Annaly Capital Management, Inc. Reports 4th Quarter 2021 Results
Annaly Capital Management (NYSE: NLY) reported its financial results for Q4 and the full year 2021. The company achieved a GAAP net income of $0.27 per share for Q4 and $1.60 per share for the year. Earnings available for distribution (EAD) were $0.28 per share for Q4 and $1.16 for the full year, with dividend coverage at +125%. The total assets stood at $89.2 billion, with a notable increase in capital allocation to credit businesses. However, the economic return was negative at (2.4%) for Q4 and (0.8%) for the full year.
- GAAP net income of $0.27 per share for Q4 and $1.60 for FY 2021.
- Earnings available for distribution of $0.28 per share for Q4, $1.16 for FY 2021, with dividend coverage of +125%.
- Total assets increased to $89.2 billion.
- Successful credit originations of $2.2 billion in Q4 and $6.1 billion for FY 2021, raising capital allocation to credit businesses to 32%.
- Appointed Ilker Ertas as Chief Investment Officer.
- Economic return of (2.4%) for Q4 and (0.8%) for FY 2021.
- Book value per common share decreased to $7.97 from $8.39 the previous quarter.
- Annualized GAAP return on average equity dropped to 12.4% from 15.25% in the prior quarter.
Financial Highlights |
-
GAAP net income of
$0.27 $1.60 -
Earnings available for distribution (“EAD”) of
$0.28 $1.16 125% -
Economic return and tangible economic return of (
2.4% ) for the fourth quarter; economic return of (0.8% ) and tangible economic return of0.0% for the full year 2021 -
Annualized GAAP return on average equity of
12.4% and annualized EAD return on average equity of13.1% -
Book value per common share of
$7.97 - GAAP leverage of 4.7x, up from 4.4x in the prior quarter; economic leverage of 5.7x, down from 5.8x in the prior quarter
-
Declared quarterly common stock cash dividend of
$0.22
Business Highlights |
Fourth Quarter 2021 Highlights
-
Total assets of
$89.2 billion $81.5 billion -
Capital allocation(2) to credit businesses increased by approximately 200 basis points to
32% during the quarter driven by$2.2 billion -
Annaly's Mortgage Servicing Rights ("MSR") platform, which represents
5% of capital(2), grew by12% in the fourth quarter and successfully executed on its strategy to finish the year as the fifth largest buyer of bulk MSR(4) -
Annaly's
Residential Credit Group , which represents24% of capital(2), settled$1.7 billion -
Annaly's
Residential Credit Group priced four whole loan securitizations totaling$1.8 billion $1.4 billion -
$9.3 billion $5.2 billion -
Appointed
Ilker Ertas as Chief Investment Officer
Full-Year 2021 Highlights
Investment and Strategy
-
Capital allocation(2) to credit businesses increased from
22% to32% throughout the year driven by credit originations of$6.1 billion - Proactively managed Annaly's Agency portfolio with continued utilization of barbell strategy balancing high-quality specified pools and lower coupon TBA securities
-
Efficiently built out MSR platform with assets increasing to
$645 million -
Annaly's
Residential Credit Group grew assets by nearly90% throughout 2021, expanding its whole loan sourcing capabilities through the launch of its residential whole loan correspondent channel inApril 2021 -
Closed inaugural private closed-end Middle Market Lending fund, raising
$371 million $450 million -
Completed the
$2.33 billion
Financing and Capital
- Prudently managed leverage profile throughout the year, decreasing economic leverage to 5.7x from 6.2x at the end of 2020
-
Average GAAP cost of interest bearing liabilities of
0.37% and average economic cost of interest bearing liabilities of0.79% decreased 72 basis points and 55 basis points, respectively, year-over-year -
Annaly's
Residential Credit Group was the fourth largest non-bank issuer of Prime Jumbo & Expanded Credit MBS from 2020-2021 and has priced thirteen residential whole loan securitizations totaling$5.3 billion -
Raised
$552 million -
Declared
$1.4 billion
Corporate Responsibility & Governance
-
Decreased full-year operating expense ratio by 20 basis points to
1.35% driven by savings following the Company's management internalization and disposition of itsCommercial Real Estate business(6)(8) -
Published second Corporate Responsibility Report demonstrating Annaly’s continued focus on ESG endeavors and highlighting key accomplishments including additional disclosures under the
Sustainability Accounting Standards Board framework -
Elected new Independent Director
Eric A. Reeves
“We are proud of our accomplishments throughout 2021 as we strategically enhanced our focus on residential housing finance through the disposition of our
“As financial market volatility has increased in anticipation of monetary policy normalization, our portfolio is well prepared for periods of turbulence with historically low leverage, a conservatively hedged portfolio and disciplined asset allocation across the spectrum of housing finance. Despite the volatility, we are encouraged by improving investment returns in Agency MBS and are poised to capitalize on attractive opportunities as they arise.”
(1) |
Total portfolio represents Annaly’s investments that are on-balance sheet as well as investments that are off-balance sheet in which Annaly has economic exposure. Assets include TBA purchase contracts (market value) of |
|
(2) |
Dedicated capital allocations as of |
|
(3) |
Credit assets represent whole loan and corporate debt originated or purchased across Annaly's Residential Credit and Middle Market Lending Groups and exclude unfunded commitments. | |
(4) |
Q3 2021 MSR assets exclude |
|
(5) |
Includes 10 whole loan securitizations totaling |
|
(6) |
The platform and the significant majority of the assets were transferred in 2021, with remaining assets expected to be transferred in the first quarter of 2022, subject to regulatory approvals. | |
(7) |
Represents |
|
(8) |
Represents operating expenses as a percentage of average equity and excludes transaction expenses and nonrecurring items for the year ended |
Financial Performance |
The following table summarizes certain key performance indicators as of and for the quarters ended
|
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|
|
|
|
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Book value per common share |
$ |
7.97 |
|
|
$ |
8.39 |
|
|
$ |
8.92 |
|
GAAP leverage at period-end (1) |
4.7:1 |
|
4.4:1 |
|
5.1:1 |
||||||
GAAP net income (loss) per average common share (2) |
$ |
0.27 |
|
|
$ |
0.34 |
|
|
$ |
0.60 |
|
Annualized GAAP return (loss) on average equity |
|
12.44 |
% |
|
|
15.25 |
% |
|
|
24.91 |
% |
Net interest margin (3) |
|
1.97 |
% |
|
|
2.01 |
% |
|
|
2.14 |
% |
Average yield on interest earning assets (4) |
|
2.31 |
% |
|
|
2.29 |
% |
|
|
2.61 |
% |
Average GAAP cost of interest bearing liabilities (5) |
|
0.38 |
% |
|
|
0.32 |
% |
|
|
0.51 |
% |
Net interest spread |
|
1.93 |
% |
|
|
1.97 |
% |
|
|
2.10 |
% |
Non-GAAP metrics * |
|
|
|
|
|
||||||
Earnings available for distribution per average common share (2) |
$ |
0.28 |
|
|
$ |
0.28 |
|
|
$ |
0.30 |
|
Annualized EAD return on average equity |
|
13.10 |
% |
|
|
12.81 |
% |
|
|
13.03 |
% |
Economic leverage at period-end (1) |
5.7:1 |
|
5.8:1 |
|
6.2:1 |
||||||
Net interest margin (excluding PAA) (3) |
|
2.03 |
% |
|
|
2.04 |
% |
|
|
1.98 |
% |
Average yield on interest earning assets (excluding PAA) (4) |
|
2.63 |
% |
|
|
2.63 |
% |
|
|
2.80 |
% |
Average economic cost of interest bearing liabilities (5) |
|
0.75 |
% |
|
|
0.66 |
% |
|
|
0.87 |
% |
Net interest spread (excluding PAA) |
|
1.88 |
% |
|
|
1.97 |
% |
|
|
1.93 |
% |
* Represents a non-GAAP financial measure. Please refer to the "Non-GAAP Financial Measures" section for additional information. |
|||||||||||
| (1) | GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued and mortgages payable divided by total equity. Economic leverage is computed as the sum of recourse debt, cost basis of to-be-announced ("TBA") and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage. | |
(2) |
Net of dividends on preferred stock. | |
(3) |
Net interest margin represents interest income less interest expense divided by average Interest Earning Assets. Net interest margin (excluding PAA) represents the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average Interest Earning Assets plus average outstanding TBA contract and CMBX balances. PAA represents the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. | |
(4) |
Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA). | |
(5) |
Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps. |
| Updates to Financial Disclosures |
Commencing with the Company’s financial results for the quarter ended
The definition of Earnings Available for Distribution is identical to the definition of Core Earning (excluding PAA) from prior reporting periods. As such, Earnings Available for Distribution is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSR, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items) and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items) and excludes (g) the premium amortization adjustment ("PAA") representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities.
Earnings Available for Distribution should not be considered a substitute for, or superior to, GAAP net income. Please refer to the "Non-GAAP Financial Measures" section for a detailed discussion of Earnings Available for Distribution.
In addition, beginning with the quarter ended
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, risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions; 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 financing; changes in the market value of our assets; changes in business conditions and the general economy; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; our ability to grow our residential credit business; our ability to grow our middle market lending business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets and corporate debt; risks related to investments in mortgage servicing rights; our ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting our business; our ability to maintain our qualification as a REIT for
Annaly is a leading diversified capital manager with investment strategies across mortgage finance and corporate middle market lending. Annaly’s principal business objective is to generate net income for distribution to its stockholders and to optimize its returns through prudent management of its diversified investment strategies. Annaly is internally managed and has elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. Additional information on the company can be found at www.annaly.com.
Annaly routinely posts important information for investors on the Company’s website, www.annaly.com. Annaly intends to use this webpage as a means of disclosing material, non-public information, for complying with the Company’s disclosure obligations under Regulation FD and to post and update investor presentations and similar materials on a regular basis. Annaly encourages investors, analysts, the media and others interested in Annaly to monitor the Company’s website, in addition to following Annaly’s press releases,
The Company prepares a supplemental investor presentation and a financial summary for the benefit of its shareholders. Both the Fourth Quarter 2021 Investor Presentation and the Fourth Quarter 2021 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 fourth quarter 2021 earnings conference call on
For participants who would like to join the call but have not pre-registered, access is available by dialing 844-735-3317 within the
There will also be an audio webcast of the call on www.annaly.com. A 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 5498603. 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.
Financial Statements |
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share data) |
|||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
||||||||||
Assets |
|
|
|
|
|
|
|
|
|
||||||||||
Cash and cash equivalents |
$ |
1,342,090 |
|
|
$ |
1,046,300 |
|
|
$ |
1,380,456 |
|
|
$ |
1,122,793 |
|
|
$ |
1,243,703 |
|
Securities |
|
63,655,674 |
|
|
|
65,622,352 |
|
|
|
69,032,335 |
|
|
|
71,849,437 |
|
|
|
75,652,396 |
|
Loans, net |
|
4,242,043 |
|
|
|
3,580,521 |
|
|
|
3,563,008 |
|
|
|
2,603,343 |
|
|
|
3,083,821 |
|
Mortgage servicing rights |
|
544,562 |
|
|
|
572,259 |
|
|
|
202,616 |
|
|
|
113,080 |
|
|
|
100,895 |
|
Interests in MSR |
|
69,316 |
|
|
|
57,530 |
|
|
|
49,035 |
|
|
|
— |
|
|
|
— |
|
Assets transferred or pledged to securitization vehicles |
|
6,086,308 |
|
|
|
4,738,481 |
|
|
|
4,073,156 |
|
|
|
3,768,922 |
|
|
|
6,910,020 |
|
Real estate, net |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
656,314 |
|
Assets of disposal group held for sale |
|
194,138 |
|
|
|
238,042 |
|
|
|
3,302,001 |
|
|
|
4,400,723 |
|
|
|
— |
|
Derivative assets |
|
170,370 |
|
|
|
331,395 |
|
|
|
181,889 |
|
|
|
891,474 |
|
|
|
171,134 |
|
Receivable for unsettled trades |
|
2,656 |
|
|
|
42,482 |
|
|
|
14,336 |
|
|
|
144,918 |
|
|
|
15,912 |
|
Principal and interest receivable |
|
234,983 |
|
|
|
234,810 |
|
|
|
250,210 |
|
|
|
259,655 |
|
|
|
268,073 |
|
|
|
24,241 |
|
|
|
25,371 |
|
|
|
26,502 |
|
|
|
37,337 |
|
|
|
127,341 |
|
Other assets |
|
197,683 |
|
|
|
172,890 |
|
|
|
300,761 |
|
|
|
177,907 |
|
|
|
225,494 |
|
Total assets |
$ |
76,764,064 |
|
|
$ |
76,662,433 |
|
|
$ |
82,376,305 |
|
|
$ |
85,369,589 |
|
|
$ |
88,455,103 |
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
||||||||||
Liabilities |
|
|
|
|
|
|
|
|
|
||||||||||
Repurchase agreements |
$ |
54,769,643 |
|
|
$ |
55,475,420 |
|
|
$ |
60,221,067 |
|
|
$ |
61,202,477 |
|
|
$ |
64,825,239 |
|
Other secured financing |
|
903,255 |
|
|
|
729,555 |
|
|
|
909,655 |
|
|
|
922,605 |
|
|
|
917,876 |
|
Debt issued by securitization vehicles |
|
5,155,633 |
|
|
|
3,935,410 |
|
|
|
3,315,087 |
|
|
|
3,044,725 |
|
|
|
5,652,982 |
|
Participations issued |
|
1,049,066 |
|
|
|
641,006 |
|
|
|
315,810 |
|
|
|
180,527 |
|
|
|
39,198 |
|
Mortgages payable |
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
426,256 |
|
Liabilities of disposal group held for sale |
|
154,956 |
|
|
|
159,508 |
|
|
|
2,362,690 |
|
|
|
3,319,414 |
|
|
|
— |
|
Derivative liabilities |
|
881,537 |
|
|
|
912,134 |
|
|
|
900,259 |
|
|
|
939,622 |
|
|
|
1,033,345 |
|
Payable for unsettled trades |
|
147,908 |
|
|
|
571,540 |
|
|
|
154,405 |
|
|
|
1,070,080 |
|
|
|
884,069 |
|
Interest payable |
|
91,176 |
|
|
|
109,586 |
|
|
|
173,721 |
|
|
|
100,949 |
|
|
|
191,116 |
|
Dividends payable |
|
321,142 |
|
|
|
318,986 |
|
|
|
317,714 |
|
|
|
307,671 |
|
|
|
307,613 |
|
Other liabilities |
|
94,423 |
|
|
|
91,421 |
|
|
|
66,721 |
|
|
|
213,924 |
|
|
|
155,613 |
|
Total liabilities |
|
63,568,739 |
|
|
|
62,944,566 |
|
|
|
68,737,129 |
|
|
|
71,301,994 |
|
|
|
74,433,307 |
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
||||||||||
Preferred stock, par value |
|
1,536,569 |
|
|
|
1,536,569 |
|
|
|
1,536,569 |
|
|
|
1,536,569 |
|
|
|
1,536,569 |
|
Common stock, par value |
|
14,597 |
|
|
|
14,499 |
|
|
|
14,442 |
|
|
|
13,985 |
|
|
|
13,982 |
|
Additional paid-in capital |
|
20,313,832 |
|
|
|
20,228,366 |
|
|
|
20,178,692 |
|
|
|
19,754,826 |
|
|
|
19,750,818 |
|
Accumulated other comprehensive income (loss) |
|
958,410 |
|
|
|
1,638,638 |
|
|
|
1,780,275 |
|
|
|
2,002,231 |
|
|
|
3,374,335 |
|
Accumulated deficit |
|
(9,653,582 |
) |
|
|
(9,720,270 |
) |
|
|
(9,892,863 |
) |
|
|
(9,251,804 |
) |
|
|
(10,667,388 |
) |
Total stockholders’ equity |
|
13,169,826 |
|
|
|
13,697,802 |
|
|
|
13,617,115 |
|
|
|
14,055,807 |
|
|
|
14,008,316 |
|
Noncontrolling interests |
|
25,499 |
|
|
|
20,065 |
|
|
|
22,061 |
|
|
|
11,788 |
|
|
|
13,480 |
|
Total equity |
|
13,195,325 |
|
|
|
13,717,867 |
|
|
|
13,639,176 |
|
|
|
14,067,595 |
|
|
|
14,021,796 |
|
Total liabilities and equity |
$ |
76,764,064 |
|
|
$ |
76,662,433 |
|
|
$ |
82,376,305 |
|
|
$ |
85,369,589 |
|
|
$ |
88,455,103 |
|
|
|||||||||||||||||||
(1) |
Derived from the audited consolidated financial statements at |
|
(2) |
||
(3) |
Includes 2,936,500,000 shares authorized at |
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) (Unaudited) |
|||||||||||||||||||
|
For the quarters ended |
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
||||||||||
Net interest income |
|
|
|
|
|
|
|
|
|
||||||||||
Interest income |
$ |
422,780 |
|
|
$ |
412,972 |
|
|
$ |
383,906 |
|
|
$ |
763,378 |
|
|
$ |
527,344 |
|
Interest expense |
|
61,785 |
|
|
|
50,438 |
|
|
|
61,047 |
|
|
|
75,973 |
|
|
|
94,481 |
|
Net interest income |
|
360,995 |
|
|
|
362,534 |
|
|
|
322,859 |
|
|
|
687,405 |
|
|
|
432,863 |
|
Realized and unrealized gains (losses) |
|
|
|
|
|
|
|
|
|
||||||||||
Net interest component of interest rate swaps |
|
(58,897 |
) |
|
|
(54,411 |
) |
|
|
(83,087 |
) |
|
|
(79,747 |
) |
|
|
(66,807 |
) |
Realized gains (losses) on termination or maturity of interest rate swaps |
|
(39,932 |
) |
|
|
(1,196,417 |
) |
|
|
— |
|
|
|
— |
|
|
|
2,092 |
|
Unrealized gains (losses) on interest rate swaps |
|
186,345 |
|
|
|
1,380,946 |
|
|
|
(141,067 |
) |
|
|
772,262 |
|
|
|
258,236 |
|
Subtotal |
|
87,516 |
|
|
|
130,118 |
|
|
|
(224,154 |
) |
|
|
692,515 |
|
|
|
193,521 |
|
Net gains (losses) on disposal of investments and other |
|
(25,144 |
) |
|
|
12,002 |
|
|
|
16,223 |
|
|
|
(65,786 |
) |
|
|
9,363 |
|
Net gains (losses) on other derivatives and financial instruments |
|
47,843 |
|
|
|
(45,168 |
) |
|
|
(357,808 |
) |
|
|
476,868 |
|
|
|
209,647 |
|
Net unrealized gains (losses) on instruments measured at fair value through earnings |
|
(15,329 |
) |
|
|
90,817 |
|
|
|
3,984 |
|
|
|
104,191 |
|
|
|
51,109 |
|
Loan loss (provision) reversal |
|
(194 |
) |
|
|
6,134 |
|
|
|
(494 |
) |
|
|
139,620 |
|
|
|
(1,497 |
) |
Business divestiture-related gains (losses) |
|
(16,514 |
) |
|
|
(14,009 |
) |
|
|
1,527 |
|
|
|
(249,563 |
) |
|
|
— |
|
Subtotal |
|
(9,338 |
) |
|
|
49,776 |
|
|
|
(336,568 |
) |
|
|
405,330 |
|
|
|
268,622 |
|
Total realized and unrealized gains (losses) |
|
78,178 |
|
|
|
179,894 |
|
|
|
(560,722 |
) |
|
|
1,097,845 |
|
|
|
462,143 |
|
Other income (loss) |
|
26,617 |
|
|
|
16,221 |
|
|
|
1,675 |
|
|
|
13,468 |
|
|
|
13,107 |
|
General and administrative expenses |
|
|
|
|
|
|
|
|
|
||||||||||
Compensation and management fee |
|
27,061 |
|
|
|
27,859 |
|
|
|
32,013 |
|
|
|
31,518 |
|
|
|
24,628 |
|
Other general and administrative expenses |
|
13,640 |
|
|
|
16,023 |
|
|
|
21,513 |
|
|
|
16,387 |
|
|
|
18,345 |
|
Total general and administrative expenses |
|
40,701 |
|
|
|
43,882 |
|
|
|
53,526 |
|
|
|
47,905 |
|
|
|
42,973 |
|
Income (loss) before income taxes |
|
425,089 |
|
|
|
514,767 |
|
|
|
(289,714 |
) |
|
|
1,750,813 |
|
|
|
865,140 |
|
Income taxes |
|
6,629 |
|
|
|
(6,767 |
) |
|
|
5,134 |
|
|
|
(321 |
) |
|
|
(13,495 |
) |
Net income (loss) |
|
418,460 |
|
|
|
521,534 |
|
|
|
(294,848 |
) |
|
|
1,751,134 |
|
|
|
878,635 |
|
Net income (loss) attributable to noncontrolling interests |
|
2,979 |
|
|
|
2,290 |
|
|
|
794 |
|
|
|
321 |
|
|
|
1,419 |
|
Net income (loss) attributable to Annaly |
|
415,481 |
|
|
|
519,244 |
|
|
|
(295,642 |
) |
|
|
1,750,813 |
|
|
|
877,216 |
|
Dividends on preferred stock |
|
26,883 |
|
|
|
26,883 |
|
|
|
26,883 |
|
|
|
26,883 |
|
|
|
35,509 |
|
Net income (loss) available (related) to common stockholders |
$ |
388,598 |
|
|
$ |
492,361 |
|
|
$ |
(322,525 |
) |
|
$ |
1,723,930 |
|
|
$ |
841,707 |
|
Net income (loss) per share available (related) to common stockholders |
|
|
|
|
|
|
|
|
|||||||||||
Basic |
$ |
0.27 |
|
|
$ |
0.34 |
|
|
$ |
(0.23 |
) |
|
$ |
1.23 |
|
|
$ |
0.60 |
|
Diluted |
$ |
0.27 |
|
|
$ |
0.34 |
|
|
$ |
(0.23 |
) |
|
$ |
1.23 |
|
|
$ |
0.60 |
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
|
|||||||||||
Basic |
|
1,454,138,154 |
|
|
|
1,445,315,914 |
|
|
|
1,410,239,138 |
|
|
|
1,399,210,925 |
|
|
|
1,399,809,722 |
|
Diluted |
|
1,455,411,503 |
|
|
|
1,446,357,867 |
|
|
|
1,410,239,138 |
|
|
|
1,400,000,727 |
|
|
|
1,400,228,777 |
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
|||||||||||
Net income (loss) |
$ |
418,460 |
|
|
$ |
521,534 |
|
|
$ |
(294,848 |
) |
|
$ |
1,751,134 |
|
|
$ |
878,635 |
|
Unrealized gains (losses) on available-for-sale securities |
|
(685,699 |
) |
|
|
(113,451 |
) |
|
|
(191,541 |
) |
|
|
(1,428,927 |
) |
|
|
(207,393 |
) |
Reclassification adjustment for net (gains) losses included in net income (loss) |
|
5,471 |
|
|
|
(28,186 |
) |
|
|
(30,415 |
) |
|
|
56,823 |
|
|
|
(7,328 |
) |
Other comprehensive income (loss) |
|
(680,228 |
) |
|
|
(141,637 |
) |
|
|
(221,956 |
) |
|
|
(1,372,104 |
) |
|
|
(214,721 |
) |
Comprehensive income (loss) |
|
(261,768 |
) |
|
|
379,897 |
|
|
|
(516,804 |
) |
|
|
379,030 |
|
|
|
663,914 |
|
Comprehensive income (loss) attributable to noncontrolling interests |
|
2,979 |
|
|
|
2,290 |
|
|
|
794 |
|
|
|
321 |
|
|
|
1,419 |
|
Comprehensive income (loss) attributable to Annaly |
|
(264,747 |
) |
|
|
377,607 |
|
|
|
(517,598 |
) |
|
|
378,709 |
|
|
|
662,495 |
|
Dividends on preferred stock |
|
26,883 |
|
|
|
26,883 |
|
|
|
26,883 |
|
|
|
26,883 |
|
|
|
35,509 |
|
Comprehensive income (loss) attributable to common stockholders |
$ |
(291,630 |
) |
|
$ |
350,724 |
|
|
$ |
(544,481 |
) |
|
$ |
351,826 |
|
|
$ |
626,986 |
|
|
|||||||||||||||||||
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) |
|||||||
|
For the years ended |
||||||
|
|
|
|
||||
|
unaudited |
|
|
||||
Net interest income |
|
|
|
||||
Interest income |
$ |
1,983,036 |
|
|
$ |
2,229,625 |
|
Interest expense |
|
249,243 |
|
|
|
899,112 |
|
Net interest income |
|
1,733,793 |
|
|
|
1,330,513 |
|
Realized and unrealized gains (losses) |
|
|
|
||||
Net interest component of interest rate swaps |
|
(276,142 |
) |
|
|
(207,877 |
) |
Realized gains (losses) on termination or maturity of interest rate swaps |
|
(1,236,349 |
) |
|
|
(1,917,628 |
) |
Unrealized gains (losses) on interest rate swaps |
|
2,198,486 |
|
|
|
(904,532 |
) |
Subtotal |
|
685,995 |
|
|
|
(3,030,037 |
) |
Net gains (losses) on disposal of investments and other |
|
(62,705 |
) |
|
|
661,513 |
|
Net gains (losses) on other derivatives and financial instruments |
|
121,735 |
|
|
|
756,305 |
|
Net unrealized gains (losses) on instruments measured at fair value through earnings |
|
183,663 |
|
|
|
(303,024 |
) |
Loan loss (provision) reversal |
|
145,066 |
|
|
|
(147,581 |
) |
Business divestiture-related gains (losses) |
|
(278,559 |
) |
|
|
— |
|
Subtotal |
|
109,200 |
|
|
|
967,213 |
|
Total realized and unrealized gains (losses) |
|
795,195 |
|
|
|
(2,062,824 |
) |
Other income (loss) |
|
57,981 |
|
|
|
36,311 |
|
General and administrative expenses |
|
|
|
||||
Compensation and management fee |
|
118,451 |
|
|
|
131,685 |
|
Other general and administrative expenses |
|
67,563 |
|
|
|
90,510 |
|
Total general and administrative expenses |
|
186,014 |
|
|
|
222,195 |
|
Income (loss) before income taxes |
|
2,400,955 |
|
|
|
(918,195 |
) |
Income taxes |
|
4,675 |
|
|
|
(28,423 |
) |
Net income (loss) |
|
2,396,280 |
|
|
|
(889,772 |
) |
Net income (loss) attributable to noncontrolling interests |
|
6,384 |
|
|
|
1,391 |
|
Net income (loss) attributable to Annaly |
|
2,389,896 |
|
|
|
(891,163 |
) |
Dividends on preferred stock |
|
107,532 |
|
|
|
142,036 |
|
Net income (loss) available (related) to common stockholders |
$ |
2,282,364 |
|
|
$ |
(1,033,199 |
) |
Net income (loss) per share available (related) to common stockholders |
|
|
|||||
Basic |
$ |
1.60 |
|
|
$ |
(0.73 |
) |
Diluted |
$ |
1.60 |
|
|
$ |
(0.73 |
) |
Weighted average number of common shares outstanding |
|
|
|||||
Basic |
|
1,427,426,079 |
|
|
|
1,414,659,439 |
|
Diluted |
|
1,428,569,003 |
|
|
|
1,414,659,439 |
|
Other comprehensive income (loss) |
|
|
|||||
Net income (loss) |
$ |
2,396,280 |
|
|
$ |
(889,772 |
) |
Unrealized gains (losses) on available-for-sale securities |
|
(2,419,618 |
) |
|
|
2,012,878 |
|
Reclassification adjustment for net (gains) losses included in net income (loss) |
|
3,693 |
|
|
|
(776,734 |
) |
Other comprehensive income (loss) |
|
(2,415,925 |
) |
|
|
1,236,144 |
|
Comprehensive income (loss) |
|
(19,645 |
) |
|
|
346,372 |
|
Comprehensive income (loss) attributable to noncontrolling interests |
|
6,384 |
|
|
|
1,391 |
|
Comprehensive income (loss) attributable to Annaly |
|
(26,029 |
) |
|
|
344,981 |
|
Dividends on preferred stock |
|
107,532 |
|
|
|
142,036 |
|
Comprehensive income (loss) attributable to common stockholders |
$ |
(133,561 |
) |
|
$ |
202,945 |
|
|
|
|
|
||||
(1) Derived from the audited consolidated financial statements at |
|||||||
Key Financial Data |
The following table presents key metrics of the Company’s portfolio, liabilities and hedging positions, and performance as of and for the quarters ended
|
|
|
|
|
|
||||||
Portfolio related metrics |
|
|
|
|
|
||||||
|
|
97 |
% |
|
|
98 |
% |
|
|
98 |
% |
Adjustable-rate and floating-rate |
|
3 |
% |
|
|
2 |
% |
|
|
2 |
% |
Weighted average experienced CPR for the period |
|
21.4 |
% |
|
|
23.1 |
% |
|
|
24.7 |
% |
Weighted average projected long-term CPR at period-end |
|
12.7 |
% |
|
|
12.7 |
% |
|
|
16.4 |
% |
Liabilities and hedging metrics |
|
|
|
|
|
||||||
Weighted average days to maturity on repurchase agreements outstanding at period-end |
|
52 |
|
|
|
75 |
|
|
|
64 |
|
Hedge ratio (1) |
|
95 |
% |
|
|
80 |
% |
|
|
61 |
% |
Weighted average pay rate on interest rate swaps at period-end (2) |
|
0.59 |
% |
|
|
0.60 |
% |
|
|
0.92 |
% |
Weighted average receive rate on interest rate swaps at period-end (2) |
|
0.08 |
% |
|
|
0.07 |
% |
|
|
0.37 |
% |
Weighted average net rate on interest rate swaps at period-end (2) |
|
0.51 |
% |
|
|
0.53 |
% |
|
|
0.55 |
% |
GAAP leverage at period-end (3) |
4.7:1 |
|
4.4:1 |
|
5.1:1 |
||||||
GAAP capital ratio at period-end (4) |
|
17.2 |
% |
|
|
17.9 |
% |
|
|
15.9 |
% |
Performance related metrics |
|
|
|
|
|
||||||
Book value per common share |
$ |
7.97 |
|
|
$ |
8.39 |
|
|
$ |
8.92 |
|
GAAP net income (loss) per average common share (5) |
$ |
0.27 |
|
|
$ |
0.34 |
|
|
$ |
0.60 |
|
Annualized GAAP return (loss) on average equity |
|
12.44 |
% |
|
|
15.25 |
% |
|
|
24.91 |
% |
Net interest margin (6) |
|
1.97 |
% |
|
|
2.01 |
% |
|
|
2.14 |
% |
Average yield on interest earning assets (7) |
|
2.31 |
% |
|
|
2.29 |
% |
|
|
2.61 |
% |
Average GAAP cost of interest bearing liabilities (8) |
|
0.38 |
% |
|
|
0.32 |
% |
|
|
0.51 |
% |
Net interest spread |
|
1.93 |
% |
|
|
1.97 |
% |
|
|
2.10 |
% |
Dividend declared per common share |
$ |
0.22 |
|
|
$ |
0.22 |
|
|
$ |
0.22 |
|
Annualized dividend yield (9) |
|
11.25 |
% |
|
|
10.45 |
% |
|
|
10.41 |
% |
Non-GAAP metrics * |
|
|
|
|
|
||||||
Earnings available for distribution per average common share (5) |
$ |
0.28 |
|
|
$ |
0.28 |
|
|
$ |
0.30 |
|
Annualized EAD return on average equity (excluding PAA) |
|
13.10 |
% |
|
|
12.81 |
% |
|
|
13.03 |
% |
Economic leverage at period-end (3) |
5.7:1 |
|
5.8:1 |
|
6.2:1 |
||||||
Economic capital ratio at period end (4) |
|
14.4 |
% |
|
|
14.2 |
% |
|
|
13.6 |
% |
Net interest margin (excluding PAA) (6) |
|
2.03 |
% |
|
|
2.04 |
% |
|
|
1.98 |
% |
Average yield on interest earning assets (excluding PAA) (7) |
|
2.63 |
% |
|
|
2.63 |
% |
|
|
2.80 |
% |
Average economic cost of interest bearing liabilities (8) |
|
0.75 |
% |
|
|
0.66 |
% |
|
|
0.87 |
% |
Net interest spread (excluding PAA) |
|
1.88 |
% |
|
|
1.97 |
% |
|
|
1.93 |
% |
* 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 (excluding receiver swaptions) and futures relative to repurchase agreements, other secured financing and cost basis of TBA derivatives outstanding; excludes MSR and the effects of term financing, both of which serve to reduce interest rate risk. Additionally, the hedge ratio does not take into consideration differences in duration between assets and liabilities. | |
(2) |
Excludes forward starting swaps. | |
(3) |
GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued and mortgages payable divided by total equity. Economic leverage is computed as the sum of recourse debt, cost basis of to-be-announced ("TBA") and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage. | |
(4) |
GAAP capital ratio is computed as total equity divided by total assets. Economic capital ratio is computed as total equity divided by total economic assets. Total economic assets include the implied market value of TBA derivatives and are net of debt issued by securitization vehicles. | |
(5) |
Net of dividends on preferred stock. | |
(6) |
Net interest margin represents interest income less interest expense divided by average interest earning assets. Net interest margin (excluding PAA) represents the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances. | |
(7) |
Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA). | |
(8) |
Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps. | |
(9) |
Based on the closing price of the Company’s common stock of |
The following table contains additional information on our investment portfolio as of the dates presented:
|
For the quarters ended |
||||||||
|
|
|
|
|
|
||||
Agency mortgage-backed securities |
$ |
60,525,605 |
|
$ |
62,818,079 |
|
$ |
74,067,059 |
|
Residential credit risk transfer securities |
|
936,228 |
|
|
787,235 |
|
|
532,403 |
|
Non-agency mortgage-backed securities |
|
1,663,336 |
|
|
1,747,932 |
|
|
972,192 |
|
Commercial mortgage-backed securities |
|
530,505 |
|
|
269,106 |
|
|
80,742 |
|
Total securities |
$ |
63,655,674 |
|
$ |
65,622,352 |
|
$ |
75,652,396 |
|
Residential mortgage loans |
$ |
2,272,072 |
|
$ |
1,686,268 |
|
$ |
345,810 |
|
Residential mortgage loan warehouse facility |
|
980 |
|
|
1,431 |
|
|
— |
|
Commercial real estate debt and preferred equity |
|
— |
|
|
— |
|
|
498,081 |
|
Corporate debt |
|
1,968,991 |
|
|
1,890,709 |
|
|
2,239,930 |
|
Corporate debt, held for sale |
|
— |
|
|
2,113 |
|
|
— |
|
Total loans, net |
$ |
4,242,043 |
|
$ |
3,580,521 |
|
$ |
3,083,821 |
|
Mortgage servicing rights |
$ |
544,562 |
|
$ |
572,259 |
|
$ |
100,895 |
|
Interests in MSR |
$ |
69,316 |
|
$ |
57,530 |
|
$ |
— |
|
Agency mortgage-backed securities transferred or pledged
|
$ |
589,873 |
|
$ |
597,923 |
|
$ |
620,347 |
|
Residential mortgage loans transferred or pledged to
|
|
5,496,435 |
|
|
4,140,558 |
|
|
3,249,251 |
|
Commercial real estate debt investments transferred or
|
|
— |
|
|
— |
|
|
2,166,073 |
|
Commercial real estate debt and preferred equity
|
|
— |
|
|
— |
|
|
874,349 |
|
Assets transferred or pledged to securitization vehicles |
$ |
6,086,308 |
|
$ |
4,738,481 |
|
$ |
6,910,020 |
|
Real estate, net |
$ |
— |
|
$ |
— |
|
$ |
656,314 |
|
Assets of disposal group held for sale |
$ |
194,138 |
|
$ |
238,042 |
|
$ |
— |
|
Total investment portfolio |
$ |
74,792,041 |
|
$ |
74,809,185 |
|
$ |
86,403,446 |
|
|
|||||||||
Non-GAAP Financial Measures |
To supplement its consolidated financial statements, which are prepared and presented in accordance with
| • earnings available for distribution (“EAD”); | • interest income (excluding PAA); | |
| • earnings available for distribution attributable to common stockholders; | • economic interest expense; | |
| • earnings available for distribution per average common share; | • economic net interest income (excluding PAA); | |
| • annualized EAD return on average equity; | • average yield on interest earning assets (excluding PAA); | |
| • economic leverage; | • average economic cost of interest bearing liabilities; | |
| • economic capital ratio; | • net interest margin (excluding PAA); and | |
| • net interest spread (excluding PAA). |
These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with GAAP. While intended to offer a fuller understanding of the Company’s results and operations, non-GAAP financial measures also have limitations. For example, the Company may calculate its non-GAAP metrics, such as earnings available for distribution, or the PAA, differently than its peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which the Company will amortize the remaining unamortized premium. Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results.
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 may be useful to investors, and reconciliations to their most directly comparable GAAP results are provided below.
Earnings available for distribution, earnings available for distribution attributable to common stockholders, earnings available for distribution per average common share and annualized EAD return on average equity
The Company's principal business objective is to generate net income for distribution to its stockholders and to preserve capital through prudent selection of investments and continuous management of its portfolio. The Company generates net income by earning a net interest spread on its investment portfolio, which is a function of interest income from its investment portfolio less financing, hedging and operating costs. Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSR, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items) and excludes (g) the premium amortization adjustment ("PAA") representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities is used by the Company's management and, the Company believes, used by analysts and investors to measure its progress in achieving its principal business objective.
The Company seeks to fulfill this objective through a variety of factors including portfolio construction, the degree of market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of the Company's capital allocation policy and risk governance framework.
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. In addition, EAD serves as a useful indicator for investors in evaluating the Company's performance and ability to pay dividends. Annualized EAD return on average equity, which is calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional detail on the earnings available for distribution generated by the Company’s invested equity capital.
The following table presents a reconciliation of GAAP financial results to non-GAAP earnings available for distribution for the periods presented:
|
For the quarters ended |
||||||||||
|
|
|
|
|
|
||||||
|
(dollars in thousands, except per share data) |
||||||||||
GAAP net income (loss) |
$ |
418,460 |
|
|
$ |
521,534 |
|
|
$ |
878,635 |
|
Net income (loss) attributable to noncontrolling interests |
|
2,979 |
|
|
|
2,290 |
|
|
|
1,419 |
|
Net income (loss) attributable to Annaly |
|
415,481 |
|
|
|
519,244 |
|
|
|
877,216 |
|
Adjustments to exclude reported realized and unrealized (gains) losses |
|
|
|
|
|
||||||
Realized (gains) losses on termination or maturity of interest rate swaps |
|
39,932 |
|
|
|
1,196,417 |
|
|
|
(2,092 |
) |
Unrealized (gains) losses on interest rate swaps |
|
(186,345 |
) |
|
|
(1,380,946 |
) |
|
|
(258,236 |
) |
Net (gains) losses on disposal of investments and other |
|
25,144 |
|
|
|
(12,002 |
) |
|
|
(9,363 |
) |
Net (gains) losses on other derivatives and financial instruments |
|
(47,843 |
) |
|
|
45,168 |
|
|
|
(209,647 |
) |
Net unrealized (gains) losses on instruments measured at fair value through earnings |
|
15,329 |
|
|
|
(90,817 |
) |
|
|
(51,109 |
) |
Loan loss provision (reversal) (1) |
|
1,931 |
|
|
|
(6,771 |
) |
|
|
469 |
|
Business divestiture-related (gains) losses |
|
16,514 |
|
|
|
14,009 |
|
|
|
— |
|
Other adjustments |
|||||||||||
Depreciation expense related to commercial real estate and amortization of intangibles (2) |
|
1,144 |
|
|
|
1,122 |
|
|
|
11,097 |
|
Non-EAD (income) loss allocated to equity method investments (3) |
|
(2,345 |
) |
|
|
(2,046 |
) |
|
|
28 |
|
Transaction expenses and non-recurring items (4) |
|
1,533 |
|
|
|
2,201 |
|
|
|
172 |
|
Income tax effect of non-EAD income (loss) items |
|
8,380 |
|
|
|
(6,536 |
) |
|
|
(10,984 |
) |
TBA dollar roll income and CMBX coupon income (5) |
|
119,657 |
|
|
|
115,586 |
|
|
|
99,027 |
|
MSR amortization (6) |
|
(25,864 |
) |
|
|
(17,884 |
) |
|
|
(26,633 |
) |
Plus: |
|
|
|
|
|
||||||
Premium amortization adjustment cost (benefit) |
|
57,395 |
|
|
|
60,726 |
|
|
|
39,101 |
|
Earnings available for distribution * |
|
440,043 |
|
|
|
437,471 |
|
|
|
459,046 |
|
Dividends on preferred stock |
|
26,883 |
|
|
|
26,883 |
|
|
|
35,509 |
|
Earnings available for distribution attributable to common stockholders * |
$ |
413,160 |
|
|
$ |
410,588 |
|
|
$ |
423,537 |
|
GAAP net income (loss) per average common share |
$ |
0.27 |
|
|
$ |
0.34 |
|
|
$ |
0.60 |
|
Earnings available for distribution per average common share * |
$ |
0.28 |
|
|
$ |
0.28 |
|
|
$ |
0.30 |
|
Annualized GAAP return (loss) on average equity |
|
12.44 |
% |
|
|
15.25 |
% |
|
|
24.91 |
% |
Annualized EAD return on average equity * |
|
13.10 |
% |
|
|
12.81 |
% |
|
|
13.03 |
% |
|
For the years ended |
||||||
|
|
|
|
||||
|
(dollars in thousands, except per share data) |
||||||
GAAP net income (loss) |
$ |
2,396,280 |
|
|
$ |
(889,772 |
) |
Net income (loss) attributable to noncontrolling interests |
|
6,384 |
|
|
|
1,391 |
|
Net income (loss) attributable to Annaly |
|
2,389,896 |
|
|
|
(891,163 |
) |
Adjustments to exclude reported realized and unrealized (gains) losses |
|||||||
Realized (gains) losses on termination or maturity of interest rate swaps |
|
1,236,349 |
|
|
|
1,917,628 |
|
Unrealized (gains) losses on interest rate swaps |
|
(2,198,486 |
) |
|
|
904,532 |
|
Net (gains) losses on disposal of investments and other |
|
62,705 |
|
|
|
(661,513 |
) |
Net (gains) losses on other derivatives and financial instruments |
|
(121,735 |
) |
|
|
(756,305 |
) |
Net unrealized (gains) losses on instruments measured at fair value through earnings |
|
(183,663 |
) |
|
|
303,024 |
|
Loan loss provision (reversal) (1) |
|
(148,632 |
) |
|
|
151,188 |
|
Business divestiture-related (gains) losses |
|
278,559 |
|
|
|
— |
|
Other adjustments |
|||||||
Depreciation expense related to commercial real estate and amortization of intangibles (2) |
|
15,225 |
|
|
|
39,108 |
|
Non-EAD (income) loss allocated to equity method investments (3) |
|
(10,930 |
) |
|
|
22,493 |
|
Transaction expenses and non-recurring items (4) |
|
5,579 |
|
|
|
11,293 |
|
Income tax effect of non-EAD income (loss) items |
|
13,325 |
|
|
|
(17,603 |
) |
TBA dollar roll income and CMBX coupon income (5) |
|
445,768 |
|
|
|
355,547 |
|
MSR amortization (6) |
|
(72,727 |
) |
|
|
(97,506 |
) |
Plus: |
|
|
|
||||
Premium amortization adjustment cost (benefit) |
|
57,158 |
|
|
|
415,444 |
|
Earnings available for distribution * |
|
1,768,391 |
|
|
|
1,696,167 |
|
Dividends on preferred stock |
|
107,532 |
|
|
|
142,036 |
|
Earnings available for distribution attributable to common stockholders * |
$ |
1,660,859 |
|
|
$ |
1,554,131 |
|
GAAP net income (loss) per average common share |
$ |
1.60 |
|
|
$ |
(0.73 |
) |
Earnings available for distribution per average common share * |
$ |
1.16 |
|
|
$ |
1.10 |
|
Annualized GAAP return (loss) on average equity |
|
17.45 |
% |
|
|
(6.31 |
)% |
Annualized EAD return on average equity * |
|
12.90 |
% |
|
|
12.03 |
% |
* Represents a non-GAAP financial measure. |
|||||||
(1) |
Includes |
|
(2) |
Includes depreciation and amortization expense related to equity method investments. | |
(3) |
The Company excludes non-EAD (income) loss allocated to equity method investments, which represents the unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is a component of Other income (loss). | |
(4) |
Includes costs incurred in connection with securitizations of residential whole loans. The year ended |
|
(5) |
TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives and financial instruments. CMBX coupon income totaled |
|
(6) |
MSR amortization 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 instruments 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 in Net gains (losses) on other derivatives and financial instruments 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 other derivatives and financial instruments in the Consolidated Statements of Comprehensive Income (Loss).
The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities ("CMBS") of a particular rating and vintage. The CMBX index allows investors to take a long exposure (referred to as selling protection) or short exposure (referred to as buying protection) on the respective basket of CMBS securities and is structured as a "pay-as-you-go" contract whereby the protection buyer pays to the protection seller a standardized running coupon on the contracted notional amount. The Company reports income (expense) on CMBX positions in Net gains (losses) on other derivatives and financial instruments in the Consolidated Statements of Comprehensive Income (Loss). The coupon payments received or paid on CMBX positions are equivalent to interest income (expense) and therefore included in earnings available for distribution.
Premium Amortization Expense
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, multifamily and reverse mortgages, 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. Certain of the Company’s non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term CPR.
The following table illustrates the impact of the PAA on premium amortization expense for the Company’s
|
For the quarters ended |
||||||||
|
|
|
|
|
|
||||
|
(dollars in thousands) |
||||||||
Premium amortization expense (accretion) |
$ |
219,172 |
|
$ |
233,429 |
|
$ |
239,118 |
|
Less: PAA cost (benefit) |
|
57,395 |
|
|
60,726 |
|
|
39,101 |
|
Premium amortization expense (excluding PAA) |
$ |
161,777 |
|
$ |
172,703 |
|
$ |
200,017 |
|
Economic leverage and economic capital ratios
The Company uses capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between the yield on its assets and the cost of its borrowings and hedging activities. The Company’s capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns for its stockholders while maintaining appropriate liquidity to support its business and meet the Company’s financial obligations under periods of market stress. To maintain its desired capital profile, the Company utilizes a mix of debt and equity funding. Debt funding may include the use of repurchase agreements, loans, securitizations, participations issued, lines of credit, asset backed lending facilities, corporate bond issuance, convertible bonds, mortgages payable or other liabilities. Equity capital primarily consists of common and preferred stock.
The Company’s economic leverage ratio is computed as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage.
The following table presents a reconciliation of GAAP debt to economic debt for purposes of calculating the Company’s economic leverage ratio for the periods presented:
|
As of |
||||||||||
|
|
|
|
|
|
||||||
Economic leverage ratio reconciliation |
(dollars in thousands) |
||||||||||
Repurchase agreements |
$ |
54,769,643 |
|
|
$ |
55,475,420 |
|
|
$ |
64,825,239 |
|
Other secured financing |
|
903,255 |
|
|
|
729,555 |
|
|
|
917,876 |
|
Debt issued by securitization vehicles |
|
5,155,633 |
|
|
|
3,935,410 |
|
|
|
5,652,982 |
|
Participations issued |
|
1,049,066 |
|
|
|
641,006 |
|
|
|
39,198 |
|
Mortgages payable |
|
— |
|
|
|
— |
|
|
|
426,256 |
|
Debt included in liabilities of disposal group held for sale |
|
112,144 |
|
|
|
113,362 |
|
|
|
— |
|
Total GAAP debt |
$ |
61,989,741 |
|
|
$ |
60,894,753 |
|
|
$ |
71,861,551 |
|
Less Non-Recourse Debt: |
|
|
|
|
|
||||||
Credit facilities (1) |
|
(903,255 |
) |
|
|
(729,555 |
) |
|
|
(887,455 |
) |
Debt issued by securitization vehicles |
|
(5,155,633 |
) |
|
|
(3,935,410 |
) |
|
|
(5,652,982 |
) |
Participations issued |
|
(1,049,066 |
) |
|
|
(641,006 |
) |
|
|
(39,198 |
) |
Mortgages payable |
|
— |
|
|
|
— |
|
|
|
(426,256 |
) |
Non-recourse debt included in liabilities
|
|
(112,144 |
) |
|
|
(113,362 |
) |
|
|
— |
|
Total recourse debt |
$ |
54,769,643 |
|
|
$ |
55,475,420 |
|
|
$ |
64,855,660 |
|
Plus / (Less): |
|
|
|
|
|
||||||
Cost basis of TBA and CMBX derivatives |
|
20,690,768 |
|
|
|
24,202,686 |
|
|
|
20,780,913 |
|
Payable for unsettled trades |
|
147,908 |
|
|
|
571,540 |
|
|
|
884,069 |
|
Receivable for unsettled trades |
|
(2,656 |
) |
|
|
(42,482 |
) |
|
|
(15,912 |
) |
Economic debt * |
$ |
75,605,663 |
|
|
$ |
80,207,164 |
|
|
$ |
86,504,730 |
|
Total equity |
$ |
13,195,325 |
|
|
$ |
13,717,867 |
|
|
$ |
14,021,796 |
|
Economic leverage ratio * |
5.7:1 |
|
5.8:1 |
|
6.2:1 |
||||||
* Represents a non-GAAP financial measure.
(1) Included in Other secured financing in the Company’s Consolidated Statements of Financial Condition. |
|||||||||||
The following table presents a reconciliation of GAAP total assets to economic total assets for purposes of calculating the Company’s economic capital ratio for the periods presented:
|
As of |
||||||||||
|
|
|
|
|
|
||||||
Economic capital ratio reconciliation |
(dollars in thousands) |
||||||||||
Total GAAP assets |
$ |
76,764,064 |
|
|
$ |
76,662,433 |
|
|
$ |
88,455,103 |
|
Less: |
|
|
|
|
|
||||||
Gross unrealized gains on TBA derivatives (1) |
|
(52,693 |
) |
|
|
(1,776 |
) |
|
|
(96,109 |
) |
Debt issued by securitization vehicles (2) |
|
(5,155,633 |
) |
|
|
(3,935,410 |
) |
|
|
(5,652,982 |
) |
Plus: |
|
|
|
|
|
||||||
Implied market value of TBA derivatives |
|
20,338,633 |
|
|
|
23,622,635 |
|
|
|
20,373,197 |
|
Total economic assets * |
$ |
91,894,371 |
|
|
$ |
96,347,882 |
|
|
$ |
103,079,209 |
|
Total equity |
$ |
13,195,325 |
|
|
$ |
13,717,867 |
|
|
$ |
14,021,796 |
|
Economic capital ratio (3) |
|
14.4 |
% |
|
|
14.2 |
% |
|
|
13.6 |
% |
* Represents a non-GAAP financial measure. |
|||||||||||
(1) |
Included in Derivative assets in the Company’s Consolidated Statements of Financial Condition. | |
(2) |
Includes debt issued by securitization vehicles reported in Liabilities of disposal group held for sale in the Company's Consolidated Statements of Financial Condition. | |
(3) |
Economic capital ratio is computed as total equity divided by total economic assets. |
Interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA)
Interest income (excluding PAA) represents interest income excluding the effect of the PAA, and serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA), which are discussed below. The Company believes this measure provides management and investors with additional detail to enhance their understanding of the Company’s operating results and trends by excluding the component of premium amortization expense representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio.
Economic interest expense includes GAAP interest expense and the net interest component of interest rate swaps. 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 net interest component of 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 the Company's financing strategy. The Company may use market agreed coupon (“MAC”) interest rate swaps in which the Company may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-market nature of such interest rate swap. In accordance with GAAP, upfront payments associated with MAC interest rate swaps are not reflected in the net interest component of interest rate swaps in the Company's Consolidated Statements of Comprehensive Income (Loss). The Company did not enter into any MAC interest rate swaps during the quarter ended
Similarly, economic net interest income (excluding PAA), 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 |
||||||||
|
|
|
|
|
|
||||
Interest income (excluding PAA) reconciliation |
(dollars in thousands) |
||||||||
GAAP interest income |
$ |
422,780 |
|
$ |
412,972 |
|
$ |
527,344 |
|
Premium amortization adjustment |
|
57,395 |
|
|
60,726 |
|
|
39,101 |
|
Interest income (excluding PAA) * |
$ |
480,175 |
|
$ |
473,698 |
|
$ |
566,445 |
|
Economic interest expense reconciliation |
|
|
|
|
|
||||
GAAP interest expense |
$ |
61,785 |
|
$ |
50,438 |
|
$ |
94,481 |
|
Add: |
|
|
|
|
|
||||
Net interest component of interest rate swaps |
|
58,897 |
|
|
54,411 |
|
|
66,807 |
|
Economic interest expense * |
$ |
120,682 |
|
$ |
104,849 |
|
$ |
161,288 |
|
Economic net interest income (excluding PAA) reconciliation |
|
|
|
|
|||||
Interest income (excluding PAA) * |
$ |
480,175 |
|
$ |
473,698 |
|
$ |
566,445 |
|
Less: |
|
|
|
|
|
||||
Economic interest expense * |
|
120,682 |
|
|
104,849 |
|
|
161,288 |
|
Economic net interest income (excluding PAA) * |
$ |
359,493 |
|
$ |
368,849 |
|
$ |
405,157 |
|
* Represents a non-GAAP financial measure. |
|||||||||
Average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA), net interest margin (excluding PAA) and average economic cost of interest bearing liabilities
Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances, provide management with additional measures of the Company’s profitability that management relies upon in monitoring the performance of the business.
Disclosure of these measures, which are presented below, provides investors with additional detail regarding how management evaluates the Company’s performance.
|
For the quarters ended |
||||||||||
|
|
|
|
|
|
||||||
Economic metrics (excluding PAA) |
(dollars in thousands) |
||||||||||
Average interest earning assets |
$ |
73,134,966 |
|
|
$ |
72,145,283 |
|
|
$ |
80,973,433 |
|
Interest income (excluding PAA) * |
$ |
480,175 |
|
|
$ |
473,698 |
|
|
$ |
566,445 |
|
Average yield on interest earning assets (excluding PAA) * |
|
2.63 |
% |
|
|
2.63 |
% |
|
|
2.80 |
% |
Average interest bearing liabilities |
$ |
63,342,740 |
|
|
$ |
62,614,042 |
|
|
$ |
72,233,239 |
|
Economic interest expense * |
$ |
120,682 |
|
|
$ |
104,849 |
|
|
$ |
161,288 |
|
Average economic cost of interest bearing liabilities * |
|
0.75 |
% |
|
|
0.66 |
% |
|
|
0.87 |
% |
Economic net interest income (excluding PAA) * |
$ |
359,493 |
|
|
$ |
368,849 |
|
|
$ |
405,157 |
|
Net interest spread (excluding PAA) * |
|
1.88 |
% |
|
|
1.97 |
% |
|
|
1.93 |
% |
Interest income (excluding PAA) * |
$ |
480,175 |
|
|
$ |
473,698 |
|
|
$ |
566,445 |
|
TBA dollar roll income and CMBX coupon income |
|
119,657 |
|
|
|
115,586 |
|
|
|
99,027 |
|
Economic interest expense * |
|
(120,682 |
) |
|
|
(104,849 |
) |
|
|
(161,288 |
) |
Subtotal |
$ |
479,150 |
|
|
$ |
484,435 |
|
|
$ |
504,184 |
|
Average interest earnings assets |
$ |
73,134,966 |
|
|
$ |
72,145,283 |
|
|
$ |
80,973,433 |
|
Average TBA contract and CMBX balances |
|
21,159,120 |
|
|
|
22,739,226 |
|
|
|
20,744,672 |
|
Subtotal |
$ |
94,294,086 |
|
|
$ |
94,884,509 |
|
|
$ |
101,718,105 |
|
Net interest margin (excluding PAA) * |
|
2.03 |
% |
|
|
2.04 |
% |
|
|
1.98 |
% |
* Represents a non-GAAP financial measure. |
|||||||||||
View source version on businesswire.com: https://www.businesswire.com/news/home/20220208006264/en/
Investor Relations
1-888-8Annaly
www.annaly.com
Source:
FAQ
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