- GAAP net loss of ($278.5) million,
($0.32) per average common share
- Core earnings of $0.29 per average
common share*
- Common stock book value per share of
$11.50, economic leverage of 6.1:1
- Credit investment portfolio represents
24% of stockholders’ equity
- Completed approximately $1.5 billion
acquisition of Hatteras Financial Corp. on July 12, 2016
Annaly Capital Management, Inc. (NYSE:NLY) (the “Company”) today
announced its financial results for the quarter ended June 30,
2016.
“During heightened market volatility and amidst a difficult
operating environment, Annaly continued to deliver strong
performance and durable core earnings and book value,” commented
Kevin Keyes, Chief Executive Officer and President. “Our
diversified platform has provided our shareholders with the most
consistent core earnings over the past two years – earnings that
have proven to be approximately two-thirds more stable than other
industry participants.”
On July 12, 2016, Annaly completed the acquisition of Hatteras
Financial Corp., for aggregate consideration of approximately $1.5
billion, marking the largest mortgage REIT acquisition in history.
“The Hatteras transaction provides portfolio diversity and size
while also adding to the earnings and capital base of the Company,”
Mr. Keyes remarked. “This strategic milestone is evidence of
Annaly’s unique financial flexibility and demonstrates our ability
to grow opportunistically in this challenging market environment.
Annaly’s shareholders continue to benefit from the increased scale,
liquidity, asset and business diversification of the industry’s
leading hybrid REIT.”
Enhanced
Disclosures
Beginning with the second quarter 2016, the Company is
separately providing a supplemental investor presentation on the
Company’s business profile, strategy, capital allocation and
performance. This information is in addition to the quarterly
supplemental financial information, which the Company will continue
to provide in a separate financial presentation. Both the Second
Quarter 2016 Investor Presentation and the Second Quarter 2016
Financial Summary are available on the Company’s website
(www.annaly.com).
Additionally, the Company periodically reviews its use of
non-GAAP financial measures to ensure only those measures relied
upon by the Company’s management in assessing the financial
performance of the business are disclosed. This review also
considers regulatory interpretations and guidance. Beginning with
the second quarter 2016 results as reported herein, the Company has
modified its non-GAAP disclosures to discontinue use of normalized
financial metrics. The Company will continue disclosing core
financial metrics, with core earnings redefined to also exclude the
component of premium amortization representing the
quarter-over-quarter change in estimated long-term constant
prepayment rates (“CPR”) (referred to herein as premium
amortization adjustment (“PAA”)). The Company believes these
non-GAAP financial measures are useful for management, investors,
analysts, and other interested parties in evaluating the Company’s
performance but should not be viewed in isolation and are not a
substitute for financial measurements computed in accordance with
GAAP. Please refer to the “Non-GAAP Financial Measures” section for
additional information.
Financial
Performance
The following table summarizes certain key performance
indicators as of and for the quarters ended June 30, 2016, March
31, 2016, and June 30, 2015:
June 30,
2016 March 31, 2016 June 30, 2015
Book value per common share $ 11.50 $ 11.61 $ 12.32 Economic
leverage at period-end (1) 6.1:1 6.2:1 5.6:1 GAAP net income (loss)
per common share ($0.32 ) ($0.96 ) $ 0.93 Core earnings per common
share* (2) $ 0.29 $ 0.30 $ 0.33 Annualized return (loss) on average
equity (9.60 %) (29.47 %) 28.00 % Annualized core return on average
equity* 9.73 % 9.91 % 10.31 % Net interest margin 1.15 % 0.79 %
2.06 % Core net interest margin* (3) 1.54 % 1.54 % 1.70 % Net
interest spread 0.80 % 0.36 % 1.73 % Core net interest spread* 1.27
% 1.27 % 1.31 % Average yield on interest earning assets 2.48 %
2.09 % 3.32 % Core average yield on interest earning assets* 2.95 %
3.00 % 2.90 % (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) 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, the premium amortization adjustment resulting from the
quarter-over-quarter change in estimated long-term CPR, corporate
acquisition related expenses and certain other non-recurring gains
or losses, and inclusive of dollar roll income (a component of Net
gains (losses) on trading assets).
(3) Represents the sum of the Company’s
annualized economic core net interest income (exclusive of the PAA
and 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.
* Represents a non-GAAP financial measure. Please refer to the
“Non-GAAP Financial Measures” section for additional information.
The Company reported a GAAP net loss for the quarter ended June
30, 2016 of ($278.5) million, or ($0.32) per average common share,
compared to a GAAP net loss of ($868.1) million, or ($0.96) per
average common share, for the quarter ended March 31, 2016, and
GAAP net income of $900.1 million, or $0.93 per average common
share, for the quarter ended June 30, 2015. The change for the
quarter ended June 30, 2016 compared to the quarter ended March 31,
2016 is primarily due to lower realized and unrealized losses on
interest rate swaps during the quarter ended June 30, 2016. The
decrease for the quarter ended June 30, 2016 compared to the
quarter ended June 30, 2015 is attributable to realized and
unrealized losses on interest rate swaps during the quarter ended
June 30, 2016 compared to realized and unrealized gains on interest
rate swaps during the quarter ended June 30, 2015, as well as
higher interest expense on repurchase agreements during the current
quarter.
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,
considering estimates of future principal prepayment in the
calculation of the effective yield because they are probable and
the timing and amount of prepayments can be reasonably estimated.
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 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 this method. The
Company’s non-GAAP metrics exclude the effect of the PAA
representing the quarter-over-quarter change in estimated long-term
CPR.
The following table illustrates the impact of
quarter-over-quarter adjustments to long-term CPR estimates on
premium amortization expense for the quarters ended June 30, 2016,
March 31, 2016, and June 30, 2015:
June 30, 2016March 31, 2016June 30,
2015 (dollars in thousands) Premium
amortization expense $ 265,475 $ 355,671 $ 94,037 Less: PAA cost
(benefit) 85,583 168,408 (79,582
) Premium amortization expense exclusive of PAA $ 179,892 $
187,263 $ 173,619
June 30, 2016
March 31, 2016 June 30, 2015 (per
common share) Premium amortization expense $ 0.29 $ 0.38 $ 0.10
Less: PAA cost (benefit) 0.10 0.19
(0.08 ) Premium amortization expense exclusive of PAA $ 0.19
$ 0.19 $ 0.18
Core earnings for the quarter ended June 30, 2016 were $282.2
million, or $0.29 per average common share, compared to $291.8
million, or $0.30 per average common share, for the quarter ended
March 31, 2016, and $331.5 million, or $0.33 per average common
share, for the quarter ended June 30, 2015. Core earnings decreased
during the quarter ended June 30, 2016 compared to the quarter
ended March 31, 2016 due to lower interest income earned on the
Company’s commercial investment portfolio during the quarter ended
June 30, 2016. Core earnings declined during the quarter ended June
30, 2016 compared to the quarter ended June 30, 2015 due to higher
borrowing costs and a reduction in TBA dollar roll income,
partially offset by lower interest expense on swaps during the
quarter ended June 30, 2016.
The following table presents a reconciliation between GAAP net
income (loss) and non-GAAP core earnings for the quarters ended
June 30, 2016, March 31, 2016, and June 30, 2015.
For the quarters ended June 30, 2016
March 31, 2016 June 30,
2015 (dollars in thousands) GAAP net income (loss) $
(278,497 ) $ (868,080 ) $ 900,071 Less: Realized (gains) losses on
termination of interest rate swaps 60,064 - - Unrealized (gains)
losses on interest rate swaps 373,220 1,031,720 (700,792 ) Net
(gains) losses on disposal of investments (12,535 ) 1,675 (3,833 )
Net (gains) losses on trading assets (81,880 ) (125,189 ) 114,230
Net unrealized (gains) losses on financial instruments measured at
fair value through earnings 54,154 (128 ) (17,581 ) Impairment of
goodwill - - 22,966 Corporate acquisition related expenses (1)
2,163 - - Net (income) loss attributable to noncontrolling interest
385 162 149 Premium amortization adjustment cost (benefit) 85,583
168,408 (79,582 ) Plus:
TBA dollar roll income (2)
79,519 83,189
95,845 Core earnings $ 282,176
$ 291,757 $
331,473 GAAP net income (loss) per average common
share $ (0.32 ) $ (0.96 )
$ 0.93 Core earnings per average common share $ 0.29
$ 0.30 $ 0.33
(1) Represents transaction costs incurred in
connection with the Company’s acquisition of Hatteras Financial
Corp.
(2) Represents a component of Net gains
(losses) on trading assets.
Net interest margin for the quarters ended June 30, 2016, March
31, 2016, and June 30, 2015 was 1.15%, 0.79% and 2.06%,
respectively. Core net interest margin for the quarters ended June
30, 2016, March 31, 2016, and June 30, 2015 was 1.54%, 1.54% and
1.70%, respectively. For the quarter ended June 30, 2016, the
average yield on interest earning assets was 2.48% and the average
cost of interest bearing liabilities, including interest expense on
interest rate swaps used to hedge cost of funds, was 1.68%, which
resulted in a net interest spread of 0.80%. The average yield on
interest earning assets for the quarter ended June 30, 2016
increased when compared to the quarter ended March 31, 2016 and
decreased when compared to the quarter ended June 30, 2015 due to
differences in premium amortization expense on Residential
Investment Securities resulting from changes in long-term CPR
estimates. The decline in our average cost of interest bearing
liabilities for the quarter ended June 30, 2016 when compared to
the quarter ended March 31, 2016 is primarily attributable to a
reduction in interest expense on swaps, partially offset by higher
average rates on repurchase agreements during the quarter ended
June 30, 2016. The rise in our average cost of interest bearing
liabilities for the quarter ended June 30, 2016 when compared to
the quarter ended June 30, 2015 was driven by an increase in
borrowing rates on repurchase agreements and other secured
borrowings, partially offset by a decline in interest expense on
swaps during the quarter ended June 30, 2016. For the quarter ended
June 30, 2016, the core average yield on interest earning assets
was 2.95%, which resulted in a core net interest spread of 1.27%.
The core average yield on interest earning assets for the quarter
ended June 30, 2016 decreased when compared to the quarter ended
March 31, 2016 primarily due to lower interest income on the
commercial investment portfolio during the quarter ended June 30,
2016 and increased when compared to the quarter ended June 30, 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.
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 $66.6
billion at June 30, 2016, compared to $67.3 billion at March 31,
2016 and $68.2 billion at June 30, 2015. The Company’s Residential
Investment Securities portfolio at June 30, 2016 was comprised of
92% fixed-rate assets with the remainder constituting adjustable or
floating-rate investments.
The Company uses 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 model revisions may cause changes
to the results. The net amortization of premiums and accretion of
discounts on Residential Investment Securities for the quarters
ended June 30, 2016, March 31, 2016, and June 30, 2015, was $265.5
million (which included PAA cost of $85.6 million), $355.7 million
(which included PAA cost of $168.4 million), and $94.0 million
(which included a PAA benefit of $79.6 million), respectively. The
total net premium balance on Residential Investment Securities at
June 30, 2016, March 31, 2016, and June 30, 2015, was $4.6 billion,
$4.7 billion, and $4.8 billion, respectively. The weighted average
amortized cost basis of the Company’s non interest-only Residential
Investment Securities at June 30, 2016, March 31, 2016, and June
30, 2015, was 105.0%, 105.0% and 105.4%, respectively. The weighted
average amortized cost basis of the Company’s interest-only
Residential Investment Securities at June 30, 2016, March 31, 2016,
and June 30, 2015, was 15.8%, 15.6%, and 16.0%, respectively. The
weighted average experienced CPR on our Agency mortgage-backed
securities for the quarters ended June 30, 2016, March 31, 2016,
and June 30, 2015, was 12.7%, 8.8% and 12.1%, respectively. The
weighted average projected long-term CPR on our Agency
mortgage-backed securities at June 30, 2016, March 31, 2016, and
June 30, 2015, was 13.0%, 11.8% and 7.7%, respectively.
At June 30, 2016, the Company had outstanding $12.7 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 June 30, 2016:
TBA Purchase Contracts Notional
Implied Cost Basis Implied Market Value
Net Carrying Value (dollars in
thousands) Purchase contracts $ 12,739,000 $ 13,246,011
$ 13,383,501 $ 137,490
During the quarter ended June 30, 2016, the Company disposed of
$1.8 billion of Residential Investment Securities, resulting in a
net realized gain of $11.9 million. 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 June 30, 2015, the Company
disposed of $2.5 billion of Residential Investment Securities,
resulting in a net realized gain of $3.9 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 $5.7 billion at June 30, 2016 compared to $5.9
billion at March 31, 2016. Loans held for sale, net totaled $164.2
million at June 30, 2016, compared to $278.6 million at March 31,
2016. Investments in commercial real estate totaled $504.6 million
at June 30, 2016, down slightly from $527.8 million at March 31,
2016. Corporate debt investments totaled $669.6 million as of June
30, 2016, up from $639.5 million at March 31, 2016. The weighted
average levered return on commercial real estate debt and preferred
equity, including loans held for sale, as of June 30, 2016, March
31, 2016, and June 30, 2015, was 8.25%, 7.53% and 9.78%,
respectively. Excluding loans held for sale, the weighted average
levered return on commercial real estate debt and preferred equity
was 9.09%, 8.57% and 9.78% at June 30, 2016, March 31, 2016, and
June 30, 2015, respectively. The weighted average levered returns
on investments in commercial real estate equity as of June 30,
2016, March 31, 2016, and June 30, 2015, was 10.63%, 10.59% and
12.48%, respectively.
During the second quarter 2016, the Company provided additional
funding on pre-existing commercial real estate debt commitments
totaling $10.0 million with a weighted average coupon of 6.5%.
During the second quarter 2016, the Company received cash from its
commercial real estate investments of $225.2 million from loan
sales (including loans held for sale), partial pay-downs,
prepayments and maturities with a weighted average coupon of 3.7%,
in addition to $12.75 million in proceeds from real estate
sales.
At June 30, 2016, March 31, 2016, and June 30, 2015, residential
and commercial credit assets (including loans held for sale)
comprised 24%, 25% and 14% of stockholders’ equity,
respectively.
Capital and
Funding
At June 30, 2016, total stockholders’ equity was $11.6 billion.
Leverage at June 30, 2016, March 31, 2016, and June 30, 2015, was
5.3:1, 5.3:1 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 6.1:1 at June 30, 2016, compared to
6.2:1 at March 31, 2016, and 5.6:1 at June 30, 2015. At June 30,
2016, March 31, 2016, and June 30, 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%, 13.2%, and 14.6%,
respectively. On a GAAP basis, the Company produced an annualized
return (loss) on average equity for the quarters ended June 30,
2016, March 31, 2016, and June 30, 2015 of (9.60%), (29.47%) and
28.00%, respectively. On a core earnings basis, the Company
provided an annualized return on average equity for the quarters
ended June 30, 2016, March 31, 2016, and June 30, 2015, of 9.73%,
9.91%, and 10.31%, respectively.
At June 30, 2016, March 31, 2016, and June 30, 2015, the Company
had a common stock book value per share of $11.50, $11.61 and
$12.32, respectively.
At June 30, 2016, March 31, 2016, and June 30, 2015, the Company
had outstanding $53.9 billion, $54.4 billion, and $57.5 billion of
repurchase agreements, with weighted average remaining maturities
of 129 days, 136 days, and 149 days, and with weighted average
borrowing rates of 1.81%, 1.87%, and 1.73%, 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 June 30, 2016, March 31, 2016, and June
30, 2015, was 1.00%, 0.95%, and 0.67%, respectively.
At June 30, 2016 and March 31, 2016, the Company had outstanding
$3.6 billion of advances from the Federal Home Loan Bank of Des
Moines, with weighted average remaining maturities of 1,644 days
and 1,735 days, respectively, and with weighted average borrowing
rates of 0.60% and 0.59%, respectively.
The following table presents the principal balance and weighted
average rate of repurchase agreements and FHLB advances by maturity
at June 30, 2016:
Maturity Principal
Balance Weighted Average Rate (dollars in
thousands) Within 30 days $ 20,212,965 0.85 % 30 to 59 days
7,014,305 0.95 % 60 to 89 days 5,970,102 0.86 % 90 to 119 days
6,179,055 0.82 % Over 120 days(1) 18,080,284 1.28 %
Total $ 57,456,711 1.00 % (1) Approximately 15% of
the total repurchase agreements and FHLB advances have a remaining
maturity over 1 year. The combined weighted average days to
maturity for repurchase agreements and FHLB advances was 224 days.
The following table presents the principal balance, weighted
average rate and weighted average days to maturity on outstanding
debt at June 30, 2016:
Weighted
Average Principal Balance
Rate
Days to Maturity (3)
(dollars in thousands) Repurchase agreements $ 53,868,385
1.02 % 129 Other secured financing (1) 3,588,326 0.60 % 1,644
Securitized debt of consolidated VIEs (2) 3,754,642 0.86 % 2,385
Participation sold (2) 12,985 5.58 % 302 Mortgages payable (2)
331,046 4.20 % 3,035 Total indebtedness $ 61,555,384 (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 June 30, 2016, the Company had outstanding interest rate
swaps with a net notional amount of $26.2 billion. Changes in the
unrealized gains or losses on the interest rate swaps are reflected
in the Company’s Consolidated Statements of Comprehensive Income
(Loss). The Company enters into interest rate swaps to mitigate the
risk of rising interest rates that affect the Company’s cost of
funds or its dollar roll transactions. As of June 30, 2016, the
swap portfolio had a weighted average pay rate of 2.28%, a weighted
average receive rate of 0.74% and a weighted average maturity of
7.04 years. There were no forward starting swaps at June 30,
2016.
The following table summarizes certain characteristics of the
Company’s interest rate swaps at June 30, 2016:
Maturity
Current Notional (1) Weighted Average Pay
Rate (2) (3) Weighted Average Receive Rate
(2) Weighted Average Years to Maturity
(2) (dollars in thousands) 0 - 3 years $ 1,152,401
1.63 % 0.53 % 2.61 3 - 6 years 12,025,000 1.88 % 0.74 % 4.00 6 - 10
years 9,570,550 2.43 % 0.81 % 7.73 Greater than 10 years
3,434,400 3.70 % 0.55 % 18.87 Total / Weighted
Average $ 26,182,351 2.28 % 0.74 % 7.04 (1)
Notional amount includes $0.2 billion in forward starting receive
fixed swaps, which settle in July 2016.
(2) Excludes forward starting swaps.
(3) Weighted average fixed rate on forward
starting receive fixed swaps was 1.38%.
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 June
30, 2016:
Notional - Long Positions Notional - Short
Positions Weighted Average Years to Maturity (dollars
in thousands) 2-year swap equivalent Eurodollar contracts $ - $
(6,200,000) 2.00 U.S. Treasury futures - 5 year - (1,447,200) 4.42
U.S. Treasury futures - 10 year and greater - (655,600) 6.88 Total
$ - $ (8,302,800) 2.81
At June 30, 2016, March 31, 2016, and June 30, 2015, the
Company’s hedge ratio was 49%, 51% and 53%, respectively. Our hedge
ratio measures total notional balances of interest rate swaps,
interest rate swaptions and futures relative to repurchase
agreements, other secured financing and TBA notional
outstanding.
Dividend
Declarations
Common dividends declared for each of the quarters ended June
30, 2016, March 31, 2016, and June 30, 2015 were $0.30 per common
share. The annualized dividend yield on the Company’s common stock
for the quarter ended June 30, 2016, based on the June 30, 2016
closing price of $11.07, was 10.84%, compared to 11.70% for the
quarter ended March 31, 2016, and 13.06% for the quarter ended June
30, 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 June 30, 2016, March 31, 2016, and June
30, 2015:
June 30, 2016
March 31, 2016 June 30, 2015
Portfolio Related
Metrics:
Fixed-rate Residential Investment Securities as a percentage of
total Residential Investment Securities 92 % 93 % 94 %
Adjustable-rate and floating-rate Residential Investment Securities
as a percentage of total Residential Investment Securities 8 % 7 %
6 % Weighted average experienced CPR for the period 12.7 % 8.8 %
12.1 % Weighted average projected long-term CPR at period end 13.0
% 11.8 % 7.7 % Weighted average levered return on commercial real
estate debt and preferred equity at period-end (1) 8.25 % 7.53 %
9.78 % Weighted average levered return on investments in commercial
real estate equity at period-end 10.63 % 10.59
% 12.48 %
Liabilities and
Hedging Metrics:
Weighted average days to maturity on repurchase agreements
outstanding at period-end 129 136 149 Hedge ratio (2) 49 % 51 % 53
% Weighted average pay rate on interest rate swaps at period-end
(3) 2.28 % 2.26 % 2.29 % Weighted average receive rate on interest
rate swaps at period-end (3) 0.74 % 0.69 % 0.40 % Weighted average
net rate on interest rate swaps at period-end (3) 1.54 % 1.57 %
1.89 % Leverage at period-end (4) 5.3:1 5.3:1 4.8:1 Economic
leverage at period-end (5) 6.1:1 6.2:1 5.6:1 Capital ratio at
period-end 13.2 % 13.2 % 14.6 %
Performance
Related Metrics:
Book value per common share $ 11.50 $ 11.61 $ 12.32 GAAP net income
(loss) per common share ($0.32 ) ($0.96 ) $ 0.93 Core earnings per
common share $ 0.29 $ 0.30 $ 0.33 Annualized return (loss) on
average equity (9.60 %) (29.47 %) 28.00 % Annualized core return on
average equity 9.73 % 9.91 % 10.31 % Net interest margin 1.15 %
0.79 % 2.06 % Core net interest margin 1.54 % 1.54 % 1.70 % Average
yield on interest earning assets (6) 2.48 % 2.09 % 3.32 % Core
average yield on interest earning assets (6) 2.95 % 3.00 % 2.90 %
Average cost of interest bearing liabilities (7) 1.68 % 1.73 % 1.59
% Net interest spread 0.80 % 0.36 % 1.73 % Core net interest spread
1.27 % 1.27 % 1.31 % (1)
Includes loans held for sale. Excluding loans held for sale, the
weighted average levered return on commercial real estate debt and
preferred equity was 9.09%, 8.57% and 9.78% at June 30, 2016, March
31, 2016, and June 30, 2015, respectively.
(2) Measures total notional balances of
interest rate swaps, interest rate swaptions and futures relative
to repurchase agreements, other secured financing 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
This news release and our public documents to which we refer
contain or incorporate by reference certain forward-looking
statements which are based on various assumptions (some of which
are beyond our control) and may be identified by reference to a
future period or periods or by the use of forward-looking
terminology, such as "may," "will," "believe," "expect,"
"anticipate," "continue," or similar terms or variations on those
terms or the negative of those terms. Actual results could differ
materially from those set forth in forward-looking statements due
to a variety of factors, including, but not limited to, changes in
interest rates; changes in the yield curve; changes in prepayment
rates; the availability of mortgage-backed securities and other
securities for purchase; the availability of financing and, if
available, the terms of any financings; changes in the market value
of our assets; changes in business conditions and the general
economy; our ability to grow our commercial business; our ability
to grow our residential mortgage credit business; credit risks
related to our investments in credit risk transfer securities,
residential mortgage-backed securities and related residential
mortgage credit assets, commercial real estate assets and corporate
debt; risks related to investments in mortgage servicing rights and
ownership of a servicer; any potential business disruption
following the acquisition of Hatteras Financial Corp.; our ability
to consummate any contemplated investment opportunities; changes in
government regulations affecting our business; our ability to
maintain our qualification as a REIT; and our ability to maintain
our exemption from registration under the Investment Company Act of
1940, as amended. For a discussion of the risks and uncertainties
which could cause actual results to differ from those contained in
the forward-looking statements, see "Risk Factors" in our most
recent Annual Report on Form 10-K and any subsequent Quarterly
Reports on Form 10-Q. We do not undertake, and specifically
disclaim any obligation, to publicly release the result of any
revisions which may be made to any forward-looking statements to
reflect the occurrence of anticipated or unanticipated events or
circumstances after the date of such statements, except as required
by law.
Annaly’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 supplemental investor presentation and a
financial summary for the benefit of its shareholders. Both the
Second Quarter 2016 Investor Presentation and the Second Quarter
2016 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 second quarter 2016 earnings
conference call on August 4, 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 2103129. 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 10090067. 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.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars
in thousands, except per share data) June 30,
March 31, December 31, September 30, June
30, 2016 2016
2015(1)
2015 2015 (Unaudited)
(Unaudited) (Unaudited)
(Unaudited) ASSETS Cash and cash equivalents $
2,735,250 $ 2,416,136 $ 1,769,258 $ 2,237,423 $ 1,785,158
Investments, at fair value: Agency mortgage-backed securities
64,862,992 65,439,824 65,718,224 65,806,640 67,605,287 Agency
debentures - 157,035 152,038 413,115 429,845 Credit risk transfer
securities 520,321 501,167 456,510 330,727 214,130 Non-Agency
mortgage-backed securities 1,197,549 1,157,507 906,722 490,037 -
Commercial real estate debt investments (2) 4,361,972 4,401,725
2,911,828 2,881,659 2,812,824 Investment in affiliate - - - -
123,343 Commercial real estate debt and preferred equity, held for
investment (3) 1,137,971 1,177,468 1,348,817 1,316,595 1,332,955
Loans held for sale, net 164,175 278,600 278,600 476,550 -
Investments in commercial real estate 504,605 527,786 535,946
301,447 216,800 Corporate debt 669,612 639,481 488,508 424,974
311,640 Reverse repurchase agreements - - - - - Interest rate
swaps, at fair value 146,285 93,312 19,642 39,295 30,259 Other
derivatives, at fair value 137,490 77,449 22,066 87,516 38,074
Receivable for investments sold 697,943 2,220 121,625 127,571
247,361 Accrued interest and dividends receivable 227,225 232,180
231,336 228,169 234,006 Receivable for investment advisory income -
- - 3,992 10,589 Other assets 237,959 234,407 119,422 67,738 48,229
Goodwill 71,815 71,815 71,815 71,815 71,815 Intangible assets, net
43,306 35,853
38,536 33,424 33,365
Total assets $ 77,716,470 $ 77,443,965
$ 75,190,893 $ 75,338,687
$ 75,545,680
LIABILITIES AND STOCKHOLDERS’
EQUITY Liabilities: Repurchase agreements $ 53,868,385 $
54,448,141 $ 56,230,860 $ 56,449,364 $ 57,459,552 Other secured
financing 3,588,326 3,588,326 1,845,048 359,970 203,200 Convertible
Senior Notes - - - - - Securitized debt of consolidated VIEs (4)
3,748,289 3,802,682 2,540,711 2,553,398 2,610,974 Participation
sold 13,079 13,182 13,286 13,389 13,490 Mortgages payable 327,643
334,765 334,707 166,697 146,359 Interest rate swaps, at fair value
3,208,986 2,782,961 1,677,571 2,160,350 1,328,729 Other
derivatives, at fair value 154,017 69,171 49,963 113,626 40,539
Dividends payable 277,479 277,456 280,779 284,348 284,331 Payable
for investments purchased 746,090 250,612 107,115 744,378 673,933
Accrued interest payable 159,435 163,983 151,843 145,554 131,629
Accounts payable and other liabilities 62,868
54,679 53,088
63,280 58,139 Total liabilities
66,154,597 65,785,958
63,284,971 63,054,354
62,950,875 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, 924,929,607,
924,853,133, 935,929,561, 947,826,176, and 947,768,496 issued and
outstanding, respectively 9,249 9,249 9,359 9,478 9,478 Additional
paid-in capital 14,575,426 14,573,760 14,675,768 14,789,320
14,788,677 Accumulated other comprehensive income (loss) 1,117,046
640,366 (377,596 ) 262,855 (354,965 ) Accumulated deficit
(5,061,565 ) (4,487,982 ) (3,324,616 )
(3,695,884 ) (2,766,250 )
Total stockholders’ equity 11,553,215 11,648,452 11,895,974
12,278,828 12,589,999 Noncontrolling interest 8,658
9,555 9,948
5,505 4,806 Total equity
11,561,873 11,658,007
11,905,922 12,284,333
12,594,805 Total liabilities and equity $
77,716,470 $ 77,443,965 $ 75,190,893
$ 75,338,687 $ 75,545,680
(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, $4.0 billion, $2.6 billion, $2.6 billion and $2.6 billion
at June 30, 2016, March 31, 2016, December 31, 2015, September 30,
2015 and June 30, 2015, respectively.
(3) Includes senior securitized commercial
mortgage loans of consolidated VIE with a carrying value of $187.2
million, $211.9 million, $262.7 million, $314.9 million and $361.2
million, at June 30, 2016, March 31, 2016, December 31, 2015,
September 30, 2015 and June 30, 2015, respectively.
(4) Includes securitized debt of
consolidated VIEs carried at fair value of $3.7 billion, $3.7
billion, $2.4 billion, $2.4 billion and $2.4 billion at June 30,
2016, March 31, 2016, December 31, 2015, September 30, 2015 and
June 30, 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 June 30, March 31, December
31, September 30, June 30, 2016
2016 2015 2015 2015
Net interest
income: Interest income $ 457,118 $ 388,143 $ 576,580 $ 450,726
$ 624,277 Interest expense 152,755 147,447
118,807 110,297 113,072
Net interest income 304,363 240,696
457,773 340,429 511,205
Realized and unrealized gains (losses): Realized gains
(losses) on interest rate swaps(1) (130,762) (147,475) (159,487)
(162,304) (144,465) Realized gains (losses) on termination of
interest rate swaps (60,064) - - - - Unrealized gains (losses) on
interest rate swaps (373,220) (1,031,720)
463,126 (822,585) 700,792
Subtotal (564,046) (1,179,195)
303,639 (984,889) 556,327 Net
gains (losses) on disposal of investments 12,535 (1,675) (7,259)
(7,943) 3,833 Net gains (losses) on trading assets 81,880 125,189
42,584 108,175 (114,230) Net unrealized gains (losses) on financial
instruments measured at fair value through earnings (54,154) 128
(62,703) (24,501) 17,581 Impairment of goodwill -
- - - (22,966)
Subtotal 40,261 123,642
(27,378) 75,731 (115,782)
Total
realized and unrealized gains (losses) (523,785)
(1,055,553) 276,261 (909,158)
440,545
Other income (loss): Investment
advisory income - - - 3,780 10,604 Dividend income from affiliate -
- - - 4,318 Other income (loss) (9,930)
(6,115) (10,447) (13,455)
(22,275)
Total other income (loss) (9,930)
(6,115) (10,447) (9,675)
(7,353)
General and administrative expenses:
Compensation and management fee 36,048 36,997 37,193 37,450 37,014
Other general and administrative expenses 13,173
10,948 10,643 12,007
14,995
Total general and administrative expenses
49,221 47,945 47,836
49,457 52,009
Income (loss) before
income taxes (278,573) (868,917) 675,751 (627,861) 892,388
Income taxes (76) (837)
6,085 (370) (7,683)
Net income (loss) (278,497) (868,080) 669,666 (627,491)
900,071
Net income (loss) attributable to noncontrolling
interest (385) (162) (373)
(197) (149)
Net income (loss)
attributable to Annaly (278,112) (867,918) 670,039 (627,294)
900,220
Dividends on preferred stock 17,992
17,992 17,992 17,992
17,992
Net income (loss) available
(related) to common stockholders $ (296,104) $ (885,910)
$ 652,047 $ (645,286) $ 882,228
Net
income (loss) per share available (related) to common
stockholders: Basic $ (0.32) $ (0.96) $ 0.69
$ (0.68) $ 0.93 Diluted $ (0.32) $
(0.96) $ 0.69 $ (0.68) $ 0.93
Weighted average number of common shares outstanding: Basic
924,887,316 926,813,588
945,072,058 947,795,500 947,731,493
Diluted 924,887,316 926,813,588
945,326,098 947,795,500 947,929,762
Net income (loss) $ (278,497) $ (868,080)
$ 669,666 $ (627,491) $ 900,071
Other
comprehensive income (loss): Unrealized gains (losses) on
available-for-sale securities 483,930 1,017,707 (648,106) 609,725
(1,125,043) Reclassification adjustment for net (gains) losses
included in net income (loss) (7,250) 255
7,655 8,095 (3,921) Other
comprehensive income (loss) 476,680 1,017,962
(640,451) 617,820
(1,128,964) Comprehensive income (loss) 198,183 149,882 29,215
(9,671) (228,893) Comprehensive income (loss) attributable to
noncontrolling interest (385) (162)
(373) (197) (149)
Comprehensive income (loss) attributable to Annaly $ 198,568
$ 150,044 $ 29,588 $ (9,474) $
(228,744)
(1) Interest expense related to the
Company’s interest rate swaps is recorded in Realized gains
(losses) on interest rate swaps on the Consolidated Statements of
Comprehensive Income (Loss).
ANNALY CAPITAL
MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except
per share data) (Unaudited) For the six months
ended June 30, June 30, 2016 2015
Net interest income: Interest income $ 845,261
$ 1,143,391 Interest expense 300,202 242,492
Net interest income 545,059
900,899
Realized and unrealized gains
(losses): Realized gains (losses) on interest rate swaps(1)
(278,237 ) (302,704 ) Realized gains (losses) on termination of
interest rate swaps (60,064 ) (226,462 ) Unrealized gains (losses)
on interest rate swaps (1,404,940 ) 234,590
Subtotal (1,743,241 ) (294,576 ) Net gains
(losses) on disposal of investments 10,860 66,189 Net gains
(losses) on trading assets 207,069 (121,136 ) Net unrealized gains
(losses) on financial instruments measured at fair value through
earnings (54,026 ) (15,965 ) Impairment of goodwill -
(22,966 )
Subtotal 163,903
(93,878 )
Total realized and unrealized gains (losses)
(1,579,338 ) (388,454 )
Other income
(loss): Investment advisory income - 21,068 Dividend income
from affiliate - 8,636 Other income (loss) (16,045 )
(23,299 )
Total other income (loss) (16,045 )
6,405
General and administrative expenses:
Compensation and management fee 73,045 75,643 Other general and
administrative expenses 24,121 27,304
Total general and administrative expenses 97,166
102,947
Income (loss) before income
taxes (1,147,490 ) 415,903
Income taxes
(913 ) (7,669 )
Net income (loss) (1,146,577 )
423,572
Net income (loss) attributable to noncontrolling
interest (547 ) (239 )
Net income
(loss) attributable to Annaly (1,146,030 ) 423,811
Dividends on preferred stock 35,984
35,984
Net income (loss) available (related) to
common stockholders $ (1,182,014 ) $ 387,827
Net income (loss) per share available (related) to common
stockholders: Basic $ (1.28 ) $ 0.41 Diluted $ (1.28 ) $
0.41
Weighted average number of common shares
outstanding: Basic 925,850,452 947,700,832
Diluted 925,850,452 947,878,958
Net income (loss) $ (1,146,577 ) $ 423,572
Other comprehensive income (loss): Unrealized gains (losses)
on available-for-sale securities 1,501,637 (493,571 )
Reclassification adjustment for net (gains) losses included in net
income (loss) (6,995 ) (66,277 ) Other comprehensive
income (loss) 1,494,642 (559,848 )
Comprehensive income (loss) 348,065 (136,276 ) Comprehensive income
(loss) attributable to noncontrolling interest (547 )
(239 )
Comprehensive income (loss) attributable to Annaly $
348,612 $ (136,037 ) (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
This news release contains analysis and discussion of non-GAAP
financial measures. The Company’s presentation of non-GAAP
financial measures has important limitations. Other market
participants may calculate non-GAAP financial measures differently
than the Company calculates them, making comparative analysis
difficult.
Although the Company believes its presentation of non-GAAP
financial measures provides insight into the Company’s financial
position and performance excluding the effects of certain
transactions, non-GAAP financial measures may have limited
usefulness as an analytical tool. Therefore, the non-GAAP financial
measures should not be viewed in isolation and are not a substitute
for financial measures computed in accordance with GAAP.
The Company’s non-GAAP financial measures include the
following:
- core earnings;
- core earnings per common share;
- annualized core return on average
equity;
- core interest income;
- economic interest expense;
- economic core net interest income;
- core average yield on interest earning
assets;
- core net interest margin; and
- core net interest spread
The Company’s management relies on non-GAAP financial measures
to evaluate the performance of the business. Further, the Company’s
management relies on these performance metrics, which exclude the
effect of the PAA, in its consideration of dividend payments to
shareholders. Given the quarter-over-quarter volatility of premium
amortization cost (benefit), the Company believes that quantifying
the component of premium amortization expense associated with the
change in estimated long-term prepayment speeds provides investors
with better visibility into the underlying performance of the
business. Quantifying this component and disclosing the long-term
CPR for investors on a quarterly basis eliminates the need for
extrapolation and guesswork. These metrics are also useful in
comparing performance versus industry peers as similar financial
measures are disclosed by certain peers, and are frequently relied
upon by analysts, investors and other interested parties to
evaluate companies in our industry.
Economic interest expense is comprised of interest expense, as
computed in accordance with GAAP, plus interest expense on interest
rate swaps used to hedge cost of funds, a component of Realized
gains (losses) on interest rate swaps in the Company’s Consolidated
Statements of Comprehensive Income (Loss). The Company uses
interest rate swaps to manage its exposure to changing interest
rates on its repurchase agreements by economically hedging cash
flows associated with these borrowings. Presenting the contractual
interest payments in interest rate swaps with the interest paid on
interest-bearing liabilities reflects total contractual interest
payments. This presentation depicts the economic cost of our
financing strategy.
TBA dollar roll income, a component of Net gains (losses) on
trading assets in the Company’s Consolidated Statements of
Comprehensive Income (Loss), is defined as the difference in price
between two TBA contracts with the same terms but different
settlement dates. Dollar roll income represents the equivalent of
interest income on the underlying security less an implied cost of
financing and is included in the Company’s determination of core
earnings.
A reconciliation of GAAP net income (loss) to non-GAAP core
earnings is provided in a previous section of this news release.
The following tables present a reconciliation of the Company’s
other non-GAAP financial measures to the most directly comparable
GAAP financial measures for the quarters ended June 30, 2016, March
31, 2016, and June 30, 2015:
For the quarters
ended June 30, 2016 March 31, 2016
June 30, 2015 Core Interest Income
Reconciliation (dollars in thousands) Total
interest income $ 457,118 $ 388,143 $ 624,277 Premium amortization
adjustment 85,583 168,408 (79,582) Core interest
income $ 542,701 $ 556,551 $ 544,695
Economic Interest Expense Reconciliation GAAP
interest expense $ 152,755 $ 147,447 $ 113,072 Add: Interest
expense on interest rate swaps used to hedge cost of funds 108,301
123,124 139,773 Economic interest expense $ 261,056
$ 270,571 $ 252,845
Economic Core Net
Interest Income Reconciliation Core interest income $
542,701 $ 556,551 $ 544,695 Less: Economic interest expense 261,056
270,571 252,845 Economic core net interest income $
281,645 $ 285,980 $ 291,850
Economic
Core Metrics Core interest income $ 542,701 $ 556,551 $
544,695 Average interest earning assets $ 73,587,753 $ 74,171,943 $
75,257,299 Core average yield on interest earning assets 2.95%
3.00% 2.90% Economic interest expense $ 261,056 $
270,571 $ 252,845 Average interest bearing liabilities $ 62,049,474
$ 62,379,695 $ 63,504,983 Average cost of interest bearing
liabilities 1.68% 1.73% 1.59% Core net interest
spread 1.27% 1.27% 1.31% Core net interest margin
1.54% 1.54% 1.70%
View source
version on businesswire.com: http://www.businesswire.com/news/home/20160803006571/en/
Annaly Capital Management, Inc.Investor
Relations1-888-8Annalywww.annaly.com
Annaly Capital Management (NYSE:NLY)
Historical Stock Chart
From Mar 2024 to Apr 2024
Annaly Capital Management (NYSE:NLY)
Historical Stock Chart
From Apr 2023 to Apr 2024