ANNALY CAPITAL MANAGEMENT, INC. REPORTS 3rd QUARTER 2021 RESULTS

NEW YORK-October 27, 2021-Annaly Capital Management, Inc. (NYSE: NLY) ("Annaly" or the "Company") today announced its financial results for the quarter ended September 30, 2021.

Financial Highlights

  • GAAP net income of $0.34 per average common share for the quarter
  • Earnings available for distribution ("EAD") of $0.28 per average common share for the quarter, down $0.02 quarter-over- quarter with dividend coverage of +125%
  • Economic return and tangible economic return of 2.9% for the quarter
  • Annualized GAAP return on average equity of 15.3% and annualized EAD return on average equity of 12.8%
  • Book value per common share of $8.39, up $0.02 from the prior quarter
  • GAAP leverage of 4.4x down from 4.7x in the prior quarter; economic leverage of 5.8x unchanged from the prior quarter
  • Declared quarterly common stock cash dividend of $0.22 per share

Business Highlights

Investment and Strategy

  • Total assets of $94.2 billion(1) with Agency portfolio representing 92% of total assets
  • Annaly increased its Agency portfolio by nearly $3.0 billion during the quarter by redeploying capital from the sale of the Commercial Real Estate Business
    • The Mortgage Servicing Rights ("MSR") portfolio, which is complementary to the Agency portfolio, increased 41% quarter-over-quarter and represented 4% of dedicated capital(2)
  • Annaly Residential Credit Group, which represents 21% of dedicated capital(3), has now surpassed its pre-COVID portfolio size as the group continues to execute on its strategy
    • Purchased approximately $1.4 billion of whole loans during the quarter
  • Closed inaugural private closed-end Middle Market Lending fund subsequent to quarter end, raising $371 million of third-party capital that has been fully deployed at nearly $450 million in assets
  • Completed the subsequent closing of previously announced $2.33 billion sale of Annaly's Commercial Real Estate Business during the quarter(4)

Financing and Capital

  • $9.8 billion of unencumbered assets, including cash and unencumbered Agency MBS of $5.9 billion
  • Financing costs hit another record low with average GAAP cost of interest bearing liabilities decreasing 3 basis points to 0.32% and average economic cost of interest bearing liabilities decreasing 17 basis points to 0.66%
  • Annaly Residential Credit Group priced five residential whole loan securitizations totaling $1.9 billion since the beginning of the third quarter(5)
  • Annaly Residential Credit Group expanded credit facility capacity by $300 million
  • Raised $471 million year-to-date of accretive common equity through the Company's at-the-market sales program(6)

Corporate Responsibility & Governance

  • Enhanced corporate governance guidelines and Board committee charters to reflect integrated ESG oversight across the Board and its committees
  • Publicly released 2019 and 2020 EEO-1 Reports and committed to annual disclosure of workforce diversity statistics in line with broader commitment to diversity and transparency
  • Appointed Audrey K. Susanin, Deputy General Counsel, as Chief Compliance Officer and Johanna Griffin as Head of Risk

"We are pleased with our third quarter results, which generated a positive economic return for shareholders and earnings available for distribution that continued to provide ample coverage for our current dividend," remarked David Finkelstein, Annaly's Chief Executive Officer and Chief Investment Officer. "We modestly grew our Agency portfolio redeploying proceeds from our Commercial Real Estate divestiture, while the market removed some event risk given greater clarity from the Federal Reserve on its upcoming asset taper. Our complementary credit portfolio continues to have strong tailwinds and increased to 30% of our dedicated capital during the quarter. In particular, we maintain a favorable outlook for Annaly's Residential Credit Group, which priced five securitizations since the beginning of the quarter totaling nearly $2 billion. Further, our Middle Market Lending Group achieved a major corporate milestone by closing its inaugural private fund subsequent to quarter end, which will significantly enhance the platform's long-term growth potential."

"Ultimately, we are well-poised to take advantage of opportunities that arise as the Federal Reserve shrinks its footprint in the mortgage market given our prudent portfolio construction, historically low leverage and substantial liquidity. Annaly is uniquely positioned to allocate capital across the housing finance market and is committed to driving value for our shareholders through our shared capital model."

  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. Assets include TBA purchase contracts (market value) of $23.6 billion, CMBX derivatives (market value) of $0.4 billion and $0.7 billion of retained securities that are eliminated in consolidation and are shown net of participations issued totaling $0.6 billion.
  2. Includes limited partnership interests in an MSR fund that is reported in Other Assets. Excludes $86 million of legacy MSR holdings that were held for sale as of September 30, 2021 and are expected to be sold and transferred in Q4 2021.
  3. Dedicated capital allocations as of September 30, 2021 assume capital related to held for sale assets will be redeployed within the Agency business.
  4. During the third quarter 2021, the Company completed the economic transfer and substantially all of the legal ownership transfer of the previously announced sale of substantially all of the assets that comprise the Commercial Real Estate Business for $2.33 billion (the "Sale"). The remaining assets of the Sale are expected to be legally transferred by the end of the fourth quarter 2021 subject to regulatory approvals and the Company intends to sell nearly all of the remaining assets that are not included in the Sale.
  5. Includes a $382 million residential whole loan securitization in July 2021, a $356 million residential whole loan securitization in August 2021, a $320 million residential whole loan securitization in September 2021, a $454 million residential whole loan securitization in October 2021 and a $344 million residential whole loan securitization in October 2021.
  6. Represents $420 million raised in Q2 2021 and $51 million raised since the beginning of Q3 2021 through the Company's at-the-market sales program for its common stock net of sales agent commissions and other offering expenses.

Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended September 30, 2021, June 30, 2021 and September 30, 2020:

September 30, 2021

June 30, 2021

September 30, 2020

Book value per common share

$

8.39

$

8.37

$

8.70

GAAP leverage at period-end(1)

4.4:1

4.7:1

5.1:1

GAAP net income (loss) per average common share (2)

$

0.34

$

(0.23)

$

0.70

Annualized GAAP return (loss) on average equity

15.25%

(8.51%)

29.02%

Net interest margin (3)

2.01%

1.66%

2.15%

Average yield on interest earning assets (4)

2.29%

1.97%

2.70%

Average GAAP cost of interest bearing liabilities (5)

0.32%

0.35%

0.60%

Net interest spread

1.97%

1.62%

2.10%

Non-GAAP metrics *

Earnings available for distribution per average common share (2)

$

0.28

$

0.30

$

0.32

Annualized EAD return on average equity

12.81%

13.05%

13.79%

Economic leverage at period-end(1)

5.8:1

5.8:1

6.2:1

Net interest margin (excluding PAA) (3)

2.04%

2.09%

2.05%

Average yield on interest earning assets (excluding PAA) (4)

2.63%

2.76%

2.86%

Average economic cost of interest bearing liabilities (5)

0.66%

0.83%

0.93%

Net interest spread (excluding PAA)

1.97%

1.93%

1.93%

* 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.

2

Updates to Financial Disclosures

Commencing with the Company's financial results for the quarter ended June 30, 2021 and for subsequent reporting periods, the Company has relabeled "Core Earnings (excluding PAA)" as "Earnings Available for Distribution" ("EAD"). Earnings Available for Distribution, which is a non-GAAP financial measure intended to supplement the Company's financial results computed in accordance with U.S. generally accepted accounting principles ("GAAP"), has replaced the Company's prior presentation of Core Earnings (excluding PAA). In addition, Core Earnings (excluding PAA) results from prior reporting periods have been relabeled Earnings Available for Distribution. In line with evolving industry practices, the Company believes the term Earnings Available for Distribution more accurately reflects the principal purpose of the measure than the term Core Earnings (excluding PAA) and serves as a useful indicator for investors in evaluating the Company's performance and its ability to pay dividends.

The definition of Earnings Available for Distribution is identical to the definition of Core Earning (excluding PAA) from prior reporting periods. As such, Earnings Available for Distribution is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) 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.

Earnings Available for Distribution should not be considered a substitute for, or superior to, GAAP net income. Please refer to the "Non-GAAP Financial Measures" section for a detailed discussion of Earnings Available for Distribution.

In addition, beginning with the quarter ended June 30, 2021, the Company began classifying certain portfolio activity- or volume- related expenses (including but not limited to brokerage and commission fees, due diligence costs and securitization expenses) as Other income (loss) rather than Other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss) to better reflect the nature of the items. As such, prior periods have been conformed to the current presentation.

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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; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; 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 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. 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 and corporate middle market lending. 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 2021 Investor Presentation and the Third 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 third quarter 2021 earnings conference call on October 28, 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/10160708/ee08d0caa8. 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 10160708. 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)

September 30,

June 30,

March 31,

December 31,

September 30,

2021

2021

2021

2020

(1)

2020

(unaudited)

(unaudited)

(unaudited)

(unaudited)

Assets

Cash and cash equivalents

$

1,046,300

$

1,380,456

$

1,122,793

$

1,243,703

$

1,239,982

Securities

65,622,352

69,032,335

71,849,437

75,652,396

76,098,985

Loans, net

3,580,521

3,563,008

2,603,343

3,083,821

2,788,341

Mortgage servicing rights

572,259

202,616

113,080

100,895

207,985

Interests in MSR

57,530

49,035

-

-

-

Assets transferred or pledged to securitization vehicles

4,738,481

4,073,156

3,768,922

6,910,020

7,269,402

Real estate, net

-

-

-

656,314

790,597

Assets of disposal group held for sale

238,042

3,302,001

4,400,723

-

-

Derivative assets

331,395

181,889

891,474

171,134

103,245

Receivable for unsettled trades

42,482

14,336

144,918

15,912

54,200

Principal and interest receivable

234,810

250,210

259,655

268,073

281,009

Goodwill and intangible assets, net

25,371

26,502

37,337

127,341

136,900

Other assets

172,890

300,761

177,907

225,494

221,765

Total assets

$

76,662,433

$

82,376,305

$

85,369,589

$

88,455,103

$

89,192,411

Liabilities and stockholders' equity

Liabilities

Repurchase agreements

$

55,475,420

$

60,221,067

$

61,202,477

$

64,825,239

$

64,633,447

Other secured financing

729,555

909,655

922,605

917,876

861,373

Debt issued by securitization vehicles

3,935,410

3,315,087

3,044,725

5,652,982

6,027,576

Participations issued

641,006

315,810

180,527

39,198

-

Mortgages payable

-

-

-

426,256

507,934

Liabilities of disposal group held for sale

159,508

2,362,690

3,319,414

-

-

Derivative liabilities

912,134

900,259

939,622

1,033,345

1,182,681

Payable for unsettled trades

571,540

154,405

1,070,080

884,069

1,176,001

Interest payable

109,586

173,721

100,949

191,116

155,338

Dividends payable

318,986

317,714

307,671

307,613

308,644

Other liabilities

91,421

66,721

213,924

155,613

144,745

Total liabilities

62,944,566

68,737,129

71,301,994

74,433,307

74,997,739

Stockholders' equity

Preferred stock, par value $0.01 per share (2)

1,536,569

1,536,569

1,536,569

1,536,569

1,982,026

Common stock, par value $0.01 per share (3)

14,499

14,442

13,985

13,982

14,029

Additional paid-in capital

20,228,366

20,178,692

19,754,826

19,750,818

19,798,032

Accumulated other comprehensive income (loss)

1,638,638

1,780,275

2,002,231

3,374,335

3,589,056

Accumulated deficit

(9,720,270)

(9,892,863)

(9,251,804)

(10,667,388)

(11,200,937)

Total stockholders' equity

13,697,802

13,617,115

14,055,807

14,008,316

14,182,206

Noncontrolling interests

20,065

22,061

11,788

13,480

12,466

Total equity

13,717,867

13,639,176

14,067,595

14,021,796

14,194,672

Total liabilities and equity

$

76,662,433

$

82,376,305

$

85,369,589

$

88,455,103

$

89,192,411

  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 September 30, 2021, June 30, 2021 and 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. 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 September 30, 2021, June 30, 2021 and March 31, 2021. Includes 19,550,000 shares authorized and 17,000,000 shares issued and outstanding at December 31, 2020 and September 30, 2020. 6.75% Series I Preferred Stock - Includes 17,700,000 shares authorized, issued and outstanding at September 30, 2021, June 30, 2021 and March 31, 2021. Includes 18,400,000 shares authorized and 17,700,000 issued and outstanding at December 31, 2020 and September 30, 2020.
  3. Includes 2,936,500,000 shares authorized at September 30, 2021, June 30, 2021 and March 31, 2021; 2,914,850,000 shares authorized at December 31, 2020 and September 30, 2020. Includes 1,449,935,017 shares issued and outstanding at September 30, 2021; 1,444,156,029 shares issued and outstanding at June 30, 2021; 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.

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Annaly Capital Management Inc. published this content on 27 October 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 27 October 2021 20:33:22 UTC.