Annaly Capital Management, Inc. Reports 3rd Quarte

Annaly Capital Management, Inc. Reports 3rd Quarter 2020 Results
4:15 PM ET 10/28/20 | BusinessWire


NEW YORK--(BUSINESS WIRE)--October 28, 2020--

Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the "Company" today announced its financial results for the quarter ended September 30, 2020.

Financial Highlights

-- GAAP net income of $0.70 per average common share for the quarter, up

from $0.58 in the prior quarter

-- Core earnings (excluding PAA) of $0.32 per average common share for the

quarter, up 18.5% from the prior quarter

-- GAAP return on average equity of 29.0% and core return on average equity

(excluding PAA) of 13.8% for the quarter

-- Book value per common share of $8.70, up 3.7% from the prior quarter

-- Economic leverage of 6.2x, down from 6.4x in the prior quarter

-- Declared quarterly common stock cash dividend of $0.22 per share

-- Economic return of 6.3% for the third quarter

Business Highlights

Investment and Strategy

-- Capital allocation to Agency increased to 80% of dedicated equity capital,

which was largely driven by residential credit securitizations; highly

liquid Agency portfolio relatively unchanged at $96.3 billion and 94% of

Annaly's total assets(1)

-- Credit businesses remain conservatively positioned and are performing

well on improving economic indicators; will look to be opportunistic

amidst steady improvement in deal flow and sector activity

-- Total loan loss reserves (CECL and specific) declined by $22 million

largely driven by a stronger economic forecast compared to the prior

quarter

Financing and Capital

-- $8.8 billion of unencumbered assets, including cash and unencumbered

Agency MBS of $6.9 billion

-- Average GAAP cost of interest bearing liabilities and average economic

cost of interest bearing liabilities declined 36 basis points to 0.60%

and 0.93%, respectively

-- Annaly Residential Credit Group completed two residential whole loan

securitizations totaling $1.0 billion in the third quarter, bringing

aggregate issuances to over $5.0 billion since the beginning of 2018(2)

-- Repurchased $209 million of common stock year-to-date(3)

Corporate Responsibility & Governance

-- Demonstrated improved cost efficiency metrics relative to the second

quarter following the completion of the Internalization

-- Published inaugural Corporate Responsibility Report subsequent to quarter

end, highlighting Annaly's leadership across ESG practices and outlining

future goals and commitments for Annaly's five key ESG areas

-- Named first Head of Inclusion and established an Inclusion Support

Committee of executives, which represents the latest in a series of steps

to enhance Annaly's diversity initiatives and generate stronger returns

for our shareholders

"We are quite optimistic about the operating environment for our business - particularly for Agency MBS - due to low interest rate volatility, strong carry and the lowest financing costs we've seen in the last decade," stated David Finkelstein, Chief Executive Officer and Chief Investment Officer. "We took advantage of the rebound in risk sentiment to further enhance our cost of capital and liquidity profile - completing two securitizations totaling $1 billion. Amidst this backdrop, Annaly delivered a strong 6.3% quarterly economic return to shareholders driven by an increase in book value through proactive management of our portfolio and generated core earnings $0.10 higher than the dividend. These solid results were derived with lower leverage, and with nearly $7 billion of highly liquid unencumbered assets, we are poised to take advantage of opportunities we see across our market-leading platform."

"Additionally, I am proud that we published our inaugural Corporate Responsibility Report earlier this month on the 23rd anniversary of Annaly's IPO. The report showcases Annaly's accomplishments across key areas of ESG related to corporate governance, responsible investments, human capital and inclusion initiatives. We believe continued progress in these endeavors is critical in order to support long-term performance."

(1) Assets represent Annaly's investments that are on balance sheet, net of

securitized debt of consolidated VIEs, as well as investments that are

off-balance sheet in which the Company has economic exposure. Assets

include TBA purchase contracts (market value) of $21.1 billion and CMBX

derivatives (market value) of $471.9 million and are shown net of

securitized debt of consolidated VIEs of $6.0 billion.

(2) Includes three residential whole loan securitizations totaling $1.1

billion in 2018, five residential whole loan securitizations totaling

$2.1 billion in 2019 and four residential whole loan securitizations

totaling $1.8 billion in 2020.

(3) Share repurchases are under Annaly's current authorized share

repurchase program that expires in December 2020. Amounts exclude fees

and commissions and include $34 million of repurchases that settled

subsequent to quarter end.

Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended September 30, 2020, June 30, 2020 and September 30, 2019:

September 30, June 30, September 30,

2020 2020 2019

Book value per

common share $ 8.70 $ 8.39 $ 9.21

Economic leverage

at period-end

(1) 6.2:1 6.4:1 7.7:1

GAAP net income

(loss) per

average common

share (2) $ 0.70 $ 0.58 $ (0.54)

Annualized GAAP

return (loss) on

average equity 29.02% 25.84% (19.32%)

Net interest

margin (3) 2.15% 1.89% 0.48%

Average yield on

interest earning

assets (4) 2.70% 2.77% 2.89%

Average GAAP cost

of interest

bearing

liabilities (5) 0.60% 0.96% 2.58%

Net interest

spread 2.10% 1.81% 0.31%

Non-GAAP metrics *

Core earnings

(excluding PAA)

per average

common share

(2) $ 0.32 $ 0.27 $ 0.21

Annualized core

return on

average equity

(excluding PAA) 13.79% 12.82% 8.85%

Net interest

margin

(excluding PAA)

(3) 2.05% 1.88% 1.10%

Average yield on

interest earning

assets

(excluding PAA)

(4) 2.86% 3.01% 3.26%

Average economic

cost of interest

bearing

liabilities (5) 0.93% 1.29% 2.28%

Net interest

spread

(excluding PAA) 1.93% 1.72% 0.98%

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* Represents a non-GAAP financial measure. Please refer to the "Non-GAAP

Financial Measures" section for additional information.

(1) 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). 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.

(2) Net of dividends on preferred stock. The quarter ended September 30,

2019 excludes cumulative and undeclared dividends of $0.3 million on

the Company's Series I Preferred Stock as of June 30, 2019.

(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.

Other Information

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October 28, 2020 16:15 ET (20:15 GMT)