Annaly Capital Management, Inc. Reports 4th Quarter 2018 Results

NEW YORK–(BUSINESS WIRE)–Annaly Capital Management, Inc. (NYSE:NLY) (the “Company” or “Annaly”)
today announced its financial results for the quarter and year ended
December 31, 2018.

Financial Highlights

  • GAAP net income (loss) of ($1.74) per average common share for the
    quarter, ($0.06) for the year ended 2018
  • Core earnings (excluding PAA) of $0.29 per average common share for
    the quarter, $1.20 for the year ended 2018
  • GAAP return on average equity of 0.38% and core return on average
    equity (excluding PAA) of 10.99% for the year ended 2018
  • Book value per common share of $9.39
  • Economic leverage of 7.0x as compared to 6.7x at September 30, 2018
    and 6.6x at December 31, 2017
  • Net interest margin (excluding PAA) of 1.49% as compared to 1.50% in
    the prior quarter
  • Declared 21st consecutive quarterly dividend of $0.30 per common share

Business Highlights

Investment and Capital Growth

  • Further advanced Annaly’s diversification strategy by adding $4.2
    billion(1) of credit assets throughout 2018, an increase of
    65%(2) year-over-year

    • Utilized new origination partnerships for Residential Credit,
      which contributed to total portfolio growth of 17% in 2018
    • Expanded Commercial Real Estate coverage model with enhanced
      regional origination presence and capital markets efforts, which
      drove total portfolio growth of 24% year-over-year
    • Heightened focus on lead arranger roles in Middle Market Lending
      with emphasis on larger, more concentrated positions in high
      quality credit assets, which contributed to portfolio growth of
      87% in 2018
  • Acquired MTGE Investment Corp. in September 2018 for $906 million,
    representing Annaly’s third acquisition since the beginning of 2013
  • Raised over $2 billion of common and preferred equity since the
    beginning of 2018, including gross proceeds of $840 million through an
    overnight common equity offering in January, representing the first
    equity offering across the U.S. capital markets in 2019

Financing and Liquidity

  • Added $900 million of credit financing capacity through three new
    facilities and upsizing of existing facilities since the beginning of
    2018
  • Completed four residential whole loan securitizations since the
    beginning of 2018 for an aggregate of $1.5 billion, solidifying market
    access as a programmatic issuer
  • Ended 2018 with $7.7 billion in unencumbered assets, reflecting the
    strength of Annaly’s liquidity position to continue to support
    opportunistic portfolio expansion and manage through periods of
    volatility

In 2018, we were successful in accomplishing many of our strategic
goals and delivered strong financial performance despite a challenging
market environment,” commented Kevin Keyes, Chairman, Chief Executive
Officer and President. “These achievements are a direct result of the
advancements made in our internal and external growth strategies. In
2018, we opportunistically grew our capital allocation to credit through
our diversified investment expertise and proprietary origination
partners. Additionally, we enhanced our external growth strategy through
further consolidation of the industry and our industry leading execution
in the capital markets. Given our numerous and broad strategic
priorities for this year and beyond, we continue to place heightened
focus on our liquidity, disciplined investment approach and diversified
financing alternatives for each of our businesses.”
_____________________________________________

(1) Includes unfunded commitments of $161 million
(2)
Excludes loans acquired through securitization call rights and assets
onboarded in connection with the MTGE Investment Corp. acquisition

Financial Performance

The following table summarizes certain key performance indicators as of
and for the quarters ended December 31, 2018, September 30, 2018 and
December 31, 2017:

                           
     

December 31,
2018

   

September 30,
2018

   

December 31,
2017

 
Book value per common share (1) $ 9.39 $ 10.03 $ 11.34
Economic leverage at period-end (2) 7.0:1 6.7:1 6.6:1
GAAP net income (loss) per average common share (3) $ (1.74 ) $ 0.29 0.62
Annualized GAAP return (loss) on average equity (62.05 )% 10.73 % 20.58 %
Net interest margin (4) 1.34 % 1.49 % 1.47 %
Average yield on interest earning assets (5) 3.21 % 3.21 % 2.97 %
Average cost of interest bearing liabilities (6) 2.22 % 2.08 % 1.83 %
Net interest spread 0.99 % 1.13 % 1.14 %
Core earnings metrics *
Core earnings (excluding PAA) per average common share (3)(7) $ 0.29 $ 0.30 $ 0.31
Core earnings per average common share (3)(7) $ 0.26 $ 0.29 $ 0.30
PAA cost (benefit) per average common share $ 0.03 $ 0.01 $ 0.01
Annualized core return on average equity (excluding PAA) 11.48 % 10.85 % 10.67 %
Net interest margin (excluding PAA) (4) 1.49 % 1.50 % 1.51 %
Average yield on interest earning assets (excluding PAA) (5) 3.38 % 3.22 % 3.02 %
Net interest spread (excluding PAA)       1.16 %     1.14 %     1.19 %
*     Represents non-GAAP financial measures. Please refer to the
‘Non-GAAP Financial Measures’ section for additional information.
(1) Book value per common share at September 30, 2018 includes 10.6
million shares of the Company’s common stock that were pending
issuance to shareholders of MTGE Investment Corp. (“MTGE”) at
September 30, 2018 in connection with the Company’s acquisition of
MTGE.
(2) Computed as the sum of recourse debt, to-be-announced (“TBA”)
derivative and CMBX notional 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). Securitized
debt, certain credit facilities (included within other secured
financing) and mortgages payable are non-recourse to the Company and
are excluded from this measure.
(3) Net of dividends on preferred stock. The quarter ended December 31,
2017 excludes cumulative and undeclared dividends of $8.3 million on
the Company’s Series F Preferred Stock as of September 30, 2017.
(4) Net interest margin represents the sum of the Company’s interest
income 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. Net interest margin
(excluding PAA) excludes 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.
(5) 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).
(6) Average cost of interest bearing liabilities represents annualized
economic interest expense divided by average interest bearing
liabilities. Average interest bearing liabilities reflects the
average amortized cost during the period. Economic interest expense
is comprised of GAAP interest expense and the net interest component
of interest rate swaps. Prior to the quarter ended March 31, 2018,
this metric included the net interest component of interest rate
swaps used to hedge cost of funds. Beginning with the quarter ended
March 31, 2018, as a result of changes to the Company’s hedging
portfolio, this metric reflects the net interest component of all
interest rate swaps.
(7) Beginning with the quarter ended September 30, 2018, the Company
updated its calculation of core earnings and related metrics to
reflect changes to its portfolio composition and operations,
including the acquisition of MTGE in September 2018. Refer to the
section titled “Non-GAAP Financial Measures” for a complete
discussion of core earnings and core earnings (excluding PAA) per
average common share, and other non-GAAP financial measures. Prior
period results have not been adjusted to conform to the revised
calculation as the impact in each of those periods is not material.
 

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 financing; changes in the market value of our assets; changes in
business conditions and the general economy; our ability to grow our
commercial real estate business; our ability to grow our residential
credit business; our ability to grow our middle market lending business;
credit risks related to our investments in credit risk transfer
securities, residential mortgage-backed securities and related
residential mortgage credit assets, commercial real estate assets and
corporate debt; risks related to investments in mortgage servicing
rights; our ability to consummate any contemplated investment
opportunities; changes in government regulations or policy affecting our
business; our ability to maintain our qualification as a REIT for U.S.
federal income tax purposes; and our ability to maintain our exemption
from registration under the Investment Company Act of 1940, as amended.
For a discussion of the risks and uncertainties which could cause actual
results to differ from those contained in the forward-looking
statements, see “Risk Factors” in our most recent Annual Report on Form
10-K and any subsequent Quarterly Reports on Form 10-Q. We do not
undertake, and specifically disclaim any obligation, to publicly release
the result of any revisions which may be made to any forward-looking
statements to reflect the occurrence of anticipated or unanticipated
events or circumstances after the date of such statements, except as
required by law.

Annaly is a leading diversified capital manager that invests in and
finances residential and commercial assets. Annaly’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. Annaly has elected to be taxed
as a real estate investment trust, or REIT, for federal income tax
purposes. Annaly is externally managed by Annaly Management Company LLC.
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
“Email Alerts” section of our website, www.annaly.com,
under the “Investors” section and enter the required information to
enable notifications. 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 Fourth
Quarter 2018 Investor Presentation and the Fourth Quarter 2018 Financial
Summary can be found at the Company’s website (www.annaly.com)
in the Investors section under Investor Presentations.

Conference Call

The Company will hold the fourth quarter 2018 earnings conference call
on February 14, 2019 at 9:00 a.m. Eastern Time. The number to call is
844-512-2926 for domestic calls and 412-317-6300 for international
calls. The conference passcode is 4136971. There will also be an audio
webcast of the call on www.annaly.com.
The replay of the call will be available for one week following the
conference call. The replay number is 877-344-7529 for domestic calls
and 412-317-0088 for international calls and the conference passcode is
10128325. 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)

                                 

December 31,
2018

September 30,
2018

June 30,
2018

March 31,
2018

December 31,
2017 (1)

(unaudited) (unaudited) (unaudited) (unaudited)
Assets
Cash and cash equivalents $ 1,735,749 $ 1,082,747 $ 1,135,329 $ 984,275 $ 706,589
Securities 92,623,788 91,338,611 88,478,689 90,539,192 92,563,572
Loans, net 4,585,975 4,224,203 3,692,172 3,208,617 2,999,148
Mortgage servicing rights 557,813 588,833 599,014 596,378 580,860
Assets transferred or pledged to securitization vehicles 3,833,200 4,287,821 3,066,270 3,256,621 3,306,133
Real estate, net 739,473 753,014 477,887 480,063 485,953
Derivative assets 200,503 404,841 212,138 230,302 313,885
Reverse repurchase agreements 650,040 1,234,704 259,762 200,459
Receivable for unsettled trades 68,779 1,266,840 21,728 45,126 1,232
Interest receivable 357,365 347,278 323,769 326,989 323,526
Goodwill and intangible assets, net 100,854 103,043 91,009 92,763 95,035
Other assets 333,988   329,868   475,230   421,448   384,117
Total assets $ 105,787,527   $ 105,961,803   $ 98,832,997   $ 100,382,233   $ 101,760,050
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements $ 81,115,874 $ 79,073,026 $ 75,760,655 $ 78,015,431 $ 77,696,343
Other secured financing 4,183,311 4,108,547 3,760,487 3,830,075 3,837,528
Debt issued by securitization vehicles 3,347,062 3,799,542 2,728,692 2,904,873 2,971,771
Mortgages payable 511,056 511,588 309,878 309,794 309,686
Derivative liabilities 889,750 379,794 494,037 580,941 607,854
Payable for unsettled trades 583,036 2,505,428 1,108,834 91,327 656,581
Interest payable 570,928 399,605 478,439 284,696 253,068
Dividends payable 394,129 102,811 349,300 347,897 347,876
Other liabilities 74,580   125,606   68,819   74,264   207,770
Total liabilities 91,669,726   91,005,947   85,059,141   86,439,298   86,888,477
Stockholders’ equity
Preferred stock, par value $0.01 per share (2) 1,778,168 1,778,168 1,723,168 1,723,168 1,720,381
Common stock, par value $0.01 per share (3) 13,138 13,031 11,643 11,597 11,596
Additional paid-in capital 18,794,331 18,793,706 17,268,596 17,218,191 17,221,265
Accumulated other comprehensive income (loss) (1,979,865 ) (3,822,956 ) (3,434,447 ) (3,000,080 ) (1,126,020
Accumulated deficit (4,493,660 ) (1,811,955 ) (1,800,370 ) (2,015,612 ) (2,961,749
Total stockholders’ equity 14,112,112 14,949,994

 

13,768,590 13,937,264 14,865,473
Noncontrolling interests 5,689   5,862   5,266   5,671   6,100
Total equity 14,117,801   14,955,856   13,773,856   13,942,935   14,871,573
Total liabilities and equity $ 105,787,527   $ 105,961,803   $ 98,832,997   $ 100,382,233   $ 101,760,050
                                                   
(1)     Derived from the audited consolidated financial statements at
December 31, 2017.
 
(2) 7.625% Series C Cumulative Redeemable Preferred Stock – Includes
7,000,000 shares authorized, issued and outstanding at December 31,
2018 and September 30, 2018. Includes 12,000,000 shares authorized
and 7,000,000 shares issued and outstanding at June 30, 2018 and
March 31, 2018. Includes 12,000,000 shares authorized, issued and
outstanding at December 31, 2017.
 
7.50% Series D Cumulative Redeemable Preferred Stock – Includes
18,400,000 shares authorized, issued and outstanding.
 
7.625% Series E Cumulative Redeemable Preferred Stock – Includes 0
shares authorized, issued and outstanding at December 31, 2018 and
September 30, 2018. Includes 11,500,000 shares authorized and 0
shares issued and outstanding at June 30, 2018 and March 31, 2018.
Includes 11,500,000 shares authorized, issued and outstanding at
December 31, 2017.
 
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 19,550,000 shares authorized and
17,000,000 shares issued and outstanding at December 31, 2018,
September 30, 2018, June 30, 2018 and March 31, 2018. Includes 0
shares authorized, issued and outstanding at December 31, 2017.
 
8.125% Series H Cumulative Redeemable Preferred Stock – Includes
2,200,000 shares authorized, issued and outstanding at December 31,
2018 and September 30, 2018. Includes 0 shares authorized, issued
and outstanding at June 30, 2018, March 31, 2018 and December 31,
2017.
 
(3) Includes 1,924,050,000 shares authorized and 1,313,763,450 shares
issued and outstanding at December 31, 2018. Includes 1,924,050,000
shares authorized and 1,303,079,555 shares issued and outstanding at
September 30, 2018. Includes 1,909,750,000 shares authorized and
1,164,333,831 shares issued and outstanding at June 30, 2018.
Includes 1,909,750,000 shares authorized and 1,159,657,350 shares
issued and outstanding at March 31, 2018. Includes 1,929,300,000
shares authorized and 1,159,585,078 shares issued and outstanding at
December 31, 2017.
 
 
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
(Unaudited)
      For the quarters ended

December 31,
2018

   

September 30,
2018

   

June 30,
2018

   

March 31,
2018

   

December 31,
2017

Net interest income
Interest income $ 859,674 $ 816,596 $ 776,806 $ 879,487 $ 745,423
Interest expense 586,774   500,973   442,692   367,421   318,711  
Net interest income 272,900   315,623   334,114   512,066   426,712  
Realized and unrealized gains (losses)
Net interest component of interest rate swaps 65,889 51,349 31,475 (48,160 ) (82,271 )
Realized gains (losses) on termination or maturity of interest rate
swaps
575 834 (160,075 )
Unrealized gains (losses) on interest rate swaps (1,313,882 ) 417,203   343,475   977,285   484,447  
Subtotal (1,247,993 ) 469,127   374,950   929,959   242,101  
Net gains (losses) on disposal of investments (747,505 ) (324,294 ) (66,117 ) 13,468 7,895
Net gains (losses) on other derivatives (484,872 ) 94,827 34,189 (47,145 ) 121,334
Net unrealized gains (losses) on instruments measured at fair value
through earnings
(18,169 ) (39,944 ) (48,376 ) (51,593 ) (12,115 )
Loan loss provision (3,496 )        
Subtotal (1,254,042 ) (269,411 ) (80,304 ) (85,270 ) 117,114  
Total realized and unrealized gains (losses) (2,502,035 ) 199,716   294,646   844,689   359,215  
Other income (loss) 52,377 (10,643 ) 34,170 34,023 25,064
General and administrative expenses
Compensation and management fee 43,750 45,983 45,579 44,529 44,129
Other general and administrative expenses 33,323   80,526   18,202   17,981   15,128  
Total general and administrative expenses 77,073   126,509   63,781   62,510   59,257  
Income (loss) before income taxes (2,253,831 ) 378,187 599,149 1,328,268 751,734
Income taxes 1,041   (7,242 ) 3,262   564   4,963  
Net income (loss) (2,254,872 ) 385,429 595,887 1,327,704 746,771
Net income (loss) attributable to noncontrolling interests 17   (149 ) (32 ) (96 ) (151 )
Net income (loss) attributable to Annaly (2,254,889 ) 385,578 595,919 1,327,800 746,922
Dividends on preferred stock (1) 32,494   31,675   31,377   33,766   32,334  
Net income (loss) available (related) to common stockholders $ (2,287,383 ) $ 353,903   $ 564,542   $ 1,294,034   $ 714,588  
Net income (loss) per share available (related) to common
stockholders
Basic $ (1.74 ) $ 0.29 $ 0.49 $ 1.12 $ 0.62
Diluted $ (1.74 ) $ 0.29 $ 0.49 $ 1.12 $ 0.62
Weighted average number of common shares outstanding
Basic 1,314,377,748 1,202,353,851 1,160,436,777 1,159,617,848 1,151,653,296
Diluted 1,314,377,748 1,202,353,851 1,160,979,451 1,160,103,185 1,152,138,887
Other comprehensive income (loss)
Net income (loss) $ (2,254,872 ) $ 385,429   $ 595,887   $ 1,327,704   $ 746,771  
Unrealized gains (losses) on available-for-sale securities 1,100,052 (719,609 ) (505,130 ) (1,879,479 ) (487,597 )
Reclassification adjustment for net (gains) losses included in net
income (loss)
743,039   331,100   70,763   5,419   1,726  
Other comprehensive income (loss) 1,843,091   (388,509 ) (434,367 ) (1,874,060 ) (485,871 )
Comprehensive income (loss) (411,781 ) (3,080 ) 161,520 (546,356 ) 260,900
Comprehensive income (loss) attributable to noncontrolling interests 17   (149 ) (32 ) (96 ) (151 )
Comprehensive income (loss) attributable to Annaly (411,798 ) (2,931 ) 161,552 (546,260 ) 261,051
Dividends on preferred stock (1) 32,494   31,675   31,377   33,766   32,334  
Comprehensive income (loss) attributable to common stockholders $ (444,292 ) $ (34,606 ) $ 130,175   $ (580,026 ) $ 228,717  
                                                     
(1)     The quarter ended December 31, 2017 excludes cumulative and
undeclared dividends of $8.3 million on the Company’s Series F
Preferred Stock as of September 30, 2017.
 
 
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
      For the years ended

December 31,
2018

   

December 31,
2017 (1)

(unaudited)
Net interest income
Interest income $ 3,332,563 $ 2,493,126
Interest expense 1,897,860   1,008,354  
Net interest income 1,434,703   1,484,772  
Realized and unrealized gains (losses)
Net interest component of interest rate swaps 100,553 (371,108 )
Realized gains (losses) on termination or maturity of interest rate
swaps
1,409 (160,133 )
Unrealized gains (losses) on interest rate swaps 424,081   512,918  
Subtotal 526,043   (18,323 )
Net gains (losses) on disposal of investments (1,124,448 ) (3,938 )
Net gains (losses) on other derivatives (403,001 ) 261,438
Net unrealized gains (losses) on instruments measured at fair value
through earnings
(158,082 ) (39,684 )
Loan loss provision (3,496 )  
Subtotal (1,689,027 ) 217,816  
Total realized and unrealized gains (losses) (1,162,984 ) 199,493  
Other income (loss) 109,927   115,857  
General and administrative expenses
Compensation and management fee 179,841 164,322
Other general and administrative expenses 150,032   59,802  
Total general and administrative expenses 329,873   224,124  
Income (loss) before income taxes 51,773 1,575,998
Income taxes (2,375 ) 6,982  
Net income (loss) 54,148 1,569,016
Net income (loss) attributable to noncontrolling interests (260 ) (588 )
Net income (loss) attributable to Annaly 54,408 1,569,604
Dividends on preferred stock 129,312   109,635  
Net income (loss) available (related) to common stockholders $ (74,904 ) $ 1,459,969  
Net income (loss) per share available (related) to common
stockholders
Basic $ (0.06 ) $ 1.37
Diluted $ (0.06 ) $ 1.37
Weighted average number of common shares outstanding
Basic 1,209,601,809 1,065,923,652
Diluted 1,209,601,809 1,066,351,616
Other comprehensive income (loss)
Net income (loss) $ 54,148   $ 1,569,016  
Unrealized gains (losses) on available-for-sale securities (2,004,166 ) (89,997 )
Reclassification adjustment for net (gains) losses included in net
income (loss)
1,150,321   49,870  
Other comprehensive income (loss) (853,845 ) (40,127 )
Comprehensive income (loss) (799,697 ) 1,528,889
Comprehensive income (loss) attributable to noncontrolling interests (260 ) (588 )
Comprehensive income (loss) attributable to Annaly (799,437 ) 1,529,477
Dividends on preferred stock 129,312   109,635  
Comprehensive income (loss) attributable to common stockholders $ (928,749 ) $ 1,419,842  
                       

Contacts

Annaly Capital Management, Inc.
Investor Relations
1-888-8Annaly
www.annaly.com

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