Annaly Capital Management, Inc. Reports Results for the 2nd Quarter 2013

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Annaly Capital Management, Inc. Reports Results for the 2nd Quarter 2013

NEW YORK--(BUSINESS WIRE)-- Annaly Capital Management, Inc. (NYS: NLY) today reported GAAP net income for the quarter ended June 30, 2013 of $1.6 billion or $1.71 per average common share as compared to GAAP net income of $870.3 million or $0.90 per average common share for the quarter ended March 31, 2013, and GAAP net loss of $91.2 million or $0.10 per average common share for the quarter ended June 30, 2012.

Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes due 2015 (the "4% Convertible Notes"), impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. ("CreXus"), net income for the quarter ended June 30, 2013 was $460.6 million or $0.47 per average common share as compared to $464.4 million or $0.47 per average common share for the quarter ended March 31, 2013, and $546.2 million or $0.55 per average common share for the quarter ended June 30, 2012.


Agency mortgage-backed securities, Agency debentures, and corporate debt are considered Investment Securities. During the quarter ended June 30, 2013, the Company disposed of $14.8 billion of Investment Securities, resulting in a realized gain of $148.0 million. During the quarter ended March 31, 2013, the Company disposed of $17.2 billion of Investment Securities, resulting in a realized gain of $182.8 million. During the quarter ended June 30, 2012, the Company disposed of $6.4 billion of Investment Securities, resulting in a realized gain of $94.8 million.

Common dividends declared for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012 were $0.40, $0.45, and $0.55 per common share, respectively. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will typically differ due to items such as non-taxable unrealized and realized gains and losses, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses. The annualized dividend yield on the Company's common stock for the quarter ended June 30, 2013, based on the June 30, 2013 closing price of $12.57, was 12.73%, as compared to 11.33% for the quarter ended March 31, 2013, and 13.11% for the quarter ended June 30, 2012.

On a GAAP basis, the Company produced an annualized return on average equity for the quarter ended June 30, 2013 of 45.87%, an annualized return on average equity for the quarter ended March 31, 2013 of 22.29%, and an annualized loss on average equity for the quarter ended June 30, 2012 of 2.26%. Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Notes, impairment of goodwill and loss on previously held equity interest in CreXus, the Company provided an annualized return on average equity for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, of 12.90%, 11.90%, and 13.56%, respectively. Leverage at June 30, 2013, March 31, 2013, and June 30, 2012, was 6.2:1, 6.6:1 and 6.0:1, respectively. Leverage includes loan participations and mortgage payable which are non-recourse to the Company.

Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly, commented on the Company's results. "While the resulting sell-off in the bond market put pressure on asset values during the 2nd quarter, I believe that our focus on prudent risk management and the evolution of our capital allocation strategy has helped protect our portfolio and positions Annaly to take advantage of current market opportunities. We are prepared to be opportunistic given our low leverage, strong liquidity and sizeable capital production."

For the quarter ended June 30, 2013, the annualized yield on average interest-earning assets was 2.51% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 1.53%, which resulted in an average interest rate spread of 0.98%. This was a 7 basis point increase from the 0.91% average interest rate spread for the quarter ended March 31, 2013, and a 56 basis point decrease from the 1.54% average interest rate spread for the quarter ended June 30, 2012.

Fixed-rate Agency mortgage-backed securities and debentures comprised 92% of the Company's Investment Securities portfolio at June 30, 2013. Adjustable-rate Agency mortgage-backed securities and debentures comprised 8% of the Company's Investment Securities portfolio. At June 30, 2013, the Company had entered into interest rate swaps with a notional amount of $48.5 billion, or 53% of the Company's Agency mortgage-backed securities and debentures. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company's consolidated statements of comprehensive income. The purpose of the interest rate swaps is to mitigate the risk of rising interest rates that affect the Company's cost of funds. Since the Company receives a floating rate on the notional amount of the swaps, the intended effect of the swaps is to lock in cost of financing. As of June 30, 2013, the swap portfolio had a weighted average pay rate of 2.05%, a weighted average receive rate of 0.22% and weighted average years to maturity of 5.04. As of June 30, 2013, substantially all of the Company's Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and debentures.

The following table summarizes portfolio information for the Company:

  June 30, 2013  March 31, 2013  June 30, 2012
Leverage at period-end *6.2:1  6.6:1  6.0:1

Fixed-rate Agency mortgage-backed securities and debentures as a percentage of portfolio

92%92%92%

Adjustable-rate Agency mortgage-backed securities and debentures as a percentage of portfolio

8%8%7%

Floating-rate Agency mortgage-backed securities and debentures as a percentage of portfolio

--1%

Notional amount of interest rate swaps as a percentage of Investment Securities

53%46%41%

Annualized yield on average interest-earning assets during the quarter

2.51%

2.37%

3.04%

Annualized cost of funds on average interest-bearing liabilities during the quarter

1.53%1.46%1.50%
Annualized interest rate spread during the quarter0.98%0.91%1.54%

Weighted average days to maturity on interest-bearing liabilities at period-end

196202216

Weighted average receive rate on interest rate swaps at period-end

0.22%0.23%0.30%

Weighted average pay rate on interest rate swaps at period-end

2.05%2.08%2.29%
 
* Includes loan participations and mortgage payable which are non-recourse to the Company.
 

The following table summarizes certain characteristics of the Company's interest rate swaps at June 30, 2013:

  Current  Weighted Average  Weighted Average  Weighted Average Years to
MaturityNotionalPay RateReceive RateMaturity

 

     

(dollars in thousands)

      
0 - 3 years$21,567,0501.94%0.21%2.18
3 - 6 years14,738,4901.69%0.23%3.99
6 - 10 years7,700,0002.31%0.25%7.53
Greater than 10 years 4,466,750  3.32%  0.22%  18.08
Total / Weighted Average$48,472,290  2.05%  0.22%  5.04
 

The following table presents the maturities of repurchase agreements at June 30, 2013:

Maturity  Principal Balance  Weighted Average Rate

 

 

 

(dollars in thousands)

   
Within 30 days$32,749,2470.42%
30 to 59 days18,675,0580.41%
60 to 89 days2,827,5020.58%
90 to 119 days6,522,2270.37%
Over 120 days(1) 20,623,301  1.27%
Total$81,397,335  0.64%

(1) Of the total repurchase agreements, approximately 13% have a remaining maturity over 1 year.

The Constant Prepayment Rate for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, was 16%, 18% and 19%, respectively. The weighted average purchase price of the Company's Agency mortgage-backed securities and debentures at June 30, 2013, March 31, 2013, and June 30, 2012, was 103.7%, 103.9% and 103.2%, respectively. The net amortization of premiums and accretion of discounts on Agency mortgage-backed securities and debentures for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, was $320.2 million, $421.1 million, and $302.8 million, respectively. The total net premium and discount balance on Agency mortgage-backed securities and debentures at June 30, 2013, March 31, 2013, and June 30, 2012, was $5.3 billion, $5.4 billion, and $4.5 billion, respectively. At June 30, 2013, March 31, 2013, and June 30, 2012, the Company had a common stock book value per share of $13.03, $15.19 and $16.23, respectively.

Annaly's principal business objective is to generate net income for distribution to its shareholders from its Investment Securities and from dividends it receives from its subsidiaries.

The Company prepares a supplement to provide additional quarterly information for the benefit of its shareholders. The supplement can be found at the Company's website in the Investor Relations section under "Quarterly Supplemental Information".

The Company will hold the 2013 second quarter earnings conference call on August 8, 2013 at 10:00 a.m. EDT. The number to call is 888-317-6003 for domestic calls and 412-317-6061 for international calls. The conference passcode is 4925037. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10031615. The replay is available for 48 hours after the earnings call. There will be a web cast of the call on www.annaly.com. If you would like to be added to the e-mail distribution list, please visit www.annaly.com, click on Investor Relations, then select Email Alerts and complete the email notification form.

This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements which are based on various assumptions (some of which are beyond our control) 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 consummate any contemplated investment opportunities, our ability to integrate the commercial mortgage business, changes in government regulations affecting our business, our ability to maintain our qualification as a REIT for federal income tax purposes, our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended, and risks associated with the broker-dealer business of our subsidiary, and risks associated with the investment advisory business of our subsidiaries, including the removal by clients of assets they manage, their regulatory requirements and competition in the investment advisory 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. 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.

          

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands, except share and per share data)

 
June 30,

2013

(Unaudited)

  

March 31,

2013

(Unaudited)

  

 

December 31,

2012(1)

  

September 30,

2012

(Unaudited)

  

June 30,

2012

(Unaudited)

ASSETS
 
Cash and cash equivalents$725,537$1,862,550$615,789$2,264,854$924,374
Reverse repurchase agreements171,2344,933,4651,811,0951,612,3842,025,471
Investments, at fair value:
U.S. Treasury securities-1,645,930752,0762,242,0391,998,363
Securities borrowed2,425,0242,688,4852,160,9421,602,6921,465,327
Agency mortgage-backed securities92,487,318108,256,671123,963,207129,597,714118,500,649
Agency debentures3,306,4733,970,2793,009,5682,935,5381,250,506
Investments in affiliates134,948267,547234,120224,899203,057
Commercial real estate investments1,005,560----
Corporate debt, held for investment61,68266,53963,94464,92860,638
Receivable for investments sold1,499,1401,292,478290,722470,2661,320,996
Accrued interest and dividends receivable340,671388,665419,259434,026420,390
Receivable from Prime Broker---3,2723,272
Receivable for investment advisory income10,37412,81717,73020,27120,743
Intangible for customer relationships6,4746,7316,9899,1469,714
Goodwill102,78355,41755,41755,41755,417
Interest rate swaps, at fair value38,950----
Other derivatives91,270-9,8305593,717
Other assets 61,146    54,282    41,607    38,595    41,937 
 
Total assets$102,468,584   $125,501,856   $133,452,295   $141,576,600   $128,304,571 
 
LIABILITIES AND STOCKHOLDERS' EQUITY
 
Liabilities:
U.S. Treasury securities sold, not yet purchased, at fair value$-$611,167$495,437$1,418,750$1,884,922
Repurchase agreements81,397,335100,322,942102,785,697101,033,14696,760,797
Securities loaned, at fair value2,284,2452,330,0601,808,3151,248,9681,113,107
Payable for investments purchased2,833,2143,203,4618,256,95716,107,0387,387,410
Payable for share buyback program--141,149--
Convertible Senior Notes824,229824,902825,541999,7491,245,915
Mortgage payable19,361----
Participation sold14,324
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