretion associated with this method. In its
fourth quarter 2016 filings, news releases and presentations, the
Company furnished both unrevised non-GAAP financial measures that
excluded the PAA as well as revised non-GAAP financial measures
that included the PAA. In addition, the Company indicated that the
fourth quarter 2016 would be the final quarter that the Company
would report core earnings metrics that exclude the PAA. Beginning
with the first quarter 2017, the Company is no longer disclosing
non-GAAP financial measures that exclude the PAA. However, given
its usefulness in evaluating the Company’s financial performance,
the Company is continuing to separately disclose the PAA, as
contained herein.
The following table illustrates the impact of
quarter-over-quarter changes to long-term CPR estimates on premium
amortization expense for the Company’s Residential Investment
Securities portfolio for the quarters ended March 31, 2017,
December 31, 2016, and March 31, 2016:
For the quarters ended March 31, 2017
December 31, 2016 March 31, 2016
(dollars in thousands) Premium amortization expense
(accretion) $ 203,634 $ (19,812 ) $
355,671 Less: PAA cost (benefit) 17,870
(238,941 ) 168,408 Premium amortization
expense exclusive of PAA $ 185,764 $ 219,129
$ 187,263
For the quarters ended
March 31, 2017 December 31, 2016
March 31, 2016 (per average common share)
Premium amortization expense (accretion) $ 0.20 $ (0.02 ) $ 0.38
Less: PAA cost (benefit) 0.02 (0.23 )
0.19 Premium amortization expense exclusive of
PAA $ 0.18 $ 0.21 $ 0.19
Other
Information
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; risks related to investments in mortgage servicing rights and
ownership of a servicer; 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 U.S. 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, except as required by law.
Annaly is a leading diversified capital manager that invests in
and finances residential and commercial assets. Since our founding
in 1996 and subsequent initial public offering (“IPO”) in 1997, we
have generated net income for distribution to our shareholders and
have preserved capital through the prudent selection of investments
and continued management of our portfolio. The Company’s portfolio
includes securities, loans and equity in both the residential and
commercial markets. Annaly has elected to be taxed as a real estate
investment trust, or REIT, for federal income tax purposes. Annaly
is externally managed by Annaly Management Company LLC. Annaly’s
manager guides the Company’s overall business strategy and oversees
its investment portfolio and financial services processes and
solutions.
The Company prepares a supplemental investor presentation and a
financial summary for the benefit of its shareholders. Both the
First Quarter 2017 Investor Presentation and the First Quarter 2017
Financial Summary can be found at the Company’s website
(www.annaly.com) in the Investors section under Investor
Presentations.
Conference
Call
The Company will hold the first quarter 2017 earnings conference
call on May 4, 2017 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 0692131. There will
also be an audio webcast of the call on www.annaly.com. The replay
of the call will be 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
10104196. If you would like to be added to the e-mail distribution
list, please visit www.annaly.com, click on Investors, then select
Email Alerts and complete the email notification form.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars
in thousands, except per share data) March 31,
December 31, September 30,
June 30, March 31,
2017(1)
2016(2)
2016
2016
2016
(Unaudited) (Unaudited) (Unaudited)
(Unaudited) ASSETS Cash and cash equivalents $
819,421 $ 1,539,746 $ 2,382,188 $
2,735,250 $ 2,416,136 Investments, at fair value: Agency
mortgage-backed securities 72,708,490 75,589,873 73,476,105
64,862,992 65,439,824 Agency debentures - - - - 157,035 Credit risk
transfer securities 686,943 724,722 669,295 520,321 501,167
Non-Agency mortgage-backed securities 1,409,093 1,401,307 1,460,261
1,197,549 1,157,507 Residential mortgage loans (3) 682,416 342,289
310,148 - - Mortgage servicing rights 632,166 652,216 492,169 - -
Commercial real estate debt investments (4) 4,102,613 4,321,739
4,319,077 4,361,972 4,401,725 Commercial real estate debt and
preferred equity, held for investment (5) 985,091 970,505 1,070,197
1,137,971 1,177,468 Commercial loans held for sale, net - 114,425
144,275 164,175 278,600 Investments in commercial real estate
462,760 474,567 500,027 504,605 527,786 Corporate debt 841,265
773,274 716,831 669,612 639,481 Interest rate swaps, at fair value
19,195 68,194 113,253 146,285 93,312 Other derivatives, at fair
value 196,935 171,266 87,921 137,490 77,449 Receivable for
investments sold 354,126 51,461 493,839 697,943 2,220 Accrued
interest and dividends receivable 266,887 270,400 260,583 227,225
232,180 Other assets 388,224 333,063 301,419 237,959 234,407
Goodwill 71,815 71,815 71,815 71,815 71,815 Intangible assets, net
31,517 34,184
39,903 43,306
35,853 Total assets $
84,658,957 $ 87,905,046 $
86,909,306 $ 77,716,470 $
77,443,965
LIABILITIES AND STOCKHOLDERS’
EQUITY Liabilities: Repurchase agreements $ 62,719,087 $
65,215,810 $ 61,784,121 $ 53,868,385 $ 54,448,141 Other secured
financing 3,876,150 3,884,708 3,804,742 3,588,326 3,588,326
Securitized debt of consolidated VIEs (6) 3,477,059 3,655,802
3,712,821 3,748,289 3,802,682 Participation sold 12,760 12,869
12,976 13,079 13,182 Mortgages payable 311,707 311,636 327,632
327,643 334,765 Interest rate swaps, at fair value 572,419
1,443,765 2,919,492 3,208,986 2,782,961 Other derivatives, at fair
value 52,496 86,437 73,445 154,017 69,171 Dividends payable 305,691
305,674 269,111 277,479 277,456 Payable for investments purchased
340,383 65,041 454,237 746,090 250,612 Accrued interest payable
182,478 163,013 173,320 159,435 163,983 Accounts payable and other
liabilities 161,378
184,319 115,606
62,868 54,679
Total liabilities 72,011,608
75,329,074 73,647,503
66,154,597
65,785,958 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 7.625% Series E Cumulative
Redeemable Preferred Stock:
11,500,000 authorized, issued and
outstanding
287,500 287,500 287,500 - - Common stock, par value $0.01 per
share, 1,945,437,500, 1,945,437,500, 1,945,437,500, 1,956,937,500
and 1,956,937,500 authorized, 1,018,971,441, 1,018,913,249,
1,018,857,866, 924,929,607 and 924,853,133 issued and outstanding,
respectively 10,190 10,189 10,189 9,249 9,249 Additional paid-in
capital 15,580,038 15,579,342 15,578,677 14,575,426 14,573,760
Accumulated other comprehensive income (loss) (1,126,091 )
(1,085,893 ) 1,119,677 1,117,046 640,366 Accumulated deficit
(3,024,670 ) (3,136,017 )
(4,655,440 ) (5,061,565 )
(4,487,982 ) Total stockholders’ equity 12,640,026
12,568,180 13,253,662 11,553,215 11,648,452 Noncontrolling
interest 7,323 7,792
8,141 8,658
9,555 Total equity
12,647,349 12,575,972
13,261,803
11,561,873 11,658,007
Total liabilities and equity $ 84,658,957 $
87,905,046 $ 86,909,306 $
77,716,470 $ 77,443,965
(1)
As a result of a change to a clearing
organization’s rulebook effective January 3, 2017, beginning with
the first quarter 2017 the Company is presenting the fair value of
centrally cleared interest rate swaps adjusted for $673.2 million
of variation margin. The variation margin was previously reported
under cash and cash equivalents and is currently reported as a
reduction to interest rate swaps, at fair value. Prior period
balances will not be adjusted.
(2)
Derived from the audited consolidated
financial statements at December 31, 2016.
(3)
Includes securitized mortgage loans of a
consolidated variable interest entity (“VIE”) carried at fair value
of $155.6 million, $165.9 million and $176.7 million at March 31,
2017, December 31, 2016 and September 30, 2016, respectively.
(4)
Includes senior securitized commercial
mortgage loans of consolidated VIEs with a carrying value of $3.7
billion, $3.9 billion, $4.0 billion, $4.0 billion and $4.0 billion
at March 31, 2017, December 31, 2016, September 30, 2016, June 30,
2016 and March 31, 2016, respectively.
(5)
Includes senior securitized commercial
mortgage loans of a consolidated VIE with a carrying value of $0,
$0, $128.9 million, $187.2 million and $211.9 million at March 31,
2017, December 31, 2016, September 30, 2016, June 30, 2016 and
March 31, 2016, respectively.
(6)
Includes securitized debt of consolidated
VIEs carried at fair value of $3.5 billion, $3.7 billion, $3.7
billion, $3.7 billion and $3.7 billion at March 31, 2017, December
31, 2016, September 30, 2016, June 30, 2016 and March 31, 2016,
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
March 31, December 31, September
30, June 30, March 31, 2017
2016 2016 2016
2016 Net interest income: Interest income $ 587,727 $
807,022 $ 558,668 $ 457,118 $ 388,143 Interest expense
198,425 183,396 174,154
152,755 147,447
Net interest income 389,302
623,626 384,514 304,363
240,696
Realized and
unrealized gains (losses): Realized gains (losses) on interest
rate swaps(1) (104,156 ) (103,872 ) (124,572 ) (130,762 ) (147,475
) Realized gains (losses) on termination of interest rate swaps -
(55,214 ) 1,337 (60,064 ) - Unrealized gains (losses) on interest
rate swaps 149,184 1,430,668
256,462 (373,220 )
(1,031,720 )
Subtotal 45,028
1,271,582 133,227
(564,046 ) (1,179,195 ) Net gains (losses) on
disposal of investments 5,235 7,782 14,447 12,535 (1,675 ) Net
gains (losses) on trading assets 319 (139,470 ) 162,981 81,880
125,189 Net unrealized gains (losses) on investments measured at
fair value through earnings 23,683 110,742 29,675 (54,154 ) 128
Bargain purchase gain - -
72,576 - -
Subtotal 29,237 (20,946 )
279,679 40,261
123,642
Total realized and unrealized gains (losses)
74,265 1,250,636
412,906 (523,785 ) (1,055,553 )
Other income (loss) 31,646 30,918 29,271 (9,930 )
(6,115 )
General and administrative expenses:
Compensation and management fee 39,262 39,845 38,709 36,048 36,997
Other general and administrative expenses 14,566
15,608 59,028
13,173 10,948
Total general
and administrative expenses 53,828
55,453 97,737 49,221
47,945
Income (loss) before
income taxes 441,385 1,849,727 728,954 (278,573 ) (868,917 )
Income taxes 977 1,244
(1,926 ) (76 )
(837 )
Net income (loss) 440,408 1,848,483 730,880
(278,497 ) (868,080 )
Net income (loss) attributable to
noncontrolling interest (103 ) (87 )
(336 ) (385 ) (162 )
Net income (loss) attributable to Annaly 440,511
1,848,570 731,216 (278,112 ) (867,918 )
Dividends on
preferred stock 23,473 23,473
22,803 17,992
17,992
Net income (loss) available
(related) to common stockholders $ 417,038 $
1,825,097 $ 708,413 $ (296,104 )
$ (885,910 )
Net income (loss) per share available
(related) to common stockholders: Basic $ 0.41 $
1.79 $ 0.70 $ (0.32 ) $ (0.96 )
Diluted $ 0.41 $ 1.79 $ 0.70
$ (0.32 ) $ (0.96 )
Weighted average number
of common shares outstanding: Basic 1,018,942,746
1,018,886,380 1,007,607,893
924,887,316 926,813,588
Diluted 1,019,307,379
1,019,251,111 1,007,963,406
924,887,316 926,813,588
Net income (loss) $ 440,408 $ 1,848,483
$ 730,880 $ (278,497 ) $ (868,080 )
Other comprehensive income (loss): Unrealized gains (losses)
on available-for-sale securities (59,615 ) (2,206,288 ) 18,237
483,930 1,017,707 Reclassification adjustment for net (gains)
losses included in net income (loss) 19,417
718 (15,606 ) (7,250 )
255 Other comprehensive income (loss)
(40,198 ) (2,205,570 ) 2,631
476,680 1,017,962
Comprehensive income (loss) 400,210 (357,087 ) 733,511 198,183
149,882 Comprehensive income (loss) attributable to noncontrolling
interest (103 ) (87 ) (336 )
(385 ) (162 )
Comprehensive income
(loss) attributable to Annaly $ 400,313 $
(357,000 ) $ 733,847 $ 198,568 $
150,044
(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.
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 March 31, 2017, December 31, 2016, and
March 31, 2016:
March 31, 2017 December 31, 2016
March 31, 2016
Portfolio Related
Metrics:
Fixed-rate Residential Investment Securities as a
percentage of total Residential Investment Securities 85% 83% 93%
Adjustable-rate and floating-rate Residential Investment Securities
as a percentage of total Residential Investment Securities 15% 17%
7% Weighted average experienced CPR for the period 11.5% 15.6% 8.8%
Weighted average projected long-term CPR at period-end 10.0%
10.1% 11.8%
Liabilities and
Hedging Metrics:
Weighted average days to maturity on repurchase agreements
outstanding at period-end 88 96 136 Hedge ratio (1) 63% 56% 51%
Weighted average pay rate on interest rate swaps at period-end (2)
2.25% 2.22% 2.26% Weighted average receive rate on interest rate
swaps at period-end (2) 1.15% 1.02% 0.69% Weighted average net rate
on interest rate swaps at period-end (2) 1.10% 1.20% 1.57% Leverage
at period-end (3) 5.6:1 5.8:1 5.3:1 Economic leverage at period-end
(4) 6.1:1 6.4:1 6.2:1 Capital ratio at period-end 13.8%
13.1% 13.2%
Performance
Related Metrics:
Book value per common share $11.23 $11.16 $11.61 GAAP net income
(loss) per average common share $0.41 $1.79 ($0.96) Core earnings
per average common share * $0.29 $0.53 $0.11 PAA cost (benefit) per
average common share $0.02 ($0.23) $0.19 Dividend declared per
common share $0.30 $0.30 $0.30 Annualized dividend yield (5) 10.80%
12.04% 11.70% Annualized return (loss) on average equity 13.97%
57.23% (29.47%) Annualized core return on average equity * 10.09%
17.53% 4.19% Net interest margin 1.47% 2.49% 0.79% Average yield on
interest earning assets (6) 2.74% 3.81% 2.09% Average cost of
interest bearing liabilities (7) 1.59% 1.53% 1.73% Net interest
spread 1.15% 2.28% 0.36%
*
Represents a non-GAAP financial measure.
Please refer to the ‘Non-GAAP Financial Measures’ section for
additional information.
(1)
Measures total notional balances of
interest rate swaps, interest rate swaptions and futures relative
to repurchase agreements, other secured financing and TBA notional
outstanding.
(2)
Excludes forward starting swaps.
(3)
Debt consists of repurchase agreements,
other secured financing, securitized debt, participation sold and
mortgages payable. Securitized debt, participation sold and
mortgages payable are non-recourse to the Company.
(4)
Computed as the sum of recourse debt, TBA
derivative notional outstanding and net forward purchases of
investments divided by total equity.
(5)
Based on the closing price of the
Company’s common stock of $11.11, $9.97 and $10.26 at March 31,
2017, December 31, 2016 and March 31, 2016, respectively.
(6)
Average interest earning assets reflects
the average amortized cost of our investments during the
period.
(7)
Includes interest expense on interest rate
swaps used to hedge cost of funds.
Non-GAAP Financial
Measures
Based upon recent regulatory guidance and interpretations on the
use of non-GAAP financial measures, in its fourth quarter 2016
filings, news releases and presentations, the Company furnished
both unrevised non-GAAP financial measures that excluded the PAA as
well as revised non-GAAP financial measures that included the PAA.
In addition, the Company indicated that the fourth quarter 2016
would be the final quarter that the Company would report core
earnings metrics that exclude the PAA. Beginning with the first
quarter 2017, the Company is no longer disclosing non-GAAP
financial measures that exclude the PAA. However, given its
usefulness in evaluating the Company’s financial performance, the
Company is continuing to separately disclose the PAA. Additionally,
comparative prior period results reported in the current and future
periods will conform to the revised presentation.
To supplement its consolidated financial statements, which are
prepared and presented in accordance with GAAP, the Company
provides the following non-GAAP financial measures. These measures
should not be considered a substitute for, or superior to,
financial measures computed in accordance with GAAP.
- core earnings;
- core earnings per average common
share;
- annualized core return on average
equity;
- economic interest expense; and
- economic net interest income.
These non-GAAP measures provide additional detail to enhance
investor understanding of the Company’s period-over-period
operating performance and business trends, as well as for assessing
the Company’s performance versus that of industry peers. Additional
information pertaining to the Company’s use of these non-GAAP
financial measures, including discussion of how each such measure
is useful to investors, and reconciliations to their most directly
comparable GAAP results are provided below.
Core earnings, core earnings per average common share and
annualized core return on average equity
One of the Company’s principal business objectives is to
generate net income by earning a net interest spread on its
investment portfolio, which is a function of the Company’s interest
income from its investment portfolio less financing, hedging and
operating costs. Core earnings, which is comprised of interest
income plus TBA dollar roll incomei, less financing and hedging
costsii and general and administrative expenses, is used by
management to measure its progress in achieving this objective.
Prior to the fourth quarter 2016, the Company defined “core
earnings”, a non-GAAP measure, 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
investments measured at fair value through earnings, net gains and
losses on trading assets, impairment losses, net income (loss)
attributable to noncontrolling interest, the PAA resulting from the
quarter-over-quarter change in estimated long-term CPR, corporate
acquisition related expenses and certain other non-recurring gains
or losses, and inclusive of TBA dollar roll income (a component of
Net gains (losses) on trading assets) and realized amortization of
MSRs (a component of net unrealized gains (losses) on investments
measured at fair value through earnings). Beginning with the first
quarter 2017 core earnings does not exclude the PAA.
The Company believes these non-GAAP measures provide management
and investors with additional details regarding the Company’s
underlying operating results and investment portfolio trends by (i)
making adjustments to account for the disparate reporting of
changes in fair value where certain instruments are reflected in
GAAP net income (loss) while others are reflected in other
comprehensive income (loss), and (ii) by excluding certain
unrealized, non-cash or episodic components of GAAP net income
(loss) in order to provide additional transparency into the
operating performance of the Company’s portfolio. Annualized core
return on average equity, which is calculated by dividing core
earnings over average stockholders’ equity, provides investors with
additional detail on the core earnings generated by the Company’s
invested equity capital.
____________________________
i TBA dollar roll transactions are accounted for as derivatives,
with gains and losses reflected as a component of Net gains
(losses) on trading assets in the Company’s Consolidated Statements
of Comprehensive Income (Loss). TBA dollar roll income represents
the economic equivalent of interest income on the underlying
security less the implied cost of financing. ii The interest
component of hedging costs are reported as realized gains (losses)
on interest rate swaps in the Company’s Consolidated Statements of
Comprehensive Income (Loss).
The following table presents a reconciliation of GAAP financial
results to non-GAAP core earnings for the periods presented.
For the quarters ended March 31, 2017
December 31, 2016 March 31, 2016
(dollars in thousands, except per share data) GAAP net
income (loss) $ 440,408 $ 1,848,483 $
(868,080 ) Less: Realized (gains) losses on termination of interest
rate swaps - 55,214 - Unrealized (gains) losses on interest rate
swaps (149,184 ) (1,430,668 ) 1,031,720 Net (gains) losses on
disposal of investments (5,235 ) (7,782 ) 1,675 Net (gains) losses
on trading assets (319 ) 139,470 (125,189 ) Net unrealized (gains)
losses on investments measured at fair value through earnings
(23,683 ) (110,742 ) (128 ) Net (income) loss attributable to
noncontrolling interest 103 87 162 Plus: TBA dollar roll income (1)
69,968 98,896 83,189 MSR amortization (2) (14,030 )
(27,018 ) - Core earnings
*
$
318,028
$
565,940
$
123,349 GAAP net income (loss) per average common share $
0.41 $ 1.79 $ (0.96 )
Core earnings per average common share * $ 0.29
$ 0.53 $ 0.11 PAA cost (benefit)
per average common share $ 0.02 $ (0.23 )
$ 0.19 Annualized GAAP return (loss) on
average equity 13.97 % 57.23 %
(29.47 %) Annualized core return on average equity *
10.09 % 17.53 %
4.19 %
*
Represents a non-GAAP financial
measure.
(1)
Represents a component of Net gains
(losses) on trading assets.
(2)
Represents the portion of changes in fair
value that is attributable to the realization of estimated cash
flows on the Company’s MSR portfolio and is reported as a component
of Net unrealized gains (losses) on investments measured at fair
value.
From time to time, the Company enters into TBA forward contracts
as an alternate means of investing in and financing Agency
mortgage-backed securities. A TBA contract is an agreement to
purchase or sell, for future delivery, an Agency mortgage-backed
security with a specified issuer, term and coupon. A TBA dollar
roll represents a transaction where TBA contracts with the same
terms but different settlement dates are simultaneously bought and
sold. The TBA contract settling in the later month typically prices
at a discount to the earlier month contract with the difference in
price commonly referred to as the “drop”. The drop is a reflection
of the expected net interest income from an investment in similar
Agency mortgage-backed securities, net of an implied financing
cost, that would be foregone as a result of settling the contract
in the later month rather than in the earlier month. The drop
between the current settlement month price and the forward
settlement month price occurs because in the TBA dollar roll
market, the party providing the financing is the party that would
retain all principal and interest payments accrued during the
financing period. Accordingly, TBA dollar roll income generally
represents the economic equivalent of the net interest income
earned on the underlying Agency mortgage-backed security less an
implied financing cost.
TBA dollar roll transactions are accounted for under GAAP as a
series of derivatives transactions. The fair value of TBA
derivatives is based on methods similar to those used to value
Agency mortgage-backed securities. The Company records TBA
derivatives at fair value on its Consolidated Statements of
Financial Condition and recognizes periodic changes in fair value
as Net gains (losses) on trading assets in the Consolidated
Statements of Comprehensive Income (Loss), which includes both
unrealized and realized gains and losses on derivatives (excluding
interest rate swaps).
TBA dollar roll income is calculated as the difference in price
between two TBA contracts with the same terms but different
settlement dates multiplied by the notional amount of the TBA
contract. Although accounted for as derivatives, TBA dollar rolls
capture the economic equivalent of net interest income, or carry,
on the underlying Agency mortgage-backed security (interest income
less an implied cost of financing). TBA dollar roll income is
reported as a component of Net gains (losses) on trading assets in
the Consolidated Statements of Comprehensive Income (Loss).
Economic interest expense and economic net interest
income
Economic interest expense is comprised of interest expense, as
computed in accordance with GAAP, plus interest expense on interest
rate swaps used to hedge cost of funds, which is a component of
Realized gains (losses) on interest rate swaps in the Company’s
Consolidated Statements of Comprehensive Income (Loss). The Company
uses interest rate swaps to manage its exposure to changing
interest rates on its repurchase agreements by economically hedging
cash flows associated with these borrowings. Accordingly, adding
the contractual interest payments on interest rate swaps to
interest expense, as computed in accordance with GAAP, reflects the
total contractual interest expense and thus, provides investors
with additional information about the cost of our financing
strategy.
Similarly, economic net interest income, as computed below,
provides investors with additional information to enhance their
understanding of the net economics of our primary business
operations.
For the quarters ended March 31, 2017
December 31, 2016 March 31, 2016
(dollars in thousands)
Economic Interest
Expense Reconciliation
GAAP interest expense $ 198,425 $
183,396 $ 147,447 Add: Interest expense on interest rate swaps used
to hedge cost of funds 88,966 92,841
123,124 Economic interest expense* $ 287,391
$ 276,237 $ 270,571
Economic Net
Interest Income Reconciliation
GAAP interest income $ 587,727 $ 807,022 $ 388,143 Less: Economic
interest expense* 287,391 276,237
270,571
Economic net interest income*
$ 300,336 $ 530,785 $ 117,572
*
Represents a non-GAAP financial
measure.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170503006397/en/
Annaly Capital Management, Inc.Investor
Relations1-888-8Annalywww.annaly.com
Annaly Capital Management (NYSE:NLY)
Historical Stock Chart
From Mar 2024 to Apr 2024
Annaly Capital Management (NYSE:NLY)
Historical Stock Chart
From Apr 2023 to Apr 2024