- GAAP net loss of ($868.1) million,
($0.96) per average common share
- Normalized core earnings of $0.30 per
average common share
- Common stock book value per share of
$11.61, economic leverage of 6.2:1
- Credit investment portfolio increases
to 25% of stockholders’ equity
- Share repurchases totaling $217.0
million since November 2015
- Strategic diversification strategy
continues with agreement to acquire Hatteras Financial Corp. for
$1.5 billion
Annaly Capital Management, Inc. (NYSE:NLY) (the “Company”) today
announced its financial results for the quarter ended March 31,
2016.
“Amidst one of the most volatile quarters in history and global
fixed income yield levels reaching all-time lows, Annaly’s
diversified platform once again delivered stable, normalized core
earnings and an attractive return on equity for our shareholders,”
commented Kevin Keyes, Chief Executive Officer and President.
Subsequent to the first quarter on April 11th, 2016, Annaly
agreed to acquire Hatteras Financial Corp. for aggregate
consideration of approximately $1.5 billion. “The Hatteras
transaction is the largest mortgage REIT M&A deal ever,” Mr.
Keyes remarked. “This acquisition enhances the scale and
diversification of Annaly’s investment platform, is accretive to
both earnings and book value and further solidifies our position as
the industry’s leading hybrid mortgage REIT.”
Financial
Performance
The following table summarizes certain key performance
indicators as of and for the quarters ended March 31, 2016,
December 31, 2015, and March 31, 2015:
March 31, 2016 December 31,
2015 March 31, 2015 Book value per common share
$11.61 $11.73 $12.88 Economic leverage at period-end (1) 6.2:1
6.0:1 5.7:1 GAAP net income (loss) per common share ($0.96) $0.69
($0.52) Normalized core earnings per common share (2) $0.30 $0.31
$0.34 Annualized return (loss) on average equity (29.47%) 22.15%
(14.41%) Annualized normalized core return on average equity (2)
9.91% 10.30% 10.34% Normalized net interest margin (2) (3) 1.54%
1.71% 1.68% Normalized net interest spread (2) 1.27% 1.37% 1.32%
Normalized average yield on interest earning assets (2) 3.00% 3.05%
2.96% (1) Computed as the sum of recourse debt, TBA
derivative notional outstanding and net forward purchases of
investments divided by total equity. Recourse debt consists of
repurchase agreements, other secured financing and Convertible
Senior Notes. Securitized debt, participation sold and mortgages
payable are non-recourse to the Company and are excluded from this
measure. (2) Adjusted to reflect the effect of the premium
amortization adjustment (“PAA”) due to quarter-over-quarter changes
in long-term constant prepayment rates (“CPR”) estimates.
(3) Represents the sum of the Company’s annualized normalized
economic net interest income (inclusive of interest expense on
interest rate swaps used to hedge cost of funds) plus TBA dollar
roll income (less interest expense on swaps used to hedge dollar
roll transactions) divided by the sum of its average interest
earning assets plus average outstanding TBA derivative balances.
Average interest earning assets reflects the average amortized cost
of our investments during the period.
The Company reported a GAAP net loss for the quarter ended March
31, 2016 of ($868.1) million, or ($0.96) per average common share,
compared to GAAP net income of $669.7 million, or $0.69 per average
common share, for the quarter ended December 31, 2015, and a GAAP
net loss of ($476.5) million, or ($0.52) per average common share,
for the quarter ended March 31, 2015. The decrease for the quarter
ended March 31, 2016 compared to each of the quarters ended
December 31, 2015 and March 31, 2015 is primarily due to
unfavorable changes in realized and unrealized gains (losses) on
interest rate swaps.
The Company’s non-GAAP normalized metrics reflect the premium
amortization adjustment representing the quarter-over-quarter
change in estimated long-term CPR. In accordance with GAAP, the
Company recognizes income under the retrospective method on a
substantial portion of its Residential Investment Securities
classified as available-for-sale. Premiums and discounts associated
with the purchase of Residential Investment Securities are
amortized or accreted into income over the remaining projected
lives of the securities. Using a third-party supplied model and
market information to project future cash flows and expected
remaining lives of securities, the effective interest rate
determined for each security is applied as if it had been in place
from the date of the security’s acquisition. The amortized cost of
the investment is then adjusted to the amount that would have
existed had the new effective yield been applied since the
acquisition date. The adjustment to amortized cost is offset with a
charge or credit to interest income. Changes in interest rates and
other market factors will impact prepayment speed projections and
the amount of premium amortization recognized in any given period.
The Company’s GAAP metrics include the unadjusted impact of
amortization and accretion associated with the retrospective
method.
The following table illustrates the impact of
quarter-over-quarter adjustments to long-term CPR estimates on
premium amortization expense for the quarters ended March 31, 2016,
December 31, 2015, and March 31, 2015:
March 31, 2016 December 31,
2015 March 31, 2015 (dollars in thousands)
Premium amortization expense $ 355,671 $ 159,720 $ 284,777 Less:
PAA cost (benefit) 168,408 (18,072 )
87,883 Premium amortization expense exclusive of PAA $
187,263 $ 177,792 $ 196,894
March 31, 2016 December 31, 2015
March 31, 2015 (per common share) Premium
amortization expense $ 0.38 $ 0.17 $ 0.30 Less: PAA cost (benefit)
0.19 (0.02 ) 0.09 Premium
amortization expense exclusive of PAA $ 0.19 $ 0.19
$ 0.21
Normalized core earnings for the quarter ended March 31, 2016
were $291.8 million, or $0.30 per average common share, compared to
$311.1 million, or $0.31 per average common share, for the quarter
ended December 31, 2015, and $342.0 million, or $0.34 per average
common share, for the quarter ended March 31, 2015. Normalized core
earnings decreased during the quarter ended March 31, 2016 compared
to the quarter ended December 31, 2015 on higher borrowing costs
and lower dollar roll income, partially offset by higher interest
income generated by the commercial investment portfolio. Normalized
core earnings declined during the quarter ended March 31, 2016
compared to the quarter ended March 31, 2015 due to a reduction in
normalized interest income earned on lower Residential Investment
Securities balances, partially offset by increased interest income
on a larger commercial investment portfolio during the quarter
ended March 31, 2016.
The following table presents a reconciliation between GAAP net
income (loss), and non-GAAP core earnings and normalized core
earnings for the quarters ended March 31, 2016, December 31, 2015,
and March 31, 2015.
For the quarters ended March 31,
2016 December 31, 2015 March 31,
2015 (dollars in thousands) GAAP net income (loss) $
(868,080 ) $ 669,666 $ (476,499 ) Less: Realized (gains) losses on
termination of interest rate swaps - - 226,462 Unrealized (gains)
losses on interest rate swaps 1,031,720 (463,126 ) 466,202 Net
(gains) losses on disposal of investments 1,675 7,259 (62,356 ) Net
(gains) losses on trading assets (125,189 ) (42,584 ) 6,906 Net
unrealized (gains) losses on financial instruments measured at fair
value through earnings (128 ) 62,703 33,546 Net (income) loss
attributable to noncontrolling interest 162 373 90 Plus: TBA dollar
roll income (1) 83,189 94,914
59,731 Core earnings (2) 123,349 329,205
254,082 Premium amortization adjustment cost (benefit)
168,408 (18,072 ) 87,883
Normalized core earnings $ 291,757 $ 311,133
$ 341,965 GAAP net income (loss) per average
common share $ (0.96 ) $ 0.69 $ (0.52 ) Core
earnings per average common share $ 0.11 $ 0.33
$ 0.25 Normalized core earnings per average
common share $ 0.30 $ 0.31 $ 0.34
(1) Represents a component of Net gains (losses) on
trading assets. (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 financial instruments measured at fair
value through earnings, net gains and losses on trading assets,
impairment losses, net income (loss) attributable to noncontrolling
interest, and certain other non-recurring gains or losses, and
inclusive of dollar roll income (a component of Net gains (losses)
on trading assets). Normalized core earnings presents the Company’s
core earnings adjusted to reflect the effect of the PAA.
Normalized net interest margin for the quarters ended March 31,
2016, December 31, 2015, and March 31, 2015 was 1.54%, 1.71% and
1.68%, respectively. For the quarter ended March 31, 2016, the
normalized average yield on interest earning assets was 3.00% and
the average cost of interest bearing liabilities, including
interest expense on interest rate swaps used to hedge cost of
funds, was 1.73%, which resulted in a normalized net interest
spread of 1.27%. The normalized average yield on interest earning
assets for the quarter ended March 31, 2016 decreased when compared
to the quarter ended December 31, 2015 due to higher amortization
expense, exclusive of the PAA, on Residential Investment Securities
during the quarter ended March 31, 2016 and increased when compared
to the quarter ended March 31, 2015 due to higher weighted average
coupons on Residential Investment Securities, partially offset by
higher weighted average premium amortization expense, exclusive of
the PAA, on Residential Investment Securities. The rise in our
average cost of interest bearing liabilities for the quarter ended
March 31, 2016 when compared to the quarters ended December 31,
2015 and March 31, 2015 is primarily attributable to higher average
rates on repurchase agreements, partially offset by a reduction in
interest expense on swaps.
Asset
Portfolio
Residential Investment Securities
Residential Investment Securities, which are comprised of Agency
mortgage-backed securities, Agency debentures, credit risk transfer
securities and Non-Agency mortgage-backed securities, totaled $67.3
billion at March 31, 2016, compared to $67.2 billion at December
31, 2015 and $70.5 billion at March 31, 2015. The Company’s
Residential Investment Securities portfolio at March 31, 2016 was
comprised of 93% fixed-rate assets with the remainder constituting
adjustable or floating-rate investments.
The Company uses a third-party model and market information to
project prepayment speeds for purposes of determining amortization
of premiums and discounts on Residential Investment Securities.
Changes to model assumptions, including interest rates and other
market data, as well as periodic revisions to the model may cause
changes to the results. The net amortization of premiums and
accretion of discounts on Residential Investment Securities for the
quarters ended March 31, 2016, December 31, 2015, and March 31,
2015, was $355.7 million (which included PAA cost of $168.4
million), $159.7 million (which included PAA benefit of $18.1
million), and $284.8 million (which included PAA cost of $87.9
million), respectively. The total net premium balance on
Residential Investment Securities at March 31, 2016, December 31,
2015, and March 31, 2015, was $4.7 billion, $5.0 billion, and $4.7
billion, respectively. The weighted average amortized cost basis of
the Company’s non interest-only Residential Investment Securities
at March 31, 2016, December 31, 2015, and March 31, 2015, was
105.0%, 105.3% and 105.1%, respectively. The weighted average
amortized cost basis of the Company’s interest-only Residential
Investment Securities at March 31, 2016, December 31, 2015, and
March 31, 2015, was 15.6%, 16.0%, and 15.7%, respectively. The
weighted average experienced CPR on our Agency mortgage-backed
securities for the quarters ended March 31, 2016, December 31,
2015, and March 31, 2015, was 8.8%, 9.7% and 9.0%, respectively.
The weighted average projected long-term CPR on our Agency
mortgage-backed securities at March 31, 2016, December 31, 2015,
and March 31, 2015, was 11.8%, 8.8% and 9.2%, respectively.
At March 31, 2016, the Company had outstanding $14.3 billion in
notional balances of TBA derivative positions. Realized and
unrealized gains (losses) on TBA derivatives are recorded in Net
gains (losses) on trading assets in the Company’s Consolidated
Statements of Comprehensive Income (Loss). The following table
summarizes certain characteristics of the Company’s TBA derivatives
at March 31, 2016:
TBA Purchase Contracts
Notional Implied Cost Basis Implied
Market Value Net Carrying Value (dollars in
thousands) Purchase contracts $ 14,273,000 $ 14,847,792 $
14,924,524 $ 76,732
During the quarter ended March 31, 2016, the Company disposed of
$3.5 billion of Residential Investment Securities, resulting in a
net realized loss of ($1.7) million. During the quarter ended
December 31, 2015, the Company disposed of $2.7 billion of
Residential Investment Securities, resulting in a net realized loss
of ($7.5) million. During the quarter ended March 31, 2015, the
Company disposed of $14.9 billion of Residential Investment
Securities, resulting in a net realized gain of $62.3 million.
Commercial Investments Portfolio
The Company’s commercial investments portfolio consists of
commercial real estate debt and equity investments and corporate
debt. Commercial real estate debt, including preferred equity,
AAA-rated commercial mortgage-backed securities, securitized loans
of consolidated variable interest entities (“VIEs”) and loans held
for sale totaled $5.9 billion at March 31, 2016 compared to $4.5
billion at December 31, 2015. Loans held for sale totaled $278.6
million at March 31, 2016, unchanged from December 31, 2015.
Investments in commercial real estate totaled $527.8 million at
March 31, 2016, down slightly from $535.9 million at December 31,
2015. Corporate debt investments totaled $639.5 million as of March
31, 2016, up from $488.5 million at December 31, 2015. The weighted
average levered return on commercial real estate debt, including
loans held for sale, as of March 31, 2016, December 31, 2015, and
March 31, 2015, was 7.63%, 7.67% and 9.32%, respectively. Excluding
loans held for sale, the weighted average levered return on
commercial real estate debt was 8.88%, 8.82% and 9.32% at March 31,
2016, December 31, 2015, and March 31, 2015, respectively. The
weighted average levered returns on investments in commercial real
estate equity as of March 31, 2016, December 31, 2015, and March
31, 2015, was 10.59%, 10.59% and 12.98%, respectively.
During the first quarter of 2016, the Company originated or
provided additional funding on pre-existing commercial real estate
debt commitments totaling $180.9 million with a weighted average
coupon of 4.9%. During the first quarter of 2016, the Company
received cash from its commercial real estate investments of $351.9
million from loan sales, partial pay-downs, prepayments and
maturities with a weighted average coupon of 8.8%. The Company also
acquired AAA-rated commercial mortgage-backed securities during the
first quarter of 2016 for a gross purchase price of $76.9 million
and a net equity investment for $12.9 million.
At March 31, 2016, December 31, 2015, and March 31, 2015,
residential and commercial credit assets (including loans held for
sale) comprised 25%, 23% and 13% of stockholders’ equity.
Capital and
Funding
At March 31, 2016, total stockholders’ equity was $11.7 billion.
Leverage at March 31, 2016, December 31, 2015, and March 31, 2015,
was 5.3:1, 5.1:1 and 4.8:1, respectively. For purposes of
calculating the Company’s leverage ratio, debt consists of
repurchase agreements, other secured financing, Convertible Senior
Notes, securitized debt, participation sold and mortgages payable.
Securitized debt, participation sold and mortgages payable are
non-recourse to the Company. Economic leverage, which excludes
non-recourse debt and includes other forms of financing such as TBA
dollar roll transactions, was 6.2:1 at March 31, 2016, compared to
6.0:1 at December 31, 2015, and 5.7:1 at March 31, 2015. At March
31, 2016, December 31, 2015, and March 31, 2015, the Company’s
capital ratio, which represents the ratio of stockholders’ equity
to total assets (inclusive of total market value of TBA derivatives
and exclusive of consolidated VIEs associated with B Piece
commercial mortgage-backed securities), was 13.2%, 13.7%, and
14.3%, respectively. On a GAAP basis, the Company produced an
annualized return (loss) on average equity for the quarters ended
March 31, 2016, December 31, 2015, and March 31, 2015 of (29.47%),
22.15% and (14.41%), respectively. On a normalized core earnings
basis, the Company provided an annualized return on average equity
for the quarters ended March 31, 2016, December 31, 2015, and March
31, 2015, of 9.91%, 10.30%, and 10.34%, respectively.
At March 31, 2016, December 31, 2015, and March 31, 2015, the
Company had a common stock book value per share of $11.61, $11.73
and $12.88, respectively.
As previously announced, the Company’s Board authorized the
repurchase of up to $1 billion of its outstanding common shares
through December 31, 2016. During the quarter ended March 31, 2016
the Company repurchased 11.1 million shares of its outstanding
common stock for total proceeds of $102.7 million. Since the
beginning of the fourth quarter 2015 to date, the Company
repurchased 23.1 million shares of its outstanding common stock for
total proceeds of $217.0 million, at an average purchase price per
share of $9.40.
At March 31, 2016, December 31, 2015, and March 31, 2015, the
Company had outstanding $54.4 billion, $56.2 billion, and $60.5
billion of repurchase agreements, with weighted average remaining
maturities of 136 days, 151 days, and 149 days, and with weighted
average borrowing rates of 1.87%, 1.83%, and 1.74%, after giving
effect to the Company’s interest rate swaps used to hedge cost of
funds, respectively. The weighted average rate on repurchase
agreements during the quarters ended March 31, 2016, December 31,
2015, and March 31, 2015, was 0.95%, 0.78%, and 0.60%,
respectively.
At March 31, 2016 and December 31, 2015, the Company had
outstanding $3.6 billion and $1.8 billion of advances from the
Federal Home Loan Bank of Des Moines, with weighted average
remaining maturities of 1,735 days and 1,423 days, respectively,
and with weighted average borrowing rates of 0.59%.
The following table presents the principal balance and weighted
average rate of repurchase agreements and FHLB advances by maturity
at March 31, 2016:
Maturity Principal Balance
Weighted Average Rate (dollars in thousands)
Within 30 days $ 20,891,928 0.70 % 30 to 59 days 4,878,678 0.82 %
60 to 89 days 9,264,997 0.96 % 90 to 119 days 4,270,155 0.95 % Over
120 days(1) 18,730,709 1.29 % Total $ 58,036,467 0.96 %
(1) Approximately 17% of the total repurchase agreements and
FHLB advances have a remaining maturity over 1 year.
The following table presents the principal balance, weighted
average rate and weighted average days to maturity on outstanding
debt at March 31, 2016:
Weighted Average Principal
Balance Rate
Days to Maturity (3)
(dollars in thousands) Repurchase agreements $ 54,448,141
0.99 % 136 Other secured financing (1) 3,588,326 0.59 % 1,735
Securitized debt of consolidated VIEs (2) 3,821,252 0.85 % 2,801
Participation sold (2) 13,061 5.58 % 396 Mortgages payable (2)
338,346 4.16 % 3,064 Total indebtedness $ 62,209,126
(1) Represents advances from the Federal Home Loan Bank of Des
Moines. (2) Non-recourse to the Company. (3)
Determined based on estimated weighted-average lives of the
underlying debt instruments.
Hedge
Portfolio
At March 31, 2016, the Company had outstanding interest rate
swaps with a net notional amount of $29.9 billion. Changes in the
unrealized gains or losses on the interest rate swaps are reflected
in the Company’s Consolidated Statements of Comprehensive Income
(Loss). The Company enters into interest rate swaps to mitigate the
risk of rising interest rates that affect the Company’s cost of
funds or its dollar roll transactions. As of March 31, 2016, the
swap portfolio had a weighted average pay rate of 2.26%, a weighted
average receive rate of 0.69% and a weighted average maturity of
6.76 years. There were no forward starting swaps at March 31,
2016.
The following table summarizes certain characteristics of the
Company’s interest rate swaps at March 31, 2016:
Weighted Weighted
Weighted Average Pay Average Receive
Average Years Maturity Current Notional
Rate Rate to Maturity
(dollars in thousands) 0 - 3 years $ 4,290,419 1.79 % 0.47 %
1.87 3 - 6 years 11,925,000 1.87 % 0.73 % 4.22 6 - 10 years
10,227,550 2.49 % 0.76 % 7.88 Greater than 10 years
3,434,400 3.54 % 0.59 % 18.64 Total / Weighted
Average $ 29,877,369 2.26 % 0.69 % 6.76
The Company enters into U.S. Treasury and Eurodollar futures
contracts to hedge a portion of its interest rate risk. The
following table summarizes outstanding futures positions as of
March 31, 2016:
Notional - Long Notional - Short
Weighted Average Positions Positions
Years to Maturity (dollars in thousands)
2-year swap equivalent Eurodollar contracts $ - $ (4,375,000 ) 2.00
U.S. Treasury futures - 5 year - (1,847,200 ) 4.42 U.S. Treasury
futures - 10 year and greater - (655,600 )
6.75 Total $ - $ (6,877,800 ) 3.10
At March 31, 2016, December 31, 2015, and March 31, 2015, the
Company’s hedge ratio was 53%, 57% and 48%, respectively. Our hedge
ratio measures total notional balances of interest rate swaps,
interest rate swaptions and futures relative to repurchase
agreements and TBA notional outstanding.
Dividend
Declarations
Common dividends declared for each of the quarters ended March
31, 2016, December 31, 2015, and March 31, 2015 were $0.30 per
common share. The annualized dividend yield on the Company’s common
stock for the quarter ended March 31, 2016, based on the March 31,
2016 closing price of $10.26, was 11.70%, compared to 12.79% for
the quarter ended December 31, 2015, and 11.54% for the quarter
ended March 31, 2015.
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, 2016, December 31, 2015, and
March 31, 2015:
March 31, 2016 December 31, 2015
March 31, 2015
Portfolio Related
Metrics:
Fixed-rate Residential Investment Securities as a
percentage of total Residential Investment Securities 93% 93% 94%
Adjustable-rate and floating-rate Residential Investment Securities
as a percentage of total Residential Investment Securities 7% 7% 6%
Weighted average experienced CPR for the period 8.8% 9.7% 9.0%
Weighted average projected long-term CPR at period end 11.8% 8.8%
9.2% Weighted average levered return on commercial real estate debt
at period-end (1) 7.63% 7.67% 9.32% Weighted average levered return
on investments in commercial real estate equity at period-end
10.59% 10.59% 12.98%
Liabilities and
Hedging Metrics:
Weighted average days to maturity on repurchase agreements
outstanding at period-end 136 151 149 Hedge ratio (2) 53% 57% 48%
Weighted average pay rate on interest rate swaps at period-end (3)
2.26% 2.26% 2.37% Weighted average receive rate on interest rate
swaps at period-end (3) 0.69% 0.53% 0.35% Weighted average net rate
on interest rate swaps at period-end (3) 1.57% 1.73% 2.02% Leverage
at period-end (4) 5.3:1 5.1:1 4.8:1 Economic leverage at period-end
(5) 6.2:1 6.0:1 5.7:1 Capital ratio at period-end 13.2%
13.7% 14.3%
Performance
Related Metrics:
Book value per common share $11.61 $11.73 $12.88 GAAP net income
(loss) per common share ($0.96) $0.69 ($0.52) Core earnings per
common share $0.11 $0.33 $0.25 Normalized core earnings per common
share $0.30 $0.31 $0.34 Annualized return (loss) on average equity
(29.47%) 22.15% (14.41%) Annualized core return on average equity
4.19% 10.89% 7.69% Annualized normalized core return on average
equity 9.91% 10.30% 10.34% Net interest margin 0.79% 1.80% 1.29%
Normalized net interest margin 1.54% 1.71% 1.68% Average yield on
interest earning assets (6) 2.09% 3.15% 2.54% Normalized average
yield on interest earning assets (6) 3.00% 3.05% 2.96% Average cost
of interest bearing liabilities (7) 1.73% 1.68% 1.64% Net interest
spread 0.36% 1.47% 0.90% Normalized net interest spread 1.27%
1.37% 1.32% (1) Includes loans held for sale.
Excluding loans held for sale, the weighted average levered return
on commercial real estate debt was 8.88%, 8.82% and 9.32% at March
31, 2016, December 31, 2015, and March 31, 2015, respectively.
(2) Measures total notional balances of interest rate swaps,
interest rate swaptions and futures relative to repurchase
agreements and TBA notional outstanding. (3) Excludes
forward starting swaps. (4) Debt consists of repurchase
agreements, other secured financing, Convertible Senior Notes,
securitized debt, participation sold and mortgages payable.
Securitized debt, participation sold and mortgages payable are
non-recourse to the Company. (5) Computed as the sum of
recourse debt, TBA derivative notional outstanding and net forward
purchases of investments divided by total equity. (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.
Other
Information
Annaly’s principal business objectives are to generate net
income for distribution to its shareholders from its investments
and capital preservation. Annaly is a Maryland corporation that has
elected to be taxed as a real estate investment trust (“REIT”).
Annaly is managed and advised by Annaly Management Company LLC.
The Company prepares a supplement to provide additional
quarterly information for the benefit of its shareholders. The
supplement can be found at the Company’s website (www.annaly.com)
in the Investors section under Investor Presentations.
Conference
Call
The Company will hold the first quarter 2016 earnings conference
call on May 5, 2016 at 10:00 a.m. Eastern Time. The number to call
is 888-317-6003 for domestic calls and 412-317-6061 for
international calls. The conference passcode is 5990784. There will
also be an audio webcast of the call on www.annaly.com. The replay
of the call is available for one week following the conference
call. The replay number is 877-344-7529 for domestic calls and
412-317-0088 for international calls and the conference passcode is
10084548. If you would like to be added to the e-mail distribution
list, please visit www.annaly.com, click on Investor Relations,
then select Email Alerts and complete the email notification
form.
This news release and our public documents to which we refer
contain or incorporate by reference certain forward-looking
statements which are based on various assumptions (some of which
are beyond our control) and may be identified by reference to a
future period or periods or by the use of forward-looking
terminology, such as "may," "will," "believe," "expect,"
"anticipate," "continue," or similar terms or variations on those
terms or the negative of those terms. Actual results could differ
materially from those set forth in forward-looking statements due
to a variety of factors, including, but not limited to, changes in
interest rates; changes in the yield curve; changes in prepayment
rates; the availability of mortgage-backed securities and other
securities for purchase; the availability of financing and, if
available, the terms of any financings; changes in the market value
of our assets; changes in business conditions and the general
economy; our ability to grow our commercial business; our ability
to grow our residential mortgage credit business; credit risks
related to our investments in credit risk transfer securities,
residential mortgage-backed securities and related residential
mortgage credit assets, commercial real estate assets and corporate
debt; our ability to consummate any contemplated investment
opportunities; changes in government regulations affecting our
business; our ability to maintain our qualification as a REIT for
federal income tax purposes; our ability to maintain our exemption
from registration under the Investment Company Act of 1940, as
amended; and our ability to consummate the proposed Hatteras
Acquisition on a timely basis or at all, and potential business
disruption following the Hatteras Acquisition. 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 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, 2016
2015(1)
2015 2015 2015 (Unaudited)
(Unaudited) (Unaudited)
(Unaudited) ASSETS Cash and cash equivalents $
2,416,136 $ 1,769,258 $ 2,237,423 $ 1,785,158 $ 1,920,326
Investments, at fair value: Agency mortgage-backed securities
65,439,824 65,718,224 65,806,640 67,605,287 69,388,001 Agency
debentures 157,035 152,038 413,115 429,845 995,408 Credit risk
transfer securities 501,167 456,510 330,727 214,130 108,337
Non-Agency mortgage-backed securities 1,157,507 906,722 490,037 - -
Commercial real estate debt investments (2) 4,401,725 2,911,828
2,881,659 2,812,824 1,515,903 Investment in affiliate - - - 123,343
141,246 Commercial real estate debt and preferred equity, held for
investment (3) 1,177,468 1,348,817 1,316,595 1,332,955 1,498,406
Loans held for sale 278,600 278,600 476,550 - - Investments in
commercial real estate 527,786 535,946 301,447 216,800 207,209
Corporate debt 639,481 488,508 424,974 311,640 227,830 Reverse
repurchase agreements - - - - 100,000 Interest rate swaps, at fair
value 93,312 19,642 39,295 30,259 25,908 Other derivatives, at fair
value 77,449 22,066 87,516 38,074 113,503 Receivable for
investments sold 2,220 121,625 127,571 247,361 2,009,937 Accrued
interest and dividends receivable 232,180 231,336 228,169 234,006
247,801 Receivable for investment advisory income - - 3,992 10,589
10,268 Other assets 234,407 119,422 67,738 48,229 34,430 Goodwill
71,815 71,815 71,815 71,815 94,781 Intangible assets, net
35,853 38,536 33,424
33,365 36,383
Total assets $ 77,443,965 $ 75,190,893
$ 75,338,687 $ 75,545,680 $
78,675,677
LIABILITIES AND STOCKHOLDERS’
EQUITY Liabilities: Repurchase agreements $ 54,448,141 $
56,230,860 $ 56,449,364 $ 57,459,552 $ 60,477,378 Other secured
financing 3,588,326 1,845,048 359,970 203,200 90,000 Convertible
Senior Notes - - - - 749,512 Securitized debt of consolidated VIEs
(4) 3,802,682 2,540,711 2,553,398 2,610,974 1,491,829 Participation
sold 13,182 13,286 13,389 13,490 13,589 Mortgages payable 334,765
334,707 166,697 146,359 146,470 Interest rate swaps, at fair value
2,782,961 1,677,571 2,160,350 1,328,729 2,025,170 Other
derivatives, at fair value 69,171 49,963 113,626 40,539 61,778
Dividends payable 277,456 280,779 284,348 284,331 284,310 Payable
for investments purchased 250,612 107,115 744,378 673,933 5,205
Accrued interest payable 163,983 151,843 145,554 131,629 155,072
Accounts payable and other liabilities 54,679
53,088 63,280
58,139 50,774 Total liabilities
65,785,958 63,284,971
63,054,354 62,950,875
65,551,087 Stockholders’ Equity:
7.875% Series A Cumulative Redeemable
Preferred Stock: 7,412,500 authorized, issued and outstanding
177,088 177,088 177,088 177,088 177,088
7.625% Series C Cumulative Redeemable
Preferred Stock 12,650,000 authorized, 12,000,000 issued and
outstanding
290,514 290,514 290,514 290,514 290,514
7.50% Series D Cumulative Redeemable
Preferred Stock: 18,400,000 authorized, issued and outstanding
445,457 445,457 445,457 445,457 445,457 Common stock, par value
$0.01 per share, 1,956,937,500 authorized, 924,853,133,
935,929,561, 947,826,176, 947,768,496, and 947,698,431 issued and
outstanding, respectively 9,249 9,359 9,478 9,478 9,477 Additional
paid-in capital 14,573,760 14,675,768 14,789,320 14,788,677
14,787,117 Accumulated other comprehensive income (loss) 640,366
(377,596 ) 262,855 (354,965 ) 773,999 Accumulated deficit
(4,487,982 ) (3,324,616 ) (3,695,884 )
(2,766,250 ) (3,364,147 ) Total
stockholders’ equity 11,648,452 11,895,974 12,278,828 12,589,999
13,119,505 Noncontrolling interest 9,555
9,948 5,505
4,806 5,085 Total equity
11,658,007 11,905,922
12,284,333 12,594,805
13,124,590 Total liabilities and equity $ 77,443,965
$ 75,190,893 $ 75,338,687
$ 75,545,680 $ 78,675,677 (1) Derived
from the audited consolidated financial statements at December 31,
2015. (2) Includes senior securitized commercial mortgage
loans of consolidated VIEs with a carrying value of $4.0 billion,
$2.6 billion, $2.6 billion, $2.6 billion and $1.4 billion at March
31, 2016, December 31, 2015, September 30, 2015, June 30, 2015 and
March 31, 2015, respectively. (3) Includes senior
securitized commercial mortgage loans of consolidated VIE with a
carrying value of $211.9 million, $262.7 million, $314.9 million,
$361.2 million and $361.2 million, at March 31, 2016, December 31,
2015, September 30, 2015, June 30, 2015 and March 31, 2015,
respectively. (4) Includes securitized debt of consolidated
VIEs carried at fair value of $3.7 billion, $2.4 billion, $2.4
billion, $2.4 billion and $1.3 billion at March 31, 2016, December
31, 2015, September 30, 2015, June 30, 2015 and March 31, 2015,
respectively.
ANNALY CAPITAL
MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (UNAUDITED) (dollars in
thousands, except per share data) For the quarters
ended March 31, December 31, September 30,
June 30, March 31, 2016 2015
2015 2015 2015
Net interest income:
Interest income $ 388,143 $ 576,580 $ 450,726 $ 624,277 $ 519,114
Interest expense 147,447 118,807
110,297 113,072
129,420
Net interest income 240,696
457,773 340,429
511,205 389,694
Realized and unrealized gains (losses): Realized gains
(losses) on interest rate swaps(1) (147,475 ) (159,487 ) (162,304 )
(144,465 ) (158,239 ) Realized gains (losses) on termination of
interest rate swaps - - - - (226,462 ) Unrealized gains (losses) on
interest rate swaps (1,031,720 ) 463,126
(822,585 ) 700,792
(466,202 )
Subtotal (1,179,195 )
303,639 (984,889 ) 556,327
(850,903 ) Net gains (losses) on disposal of
investments (1,675 ) (7,259 ) (7,943 ) 3,833 62,356 Net gains
(losses) on trading assets 125,189 42,584 108,175 (114,230 ) (6,906
) Net unrealized gains (losses) on financial instruments measured
at fair value through earnings 128 (62,703 ) (24,501 ) 17,581
(33,546 ) Impairment of goodwill - -
- (22,966 )
-
Subtotal 123,642
(27,378 ) 75,731 (115,782 )
21,904
Total realized and unrealized gains
(losses) (1,055,553 ) 276,261
(909,158 ) 440,545
(828,999 )
Other income (loss): Investment advisory
income - - 3,780 10,604 10,464 Dividend income from affiliate - - -
4,318 4,318 Other income (loss) (6,115 )
(10,447 ) (13,455 ) (22,275 )
(1,024 )
Total other income (loss) (6,115 )
(10,447 ) (9,675 ) (7,353
) 13,758
General and administrative
expenses: Compensation and management fee 36,997 37,193 37,450
37,014 38,629 Other general and administrative expenses
10,948 10,643 12,007
14,995 12,309
Total general and administrative expenses 47,945
47,836 49,457
52,009 50,938
Income (loss) before income taxes (868,917 ) 675,751
(627,861 ) 892,388 (476,485 )
Income taxes
(837 ) 6,085 (370 )
(7,683 ) 14
Net income
(loss) (868,080 ) 669,666 (627,491 ) 900,071 (476,499 )
Net income (loss) attributable to noncontrolling interest
(162 ) (373 ) (197 )
(149 ) (90 )
Net income (loss)
attributable to Annaly (867,918 ) 670,039 (627,294 ) 900,220
(476,409 )
Dividends on preferred stock 17,992
17,992 17,992
17,992 17,992
Net income (loss) available (related) to common stockholders
$ (885,910 ) $ 652,047 $ (645,286 ) $
882,228 $ (494,401 )
Net income (loss) per
share available (related) to common stockholders: Basic $ (0.96
) $ 0.69 $ (0.68 ) $ 0.93
$ (0.52 ) Diluted $ (0.96 ) $ 0.69 $ (0.68 )
$ 0.93 $ (0.52 )
Weighted average
number of common shares outstanding: Basic 926,813,588
945,072,058 947,795,500
947,731,493 947,669,831
Diluted 926,813,588 945,326,098
947,795,500 947,929,762
947,669,831
Net income
(loss) $ (868,080 ) $ 669,666 $ (627,491 )
$ 900,071 $ (476,499 )
Other comprehensive
income (loss): Unrealized gains (losses) on available-for-sale
securities 1,017,707 (648,106 ) 609,725 (1,125,043 ) 631,472
Reclassification adjustment for net (gains) losses included in net
income (loss) 255 7,655
8,095 (3,921 ) (62,356 )
Other comprehensive income (loss) 1,017,962
(640,451 ) 617,820
(1,128,964 ) 569,116 Comprehensive income
(loss) 149,882 29,215 (9,671 ) (228,893 ) 92,617 Comprehensive
income (loss) attributable to noncontrolling interest (162 )
(373 ) (197 ) (149 )
(90 )
Comprehensive income (loss) attributable to
Annaly $ 150,044 $ 29,588 $ (9,474
) $ (228,744 ) $ 92,707 (1) Interest
expense related to the Company’s interest rate swaps is recorded in
Realized gains (losses) on interest rate swaps on the Consolidated
Statements of Comprehensive Income (Loss).
Non-GAAP Financial
Measures
The following tables present a reconciliation of non-GAAP
financial measures to the most directly comparable GAAP financial
measures for the quarters ended March 31, 2016, December 31, 2015,
and March 31, 2015:
For the quarters ended March 31, 2016
December 31, 2015 March 31, 2015
Normalized
Interest Income Reconciliation
(dollars in thousands) Total interest income $ 388,143
$ 576,580 $ 519,114 Premium amortization adjustment
168,408 (18,072 ) 87,883
Normalized interest income $ 556,551 $ 558,508
$ 606,997
Economic Interest
Expense Reconciliation
GAAP interest expense $ 147,447 $ 118,807 $ 129,420 Add: Interest
expense on interest rate swaps used to hedge cost of funds
123,124 135,267 157,332
Economic interest expense $ 270,571 $ 254,074
$ 286,752
Normalized
Economic Net Interest Income Reconciliation
Normalized interest income $ 556,551 $ 558,508 $ 606,997 Less:
Economic interest expense 270,571
254,074 286,752 Normalized economic net
interest income $ 285,980 $ 304,434 $
320,245
Normalized
Economic Net Interest Income
Normalized interest income $ 556,551 $ 558,508 $ 606,997 Average
interest earning assets $ 74,171,943 $ 73,178,965 $ 81,896,255
Normalized average yield on interest earning assets 3.00 %
3.05 % 2.96 % Economic interest expense
$ 270,571 $ 254,074 $ 286,752
Average interest bearing liabilities
$ 62,379,695 $ 60,516,996 $ 70,137,382 Average cost of interest
bearing liabilities 1.73 % 1.68 %
1.64 % Normalized net interest spread 1.27 %
1.37 % 1.32 % Normalized net interest margin
1.54 % 1.71 % 1.68 %
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