(Source: Business Wire)
Annaly Capital Management, Inc. (NYSE: NLY) today reported Core Earnings for the quarter ended June 30, 2009, of $364.5 million or $0.66 per average share available to common shareholders as compared to Core Earnings of $305.2 million or $0.60 per average share available to common shareholders for the quarter ended June 30, 2008, and Core Earnings of $309.3 million or $0.56 per average share available to common shareholders for the quarter ended March 31, 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 June 30, 2009, was $597.1 million or $1.09 per average share available to common shareholders, as compared to net income of $308.0 million or $0.60 per average share available to common shareholders for the quarter ended June 30, 2008, and net income of $349.9 million or $0.64 per average share related to common shareholders for the quarter ended March 31, 2009.
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. During the quarter ended June 30, 2008, the Company sold $2.1 billion of Mortgage-Backed Securities, resulting in a realized gain of $2.8 million. During the quarter ended March 31, 2009, the Company sold $835.7 million of Mortgage-Backed Securities, resulting in a realized gain of $5.0 million.
Common dividends declared for the quarter ended June 30, 2009, were $0.60 per share, as compared to $0.55 per share for the quarter ended June 30, 2008, and $0.50 per share for the quarter ended March 31, 2009. The annualized dividend yield on the Company's common stock for the quarter ended June 30, 2009, based on the June 30, 2009 closing price of $15.14, was 15.85%. On a Core Earnings basis, the Company provided an annualized return on average equity of 17.20% for the quarter ended June 30, 2009, as compared to 17.88% for the quarter ended June 30, 2008 and 15.96% for the quarter ended March 31, 2009. On a GAAP basis, the Company provided an annualized return on average equity of 28.17% for the quarter ended June 30, 2009, as compared to an annualized return on average equity of 18.04% for the quarter ended June 30, 2008, and an annualized return on average equity of 18.06% for the quarter ended March 31, 2009.
Michael A.J. Farrell, Chairman, Chief Executive Officer and President of Annaly, commented on the Company's results. "I'm pleased that we continue to deliver strong risk-adjusted returns for our shareholders while maintaining a prudent approach to portfolio management. Even though we expect the currently favorable operating conditions to persist for some time, we will continue to vigilantly monitor the many policy and economic cross-currents that can affect our returns."
For the quarter ended June 30, 2009, the annualized yield on average earning assets was 5.04% and the annualized cost of funds on the average repurchase balance was 2.57%, which resulted in an average interest rate spread of 2.47%. This is a 48 basis point increase over the 1.99% annualized interest rate spread for the quarter ended June 30, 2008, and a 36 basis point increase over the 2.11% annualized interest rate spread for the quarter ended March 31, 2009. At June 30, 2009, the weighted average yield on assets was 4.67% and the weighted average cost of funds, including the effect of interest rate swaps, was 2.54%, which resulted in an interest rate spread of 2.13%. Leverage at June 30, 2009, was 5.9:1 compared to 7.1:1 at June 30, 2008, and 6.0:1 at March 31, 2009.
Fixed-rate securities comprised 69% of the Company's portfolio at June 30, 2009. The balance of the portfolio was comprised of 25% adjustable-rate mortgages and 6% LIBOR floating-rate collateralized mortgage obligations. At June 30, 2009, the Company had entered into interest rate swaps with a notional amount of $19.8 billion, or 31% 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 June 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.
"Investment opportunities for new capital remain attractive in the current environment," said Wellington Denahan-Norris, Annaly's Vice Chairman, Chief Investment Officer and Chief Operating Officer. "The yield curve steepened during the quarter, and prepayment speeds continue to come in slower than market expectations. Mortgage rates trended up during the quarter, which should serve to further dampen refinancing activity going forward. Our swap book, which provides the bulk of the floating rate exposure in our portfolio, continues to roll into lower rates and thereby lower our cost of funds. After taking into account the effect of interest rate swaps, at June 30, 2009, our portfolio of Investment Securities was comprised of 37% floating-rate, 25% adjustable-rate and 38% fixed-rate assets."
The following table summarizes portfolio information for the Company:
June 30, 2009 June 30, 2008 March 31, 2009 Leverage at period-end 5.9:1 7.1:1 6.0:1 Fixed-rate investment securities as a percentage of portfolio 69% 69% 66% Adjustable-rate investment securities as a percentage of portfolio 25% 23% 27% Floating-rate investment securities as a percentage of portfolio 6% 8% 7% Notional amount of interest rate swaps as a percentage of portfolio 31% 30% 31% Annualized yield on average earning assets during the quarter 5.04% 5.50% 5.23% Annualized cost of funds on average repurchase balance during the quarter 2.57% 3.51% 3.12% Annualized interest rate spread during the quarter 2.47% 1.99% 2.11% Weighted average yield on assets at period-end 4.67% 5.27% 4.86% Weighted average cost of funds at period-end 2.54% 3.40% 2.78% Interest rate spread at period-end 2.13% 1.87% 2.08% Weighted average receive rate on interest rate swaps at period-end 0.38% 2.47% 0.55% Weighted average pay rate on interest rate swaps at period-end 4.20% 4.78% 4.55% -------------------------------------------------------------------------------
The Constant Prepayment Rate was 19% during the second quarter of 2009, as compared to 16% during the second quarter of 2008, and 16% during the first quarter of 2009. The weighted average cost basis of the Company's Investment Securities was 101.6 at June 30, 2009. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended June 30, 2009, June 30, 2008, and March 31, 2009, was $58.4 million, $26.6 million, and $41.0 million, respectively. The total net premium remaining unamortized at June 30, 2009, June 30, 2008, and March 31, 2009, was $924.9 million, $500.7 million, and $668.3 million, respectively.
General and administrative expenses as a percentage of average assets were 0.19%, 0.18% and 0.20% for the quarters ended June 30, 2009, June 30, 2008, and March 31, 2009, respectively. At June 30, 2009, June 30, 2008, and March 31, 2009, the Company had a common stock book value per share of $15.60, $13.03 and $14.67, respectively.
At June 30, 2009, Annaly's wholly-owned registered investment advisors had under management approximately $9.9 billion in net assets and $19.0 billion in gross assets, as compared to $2.7 billion in net assets and $11.8 billion in gross assets at June 30, 2008 and $8.5 billion in net assets and $16.3 billion in gross assets at March 31, 2009. For the quarter ended June 30, 2009, the investment advisors earned investment advisory and service fees, net of fees paid to distributors, of $11.3 million, as compared to $6.0 million for the quarter ended June 30, 2008 and $7.3 million for the quarter ended March 31, 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 544,357,410 shares of common stock outstanding.
The Company will hold the second quarter 2009 earnings conference call on July 30, 2009 at 10:00 a.m. EST. The number to call is 800-322-2803 for domestic calls and 617-614-4925 for international calls and the pass code is 30518899. The replay number is 888-286-8010 for domestic calls and 617-801-6888 for international calls and the pass code is 67731924. 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) June 30, 2009 (Unaudited) March 31, 2009 (Unaudited) December 31, 2008(1) September 30, 2008 (Unaudited) June 30, 2008 (Unaudited) ASSETS Cash and cash equivalents $ 1,352,798 $ 1,035,118 $ 909,353 $ 1,083,814 $ 1,462,737 Reverse repurchase agreements with affiliate 170,916 452,480 562,119 619,657 49,964 Mortgage-Backed Securities, at fair value 65,165,126 58,785,456 55,046,995 54,840,928 58,017,305 Agency debentures, at fair value 616,893 - 598,945 618,352 731,995 Available-for-sale equity securities, at fair value 156,990 51,418 52,795 22,490 32,631 Trading securities, at fair value - - - 2,199 23,478 Receivable for Investment Securities sold 412,214 33,009 75,546 2,446,342 824,308 Accrued interest and dividends receivable 313,772 291,347 282,532 295,925 303,228 Receivable from Prime Broker((2)) 16,886 16,886 16,886 - - Receivable for advisory and service fees 10,039 6,507 6,103 3,581 4,703 Intangible for customer relationships 11,091 11,399 12,380 6,726 7,604 Goodwill 27,917 27,917 27,917 22,966 22,966 Interest rate swaps, at fair value 7,267 - - - - Other assets 5,346 5,717 6,044 2,602 3,216 Total assets $68,267,255 $60,717,254 $57,597,615 $59,965,582 $61,484,135 LIABILITIES AND STOCKHOLDERS' EQUITY Liabilities: Repurchase agreements $51,326,930 $48,951,178 $46,674,885 $51,075,758 $51,839,663 Payable for Investment Securities purchased 7,017,444 2,121,670 2,062,030 839,235 1,405,109 Trading securities sold, not yet purchased, at fair value - - - 30,903 48,718 Accrued interest payable 102,662 112,457 199,985 168,361 154,615 Dividends payable 326,612 272,170 270,736 296,254 296,201 Accounts payable and other liabilities 40,115 23,970 8,380 26,385 36,625 Interest rate swaps, at fair value 722,700 1,012,574 1,102,285 384,258 400,998 Total liabilities 59,536,463 52,494,019 50,318,301 52,821,154 54,181,929 6.00% Series B Cumulative Convertible Preferred Stock: 4,600,000 shares authorized, 2,604,814, 2,607,564, 3,963,525, 4,496,525, and 4,496,525 shares issued and outstanding, respectively 63,118 63,185 96,042 108,957 108,957 Stockholders' Equity: 7.875% Series A Cumulative Redeemable Preferred Stock: 7,412,500 authorized, 7,412,500 shares issued and outstanding 177,088 177,088 177,088 177,088 177,088 Common stock, par value $.01 per share, 987,987,500 authorized, 544,353,997, 544,339,785, 541,475,366, 540,189,101, and 538,546,666, issued and outstanding, respectively 5,444 5,443 5,415 5,402 5,385 Additional paid-in capital 7,668,988 7,667,769 7,633,438 7,616,528 7,592,161 Accumulated other comprehensive income (loss) 1,362,134 1,121,551 252,230 (661,498 ) (478,791 ) Accumulated deficit (545,980 ) (811,801 ) (884,899 ) (102,049 ) (102,594 ) Total stockholders' equity 8,667,674 8,160,050 7,183,272 7,035,471 7,193,249 Total liabilities, Series B cumulative convertible preferred stock and stockholders' equity $68,267,255 $60,717,254 $57,597,615 $59,965,582 $61,484,135 -------------------------------------------------------------------------------
(1) Derived from the audited consolidated financial statements at December 31, 2008. (2) 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, 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 June 30, March 31, December 31, September 30, June 30, 2009 2009 2008 2008 2008 Interest income $710,401 $716,015 $740,282 $810,659 $773,359 Interest expense 322,596 378,625 450,805 458,250 442,251 Net interest income 387,805 337,390 289,477 352,409 331,108 Other income (loss) Investment advisory and service fees 11,736 7,761 7,224 7,663 6,406 Gain (loss) on sale of Mortgage-Backed Securities 2,364 5,023 (468 ) (1,066 ) 2,830 (Loss) income from trading securities - - (2,010 ) 7,671 2,180 Dividend income from available-for-sale equity securities 3,221 918 612 580 580 Loss on other-than-temporarily impaired securities((1)) - - - (31,834 ) - Unrealized gain (loss) on interest rate swaps((2)) 230,207 35,545 (768,268 ) - - Total other income (loss) 247,528 49,247 (762,910 ) (16,986 ) 11,996 Expenses Distribution fees 432 428 287 299 370 General and administrative expenses 30,046 29,882 26,957 25,455 27,215 Total expenses 30,478 30,310 27,244 25,754 27,585 Income (loss) before income taxes 604,855 356,327 (500,677 ) 309,669 315,519 Income taxes 7,801 6,434 6,302 7,538 7,527 Net income 597,054 349,893 (506,979 ) 302,131 307,992 Dividends on preferred stock 4,625 4,626 5,135 5,335 5,334 Net income (loss) available (related) to common shareholders $592,429 $345,267 ($512,114 ) $296,796 $302,658 Net income (loss) available (related) per share to common shareholders: Basic $1.09 $0.64 ($0.95 ) $0.55 $0.60 Diluted $1.08 $0.63 ($0.95 ) $0.54 $0.59 Weighted average number of common shares outstanding: Basic 544,344,844 542,903,110 541,099,147 538,706,131 503,758,079 Diluted 550,099,709 548,551,328 541,099,147 547,882,488 512,678,975 Net income (loss) $597,054 $349,893 ($506,979 ) $302,131 $307,992 Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities 176,013 820,178 863,018 (232,347 ) (529,008 ) Unrealized gain on interest rate swaps 66,934 54,166 50,242 16,740 388,861 Reclassification adjustment for (gains) losses included in net income (2,364 ) (5,023 ) 468 32,900 (2,830 ) Other comprehensive income (loss) 240,583 869,321 913,728 (182,707 ) (142,977 ) Comprehensive income $837,637 $1,219,214 $406,749 $119,424 $165,015 -------------------------------------------------------------------------------
(1) 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 $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. (2) Beginning in the fourth quarter of 2008, the Company no longer applies 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 six months ended June 30, 2009 June 30, 2008 Interest income $1,426,416 $1,564,487 Interest expense 701,221 979,857 Net interest income 725,195 584,630 Other income Investment advisory and service fees 19,497 13,004 Gain on sale of Mortgage-Backed Securities 7,387 12,247 Income from trading securities - 4,034 Dividend income from available-for-sale equity securities 4,139 1,521 Unrealized gain (loss) on interest rate swaps 265,752 - Total other income 296,775 30,806 Expenses Distribution fees 860 1,003 General and administrative expenses 59,928 51,210 Total expenses 60,788 52,213 Income before income taxes and noncontrolling interest 961,182 563,223 Income taxes 14,235 12,137 Net income 946,947 551,086 Noncontrolling interest - 58 Net income attributable to controlling interest 946,947 551,028 Dividend on preferred stock 9,251 10,707 Net income available to common shareholders $937,696 $540,321 Net income available per share to common shareholders: Basic $1.72 $1.14 Diluted $1.71 $1.13 Weighted average number of common shares outstanding: Basic 543,627,960 473,785,256 Diluted 549,394,817 482,813,463 Net income $946,947 $551,028 Other comprehensive income (loss): Unrealized gain (loss) on available-for-sale securities 996,191 (311,445 ) Unrealized gain (loss) on interest rate swaps 121,100 (2,902 ) Reclassification adjustment for gains included in net income (7,387 ) (12,247 ) Other comprehensive income (loss) 1,109,904 (326,594 ) Comprehensive income (loss) $2,056,851 $224,434 -------------------------------------------------------------------------------
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