Annaly Capital Management, Inc. Reports 4th Quarter 2022 Results
NEW YORK–(BUSINESS WIRE)–Annaly Capital Management, Inc. (NYSE: NLY) (“Annaly” or the “Company”) today announced its financial results for the quarter and year ended December 31, 2022.
Financial Highlights
- GAAP net income (loss) of ($1.96) per average common share for the quarter; $3.93 per average common share for the full year 2022
- Earnings available for distribution (“EAD”) of $0.89 per average common share for the quarter; $4.23 per average common share for the full year 2022
- Economic return of 8.7% for the fourth quarter; economic return (loss) of (23.7%) for the full year 2022
- Annualized GAAP return (loss) on average equity of (31.8%) and annualized EAD return on average equity of 16.2% for the fourth quarter
- Book value per common share of $20.79
- GAAP leverage of 6.0x, up from 5.8x in the prior quarter; economic leverage of 6.3x, down from 7.1x in the prior quarter
- Declared fourth quarter common stock cash dividend of $0.88 per share
Business Highlights
Fourth Quarter 2022 Highlights
- Total assets of $80.6 billion, including $72.9 billion in highly liquid Agency portfolio(1)
-
Overall capital allocation was relatively unchanged as Annaly maintained a conservative posture with a focus on managing leverage and liquidity given the volatile macroeconomic backdrop
- Annaly Agency Group represents 67% of dedicated equity capital(2) with quarterly activity primarily driven by TBA sales and the continued rotation up in coupon
- Annaly Residential Credit Group represents 19% of dedicated equity capital(2); settled approximately $685 million of whole loans and slightly decreased the securities portfolio
- Annaly Mortgage Servicing Rights (“MSR”) Group represents 14% of dedicated equity capital(2) supported by low WAC and high credit quality collateral
- $6.3 billion of unencumbered assets(3), including cash and unencumbered Agency MBS of $4.0 billion
- Weighted average days to maturity of repurchase agreements decreased to 27 days from 57 days in the prior quarter as Annaly maintained a shorter dated book in order to preserve optionality given the hiking cycle and healthy funding conditions
- Subsequent to quarter end, Annaly Residential Credit Group upsized an existing credit facility by approximately $200 million and Annaly Mortgage Servicing Rights Group added a new $250 million credit facility
- Enhanced senior leadership with the promotion of the following executives: Steve Campbell as President, Mike Fania as Deputy Chief Investment Officer and Johanna Griffin as Chief Risk Officer
Full-Year 2022 Highlights
Investment and Strategy
- Annaly’s Agency portfolio shifted upwards in coupon throughout 2022 (share of portfolio in 4.0% or above coupons increased from 27% to 69% YoY)(4), while also decreasing exposure to TBAs (decreased to 15% of portfolio from 25% YoY)
- Hedging strategy was focused on mitigating interest rate duration risk during a historically volatile year for rates markets; maintained defensive position by adding new SOFR swaps and Treasury futures positions across the curve
- As the third largest purchaser of MSR in 2022(5), Annaly’s MSR portfolio grew assets by nearly 3x throughout the year to $1.8 billion(6) with MSR growing from 5% to 14% of dedicated equity capital by the end of the year
- Annaly Residential Credit Group grew assets by over 9% throughout 2022 to $5.0 billion(1), driven by $4.1 billion of whole loans purchased throughout 2022
- Completed the $2.4 billion sale of Annaly’s Middle Market Lending portfolio(7)
- Added to the S&P MidCap 400 Index in the third quarter, representing the only mortgage REIT in the index
Financing and Capital
- Proactively managed leverage profile throughout the year in light of volatility; increased economic leverage to 6.3x at year-end from 5.7x at the end of 2021
- Average GAAP cost of interest bearing liabilities increased over 166 basis points to 2.03% year-over-year and average economic cost of interest bearing liabilities increased 67 basis points to 1.46% year-over-year
- Annaly Residential Credit Group completed seventeen whole loan securitizations totaling $6.6 billion in proceeds(8) since the beginning of 2022, remaining the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS from 2021-2022(9)
- Raised $2.7 billion of accretive common equity throughout 2022(10)
Corporate Responsibility & Governance
- Published third Corporate Responsibility Report demonstrating Annaly’s progress and commitment to ESG goals and reporting, including enhanced disclosures taking into consideration the recommendations of the Task Force for Climate-related Financial Disclosures
- Recognition in the FTSE4Good and Bloomberg Gender Equality Indices for the fourth and sixth consecutive years, respectively
“Annaly generated an 8.7% economic return in the fourth quarter as our portfolio performed well, supported by declining macro-volatility and improving fixed income flows,” remarked David Finkelstein, Annaly’s Chief Executive Officer & Chief Investment Officer. “Enabled by our industry-leading scale, substantial liquidity and prudent leverage profile, Annaly is positioned to be opportunistic across our three businesses in 2023, though we remain patient and well-prepared for additional periods of instability.
“While 2022 was an exceptionally challenging year for financial markets, we are proud of our key strategic accomplishments throughout the year – the accretive disposition of our Middle Market Lending business, continued expansion of our Residential Credit and MSR platforms, inclusion in the S&P MidCap 400 Index and the 25th anniversary of our initial public offering – and are encouraged by the improvements we have seen to date in the investment environment.”
|
(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 $9.1 billion, include TBA purchase contracts (market value) of $10.6 billion, CMBX derivatives (market value) of $0.4 billion and $1.0 billion of retained securities that are eliminated in consolidation and are shown net of participations issued totaling $0.8 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 December 31, 2022 exclude commercial real estate assets. | |
|
(3) |
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). | |
|
(4) |
Includes TBA purchase contracts and fixed-rate pass-through certificates. | |
|
(5) |
Information aggregated from 2022 Fannie Mae and Freddie Mac monthly loan level files compiled by eMBS as of December 31, 2022. | |
|
(6) |
Includes limited partnership interests in a MSR fund, which is reported in Other Assets. | |
|
(7) |
This represents substantially all of the Middle Market Lending assets held on balance sheet as well as assets managed for third parties. | |
|
(8) |
Includes a $405 million residential whole loan securitization that priced in January 2023. | |
|
(9) |
Issuer ranking data from Inside Nonconforming Markets for 2021 to 2022. | |
|
(10) |
Amount includes $1.1 billion raised through the Company’s at-the-market sales program for its common stock, net of sales agent commissions and excluding other offering expenses, and $1.5 billion raised through two common equity offerings, excluding any applicable underwriting discounts and other offering expenses and including the underwriters’ full exercise of their overallotment option to purchase additional shares of stock. |
Financial Performance
The following table summarizes certain key performance indicators as of and for the quarters ended December 31, 2022, September 30, 2022 and December 31, 2021:
|
|
December 31, 2022 |
|
September 30, 2022 |
|
December 31, 2021 |
||||||
|
Book value per common share |
$ |
20.79 |
|
|
$ |
19.94 |
|
|
$ |
31.88 |
|
|
GAAP leverage at period-end (1) |
6.0:1 |
|
5.8:1 |
|
4.7:1 |
||||||
|
GAAP net income (loss) per average common share (2) |
$ |
(1.96 |
) |
|
$ |
(0.70 |
) |
|
$ |
1.07 |
|
|
Annualized GAAP return (loss) on average equity |
|
(31.78 |
%) |
|
|
(9.94 |
%) |
|
|
12.44 |
% |
|
Net interest margin (3) |
|
0.65 |
% |
|
|
1.42 |
% |
|
|
1.97 |
% |
|
Average yield on interest earning assets (4) |
|
3.86 |
% |
|
|
3.47 |
% |
|
|
2.31 |
% |
|
Average GAAP cost of interest bearing liabilities (5) |
|
3.71 |
% |
|
|
2.38 |
% |
|
|
0.38 |
% |
|
Net interest spread |
|
0.15 |
% |
|
|
1.09 |
% |
|
|
1.93 |
% |
|
Non-GAAP metrics * |
|
|
|
|
|
||||||
|
Earnings available for distribution per average common share (2) |
$ |
0.89 |
|
|
$ |
1.06 |
|
|
$ |
1.14 |
|
|
Annualized EAD return on average equity |
|
16.19 |
% |
|
|
17.57 |
% |
|
|
13.10 |
% |
|
Economic leverage at period-end (1) |
6.3:1 |
|
7.1:1 |
|
5.7:1 |
||||||
|
Net interest margin (excluding PAA) (3) |
|
1.90 |
% |
|
|
1.98 |
% |
|
|
2.03 |
% |
|
Average yield on interest earning assets (excluding PAA) (4) |
|
3.82 |
% |
|
|
3.24 |
% |
|
|
2.63 |
% |
|
Average economic cost of interest bearing liabilities (5) |
|
2.11 |
% |
|
|
1.54 |
% |
|
|
0.75 |
% |
|
Net interest spread (excluding PAA) |
|
1.71 |
% |
|
|
1.70 |
% |
|
|
1.88 |
% |
|
* |
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.
Beginning with the quarter ended March 31, 2022, in light of the continued growth of its mortgage servicing rights portfolio, the Company enhanced its financial disclosures by separately reporting servicing income and servicing expense in its Consolidated Statements of Comprehensive Income (Loss). Servicing income and servicing expense were previously included within Other income (loss). As a result of this change, prior periods have been adjusted to conform to the current presentation.
In addition, beginning with the quarter ended March 31, 2022, the Company consolidated certain line items in its Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation. Amounts previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined into a single line item titled Net gains (losses) on derivatives. Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings are combined into a single line item titled Net gains (losses) on investments and other. As a result of these changes, prior periods have been adjusted to conform to the current presentation.
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 a supplemental investor presentation and a financial summary for the benefit of its shareholders. Both the Fourth Quarter 2022 Investor Presentation and the Fourth Quarter 2022 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 fourth quarter 2022 earnings conference call on February 9, 2023 at 10:00 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/10175099/f5ae1f900d. 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 3463653. 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) |
|||||||||||||||||||
|
|
December 31, |
|
September 30, |
|
June 30, |
|
March 31, |
|
December 31, |
||||||||||
|
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
(unaudited) |
|
|
||||||||||
|
Assets |
|
|
|
|
|
|
|
|
|
||||||||||
|
Cash and cash equivalents |
$ |
1,576,714 |
|
|
$ |
1,466,171 |
|
|
$ |
853,932 |
|
|
$ |
955,840 |
|
|
$ |
1,342,090 |
|
|
Securities |
|
65,789,907 |
|
|
|
66,839,353 |
|
|
|
59,042,734 |
|
|
|
60,727,637 |
|
|
|
63,655,674 |
|
|
Loans, net |
|
1,809,832 |
|
|
|
1,551,707 |
|
|
|
1,487,133 |
|
|
|
3,617,818 |
|
|
|
4,242,043 |
|
|
Mortgage servicing rights |
|
1,748,209 |
|
|
|
1,705,254 |
|
|
|
1,421,420 |
|
|
|
1,108,937 |
|
|
|
544,562 |
|
|
Interests in MSR |
|
— |
|
|
|
— |
|
|
|
83,622 |
|
|
|
85,653 |
|
|
|
69,316 |
|
|
Assets transferred or pledged to securitization vehicles |
|
9,121,912 |
|
|
|
9,202,014 |
|
|
|
8,877,247 |
|
|
|
7,809,307 |
|
|
|
6,086,308 |
|
|
Assets of disposal group held for sale |
|
— |
|
|
|
11,371 |
|
|
|
97,414 |
|
|
|
— |
|
|
|
194,138 |
|
|
Derivative assets |
|
342,064 |
|
|
|
1,949,530 |
|
|
|
748,432 |
|
|
|
964,075 |
|
|
|
170,370 |
|
|
Receivable for unsettled trades |
|
575,091 |
|
|
|
2,153,895 |
|
|
|
434,227 |
|
|
|
407,225 |
|
|
|
2,656 |
|
|
Principal and interest receivable |
|
637,301 |
|
|
|
262,542 |
|
|
|
300,028 |
|
|
|
246,739 |
|
|
|
234,983 |
|
|
Goodwill and intangible assets, net |
|
16,679 |
|
|
|
17,437 |
|
|
|
18,195 |
|
|
|
23,110 |
|
|
|
24,241 |
|
|
Other assets |
|
233,003 |
|
|
|
247,490 |
|
|
|
272,865 |
|
|
|
238,793 |
|
|
|
197,683 |
|
|
Total assets |
$ |
81,850,712 |
|
|
$ |
85,406,764 |
|
|
$ |
73,637,249 |
|
|
$ |
76,185,134 |
|
|
$ |
76,764,064 |
|
|
Liabilities and stockholders’ equity |
|
|
|
|
|
|
|
|
|
||||||||||
|
Liabilities |
|
|
|
|
|
|
|
|
|
||||||||||
|
Repurchase agreements |
$ |
59,512,597 |
|
|
$ |
54,160,731 |
|
|
$ |
51,364,097 |
|
|
$ |
52,626,503 |
|
|
$ |
54,769,643 |
|
|
Other secured financing |
|
250,000 |
|
|
|
250,000 |
|
|
|
— |
|
|
|
914,255 |
|
|
|
903,255 |
|
|
Debt issued by securitization vehicles |
|
7,744,160 |
|
|
|
7,844,518 |
|
|
|
7,502,483 |
|
|
|
6,711,953 |
|
|
|
5,155,633 |
|
|
Participations issued |
|
800,849 |
|
|
|
745,729 |
|
|
|
696,944 |
|
|
|
775,432 |
|
|
|
1,049,066 |
|
|
Liabilities of disposal group held for sale |
|
— |
|
|
|
1,151 |
|
|
|
3,608 |
|
|
|
— |
|
|
|
154,956 |
|
|
Derivative liabilities |
|
204,172 |
|
|
|
764,535 |
|
|
|
379,708 |
|
|
|
826,972 |
|
|
|
881,537 |
|
|
Payable for unsettled trades |
|
1,157,846 |
|
|
|
9,333,646 |
|
|
|
1,995,960 |
|
|
|
1,992,568 |
|
|
|
147,908 |
|
|
Interest payable |
|
325,280 |
|
|
|
30,242 |
|
|
|
91,962 |
|
|
|
80,870 |
|
|
|
91,176 |
|
|
Dividends payable |
|
412,113 |
|
|
|
411,762 |
|
|
|
354,027 |
|
|
|
321,423 |
|
|
|
321,142 |
|
|
Other liabilities |
|
74,269 |
|
|
|
912,895 |
|
|
|
158,560 |
|
|
|
456,388 |
|
|
|
94,423 |
|
|
Total liabilities |
|
70,481,286 |
|
|
|
74,455,209 |
|
|
|
62,547,349 |
|
|
|
64,706,364 |
|
|
|
63,568,739 |
|
|
Stockholders’ equity |
|
|
|
|
|
|
|
|
|
||||||||||
|
Preferred stock, par value $0.01 per share (2) |
|
1,536,569 |
|
|
|
1,536,569 |
|
|
|
1,536,569 |
|
|
|
1,536,569 |
|
|
|
1,536,569 |
|
|
Common stock, par value $0.01 per share (3) |
|
4,683 |
|
|
|
4,679 |
|
|
|
4,023 |
|
|
|
3,653 |
|
|
|
3,649 |
|
|
Additional paid-in capital |
|
22,981,320 |
|
|
|
22,967,665 |
|
|
|
21,293,146 |
|
|
|
20,332,909 |
|
|
|
20,324,780 |
|
|
Accumulated other comprehensive income (loss) |
|
(3,708,896 |
) |
|
|
(5,431,436 |
) |
|
|
(4,310,926 |
) |
|
|
(2,465,482 |
) |
|
|
958,410 |
|
|
Accumulated deficit |
|
(9,543,233 |
) |
|
|
(8,211,358 |
) |
|
|
(7,496,061 |
) |
|
|
(7,980,407 |
) |
|
|
(9,653,582 |
) |
|
Total stockholders’ equity |
|
11,270,443 |
|
|
|
10,866,119 |
|
|
|
11,026,751 |
|
|
|
11,427,242 |
|
|
|
13,169,826 |
|
|
Noncontrolling interests |
|
98,983 |
|
|
|
85,436 |
|
|
|
63,149 |
|
|
|
51,528 |
|
|
|
25,499 |
|
|
Total equity |
|
11,369,426 |
|
|
|
10,951,555 |
|
|
|
11,089,900 |
|
|
|
11,478,770 |
|
|
|
13,195,325 |
|
|
Total liabilities and equity |
$ |
81,850,712 |
|
|
$ |
85,406,764 |
|
|
$ |
73,637,249 |
|
|
$ |
76,185,134 |
|
|
$ |
76,764,064 |
|
|
|
|||||||||||||||||||
Contacts
Annaly Capital Management, Inc.
Investor Relations
1-888-8Annaly
www.annaly.com