Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the
"Company") today announced its financial results for the quarter
ended September 30, 2022.
Financial Highlights
- GAAP net income (loss) of ($0.70) per average common share for
the quarter
- Earnings available for distribution (“EAD”) of $1.06 per
average common share for the quarter; dividend coverage of
120%
- Economic return (loss) of (11.7%) for the third quarter
- Annualized GAAP return (loss) on average equity of (9.9%) and
annualized EAD return on average equity of 17.6%
- Book value per common share of $19.94
- GAAP leverage of 5.8x, up from 5.4x in the prior quarter;
economic leverage of 7.1x, up from 6.6x in the prior quarter
- Declared quarterly common stock cash dividend of $0.88 per
share
Business Highlights
Investment and Strategy
- Total assets of $86.2 billion(1), up from $82.3 billion in the
prior quarter
- Annaly's Agency Portfolio increased by 4.5% to $78.2 billion(1)
in assets at the end of the third quarter
- Portfolio activity focused on shifting upwards in coupon,
primarily adding 4.5% and 5.0% coupons, while also increasing
exposure to specified pools, which increased seven percentage
points to 81% of the Agency portfolio
- Hedging strategy was focused on managing duration with yields
reaching multi-year highs and volatility persisting; activity
primarily consisted of adding long-end swap hedges and Treasury
futures in the front end of the curve
- Annaly’s Mortgage Servicing Rights (“MSR”) platform grew assets
by 9% to $1.9 billion(2) in the third quarter with MSR representing
15% of dedicated equity capital
- Annaly is the second largest purchaser of MSR
year-to-date(3)
- Annaly’s Residential Credit Group portfolio increased 6% during
the quarter to $5.1 billion(1), driven by retention of OBX
securities and opportunistic third party purchases
- Purchased approximately $900 million of whole loans during the
quarter and Annaly’s correspondent channel achieved over $2 billion
in aggregated loans since inception in April 2021
- Annaly was added to the S&P MidCap 400 Index on September
19, 2022, representing the only mortgage REIT in the index
Financing and Capital
- $6.1 billion of unencumbered assets(4), including cash and
unencumbered Agency MBS of $4.3 billion
- Average GAAP cost of interest bearing liabilities increased 126
basis points to 2.38% and average economic cost of interest bearing
liabilities increased 43 basis points to 1.54%
- Annaly Residential Credit Group remains the largest non-bank
issuer of Prime Jumbo and Expanded Credit MBS(5) with three
residential whole loan securitizations totaling $1.1 billion priced
in the third quarter
- Raised nearly $1.7 billion of accretive common equity during
the third quarter(6)
“During the third quarter of 2022, financial markets continued
to experience elevated volatility previously only seen during
periods of crisis. Our book value came under pressure as a result
of substantial spread widening in Agency MBS and the significant
moves in interest rates,” said David Finkelstein, Annaly’s Chief
Executive Officer and President. “Our strong capital base,
disciplined portfolio and risk management, and deep financing
sources have enabled us to weather this persistent volatility and
prepare us for further sustained macroeconomic uncertainty. While
we expect to maintain our defensive positioning due to the
difficult operating environment, we continue to view asset
valuations as attractive and are poised to take advantage of
opportunities when technical factors improve.
“With Annaly marking 25 years as a public company subsequent to
quarter end, I am reminded of our resilience and proven ability to
successfully manage and adapt through numerous market cycles and I
remain confident that we will emerge from this current period
stronger than ever.”
(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. Total
assets include commercial real estate related assets, including
CMBX derivatives (market value) of $0.4 billion, which are excluded
from capital allocation calculations. Agency assets exclude assets
transferred or pledged to securitization vehicles of $0.4 billion
and include TBA purchase contracts (market value) of $15.2 billion
and $27 million of retained securities that are eliminated in
consolidation. Residential Credit assets exclude assets transferred
or pledged to securitization vehicles of $8.8 billion, include $1.0
billion of retained securities that are eliminated in consolidation
and are shown net of participations issued totaling $0.7 billion.
MSR assets include limited partnership interests in a MSR fund,
which is reported in Other Assets, and unsettled commitments of
$151 million. MSR commitments represent the market value of deals
where Annaly has executed a letter of intent. There can be no
assurance whether these deals will close or when they will
close.
(2)
Includes limited partnership interests in
a MSR fund, which is reported in Other Assets, and unsettled
commitments of $151 million. MSR commitments represent the market
value of deals where Annaly has executed a letter of intent. There
can be no assurance whether these deals will close or when they
will close.
(3)
eMBS servicing transfer data through
September 30, 2022.
(4)
Represents Annaly’s excess liquidity and
defined as assets that have not been pledged or securitized
(generally including cash and cash equivalents, Agency MBS, CRT,
Non-Agency MBS, residential mortgage loans, MSR, reverse repurchase
agreements, other unencumbered financial assets and capital
stock).
(5)
Issuer ranking data from Inside
Nonconforming Markets for 2021 to 2022 year-to-date.
(6)
These amounts include $914 million raised
through the Company’s at-the-market sales program for its common
stock, net of sales agent commissions and excluding other offering
expenses, and $765 million raised through a common equity offering,
excluding any applicable underwriting discounts and other offering
expenses and including the underwriters’ full exercise of their
overallotment option to purchase additional shares of stock.
Financial Performance
The following table summarizes certain key performance
indicators as of and for the quarters ended September 30, 2022,
June 30, 2022 and September 30, 2021:
September 30, 2022
June 30, 2022
September 30, 2021
Book value per common share
$
19.94
$
23.59
$
33.55
GAAP leverage at period-end (1)
5.8:1
5.4:1
4.4:1
GAAP net income (loss) per average common
share (2)
$
(0.70
)
$
2.21
$
1.36
Annualized GAAP return (loss) on average
equity
(9.94
%)
30.60
%
15.25
%
Net interest margin (3)
1.42
%
2.64
%
2.01
%
Average yield on interest earning assets
(4)
3.47
%
3.58
%
2.29
%
Average GAAP cost of interest bearing
liabilities (5)
2.38
%
1.12
%
0.32
%
Net interest spread
1.09
%
2.46
%
1.97
%
Non-GAAP metrics *
Earnings available for distribution per
average common share (2)
$
1.06
$
1.22
$
1.14
Annualized EAD return on average
equity
17.57
%
17.49
%
12.81
%
Economic leverage at period-end (1)
7.1:1
6.6:1
5.8:1
Net interest margin (excluding PAA)
(3)
1.98
%
2.20
%
2.04
%
Average yield on interest earning assets
(excluding PAA) (4)
3.24
%
2.87
%
2.63
%
Average economic cost of interest bearing
liabilities (5)
1.54
%
1.11
%
0.66
%
Net interest spread (excluding PAA)
1.70
%
1.76
%
1.97
%
* 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
On September 8, 2022, the Company announced that its Board of
Directors had unanimously approved a reverse stock split of the
Company’s common stock at a ratio of 1-for-4 (the “Reverse Stock
Split”). The Reverse Stock Split was effective following the close
of business on September 23, 2022 (the “Effective Time”).
Accordingly, at the Effective Time, every four issued and
outstanding shares of the Company’s common stock were converted
into one share of the Company’s common stock. No fractional shares
were issued in connection with the Reverse Stock Split. Instead,
each stockholder that would have held fractional shares as a result
of the Reverse Stock Split received cash in lieu of such fractional
shares. The par value per share of the Company’s common stock
remained unchanged at $0.01 per share after the Reverse Stock
Split. Accordingly, for all historical periods presented, an amount
equal to the par value of the reduced number of shares resulting
from the Reverse Stock Split was reclassified from Common stock to
Additional paid in capital in the Company’s Consolidated Statements
of Financial Condition. All other references made to share or per
share amounts in the accompanying consolidated financial statements
and disclosures have also been retroactively adjusted, where
applicable, to reflect the effects of the Reverse Stock Split.
Beginning with the quarter ended March 31, 2022, in light of the
continued growth of its mortgage servicing rights portfolio, the
Company enhanced its financial disclosures by separately reporting
servicing income and servicing expense in its Consolidated
Statements of Comprehensive Income (Loss). Servicing income and
servicing expense were previously included within Other income
(loss). As a result of this change, prior periods have been
adjusted to conform to the current presentation.
In addition, beginning with the quarter ended March 31, 2022,
the Company consolidated certain line items in its Consolidated
Statements of Comprehensive Income (Loss) in an effort to
streamline and simplify its financial presentation. Amounts
previously reported under Net interest component of interest rate
swaps, Realized gains (losses) on termination or maturity of
interest rate swaps, Unrealized gains (losses) on interest rate
swaps and Net gains (losses) on other derivatives are combined into
a single line item titled Net gains (losses) on derivatives.
Similarly, amounts previously reported under Net gains (losses) on
disposal of investments and other and Net unrealized gains (losses)
on instruments measured at fair value through earnings are combined
into a single line item titled Net gains (losses) on investments
and other. As a result of these changes, prior periods have been
adjusted to conform to the current presentation.
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; credit risks related to our investments in credit risk
transfer securities, residential mortgage-backed securities, and
related residential mortgage credit assets; 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 U.S. federal income tax
purposes; and our ability to maintain our exemption from
registration under the Investment Company Act. 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. The Company does not
undertake, and specifically disclaims any obligation, to publicly
release the result of any revisions which may be made to any
forward-looking statements to reflect the occurrence of anticipated
or unanticipated events or circumstances after the date of such
statements, except as required by law.
Annaly is a leading diversified capital manager with investment
strategies across mortgage finance. 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, SEC filings, public conference calls, presentations,
webcasts and other information it posts from time to time on its
website. To sign-up for email-notifications, please visit the
"Investors" section of our website, www.annaly.com, then click on
"Investor Resources" and select "Email Alerts" to complete the
email notification form. The information contained on, or that may
be accessed through, the Company’s webpage is not incorporated by
reference into, and is not a part of, this document.
The Company prepares a supplemental investor presentation and a
financial summary for the benefit of its shareholders. Both the
Third Quarter 2022 Investor Presentation and the Third Quarter 2022
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 third quarter 2022 earnings conference
call on October 27, 2022 at 9:00 a.m. Eastern Time. Participants
are encouraged to pre-register for the conference call to receive a
unique PIN to gain immediate access to the call and bypass the live
operator. Pre-registration may be completed by accessing the
pre-registration link found on the homepage or "Investors" section
of the Company's website at www.annaly.com, or by using the
following link: https://dpregister.com/sreg/10171506/f491665b6c.
Pre-registration may be completed at any time, including up to and
after the call start time.
For participants who would like to join the call but have not
pre-registered, access is available by dialing 844-735-3317 within
the U.S., or 412-317-5703 internationally, and requesting the
"Annaly Earnings Call."
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 6415389. 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
ANNALY CAPITAL MANAGEMENT,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
FINANCIAL CONDITION
(dollars in thousands, except
per share data)
September 30,
2022
June 30, 2022
March 31, 2022
December 31, 2021 (1)
September 30, 2021
(unaudited)
(unaudited)
(unaudited)
(unaudited)
Assets
Cash and cash equivalents
$
1,466,171
$
853,932
$
955,840
$
1,342,090
$
1,046,300
Securities
66,839,353
59,042,734
60,727,637
63,655,674
65,622,352
Loans, net
1,551,707
1,487,133
3,617,818
4,242,043
3,580,521
Mortgage servicing rights
1,705,254
1,421,420
1,108,937
544,562
572,259
Interests in MSR
—
83,622
85,653
69,316
57,530
Assets transferred or pledged to
securitization vehicles
9,202,014
8,877,247
7,809,307
6,086,308
4,738,481
Assets of disposal group held for sale
11,371
97,414
—
194,138
238,042
Derivative assets
1,949,530
748,432
964,075
170,370
331,395
Receivable for unsettled trades
2,153,895
434,227
407,225
2,656
42,482
Principal and interest receivable
262,542
300,028
246,739
234,983
234,810
Goodwill and intangible assets, net
17,437
18,195
23,110
24,241
25,371
Other assets
247,490
272,865
238,793
197,683
172,890
Total assets
$
85,406,764
$
73,637,249
$
76,185,134
$
76,764,064
$
76,662,433
Liabilities and stockholders’
equity
Liabilities
Repurchase agreements
$
54,160,731
$
51,364,097
$
52,626,503
$
54,769,643
$
55,475,420
Other secured financing
250,000
—
914,255
903,255
729,555
Debt issued by securitization vehicles
7,844,518
7,502,483
6,711,953
5,155,633
3,935,410
Participations issued
745,729
696,944
775,432
1,049,066
641,006
Liabilities of disposal group held for
sale
1,151
3,608
—
154,956
159,508
Derivative liabilities
764,535
379,708
826,972
881,537
912,134
Payable for unsettled trades
9,333,646
1,995,960
1,992,568
147,908
571,540
Interest payable
30,242
91,962
80,870
91,176
109,586
Dividends payable
411,762
354,027
321,423
321,142
318,986
Other liabilities
912,895
158,560
456,388
94,423
91,421
Total liabilities
74,455,209
62,547,349
64,706,364
63,568,739
62,944,566
Stockholders’ equity
Preferred stock, par value $0.01 per share
(2)
1,536,569
1,536,569
1,536,569
1,536,569
1,536,569
Common stock, par value $0.01 per share
(3)
4,679
4,023
3,653
3,649
3,625
Additional paid-in capital
22,967,665
21,293,146
20,332,909
20,324,780
20,239,240
Accumulated other comprehensive income
(loss)
(5,431,436
)
(4,310,926
)
(2,465,482
)
958,410
1,638,638
Accumulated deficit
(8,211,358
)
(7,496,061
)
(7,980,407
)
(9,653,582
)
(9,720,270
)
Total stockholders’ equity
10,866,119
11,026,751
11,427,242
13,169,826
13,697,802
Noncontrolling interests
85,436
63,149
51,528
25,499
20,065
Total equity
10,951,555
11,089,900
11,478,770
13,195,325
13,717,867
Total liabilities and equity
$
85,406,764
$
73,637,249
$
76,185,134
$
76,764,064
$
76,662,433
(1) Derived from the audited consolidated
financial statements at December 31, 2021.
(2) 6.95% Series F Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock - Includes 28,800,000 shares
authorized, issued and outstanding. 6.50% Series G
Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock -
Includes 17,000,000 shares authorized, issued and outstanding.
6.75% Series I Preferred Stock - Includes 17,700,000 shares
authorized, issued and outstanding.
(3) Includes 2,936,500,000 shares
authorized. Includes 467,911,144 shares issued and outstanding at
September 30, 2022; 402,303,874 shares issued and outstanding at
June 30, 2022; 365,253,063 shares issued and outstanding at March
31, 2022; 364,934,065 shares issued and outstanding at December 31,
2021; 362,483,754 shares issued and outstanding at September 30,
2021.
ANNALY CAPITAL MANAGEMENT,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except
per share data)
(Unaudited)
For the quarters ended
September 30,
2022
June 30, 2022
March 31, 2022
December 31,
2021
September 30,
2021
Net interest income
Interest income
$
678,488
$
645,615
$
655,850
$
422,780
$
412,972
Interest expense
400,491
170,475
74,922
61,785
50,438
Net interest income
277,997
475,140
580,928
360,995
362,534
Net servicing income
Servicing and related income
74,486
55,685
34,715
31,322
17,948
Servicing and related expense
7,780
5,949
3,757
4,290
3,012
Net servicing income
66,706
49,736
30,958
27,032
14,936
Other income (loss)
Net gains (losses) on investments and
other
(2,702,512
)
(615,216
)
(159,804
)
(40,473
)
102,819
Net gains (losses) on derivatives
2,117,240
1,015,643
1,642,028
135,359
84,950
Loan loss (provision) reversal
1,613
26,913
(608
)
(194
)
6,134
Business divestiture-related gains
(losses)
(2,936
)
(23,955
)
(354
)
(16,514
)
(14,009
)
Other, net
1,526
(5,486
)
3,058
(415
)
1,285
Total other income (loss)
(585,069
)
397,899
1,484,320
77,763
181,179
General and administrative
expenses
Compensation expense
27,744
22,243
33,002
27,061
27,859
Other general and administrative
expenses
10,178
13,795
12,762
13,640
16,023
Total general and administrative
expenses
37,922
36,038
45,764
40,701
43,882
Income (loss) before income
taxes
(278,288
)
886,737
2,050,442
425,089
514,767
Income taxes
(4,311
)
23,420
26,548
6,629
(6,767
)
Net income (loss)
(273,977
)
863,317
2,023,894
418,460
521,534
Net income (loss) attributable to
noncontrolling interests
1,287
(3,379
)
1,639
2,979
2,290
Net income (loss) attributable to
Annaly
(275,264
)
866,696
2,022,255
415,481
519,244
Dividends on preferred stock
26,883
26,883
26,883
26,883
26,883
Net income (loss) available (related)
to common stockholders
$
(302,147
)
$
839,813
$
1,995,372
$
388,598
$
492,361
Net income (loss) per share available
(related) to common stockholders
Basic
$
(0.70
)
$
2.21
$
5.46
$
1.07
$
1.36
Diluted
$
(0.70
)
$
2.20
$
5.46
$
1.07
$
1.36
Weighted average number of common
shares outstanding
Basic
429,858,876
380,609,192
365,340,909
363,534,539
361,328,979
Diluted
429,858,876
380,898,750
365,612,991
363,852,876
361,589,467
Other comprehensive income
(loss)
Net income (loss)
$
(273,977
)
$
863,317
$
2,023,894
$
418,460
$
521,534
Unrealized gains (losses) on
available-for-sale securities
(2,578,509
)
(2,503,250
)
(3,568,679
)
(685,699
)
(113,451
)
Reclassification adjustment for net
(gains) losses included in net income (loss)
1,457,999
657,806
144,787
5,471
(28,186
)
Other comprehensive income
(loss)
(1,120,510
)
(1,845,444
)
(3,423,892
)
(680,228
)
(141,637
)
Comprehensive income (loss)
(1,394,487
)
(982,127
)
(1,399,998
)
(261,768
)
379,897
Comprehensive income (loss) attributable
to noncontrolling interests
1,287
(3,379
)
1,639
2,979
2,290
Comprehensive income (loss)
attributable to Annaly
(1,395,774
)
(978,748
)
(1,401,637
)
(264,747
)
377,607
Dividends on preferred stock
26,883
26,883
26,883
26,883
26,883
Comprehensive income (loss)
attributable to common stockholders
$
(1,422,657
)
$
(1,005,631
)
$
(1,428,520
)
$
(291,630
)
$
350,724
ANNALY CAPITAL MANAGEMENT,
INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF
COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except
per share data)
For the nine months
ended
September 30, 2022
September 30, 2021
(unaudited)
(unaudited)
Net interest income
Interest income
$
1,979,953
$
1,560,256
Interest expense
645,888
187,458
Net interest income
1,334,065
1,372,798
Net servicing income
Servicing and related income
164,886
37,696
Servicing and related expense
17,486
7,912
Net servicing income
147,400
29,784
Other income (loss)
Net gains (losses) on investments and
other
(3,477,532
)
161,431
Net gains (losses) on derivatives
4,774,911
672,371
Loan loss (provision) reversal
27,918
145,260
Business divestiture-related gains
(losses)
(27,245
)
(262,045
)
Other, net
(902
)
1,580
Total other income (loss)
1,297,150
718,597
General and administrative
expenses
Compensation expense
82,989
91,390
Other general and administrative
expenses
36,735
53,923
Total general and administrative
expenses
119,724
145,313
Income (loss) before income
taxes
2,658,891
1,975,866
Income taxes
45,657
(1,954
)
Net income (loss)
2,613,234
1,977,820
Net income (loss) attributable to
noncontrolling interests
(453
)
3,405
Net income (loss) attributable to
Annaly
2,613,687
1,974,415
Dividends on preferred stock
80,649
80,649
Net income (loss) available (related)
to common stockholders
$
2,533,038
$
1,893,766
Net income (loss) per share available
(related) to common stockholders
Basic
$
6.46
$
5.34
Diluted
$
6.45
$
5.34
Weighted average number of common
shares outstanding
Basic
392,172,655
354,606,052
Diluted
392,445,034
354,875,551
Other comprehensive income
(loss)
Net income (loss)
$
2,613,234
$
1,977,820
Unrealized gains (losses) on
available-for-sale securities
(8,650,438
)
(1,733,919
)
Reclassification adjustment for net
(gains) losses included in net income (loss)
2,260,592
(1,778
)
Other comprehensive income
(loss)
(6,389,846
)
(1,735,697
)
Comprehensive income (loss)
(3,776,612
)
242,123
Comprehensive income (loss) attributable
to noncontrolling interests
(453
)
3,405
Comprehensive income (loss)
attributable to Annaly
(3,776,159
)
238,718
Dividends on preferred stock
80,649
80,649
Comprehensive income (loss)
attributable to common stockholders
$
(3,856,808
)
$
158,069
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 September 30, 2022, June 30, 2022, and
September 30, 2021:
September 30, 2022
June 30, 2022
September 30, 2021
Portfolio related metrics
Fixed-rate Residential Securities as a
percentage of total Residential Securities
98
%
97
%
98
%
Adjustable-rate and floating-rate
Residential Securities as a percentage of total Residential
Securities
2
%
3
%
2
%
Weighted average experienced CPR for the
period
9.8
%
14.9
%
23.1
%
Weighted average projected long-term CPR
at period-end
7.6
%
7.7
%
12.7
%
Liabilities and hedging metrics
Weighted average days to maturity on
repurchase agreements outstanding at period-end
57
47
75
Hedge ratio (1)
111
%
104
%
80
%
Weighted average pay rate on interest rate
swaps at period-end (2)
1.53
%
1.16
%
0.60
%
Weighted average receive rate on interest
rate swaps at period-end (2)
2.96
%
1.65
%
0.07
%
Weighted average net rate on interest rate
swaps at period-end (2)
(1.43
%)
(0.49
%)
0.53
%
GAAP leverage at period-end (3)
5.8:1
5.4:1
4.4:1
GAAP capital ratio at period-end (4)
12.8
%
15.1
%
17.9
%
Performance related metrics
Book value per common share
$
19.94
$
23.59
$
33.55
GAAP net income (loss) per average common
share (5)
$
(0.70
)
$
2.21
$
1.36
Annualized GAAP return (loss) on average
equity
(9.94
%)
30.60
%
15.25
%
Net interest margin (6)
1.42
%
2.64
%
2.01
%
Average yield on interest earning assets
(7)
3.47
%
3.58
%
2.29
%
Average GAAP cost of interest bearing
liabilities (8)
2.38
%
1.12
%
0.32
%
Net interest spread
1.09
%
2.46
%
1.97
%
Dividend declared per common share
$
0.88
$
0.88
$
0.88
Annualized dividend yield (9)
20.51
%
14.89
%
10.45
%
Non-GAAP metrics *
Earnings available for distribution per
average common share (5)
$
1.06
$
1.22
$
1.14
Annualized EAD return on average equity
(excluding PAA)
17.57
%
17.49
%
12.81
%
Economic leverage at period-end (3)
7.1:1
6.6:1
5.8:1
Economic capital ratio at period end
(4)
11.8
%
13.0
%
14.2
%
Net interest margin (excluding PAA)
(6)
1.98
%
2.20
%
2.04
%
Average yield on interest earning assets
(excluding PAA) (7)
3.24
%
2.87
%
2.63
%
Average economic cost of interest bearing
liabilities (8)
1.54
%
1.11
%
0.66
%
Net interest spread (excluding PAA)
1.70
%
1.76
%
1.97
%
* 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 and
net forward purchases (sales) of investments; 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. Prior to the quarter ended September 30, 2022, the
hedge ratio excluded the impact of net forward purchases (sales) of
investments from the calculation; all prior periods have been
updated to conform to the current presentation resulting in a
reduction of 3% to the hedge ratio for the quarter ended June 30,
2022 and no impact for the quarter ended September 30, 2021.
(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 $17.16, $23.64 and $33.68 at September
30, 2022, June 30, 2022 and September 30, 2021, respectively.
The following table contains additional information on our
investment portfolio as of the dates presented:
For the quarters ended
September 30, 2022
June 30, 2022
September 30, 2021
Agency mortgage-backed securities
$
63,037,241
$
55,593,336
$
62,818,079
Residential credit risk transfer
securities
1,056,906
965,714
787,235
Non-agency mortgage-backed securities
2,156,706
2,026,658
1,747,932
Commercial mortgage-backed securities
588,500
457,026
269,106
Total securities
$
66,839,353
$
59,042,734
$
65,622,352
Residential mortgage loans
$
1,551,637
$
1,486,811
$
1,686,268
Residential mortgage loan warehouse
facility
70
322
1,431
Corporate debt
—
—
1,890,709
Corporate debt, held for sale
—
—
2,113
Total loans, net
$
1,551,707
$
1,487,133
$
3,580,521
Mortgage servicing rights
$
1,705,254
$
1,421,420
$
572,259
Interests in MSR
$
—
$
83,622
$
57,530
Agency mortgage-backed securities
transferred or pledged to securitization vehicles
$
431,388
$
458,268
$
597,923
Residential mortgage loans transferred or
pledged to securitization vehicles
8,770,626
8,418,979
4,140,558
Assets transferred or pledged to
securitization vehicles
$
9,202,014
$
8,877,247
$
4,738,481
Assets of disposal group held for
sale
$
11,371
$
97,414
$
238,042
Total investment portfolio
$
79,309,699
$
71,009,570
$
74,809,185
Non-GAAP Financial Measures
To supplement its consolidated financial statements, which are
prepared and presented in accordance with U.S. generally accepted
accounting principles ("GAAP"), the Company provides the following
non-GAAP measures:
- earnings available for distribution (“EAD”);
- earnings available for distribution attributable to common
stockholders;
- earnings available for distribution per average common
share;
- annualized EAD return on average equity;
- interest income (excluding PAA);
- economic interest expense;
- economic net interest income (excluding PAA);
- average yield on interest earning assets (excluding PAA);
- average economic cost of interest bearing liabilities;
- 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) net
servicing income less 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
September 30, 2022
June 30, 2022
September 30, 2021
(dollars in thousands, except
per share data)
GAAP net income (loss)
$
(273,977
)
$
863,317
$
521,534
Net income (loss) attributable to
noncontrolling interests
1,287
(3,379
)
2,290
Net income (loss) attributable to
Annaly
(275,264
)
866,696
519,244
Adjustments to exclude reported
realized and unrealized (gains) losses
Net (gains) losses on investments and
other
2,702,512
615,216
(102,819
)
Net (gains) losses on derivatives (1)
(1,976,130
)
(1,014,651
)
(139,361
)
Loan loss provision (reversal) (2)
(1,613
)
(29,380
)
(6,771
)
Business divestiture-related (gains)
losses
2,936
23,955
14,009
Other adjustments
Depreciation expense related to commercial
real estate and amortization of intangibles (3)
758
1,302
1,122
Non-EAD (income) loss allocated to equity
method investments (4)
(2,003
)
(3,270
)
(2,046
)
Transaction expenses and non-recurring
items (5)
1,712
1,751
2,201
Income tax effect of non-EAD income (loss)
items
(9,444
)
28,841
(6,536
)
TBA dollar roll income and CMBX coupon
income (6)
105,543
161,673
115,586
MSR amortization (7)
(22,897
)
(33,810
)
(17,884
)
Plus:
Premium amortization adjustment cost
(benefit)
(45,414
)
(127,521
)
60,726
Earnings available for distribution
*
480,696
490,802
437,471
Dividends on preferred stock
26,883
26,883
26,883
Earnings available for distribution
attributable to common stockholders *
$
453,813
$
463,919
$
410,588
GAAP net income (loss) per average
common share
$
(0.70
)
$
2.21
$
1.36
Earnings available for distribution per
average common share *
$
1.06
$
1.22
$
1.14
Annualized GAAP return (loss) on
average equity
(9.94
%)
30.60
%
15.25
%
Annualized EAD return on average equity
*
17.57
%
17.49
%
12.81
%
* Represents a non-GAAP financial
measure.
(1) The adjustment to add back Net (gains)
losses on derivatives does not include the net interest component
of interest rate swaps which is reflected in earnings available for
distribution. The net interest component of interest rate swaps
totaled $141.1 million, $1.0 million and ($54.4) million for the
quarters ended September 30, 2022, June 30, 2022 and September 30,
2021, respectively.
(2) Includes $0.0 million, ($2.5) million
and ($0.6) million of loss provision (reversal) on the Company’s
unfunded loan commitments for the quarters ended September 30,
2022, June 30, 2022 and September 30, 2021, respectively, which is
reported in Other, net in the Company’s Consolidated Statements of
Comprehensive Income (Loss).
(3) Includes depreciation and amortization
expense related to equity method investments.
(4) 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, net.
(5) The quarters ended September 30, 2022,
June 30, 2022 and September 30, 2021 include costs incurred in
connection with securitizations of residential whole loans.
(6) TBA dollar roll income and CMBX coupon
income each represent a component of Net gains (losses) on
derivatives. CMBX coupon income totaled $1.1 million, $1.1 million
and $1.2 million for the quarters ended September 30, 2022, June
30, 2022 and September 30, 2021, respectively.
(7) MSR amortization utilizes purchase
date cash flow assumptions and actual unpaid principal balances and
is calculated as the difference between projected MSR yield income
and net servicing income for the period.
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 derivatives in the Consolidated Statements
of Comprehensive Income (Loss), which includes both unrealized and
realized gains and losses on derivatives.
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 derivatives 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 derivatives 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 Residential Securities
portfolio and residential securities transferred or pledged to
securitization vehicles, for the quarters ended September 30, 2022,
June 30, 2022, and September 30, 2021:
For the quarters ended
September 30, 2022
June 30, 2022
September 30, 2021
(dollars in thousands)
Premium amortization expense
(accretion)
$
39,406
$
(4,869
)
$
233,429
Less: PAA cost (benefit)
(45,414
)
(127,521
)
60,726
Premium amortization expense (excluding
PAA)
$
84,820
$
122,652
$
172,703
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
September 30, 2022
June 30, 2022
September 30, 2021
Economic leverage ratio
reconciliation
(dollars in thousands)
Repurchase agreements
$
54,160,731
$
51,364,097
$
55,475,420
Other secured financing
250,000
—
729,555
Debt issued by securitization vehicles
7,844,518
7,502,483
3,935,410
Participations issued
745,729
696,944
641,006
Debt included in liabilities of disposal
group held for sale
—
—
113,362
Total GAAP debt
$
63,000,978
$
59,563,524
$
60,894,753
Less Non-Recourse Debt:
Credit facilities (1)
$
—
$
—
$
(729,555
)
Debt issued by securitization vehicles
(7,844,518
)
(7,502,483
)
(3,935,410
)
Participations issued
(745,729
)
(696,944
)
(641,006
)
Non-recourse debt included in liabilities
of disposal group held for sale
—
—
(113,362
)
Total recourse debt
$
54,410,731
$
51,364,097
$
55,475,420
Plus / (Less):
Cost basis of TBA and CMBX derivatives
$
16,209,886
$
19,723,326
$
24,202,686
Payable for unsettled trades
9,333,646
1,995,960
571,540
Receivable for unsettled trades
(2,153,895
)
(434,227
)
(42,482
)
Economic debt *
$
77,800,368
$
72,649,156
$
80,207,164
Total equity
$
10,951,555
$
11,089,900
$
13,717,867
Economic leverage ratio *
7.1:1
6.6:1
5.8:1
* 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
September 30, 2022
June 30, 2022
September 30, 2021
Economic capital ratio
reconciliation
(dollars in thousands)
Total GAAP assets
$
85,406,764
$
73,637,249
$
76,662,433
Less:
Gross unrealized gains on TBA derivatives
(1)
(28,032
)
(60,661
)
(1,776
)
Debt issued by securitization vehicles
(2)
(7,844,518
)
(7,502,483
)
(3,935,410
)
Plus:
Implied market value of TBA
derivatives
15,182,806
19,282,979
23,622,635
Total economic assets *
$
92,717,020
$
85,357,084
$
96,347,882
Total equity
$
10,951,555
$
11,089,900
$
13,717,867
Economic capital ratio (3) *
11.8
%
13.0
%
14.2
%
* 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 September 30, 2022.
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
September 30, 2022
June 30, 2022
September 30, 2021
Interest income (excluding PAA)
reconciliation
(dollars in thousands)
GAAP interest income
$
678,488
$
645,615
$
412,972
Premium amortization adjustment
(45,414
)
(127,521
)
60,726
Interest income (excluding PAA)
*
$
633,074
$
518,094
$
473,698
Economic interest expense
reconciliation
GAAP interest expense
$
400,491
$
170,475
$
50,438
Add:
Net interest component of interest rate
swaps
(141,110
)
(992
)
54,411
Economic interest expense *
$
259,381
$
169,483
$
104,849
Economic net interest income (excluding
PAA) reconciliation
Interest income (excluding PAA) *
$
633,074
$
518,094
$
473,698
Less:
Economic interest expense *
259,381
169,483
104,849
Economic net interest income (excluding
PAA) *
$
373,693
$
348,611
$
368,849
* 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
September 30, 2022
June 30, 2022
September 30, 2021
Economic metrics (excluding
PAA)
(dollars in thousands)
Average interest earning assets
$
78,143,337
$
72,123,055
$
72,145,283
Interest income (excluding PAA) *
$
633,074
$
518,094
$
473,698
Average yield on interest earning assets
(excluding PAA) *
3.24
%
2.87
%
2.63
%
Average interest bearing liabilities
$
65,755,563
$
60,446,528
$
62,614,042
Economic interest expense *
$
259,381
$
169,483
$
104,849
Average economic cost of interest bearing
liabilities *
1.54
%
1.11
%
0.66
%
Economic net interest income (excluding
PAA) *
$
373,693
$
348,611
$
368,849
Net interest spread (excluding PAA) *
1.70
%
1.76
%
1.97
%
Interest income (excluding PAA) *
$
633,074
$
518,094
$
473,698
TBA dollar roll income and CMBX coupon
income
105,543
161,673
115,586
Economic interest expense *
(259,381
)
(169,483
)
(104,849
)
Subtotal
$
479,236
$
510,284
$
484,435
Average interest earnings assets
$
78,143,337
$
72,123,055
$
72,145,283
Average TBA contract and CMBX balances
18,837,475
20,566,553
22,739,226
Subtotal
$
96,980,812
$
92,689,608
$
94,884,509
Net interest margin (excluding PAA)
*
1.98
%
2.20
%
2.04
%
* Represents a non-GAAP financial
measure.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20221025006143/en/
Annaly Capital Management, Inc. Investor Relations 1-888-8Annaly
www.annaly.com
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