Annaly Capital Management, Inc. Reports 1st Quarter 2023 Results

NEW YORK–(BUSINESS WIRE)–Annaly Capital Management, Inc. (NYSE: NLY) (“Annaly” or the “Company”) today announced its financial results for the quarter ended March 31, 2023.

Financial Highlights

GAAP net income (loss) of ($1.79) per average common share for the quarter
Earnings available for distribution (“EAD”) of $0.81 per average common share for the quarter
Economic return of 3.0% for the first quarter
Annualized GAAP return (loss) on average equity of (28.8%) and annualized EAD return on average equity of 14.8%
Book value per common share of $20.77
GAAP leverage of 5.9x, down from 6.0x in the prior quarter; economic leverage of 6.4x, up from 6.3x in the prior quarter
Declared quarterly common stock cash dividend of $0.65 per share

Business Highlights

Investment and Strategy

Total assets of $85.5 billion, including $77.6 billion in highly liquid Agency portfolio⁽¹⁾
Annaly Agency Group represents 67% of dedicated equity capital⁽²⁾ with portfolio growth driven by deployment of accretive equity raised early in the quarter while portfolio distribution migrated marginally up in coupon
Added swap hedges to correspond with assets purchased throughout the quarter as we maintained a defensive duration position amid elevated volatility in yields
Annaly’s Mortgage Servicing Rights (“MSR”) portfolio was relatively unchanged quarter-over-quarter with $1.8 billion⁽³⁾ in assets representing 15% of dedicated equity capital⁽²⁾
Annaly Residential Credit Group grew assets modestly to $5.2 billion⁽¹⁾_, representing 18% of dedicated equity capital⁽²⁾, driven by ~$100 million of OBX retained securities across three deals settled in the first quarter
Received a 2022 SHARP award from Freddie Mac, recognizing superior mortgage servicing portfolio performance

Financing and Capital

$5.7 billion of unencumbered assets⁽⁴⁾, including cash and unencumbered Agency MBS of $3.8 billion
Average GAAP cost of interest bearing liabilities increased 81 basis points to 4.52% and average economic cost of interest bearing liabilities increased 23 basis points to 2.34% quarter-over-quarter
Annaly Residential Credit Group priced four whole loan securitizations totaling $1.5 billion in proceeds since the beginning of the first quarter⁽⁵⁾, remaining the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS from 2022 to 2023⁽⁶⁾
Annaly Residential Credit Group upsized an existing credit facility by approximately $200 million during the quarter and closed a new $250 million facility subsequent to quarter end
Annaly Mortgage Servicing Rights Group added a new $250 million credit facility in the first quarter
Raised $563 million of accretive common equity through the Company’s at-the-market (“ATM”) sales program⁽⁷⁾

Corporate Responsibility & Governance

Expanded Board of Directors with election of new Independent Director Martin Laguerre
- Following the completion of the 2023 Annual Meeting of Stockholders, 80% of Annaly’s Directors will be independent and 60% of Directors will identify as women and/or racially/ethnically diverse⁽⁸⁾

“Despite significant volatility in interest rates and mortgage spreads throughout the first quarter, Annaly was able to proactively navigate this challenging environment with book value effectively unchanged, generating an economic return of 3%,” remarked David Finkelstein, Annaly’s Chief Executive Officer and Chief Investment Officer. “As we noted at the start of the year, Annaly was prepared for market turmoil with prudent leverage, substantial liquidity and optimal asset allocation. This conservative positioning enabled us to preserve capital and liquidity during the quarter, while maintaining the flexibility to grow when opportunistic, including adding to our Agency portfolio through accretive issuance under our ATM early in the quarter.

“Looking ahead, we are encouraged by the robust returns available across our three investment strategies and believe we are well-positioned to take advantage of opportunities as they arise. With volatility likely to further decrease as the Federal Reserve moves closer towards the end of its hiking cycle, we are confident in our outlook though prepared for any additional market turbulence.”

⁽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 exclude assets transferred or pledged to securitization vehicles of $10.3 billion, include TBA purchase contracts (market value) of $12.0 billion, CMBX derivatives (market value) of $0.4 billion and $1.1 billion of retained securities that are eliminated in consolidation and are shown net of participations issued totaling $0.7 billion.

⁽²⁾Capital allocation for each of the investment strategies is calculated as the difference between each investment strategy’s allocated assets, which include TBA purchase contracts, and liabilities. Dedicated capital allocations as of March 31, 2023 exclude commercial real estate assets.

⁽³⁾ Includes limited partnership interests in a MSR fund, which is reported in Other Assets.

⁽⁴⁾Represents Annaly’s excess liquidity and defined as assets that have not been pledged or securitized (generally including cash and cash equivalents, Agency MBS, CRT, Non-Agency MBS, residential mortgage loans, MSR, reverse repurchase agreements, other unencumbered financial assets and capital stock).

⁽⁵⁾Includes a $408 million residential whole loan securitization that priced in April 2023.

⁽⁶⁾ Issuer ranking data from Inside Nonconforming Markets for 2022 to 2023 YTD as of April 7, 2023.

⁽⁷⁾ Net of sales agent commissions and excluding other offering expenses.

⁽⁸⁾ Statistics assume all Directors up for nomination at the 2023 Annual Meeting of Stockholders are elected.

Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended March 31, 2023, December 31, 2022 and March 31, 2022:

	March 31, 2023		December 31, 2022		March 31, 2022
Book value per common share	$	20.77	$	20.79	$	27.08
GAAP leverage at period-end ⁽¹⁾	5.9:1		6.0:1		5.3:1
GAAP net income (loss) per average common share ⁽²⁾	$	(1.79)	$	(1.96)	$	5.46
Annualized GAAP return (loss) on average equity		(28.84%)		(31.78%)		65.62%
Net interest margin ⁽³⁾		0.09%		0.65%		3.20%
Average yield on interest earning assets ⁽⁴⁾		3.96%		3.86%		3.61%
Average GAAP cost of interest bearing liabilities ⁽⁵⁾		4.52%		3.71%		0.48%
Net interest spread		(0.56%)		0.15%		3.13%
Non-GAAP metrics *
Earnings available for distribution per average common share ⁽²⁾	$	0.81	$	0.89	$	1.11
Annualized EAD return on average equity		14.82%		16.19%		14.01%
Economic leverage at period-end ⁽¹⁾	6.4:1		6.3:1		6.4:1
Net interest margin (excluding PAA) ⁽³⁾		1.76%		1.90%		2.04%
Average yield on interest earning assets (excluding PAA) ⁽⁴⁾		3.96%		3.82%		2.62%
Average economic cost of interest bearing liabilities ⁽⁵⁾		2.34%		2.11%		0.89%
Net interest spread (excluding PAA)		1.62%		1.71%		1.73%
* 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.

Updates to Financial Disclosures

On September 8, 2022, the Company announced that its Board of Directors had unanimously approved a reverse stock split of the Company’s common stock at a ratio of 1-for-4 (the “Reverse Stock Split”). The Reverse Stock Split was effective following the close of business on September 23, 2022 (the “Effective Time”). Accordingly, at the Effective Time, every four issued and outstanding shares of the Company’s common stock were converted into one share of the Company’s common stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares. The par value per share of the Company’s common stock remained unchanged at $0.01 per share after the Reverse Stock Split. Accordingly, for all historical periods presented, an amount equal to the par value of the reduced number of shares resulting from the Reverse Stock Split was reclassified from Common stock to Additional paid in capital in the Company’s Consolidated Statements of Financial Condition. All other references made to share or per share amounts in the accompanying consolidated financial statements and disclosures have also been retroactively adjusted, where applicable, to reflect the effects of the Reverse Stock Split.

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. Such statements include those relating to the Company’s future performance, macro outlook, the interest rate and credit environments, tax reform and future opportunities. 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 (“MBS”) and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of the Company’s assets; changes in business conditions and the general economy; the Company’s ability to grow its residential credit business; the Company’s ability to grow its mortgage servicing rights business; credit risks related to the Company’s investments in credit risk transfer securities and residential mortgage-backed securities and related residential mortgage credit assets; risks related to investments in mortgage servicing rights; the Company’s ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting the Company’s business; the Company’s ability to maintain its qualification as a REIT for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; and risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions. 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. 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.

We use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-management) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Annaly when you enroll your email address by visiting the “Investors” section of our website, then clicking on “Investor Resources” and selecting “Email Alerts” to complete the email notification form. Our website, any alerts and social media channels are not incorporated by reference into, and are not a part of, this document.

The Company prepares an investor presentation and supplemental financial information for the benefit of its shareholders. Please refer to the investor presentation for definitions of both GAAP and non-GAAP measures used in this news release. Both the First Quarter 2023 Investor Presentation and the First Quarter 2023 Supplemental Information 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 2023 earnings conference call on April 27, 2023 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/10177180/f8da7e9f2c. 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 2733167. 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)
	March 31, 2023		December 31, 2022 ⁽¹⁾		September 30, 2022		June 30, 2022		March 31, 2022
	(unaudited)				(unaudited)		(unaudited)		(unaudited)
Assets
Cash and cash equivalents	$	1,794,173	$	1,576,714	$	1,466,171	$	853,932	$	955,840
Securities		69,238,185		65,789,907		66,839,353		59,042,734		60,727,637
Loans, net		1,642,822		1,809,832		1,551,707		1,487,133		3,617,818
Mortgage servicing rights		1,790,980		1,748,209		1,705,254		1,421,420		1,108,937
Interests in MSR		—		—		—		83,622		85,653
Assets transferred or pledged to securitization vehicles		10,277,588		9,121,912		9,202,014		8,877,247		7,809,307
Assets of disposal group held for sale		—		—		11,371		97,414		—
Derivative assets		400,139		342,064		1,949,530		748,432		964,075
Receivable for unsettled trades		679,096		575,091		2,153,895		434,227		407,225
Principal and interest receivable		773,722		637,301		262,542		300,028		246,739
Goodwill and intangible assets, net		15,921		16,679		17,437		18,195		23,110
Other assets		219,391		233,003		247,490		272,865		238,793
Total assets	$	86,832,017	$	81,850,712	$	85,406,764	$	73,637,249	$	76,185,134
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements	$	60,993,018	$	59,512,597	$	54,160,731	$	51,364,097	$	52,626,503
Other secured financing		250,000		250,000		250,000		—		914,255
Debt issued by securitization vehicles		8,805,911		7,744,160		7,844,518		7,502,483		6,711,953
Participations issued		673,431		800,849		745,729		696,944		775,432
Liabilities of disposal group held for sale		—		—		1,151		3,608		—
Derivative liabilities		473,515		204,172		764,535		379,708		826,972
Payable for unsettled trades		3,259,034		1,157,846		9,333,646		1,995,960		1,992,568
Interest payable		118,395		325,280		30,242		91,962		80,870
Dividends payable		321,023		412,113		411,762		354,027		321,423
Other liabilities		28,657		74,269		912,895		158,560		456,388
Total liabilities		74,922,984		70,481,286		74,455,209		62,547,349		64,706,364
Stockholders’ equity
Preferred stock, par value $0.01 per share ⁽²⁾		1,536,569		1,536,569		1,536,569		1,536,569		1,536,569
Common stock, par value $0.01 per share ⁽³⁾		4,939		4,683		4,679		4,023		3,653
Additional paid-in capital		23,543,091		22,981,320		22,967,665		21,293,146		20,332,909
Accumulated other comprehensive income (loss)		(2,550,614)		(3,708,896)		(5,431,436)		(4,310,926)		(2,465,482)
Accumulated deficit		(10,741,863)		(9,543,233)		(8,211,358)		(7,496,061)		(7,980,407)
Total stockholders’ equity		11,792,122		11,270,443		10,866,119		11,026,751		11,427,242
Noncontrolling interests		116,911		98,983		85,436		63,149		51,528
Total equity		11,909,033		11,369,426		10,951,555		11,089,900		11,478,770
Total liabilities and equity	$	86,832,017	$	81,850,712	$	85,406,764	$	73,637,249	$	76,185,134

⁽¹⁾ Derived from the audited consolidated financial statements at December 31, 2022.
⁽²⁾ 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. 6.75% Series I Preferred Stock – Includes 17,700,000 shares authorized, issued and outstanding.
⁽³⁾ Includes 2,936,500,000 shares authorized. Includes 493,880,938 shares issued and outstanding at March 31, 2023; 468,309,810 shares issued and outstanding at December 31, 2022; 467,911,144 shares issued and outstanding at September 30, 2022; 402,303,874 shares issued and outstanding at June 30, 2022; 365,253,063 shares issued and outstanding at March 31, 2022.

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, 2023		December 31, 2022		September 30, 2022		June 30, 2022		March 31, 2022
Net interest income
Interest income	$	818,250	$	798,934	$	678,488	$	645,615	$	655,850
Interest expense		798,787		663,847		400,491		170,475		74,922
Net interest income		19,463		135,087		277,997		475,140		580,928
Net servicing income
Servicing and related income		84,273		82,040		74,486		55,685		34,715
Servicing and related expense		7,880		7,659		7,780		5,949		3,757
Net servicing income		76,393		74,381		66,706		49,736		30,958
Other income (loss)
Net gains (losses) on investments and other		1,712		(1,124,924)		(2,702,512)		(615,216)		(159,804)
Net gains (losses) on derivatives		(900,752)		84,263		2,117,240		1,015,643		1,642,028
Loan loss (provision) reversal		219		(7,258)		1,613		26,913		(608)
Business divestiture-related gains (losses)		—		(13,013)		(2,936)		(23,955)		(354)
Other, net		15,498		7,569		1,526		(5,486)		3,058
Total other income (loss)		(883,323)		(1,053,363)		(585,069)		397,899		1,484,320
General and administrative expenses
Compensation expense		29,391		29,714		27,744		22,243		33,002
Other general and administrative expenses		11,437		13,291		10,178		13,795		12,762
Total general and administrative expenses		40,828		43,005		37,922		36,038		45,764
Income (loss) before income taxes		(828,295)		(886,900)		(278,288)		886,737		2,050,442
Income taxes		11,033		(86)		(4,311)		23,420		26,548
Net income (loss)		(839,328)		(886,814)		(273,977)		863,317		2,023,894
Net income (loss) attributable to noncontrolling interests		4,928		1,548		1,287		(3,379)		1,639
Net income (loss) attributable to Annaly		(844,256)		(888,362)		(275,264)		866,696		2,022,255
Dividends on preferred stock		31,875		29,974		26,883		26,883		26,883
Net income (loss) available (related) to common stockholders	$	(876,131)	$	(918,336)	$	(302,147)	$	839,813	$	1,995,372
Net income (loss) per share available (related) to common stockholders
Basic	$	(1.79)	$	(1.96)	$	(0.70)	$	2.21	$	5.46
Diluted	$	(1.79)	$	(1.96)	$	(0.70)	$	2.20	$	5.46
Weighted average number of common shares outstanding
Basic		489,688,364		468,250,672		429,858,876		380,609,192		365,340,909
Diluted		489,688,364		468,250,672		429,858,876		380,898,750		365,612,991
Other comprehensive income (loss)
Net income (loss)	$	(839,328)	$	(886,814)	$	(273,977)	$	863,317	$	2,023,894
Unrealized gains (losses) on available-for-sale securities		675,374		445,896		(2,578,509)		(2,503,250)		(3,568,679)
Reclassification adjustment for net (gains) losses included in net income (loss)		482,908		1,276,644		1,457,999		657,806		144,787
Other comprehensive income (loss)		1,158,282		1,722,540		(1,120,510)		(1,845,444)		(3,423,892)
Comprehensive income (loss)		318,954		835,726		(1,394,487)		(982,127)		(1,399,998)
Comprehensive income (loss) attributable to noncontrolling interests		4,928		1,548		1,287		(3,379)		1,639
Comprehensive income (loss) attributable to Annaly		314,026		834,178		(1,395,774)		(978,748)		(1,401,637)
Dividends on preferred stock		31,875		29,974		26,883		26,883		26,883
Comprehensive income (loss) attributable to common stockholders	$	282,151	$	804,204	$	(1,422,657)	$	(1,005,631)	$	(1,428,520)

Contacts

Annaly Capital Management, Inc.

Investor Relations

1-888-8Annaly

www.annaly.com

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