Annaly Capital Management, Inc. Reports 3rd Quarter 2009 Core EPS of $0.75; Increase of 22.9% from Prior Year and 13.6% from Prior Quarter
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NEW YORK--(BUSINESS WIRE)-- Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended September 30, 2009, of $413.3 million or $0.75 per average share available to common shareholders as compared to Core Earnings of $335.0 million or $0.61 per average share available to common shareholders for the quarter ended September 30, 2008, and Core Earnings of $364.5 million or $0.66 per average share available to common shareholders for the quarter ended June 30, 2009. "Core Earnings" represents a non-GAAP measure and is defined as net income (loss) excluding impairment losses, gains or losses on sales of securities and termination of interest rate swaps and unrealized gains or losses on interest rate swaps. On a GAAP basis, net income for the quarter ended September 30, 2009, was $285.2 million or $0.51 per average share available to common shareholders, as compared to net income of $302.1 million or $0.55 per average share available to common shareholders for the quarter ended September 30, 2008, and net income of $597.1 million or $1.09 per average share related to common shareholders for the quarter ended June 30, 2009.
During the quarter ended September 30, 2009, the Company sold $194.3 million of Mortgage-Backed Securities, resulting in a realized gain of $591,000. During the quarter ended September 30, 2008, the Company sold $4.8 billion of Mortgage-Backed Securities, resulting in a realized loss of $1.1 million. During the quarter ended June 30, 2009, the Company sold $524.2 million of Mortgage-Backed Securities, resulting in a realized gain of $2.4 million.
Common dividends declared for the quarter ended September 30, 2009, were $0.69 per share, as compared to $0.55 per share for the quarter ended September 30, 2008, and $0.60 per share for the quarter ended June 30, 2009. The annualized dividend yield on the Company's common stock for the quarter ended September 30, 2009, based on the September 30, 2009 closing price of $18.14, was 15.21%. On a Core Earnings basis, the Company provided an annualized return on average equity of 18.27% for the quarter ended September 30, 2009, as compared to 18.55% for the quarter ended September 30, 2008 and 17.20% for the quarter ended June 30, 2009. On a GAAP basis, the Company provided an annualized return on average equity of 12.60% for the quarter ended September 30, 2009, as compared to an annualized return on average equity of 16.73% for the quarter ended September 30, 2008, and an annualized return on average equity of 28.17% for the quarter ended June 30, 2009.
Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company's results. "Our management team remains focused on the core elements of what we do--managing all facets of interest rate risk in Annaly's portfolio of Agency Mortgage-Backed securities and building shareholder value in our subsidiaries. I believe that we are positioning our company for a wide range of possible outcomes in the evolving market and government policy environment."
For the quarter ended September 30, 2009, the annualized yield on average earning assets was 4.89% and the annualized cost of funds on the average repurchase balance 2.24%, which resulted in an average interest rate spread of 2.65%. This is a 57 basis point increase over the 2.08% annualized interest rate spread for the quarter ended September 30, 2008, and an 18 basis point increase over the 2.47% annualized interest rate spread for the quarter ended June 30, 2009. At September 30, 2009, the weighted average yield on assets was 4.55% and the weighted average cost of funds, including the effect of interest rate swaps, was 2.15%, which resulted in an interest rate spread of 2.40%. Leverage at September 30, 2009, was 6.0:1 compared to 7.2:1 at September 30, 2008, and 5.9:1 at June 30, 2009.
Fixed-rate securities comprised 71% of the Company's portfolio at September 30, 2009. The balance of the portfolio was comprised of 24% adjustable-rate mortgages and 5% LIBOR floating-rate collateralized mortgage obligations. At September 30, 2009, the Company had entered into interest rate swaps with a notional amount of $20.6 billion, or 32% of the portfolio. The purpose of the 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 effect of the swaps is to lock in a spread relative to the cost of financing. As of September 30, 2009, all of the Company's Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae Mortgage-Backed securities, which carry an actual or implied "AAA" rating.
"The driver of return in our portfolio continues to be the widening of the spread between the yield on our assets and the cost to finance those assets," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "Contributing to this spread widening are the continuation of relatively slow prepayment speeds and the rolling of our swap book into a lower rate environment. We are comfortable with our leverage at period-end, and continually monitor the market for investment opportunities in the current environment, which remain attractive. After taking into account the effect of interest rate swaps, at September 30, 2009, our portfolio of Investment Securities was comprised of 37% floating-rate, 24% adjustable-rate and 39% fixed-rate assets."
The following table summarizes portfolio information for the Company:
September 30, September 30, June 30,
2009 2008 2009
Leverage at period-end 6.0:1 7.2:1 5.9:1
Fixed-rate investment securities as a 71% 65% 69%
percentage of portfolio
Adjustable-rate investment securities as 24% 27% 25%
a percentage of portfolio
Floating-rate investment securities as a 5% 8% 6%
percentage of portfolio
Notional amount of interest rate swaps 32% 33% 31%
as a percentage of portfolio
Annualized yield on average earning 4.89% 5.62% 5.04%
assets during the quarter
Annualized cost of funds on average 2.24% 3.54% 2.57%
repurchase balance during the quarter
Annualized interest rate spread during 2.65% 2.08% 2.47%
the quarter
Weighted average yield on assets at 4.55% 5.27% 4.67%
period-end
Weighted average cost of funds at 2.15% 3.59% 2.54%
period-end
Interest rate spread at period-end 2.40% 1.68% 2.13%
Weighted average receive rate on 0.28% 2.69% 0.38%
interest rate swaps at period-end
Weighted average pay rate on interest 3.98% 4.70% 4.20%
rate swaps at period-end
The Constant Prepayment Rate was 21% during the third quarter of 2009, as compared to 11% during the third quarter of 2008, and 19% during the second quarter of 2009. The weighted average cost basis of the Company's Investment Securities was 101.7 at September 30, 2009. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, was $75.1 million, $18.7 million, and $58.4 million, respectively. The total net premium remaining unamortized at September 30, 2009, September 30, 2008, and June 30, 2009, was $1.1 billion, $525.4 million, and $924.9 million, respectively.
General and administrative expenses as a percentage of average assets were 0.19%, 0.17% and 0.19% for the quarters ended September 30, 2009, September 30, 2008, and June 30, 2009, respectively. At September 30, 2009, September 30, 2008, and June 30, 2009, the Company had a common stock book value per share of $16.52, $12.70 and $15.60, respectively.
At September 30, 2009, Annaly's wholly-owned registered investment advisors had under management approximately $11.3 billion in net assets and $22.6 billion in gross assets, as compared to $2.4 billion in net assets and $10.5 billion in gross assets at September 30, 2008 and $9.9 billion in net assets and $19.0 billion in gross assets at June 30, 2009. For the quarter ended September 30, 2009, the investment advisors earned investment advisory and service fees, net of fees paid to distributors, of $14.1 million, as compared to $7.4 million for the quarter ended September 30, 2008 and $11.3 million for the quarter ended June 30, 2009.
Annaly manages assets on behalf of institutional and individual investors worldwide. The Company's principal business objective is to generate net income for distribution to investors from its Investment Securities and from dividends it receives from its subsidiaries. Annaly is a Maryland corporation that has elected to be taxed as a real estate investment trust ("REIT"), and currently has 552,785,274 shares of common stock outstanding.
The Company will hold the third quarter 2009 earnings conference call on October 29, 2009 at 10:00 a.m. EST. The number to call is 866-804-6926 for domestic calls and 857-350-1672 for international calls and the pass code is 25572532. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 34323971. 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 E-Mail alerts, enter your e-mail address where indicated and click the Submit button.
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 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, changes in government regulations affecting our business, our ability to maintain our qualification as a REIT for federal income tax purposes, 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)
September 30, June 30, March 31, September 30,
December 31,
2009 2009 2009 2008
2008(1)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ASSETS
Cash and cash $ 1,723,341 $ 1,352,798 $ 1,035,118 $ 909,353 $ 1,083,814
equivalents
Reverse
repurchase 226,264 170,916 452,480 562,119 619,657
agreements with
affiliate
Reverse
repurchase 100,000 - - - -
agreements
Mortgage-Backed
Securities, at 66,837,761 65,165,126 58,785,456 55,046,995 54,840,928
fair value
Agency
debentures, at 625,615 616,893 - 598,945 618,352
fair value
Investments 239,740 156,990 51,418 52,795 22,490
with affiliates
Trading
securities, at - - - - 2,199
fair value
Receivable for
Mortgage-Backed - 412,214 33,009 75,546 2,446,342
Securities sold
Accrued
interest and 332,861 313,772 291,347 282,532 295,925
dividends
receivable
Receivable from 16,886 16,886 16,886 16,886 -
Prime Broker(2)
Receivable for
advisory and 12,807 10,039 6,507 6,103 3,581
service fees
Intangible for
customer 10,791 11,091 11,399 12,380 6,726
relationships
Goodwill 27,917 27,917 27,917 27,917 22,966
Interest rate
swaps, at fair - 7,267 - - -
value
Other assets 8,695 5,346 5,717 6,044 2,602
Total assets $ 70,162,678 $ 68,267,255 $ 60,717,254 $ 57,597,615 $ 59,965,582
LIABILITIES AND
STOCKHOLDERS'
EQUITY
Liabilities:
Repurchase $ 55,842,840 $ 51,326,930 $ 48,951,178 $ 46,674,885 $ 51,075,758
agreements
Payable for
Investment 3,644,420 7,017,444 2,121,670 2,062,030 839,235
Securities
purchased
Trading
securities
sold, not yet - - - - 30,903
purchased, at
fair value
Accrued
interest 97,693 102,662 112,457 199,985 168,361
payable
Dividends 381,411 326,612 272,170 270,736 296,254
payable
Accounts
payable and 37,991 40,115 23,970 8,380 26,385
other
liabilities
Interest rate
swaps, at fair 788,065 722,700 1,012,574 1,102,285 384,258
value
Total 60,792,420 59,536,463 52,494,019 50,318,301 52,821,154
liabilities
6.00% Series B
Cumulative
Convertible
Preferred
Stock:
4,600,000
shares
authorized,
2,604,614, 63,114 63,118 63,185 96,042 108,957
2,604,814,
2,607,564,
3,963,525 and
4,496,525
shares issued
and
outstanding,
respectively
Stockholders'
Equity:
7.875% Series A
Cumulative
Redeemable
Preferred
Stock: 177,088 177,088 177,088 177,088 177,088
7,412,500
authorized,
7,412,500
shares issued
and outstanding
Common stock,
par value $.01
per share,
987,987,500
authorized,
552,778,531,
544,353,997, 5,528 5,444 5,443 5,415 5,402
544,339,785,
541,475,366 and
540,189,101
issued and
outstanding,
respectively
Additional 7,811,356 7,668,988 7,667,769 7,633,438 7,616,528
paid-in capital
Accumulated
other 1,959,994 1,362,134 1,121,551 252,230 (661,498 )
comprehensive
income (loss)
Accumulated (646,822 ) (545,980 ) (811,801 ) (884,899 ) (102,049 )
deficit
Total
stockholders' 9,307,144 8,667,674 8,160,050 7,183,272 7,035,471
equity
Total
liabilities,
Series B
Cumulative
Convertible
Preferred Stock
and $ 70,162,678 $ 68,267,255 $ 60,717,254 $ 57,597,615 $ 59,965,582
stockholders'
equity
(1) Derived from the audited consolidated financial statements at December
31, 2008.
The Company invested $45,000,000 in an equity fund and has redeemed
$56,000,000. Net unrealized gains in the fund valued at September 15,
(2) 2008 still remain at the prime broker, Lehman Brothers International
(Europe), which is in bankruptcy and the ultimate recovery of such amount
remains uncertain.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
(UNAUDITED)
(dollars in thousands, except per share data)
For the quarters ended
September 30, June 30, March 31, December 31, September 30,
2009 2009 2009 2008 2008
Interest income $ 744,523 $ 710,401 $ 716,015 $ 740,282 $ 810,659
Interest expense 307,777 322,596 378,625 450,805 458,250
Net interest income 436,746 387,805 337,390 289,477 352,409
Other (loss) income
Investment advisory 14,620 11,736 7,761 7,224 7,663
and service fees
Gain (loss)on sale of
Mortgage-Backed 591 2,364 5,023 (468 ) (1,066 )
Securities
(Loss)income from - - - (2,010 ) 7,671
trading securities
Dividend income from
available-for-sale 5,398 3,221 918 612 580
equity securities
Loss on
other-than-temporarily - - - - (31,834 )
impaired securities(1)
Unrealized (loss) gain
on interest rate swaps (128,687 ) 230,207 35,545 (768,268 ) -
(2)
Total other (loss) (108,078 ) 247,528 49,247 (762,910 ) (16,986 )
income
Expenses
Distribution fees 478 432 428 287 299
General and
administrative 33,344 30,046 29,882 26,957 25,455
expenses
Total expenses 33,822 30,478 30,310 27,244 25,754
Income (loss) before 294,846 604,855 356,327 (500,677 ) 309,669
income taxes
Income taxes 9,657 7,801 6,434 6,302 7,538
Net income (loss) 285,189 597,054 349,893 (506,979 ) 302,131
Dividends on preferred 4,625 4,625 4,626 5,135 5,335
stock
Net income (loss)
available (related) to $ 280,564 $ 592,429 $ 345,267 ($512,114 ) $ 296,796
common shareholders
Net income (loss)
available (related)
per share to common
shareholders:
Basic $ 0.51 $ 1.09 $ 0.64 ($0.95 ) $ 0.55
Diluted $ 0.51 $ 1.08 $ 0.63 ($0.95 ) $ 0.54
Weighted average
number of common
shares outstanding:
Basic 547,611,480 544,344,844 542,903,110 541,099,147 538,706,131
Diluted 553,376,285 550,099,709 548,551,328 541,099,147 547,882,488
Net income (loss) $ 285,189 $ 597,054 $ 349,893 ($506,979 ) $ 302,131
Other comprehensive
income (loss):
Unrealized gain (loss)
on available-for-sale 542,396 176,013 820,178 863,018 (200,513 )
securities
Unrealized gain on 56,055 66,934 54,166 50,242 16,740
interest rate swaps
Reclassification
adjustment for (gains)
losses included in net (591 ) (2,364 ) (5,023 ) 468 1,066
income
Other comprehensive 597,860 240,583 869,321 913,728 (182,707 )
income (loss)
Comprehensive income $ 883,049 $ 837,637 $ 1,219,214 $ 406,749 $ 119,424
Although the Company has the intent and ability to retain its investment
in Chimera Investment Corporation, the Company determined that it is
appropriate to recognize an other-than-temporary impairment charge of
(1) $31.8 million. Recognition of such impairment charges does not reduce the
taxable income of the Company. The non-cash charge is the difference
between the purchase price for the shares and their fair value at
September 30, 2008.
Beginning in the fourth quarter of 2008, the Company no longer applies
(2) hedge accounting to its interest rate swaps under SFAS 133. As a result,
changes in unrealized gains and losses in interest rate swaps are
reported in the income statement for GAAP purposes.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in thousands, except per share data)
For the nine months ended
September 30, 2009 September 30, 2008
Interest income $ 2,170,939 $ 2,375,146
Interest expense 1,008,998 1,438,107
Net interest income 1,161,941 937,039
Other income
Investment advisory and service fees 34,117 20,667
Gain on sale of Mortgage-Backed 7,978 11,181
Securities
Income from trading securities - 11,705
Dividend income from available-for-sale 9,537 2,101
equity securities
Loss on other-than-temporarily impaired - (31,834 )
securities(1)
Unrealized gain (loss) on interest rate 137,065 -
swaps(2)
Total other income 188,697 13,820
Expenses
Distribution fees 1,338 1,302
General and administrative expenses 93,272 76,665
Total expenses 94,610 77,967
Income before income taxes and 1,256,028 872,892
noncontrolling interest
Income taxes 23,892 19,675
Net income 1,232,136 853,217
Noncontrolling interest - 58
Net income attributable to controlling 1,232,136 853,159
interest
Dividends on preferred stock 13,876 16,042
Net income available to common $ 1,218,260 $ 837,117
shareholders
Net income available per share to
common shareholders:
Basic $ 2.24 $ 1.69
Diluted $ 2.22 $ 1.67
Weighted average number of common shares
outstanding:
Basic 544,970,392 495,583,506
Diluted 550,913,871 504,609,331
Net income $ 1,232,136 $ 853,159
Other comprehensive income (loss):
Unrealized gain (loss) on 1,538,587 (511,958 )
available-for-sale securities
Unrealized gain on interest rate swaps 177,155 13,838
Reclassification adjustment for gains (7,978 ) (11,181 )
included in net income
Other comprehensive income (loss) 1,707,764 (509,301 )
Comprehensive income (loss) $ 2,939,900 $ 343,858
Although the Company has the intent and ability to retain its investment
in Chimera Investment Corporation, the Company determined that it is
appropriate to recognize an other-than-temporary impairment charge of
(1) $31.8 million. Recognition of such impairment charges does not reduce the
taxable income of the Company. The non-cash charge is the difference
between the purchase price for the shares and their fair value at
September 30, 2008.
Beginning in the fourth quarter of 2008, the Company no longer applies
(2) hedge accounting to its interest rate swaps under SFAS 133. As a result,
changes in unrealized gains and losses in interest rate swaps are
reported in the income statement for GAAP purposes.
Source: Annaly Capital Management, Inc.
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