Annaly Capital Management : Download First Quarter 2021 Earnings Press Release

ANNALY CAPITAL MANAGEMENT, INC. REPORTS 1st QUARTER 2021 RESULTS

NEW YORK-April 28, 2021-Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the "Company") today announced its financial results for the quarter ended March 31, 2021.

Financial Highlights

• GAAP net income of $1.23 per average common share for the quarter, up from $0.60 in the prior quarter
• Core earnings (excluding PAA) of $0.29 per average common share for the quarter, down $0.01 quarter-over-quarter and up $0.08 year-over-year with dividend coverage of +130%
• Economic return and tangible economic return(1) of 2.8% and 3.6%, respectively, for the first quarter
• Annualized GAAP return on average equity of 49.9% and annualized core return on average equity (excluding PAA) of 12.5%
• Book value per common share of $8.95, up $0.03 quarter-over-quarter and reflecting a ($0.07) per share impact primarily resulting from the writedown of goodwill related to the Company's 2013 acquisition of CreXus Investment Corp.
• • Tangible book value per common share(1) of $8.93, up $0.10 quarter-over-quarter
• Economic leverage of 6.1x, down slightly from 6.2x the prior quarter
• Declared quarterly common stock cash dividend of $0.22 per share

Business Highlights

Investment and Strategy

• Total assets of $100.4 billion including $92.6 billion in highly liquid Agency portfolio(2)
• Announced agreement to sell Commercial Real Estate business for $2.33 billion, delivering compelling execution for shareholders that will provide additional capacity to further expand leadership and capabilities in residential mortgage finance(3)
• Agency portfolio activity focused on reinvestment of paydowns into a mix of spec pools and TBAs; proactively rotated into higher coupons given the increase in rates
• Capital allocation to residential credit business nearly doubled to approximately 13% driven by ~$1.4 billion of accretive securities and whole loan purchases
• Increased hedge ratio to 75% from 61%; continued to opportunistically sell duration through Treasury future shorts and swaptions to protect against the significant rise in long-end yields

Financing and Capital

• $8.9 billion of unencumbered assets, including cash and unencumbered Agency MBS of $6.2 billion
• Continued record-low financing costs with average GAAP cost of interest bearing liabilities declining 9 basis points to 0.42% and average economic cost of interest bearing liabilities flat at 0.87%
• Annaly Residential Credit Group priced two residential whole loan securitizations totaling $611 million since the beginning of the first quarter, bringing aggregate issuance to $5.5 billion over 14 transactions since the start of 2018(4)
• Annaly Middle Market Lending Group expanded credit facility capacity by $180 million

Corporate Responsibility & Governance

• Adjusted long-term target operating expense ratio to a range of 1.45% to 1.60% following announcement of Commercial Real Estate Business disposition to incorporate additional expected cost savings(5)
• Expanded Board of Directors with election of new Independent Director Eric A. Reeves
• Signed the CEO Action for Diversity and Inclusion pledge, affirming our commitment to advancing diversity and inclusion in the workplace

"We are pleased with our results to start the year with strong underlying performance from our businesses and proactive portfolio management enabling book value growth despite a rapid sell-off in rates," remarked David Finkelstein, Annaly's Chief Executive Officer and Chief Investment Officer. "Further, the sale of our Commercial Real Estate business marks a notable strategic milestone that will provide us with additional flexibility to focus on our core residential mortgage finance business. We look forward to expanding our capabilities and opportunity set within housing finance, including increased exposure to mortgage servicing rights, new residential whole loan acquisition channels and other complementary products."

"We remain constructive on the outlook for Agency MBS given ongoing support from the Federal Reserve, robust demand from banks and other investors, sustained low financing costs and a moderating prepay environment. Meanwhile, credit assets should benefit from the strengthening economy and we maintain optionality to increase our exposure through our Middle Market Lending and CMBS portfolios. With relatively low leverage and substantial liquidity, Annaly is well-positioned to create value for shareholders throughout the remainder of the year."

1. Tangible economic return and tangible book value exclude amounts related to intangible assets as presented on the Company's Consolidated Statement of Financial Condition.
2. Assets represents Annaly's investments that are on balance sheet, net of debt issued by securitization vehicles, as well as investments that are off-balance sheet in which Annaly has economic exposure. Assets include TBA purchase contracts (market value) of $22.8bn and CMBX derivatives (market value) of $500.5mm and are shown net of debt issued by securitization vehicles of $5.6bn.
3. Annaly announced the sale of its Commercial Real Estate Business on March 25, 2021. Subject to customary closing conditions, including applicable regulatory approvals, the transfer of the Commercial Real Estate business is expected to be completed by the third quarter of 2021. For more information, please see the 8-K filing.
4. Includes a $257mm residential whole loan securitization in March 2021 and a $354mm residential whole securitization in April 2021.
5. Represents management's estimates of long-term operating expense projections for the Company's management internalization, which was completed on June 30, 2020, and the planned divestiture of the Commercial Real Estate business, announced March 25, 2021, based on historical experience and other factors, including expectations of future operational events and obligations, that are believed to be reasonable. The Company's actual operating expenses and timeframe for achieving any operating expense savings may differ materially from management's projections. Management's projections are based on a number of factors and uncertainties and actual results may vary based on changes to our expected general and administrative expenses, changes to the Company's equity base, changes to the Company's business composition and strategy, and other circumstances which may be out of management's control.

Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended March 31, 2021, December 31, 2020 and March 31, 2020:

			March 31,		December 31,		March 31,
			2021		2020		2020
	Book value per common share	$	8.95	$	8.92	$	7.50
	Economic leverage at period-end(1)		6.1:1		6.2:1		6.8:1
	GAAP net income (loss) per average common share (2)	$	1.23	$	0.60	$	(2.57)
	Annualized GAAP return (loss) on average equity		49.87%		24.91%		(102.17%)
	Net interest margin (3)		3.39%		2.14%		0.18%
	Average yield on interest earning assets (4)		3.76%		2.61%		1.91%
	Average GAAP cost of interest bearing liabilities (5)		0.42%		0.51%		1.86%
	Net interest spread		3.34%		2.10%		0.05%
Non-GAAP metrics *
	Core earnings (excluding PAA) per average common share (2)	$	0.29	$	0.30	$	0.21
	Annualized core return on average equity (excluding PAA)		12.53%		13.03%		9.27%
	Net interest margin (excluding PAA) (3)		1.91%		1.98%		1.18%
	Average yield on interest earning assets (excluding PAA) (4)		2.71%		2.80%		2.91%
	Average economic cost of interest bearing liabilities (5)		0.87%		0.87%		1.91%
	Net interest spread (excluding PAA)		1.84%		1.93%		1.00%
*	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).
	Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-
(2)	recourse to the Company and are excluded from this measure.
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
(4)	mortgage-backed securities.
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
(5)	income (excluding PAA).
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.

Divestiture of Commercial Real Estate Business

On March 25, 2021, the Company announced the sale of substantially all of the assets that comprise its commercial real estate business to Slate Asset Management for $2.33 billion, which is expected to be completed by the third quarter of 2021. The Company also intends to sell nearly all of the remaining assets that are not included in the sale to Slate. As of March 31, 2021, the Company met the conditions for held-for sale accounting which requires that assets be carried at the lower of amortized cost or fair value less costs to sell. Assets and liabilities associated with the commercial real estate business are reported separately in the Company's Consolidated Statement of Financial Condition as Assets and Liabilities of Disposal Group Held for Sale, respectively. The Company's Consolidated Statement of Comprehensive Income (Loss) reflects a reversal of previously recognized loan loss provisions as well as business divestiture-related gains (losses), which include valuation allowances on commercial real estate assets, impairment of goodwill and estimated transaction costs. Revenues and expenses associated with the commercial real estate business will be reflected in the Company's results of operations and key financial metrics through closing.

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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; 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; our ability to maintain our exemption from registration under the Investment Company Act; and the timing and ultimate completion of the sale of our commercial real estate business. 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 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 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 First Quarter 2021 Investor Presentation and the First Quarter 2021 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 first quarter 2021 earnings conference call on April 29, 2021 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/10154708/e6b12fa9d0. 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 10154708. 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.

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Financial Statements

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share data)

		March 31,		December 31,		September 30,			June 30,			March 31,
		2021			2020	(1)			2020			2020			2020
		(unaudited)						(unaudited)		(unaudited)			(unaudited)
Assets
Cash and cash equivalents	$	1,122,793		$	1,243,703	$	1,239,982	$	1,393,910	$	2,823,521
Securities		71,849,437			75,652,396			76,098,985			77,805,743			79,357,596
Loans, net		2,603,343			3,083,821			2,788,341			3,972,671			4,068,189
Mortgage servicing rights		113,080			100,895			207,985			227,400			280,558
Assets transferred or pledged to securitization vehicles		3,768,922			6,910,020			7,269,402			7,690,451			7,671,662
Real estate, net		-		656,314			790,597			746,067			751,738
Assets of disposal group held for sale		4,400,723				-			-			-			-
Derivative assets		891,474			171,134			103,245			165,642			238,776
Receivable for unsettled trades		144,918				15,912			54,200			747,082			1,006,853
Principal and interest receivable		259,655			268,073			281,009			300,089			335,170
Goodwill and intangible assets, net		37,337			127,341			136,900			137,680			98,293
Other assets		177,907			225,494			221,765			271,918			284,918
Total assets	$	85,369,589		$	88,455,103		$	89,192,411		$	93,458,653		$	96,917,274
Liabilities and stockholders' equity
Liabilities
Repurchase agreements	$	61,202,477		$	64,825,239	$	64,633,447	$	67,163,598	$	72,580,183
Other secured financing		922,605			917,876			861,373			1,538,996			1,805,428
Debt issued by securitization vehicles		3,044,725			5,652,982			6,027,576			6,458,130			6,364,949
Participations issued		180,527				39,198			-			-			-
Mortgages payable		-		426,256			507,934			508,565			484,762
Liabilities of disposal group held for sale		3,319,414				-			-			-			-
Derivative liabilities		939,622			1,033,345			1,182,681			1,257,038			1,331,188
Payable for unsettled trades		1,070,080			884,069			1,176,001			2,122,735			923,552
Interest payable		100,949			191,116			155,338			180,943			261,304
Dividends payable		307,671			307,613			308,644			309,686			357,606
Other liabilities		213,924			155,613			144,745			121,359			100,772
Total liabilities		71,301,994			74,433,307			74,997,739			79,661,050			84,209,744
Stockholders' equity
Preferred stock, par value $0.01 per share (2)		1,536,569			1,536,569			1,982,026			1,982,026			1,982,026
Common stock, par value $0.01 per share (3)		13,985				13,982			14,029			14,077			14,304
Additional paid-in capital		19,754,826			19,750,818			19,798,032			19,827,216			19,968,372
Accumulated other comprehensive income (loss)		2,002,231			3,374,335			3,589,056			3,842,074			3,121,371
Accumulated deficit		(9,251,804)			(10,667,388)			(11,200,937)			(11,871,927)			(12,382,648)
Total stockholders' equity		14,055,807			14,008,316			14,182,206			13,793,466			12,703,425
Noncontrolling interests		11,788				13,480			12,466			4,137			4,105
Total equity		14,067,595			14,021,796			14,194,672			13,797,603			12,707,530
Total liabilities and equity	$	85,369,589		$	88,455,103		$	89,192,411		$	93,458,653		$	96,917,274

1. Derived from the audited consolidated financial statements at December 31, 2020.
2. 7.50% Series D Cumulative Redeemable Preferred Stock - Includes 0 shares authorized, issued and outstanding at March 31, 2021. Includes 18,400,000 shares authorized and 0 shares issued and outstanding at December 31, 2020. Includes 18,400,000 shares authorized, issued and outstanding at September 30, 2020, June 30, 2020 and March 31, 2020, respectively.
   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 at March 31, 2021. Includes 19,550,000 shares authorized and 17,000,000 shares issued and outstanding at December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, respectively.
   6.75% Series I Preferred Stock - Includes 17,700,000 shares authorized, issued and outstanding at March 31, 2021. Includes 18,400,000 shares authorized and 17,700,000 issued and outstanding at December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020, respectively.
3. Includes 2,936,500,000 shares authorized at March 31, 2021; 2,914,850,000 shares authorized at December 31, 2020, September 30, 2020, June 30, 2020 and March 31, 2020. Includes 1,398,502,906 shares issued and outstanding at March 31, 2021; 1,398,240,618 shares issued and outstanding at December 31, 2020; 1,402,928,317 shares issued and outstanding at September 30, 2020; 1,407,662,483 shares issued and outstanding at June 30, 2020; and 1,430,424,398 shares issued and outstanding at March 31, 2020.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share data)

(Unaudited)

For the quarters ended

				March 31,	December 31,		September 30,			June 30,			March 31,
				2021			2020			2020			2020			2020
	Net interest income
	Interest income	$	763,378		$	527,344	$	562,443	$	584,812	$	555,026
	Interest expense			75,973			94,481			115,126			186,032			503,473
	Net interest income		687,405			432,863			447,317			398,780			51,553
	Realized and unrealized gains (losses)
	Net interest component of interest rate swaps		(79,747)			(66,807)			(62,529)			(64,561)			(13,980)
	Realized gains (losses) on termination or maturity of interest rate swaps		-		2,092			(427)			(1,521,732)			(397,561)
	Unrealized gains (losses) on interest rate swaps			772,262			258,236			170,327			1,494,628			(2,827,723)
	Subtotal			692,515			193,521			107,371			(91,665)			(3,239,264)
	Net gains (losses) on disposal of investments and other		(65,786)			9,363			198,888			246,679			206,583
	Net gains (losses) on other derivatives and financial instruments		476,868			209,647			169,316			170,916			206,426
	Net unrealized gains (losses) on instruments measured at fair value		104,191			51,109			121,255			254,772			(730,160)
	through earnings
	Loan loss provision		139,620			(1,497)			21,993			(68,751)			(99,326)
	Business divestiture-related gains (losses)			(249,563)			-			-			-			-
	Subtotal			405,330			268,622			511,452			603,616			(416,477)
	Total realized and unrealized gains (losses)			1,097,845			462,143			618,823			511,951			(3,655,741)
	Other income (loss)		15,258			15,205			7,959			15,224			14,926
	General and administrative expenses
	Compensation and management fee		31,518			24,628			29,196			37,036			40,825
	Other general and administrative expenses			18,177			20,443			19,636			30,630			36,804
	Total general and administrative expenses			49,695			45,071			48,832			67,666			77,629
	Income (loss) before income taxes		1,750,813			865,140			1,025,267			858,289			(3,666,891)
	Income taxes			(321)			(13,495)			9,719			2,055			(26,702)
	Net income (loss)		1,751,134			878,635			1,015,548			856,234			(3,640,189)
	Net income (loss) attributable to noncontrolling interests			321			1,419			(126)			32			66
	Net income (loss) attributable to Annaly		1,750,813			877,216			1,015,674			856,202			(3,640,255)
	Dividends on preferred stock			26,883			35,509			35,509			35,509			35,509
	Net income (loss) available (related) to common stockholders	$	1,723,930		$	841,707	$	980,165	$	820,693	$	(3,675,764)
	Net income (loss) per share available (related) to common stockholders
	Basic	$	1.23		$	0.60	$	0.70	$	0.58	$	(2.57)
	Diluted	$	1.23		$	0.60	$	0.70	$	0.58	$	(2.57)
	Weighted average number of common shares outstanding
	Basic		1,399,210,925			1,399,809,722			1,404,202,695	1,423,909,112			1,430,994,319
	Diluted		1,400,000,727			1,400,228,777			1,404,368,300	1,423,909,112			1,430,994,319
	Other comprehensive income (loss)
	Net income (loss)	$	1,751,134		$	878,635	$	1,015,548	$	856,234	$	(3,640,189)
	Unrealized gains (losses) on available-for-sale securities			(1,428,927)			(207,393)			(140,671)			986,146			1,374,796
	Reclassification adjustment for net (gains) losses included in net			56,823			(7,328)			(112,347)			(265,443)			(391,616)
	income (loss)
	Other comprehensive income (loss)			(1,372,104)			(214,721)			(253,018)			720,703			983,180
	Comprehensive income (loss)		379,030			663,914			762,530			1,576,937			(2,657,009)
	Comprehensive income (loss) attributable to noncontrolling interests			321			1,419			(126)			32			66
	Comprehensive income (loss) attributable to Annaly		378,709			662,495			762,656			1,576,905			(2,657,075)
	Dividends on preferred stock			26,883			35,509			35,509			35,509			35,509
	Comprehensive income (loss) attributable to common stockholders	$	351,826		$	626,986	$	727,147	$	1,541,396	$	(2,692,584)

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