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Annaly Capital Management, Inc. Reports Results for the 1st Quarter 2013



  Annaly Capital Management, Inc. Reports Results for the 1st Quarter 2013

Business Wire

NEW YORK -- May 01, 2013

Annaly Capital Management, Inc. (NYSE: NLY) today reported GAAP net income for
the quarter ended March 31, 2013 of $870.3 million or $0.90 per average common
share as compared to GAAP net income of $901.8 million or $0.92 per average
common share for the quarter ended March 31, 2012, and GAAP net income of
$700.5 million or $0.70 per average common share for the quarter ended
December 31, 2012.

Without the effect of the unrealized gains or losses on interest rate swaps
and Agency interest-only mortgage-backed securities and the net loss on
extinguishment of the 4% Convertible Senior Notes due 2015 (the “4%
Convertible Notes”), net income for the quarter ended March 31, 2013 was
$464.4 million or $0.47 per average common share as compared to $529.3 million
or $0.54 per average common share for the quarter ended March 31, 2012, and
$465.1 million or $0.46 per average common share for the quarter ended
December 31, 2012.

Agency mortgage-backed securities, Agency debentures, and corporate debt are
considered Investment Securities. 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 March 31, 2012, the
Company disposed of $5.3 billion of Investment Securities, resulting in a
realized gain of $80.3 million. During the quarter ended December 31, 2012,
the Company disposed of $13.2 billion of Investment Securities, resulting in a
realized gain of $122.4 million.

Common dividends declared for the quarters ended March 31, 2013, March 31,
2012, and December 31, 2012 were $0.45, $0.55, and $0.45 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 March 31, 2013, based on the March 31, 2013 closing price of $15.89, was
11.33%, as compared to 13.91% for the quarter ended March 31, 2012, and 12.82%
for the quarter ended December 31, 2012.

On a GAAP basis, the Company produced an annualized return on average equity
for the quarters ended March 31, 2013, March 31, 2012, and December 31, 2012
of 22.29%, 22.73% and 16.97%, respectively. Without the effect of the
unrealized gains or losses on interest rate swaps and Agency interest-only
mortgage-backed securities and the net loss on extinguishment of the 4%
Convertible Notes, the Company provided an annualized return on average equity
for the quarters ended March 31, 2013, March 31, 2012, and December 31, 2012,
of 11.90%, 13.34% and 11.27%, respectively.

On April 17, 2013, the Company, through its wholly owned subsidiary CXS
Acquisition Corporation (“CXS Acquisition”), accepted for purchase
approximately 55.1 million shares of CreXus Investment Corp. (“CreXus”), at a
purchase price of $13.05206 per share for an aggregate cost of approximately
$718.7 million. The purchased shares increased Annaly’s direct and indirect
ownership to approximately 84.3% of CreXus’ common stock. CXS Acquisition
exercised its option to purchase, at a purchase price of $13.05206 per share,
the number of newly-issued shares of CreXus common stock necessary for CXS
Acquisition to own 90% of the outstanding CreXus shares. CXS Acquisition will
be merged with and into CreXus in a transaction in which each share of CreXus
common stock that was not tendered, except shares owned by the Company or CXS
Acquisition, will be converted into the right to receive $13.05206, in cash,
subject to any required withholding taxes. The Company intends to complete the
merger with CreXus on May 23, 2013.

Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly,
commented on the Company’s results. “Even as we continue to operate in
extraordinary times, our management team remains focused on prudent risk
management and finding relative value in the markets. For us, this has meant a
consistent approach to our portfolio construction and conservative balance
sheet and hedging strategies. In addition, the CreXus transaction is a
meaningful step in the evolution of the Company’s capital allocation strategy,
one that will enable us to take advantage of a broader spectrum of relative
value investment opportunities on behalf of our shareholders.”

For the quarter ended March 31, 2013, the annualized yield on average
interest-earning assets was 2.37% and the annualized cost of funds on average
interest-bearing liabilities, including the net interest payments on interest
rate swaps, was 1.46%, which resulted in an average interest rate spread of
0.91%. This was a 80 basis point decrease from the 1.71% annualized interest
rate spread for the quarter ended March 31, 2012, and a 4 basis point decrease
from the 0.95% average interest rate spread for the quarter ended December 31,
2012. At March 31, 2013, the weighted average yield on investment securities
was 2.72% and the weighted average cost of funds on borrowings, including the
net interest payments on interest rate swaps, was 1.51%, which resulted in an
interest rate spread of 1.21%. Leverage at March 31, 2013, March 31, 2012, and
December 31, 2012 was 6.6:1, 5.8:1 and 6.5:1, respectively.

Fixed-rate Agency mortgage-backed securities and debentures comprised 92% of
the Company’s portfolio at March 31, 2013. Adjustable-rate Agency
mortgage-backed securities and debentures comprised 8% of the Company’s
portfolio. At March 31, 2013, the Company had entered into interest rate swaps
with a notional amount of $48.2 billion, or 46% 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 a spread relative to
the cost of financing. As of March 31, 2013, the swap portfolio had a weighted
average pay rate of 2.08%, a weighted average receive rate of 0.23% and
weighted average years to maturity of 4.89 years. As of March 31, 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:

                                      March 31,     March 31,     December 31,
                                      2013          2012          2012
Leverage at period-end                6.6:1         5.8:1         6.5:1
Fixed-rate Agency
mortgage-backed securities and
debentures as a percentage of         92%           91%           93%
portfolio
Adjustable-rate Agency
mortgage-backed securities and
debentures as a percentage of         8%            8%            7%
portfolio
Floating-rate Agency
mortgage-backed securities and
debentures as a percentage of         -             1%            -
portfolio
Notional amount of interest
rate swaps as a percentage of
Investment Securities                 46%           40%           40%
Annualized yield on average
interest-earning assets during
the quarter                           2.37%         3.23%         2.45%
Annualized cost of funds on
average interest-bearing
liabilities during the quarter        1.46%         1.52%         1.50%
Annualized interest rate spread       0.91%         1.71%         0.95%
during the quarter
                                                                   
Weighted average yield on
investment securities at
period-end                            2.72%         3.21%         2.75%
Weighted average cost of funds
on interest-bearing liabilities
at
period-end                            1.51%         1.51%         1.55%
Interest rate spread at               1.21%         1.70%         1.20%
period-end
Weighted average days to
maturity on interest-bearing
liabilities at
period-end                            202           127           197
Weighted average receive rate
on interest rate swaps at             0.23%         0.31%         0.24%
period-end
Weighted average pay rate on
interest rate swaps at                2.08%         2.42%         2.21%
period-end
                                                                   

The following table summarizes certain characteristics of the Company’s
interest rate swaps at March 31, 2013:

                                                            
                                                Weighted
                                   Weighted                  Weighted Average
Maturity          Current          Average      Average      Years to
                  Notional                      Receive
                                   Pay Rate                  Maturity
                                                Rate
 
(dollars in thousands)
0 - 3 years       $21,729,950      2.08%        0.22%        2.14
3 - 6 years       16,047,600       1.60%        0.24%        3.96
6 - 10            6,450,000        2.47%        0.25%        7.58
years
Greater
than 10           3,995,250        3.39%        0.23%        19.27
years
Total /
Weighted          $48,222,800      2.08%        0.23%        4.89
Average
                                                              

The following table presents the maturities of repurchase agreements at March
31, 2013:

                                             
                                              Weighted
Maturity                Principal Balance
                                              Average Rate
 
(dollars in thousands)
Within 30 days          $33,115,680           0.43%
30 to 59 days           13,129,666            0.44%
60 to 89 days           8,705,572             0.36%
90 to 119 days          11,103,023            0.47%
Over 120 days^(1)       34,269,001            0.91%
Total                   $100,322,942          0.59%
                                               

        (1)   Of the total repurchase agreements, approximately 11% have a
              remaining maturity over 1 year.

The Constant Prepayment Rate for the quarters ended March 31, 2013, March 31,
2012, and December 31, 2012 was 18%, 19% and 19%, respectively. The weighted
average purchase price of the Company’s Agency mortgage-backed securities and
debentures at March 31, 2013, March 31, 2012 and December 31, 2012 was 103.9%,
102.9% and 103.8%, respectively. The net amortization of premiums and
accretion of discounts on Agency mortgage-backed securities and debentures for
the quarters ended March 31, 2013, March 31, 2012 and December 31, 2012 was
$421.1 million, $280.3 million, and $433.3 million, respectively. The total
net premium and discount balance at March 31, 2013, March 31, 2012, and
December 31, 2012, was $5.4 billion, $3.8 billion, and $5.8 billion,
respectively.

General and administrative expenses as a percentage of average assets was
0.16%, 0.24% and 0.12% for the quarters ended March 31, 2013, March 31, 2012,
and December 31, 2012, respectively. At March 31, 2013, March 31, 2012, and
December 31, 2012, the Company had a common stock book value per share of
$15.19, $16.18 and $15.85, 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 first quarter earnings conference call on May
2, 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
9513786. The replay number is 877-344-7529 for domestic calls and 412-317-0088
for international calls and the conference passcode is 10027890. 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)
                                                                                               
                      March 31,                           September 30,     June 30,          March 31,

                      2013              December 31,      2012              2012              2012

                      (Unaudited)       2012^(1)          (Unaudited)       (Unaudited)       (Unaudited)
ASSETS
                                                                                               
Cash and cash         $ 1,862,550       $ 615,789         $ 2,264,854       $ 924,374         $ 932,761
equivalents
Reverse
repurchase              4,933,465         1,811,095         1,612,384         2,025,471         2,540,601
agreements
Investments, at
fair value:
U.S. Treasury           1,645,930         752,076           2,242,039         1,998,363         2,622,714
Securities
Securities              2,688,485         2,160,942         1,602,692         1,465,327         1,122,453
borrowed
Agency
mortgage-backed         108,256,671       123,963,207       129,597,714       118,500,649       110,291,712
securities
Agency                  3,970,279         3,009,568         2,935,538         1,250,506         1,499,127
debentures
Investments in          267,547           234,120           224,899           203,057           225,818
affiliates
Equity                  -                 -                 -                 -                 4,470
securities
Corporate debt,
held for                66,539            63,944            64,928            60,638            50,806
investment
Receivable for
investments             1,292,478         290,722           470,266           1,320,996         454,278
sold
Accrued
interest and            388,665           419,259           434,026           420,390           418,489
dividends
receivable
Receivable from         -                 -                 3,272             3,272             3,272
Prime Broker
Receivable for
advisory and            12,817            17,730            20,271            20,743            19,608
service fees
Intangible for
customer                6,731             6,989             9,146             9,714             10,281
relationships
Goodwill                55,417            55,417            55,417            55,417            55,417
Other
derivative              -                 9,830             559               3,717             321
contracts, at
fair value
Other assets            54,282            41,607            38,595            41,937            29,412       
                                                                                               
Total assets          $ 125,501,856     $ 133,452,295     $ 141,576,600     $ 128,304,571     $ 120,281,540  
                                                                                               
LIABILITIES AND
STOCKHOLDERS’
EQUITY
                                                                                               
Liabilities:
U.S. Treasury
Securities
sold, not yet         $ 611,167         $ 495,437         $ 1,418,750       $ 1,884,922       $ 2,577,905
purchased, at
fair value
Repurchase              100,322,942       102,785,697       101,033,146       96,760,797        91,720,865
agreements
Securities
loaned, at fair         2,330,060         1,808,315         1,248,968         1,113,107         876,849
value
Payable for
investments             3,203,461         8,256,957         16,107,038        7,387,410         5,708,412
purchased
Payable for
share buyback           -                 141,149           -                 -                 -
program
Convertible             824,902           825,541           999,749           1,245,915         524,420
Senior Notes
Accrued
interest                175,749           186,896           181,502           174,819           129,108
payable
Dividends               426,173           432,154           487,237           535,898           534,401
payable
Interest rate
swaps, at fair          2,259,173         2,584,907         2,926,461         2,822,264         2,211,048
value
Accounts
payable and             37,048            10,798            83,086            94,853            57,927
other
liabilities
Other
derivative              4,812             -                 -                 -                 -            
contracts, at
fair value
                                                                                               
Total                   110,195,487       117,527,851       124,485,937       112,019,985       104,340,935  
liabilities
                                                                                               
Stockholders’
Equity:
7.875% Series A
Cumulative
Redeemable
Preferred
Stock:
7,412,500
authorized,             177,088           177,088           177,088           177,088           177,088
issued and
outstanding
7.625% Series C
Cumulative
Redeemable
Preferred
Stock:
12,650,000,
12,650,000,
12,650,000,
12,650,000, and
0
authorized,
respectively,
12,000,000,
12,000,000,
12,000,000,
12,000,000, and
0 issued and            290,514           290,514           290,514           290,514           -
outstanding,
respectively
7.50% Series D
Cumulative
Redeemable
Preferred
Stock:
18,400,000,
18,400,000,
18,400,000, 0,
and 0
authorized,
issued and
outstanding,            445,457           445,457           445,457           -                 -
respectively
Common stock,
par value $0.01
per share,
1,956,937,500,
1,956,937,500,
1,956,937,500,
1,975,337,500,
and
1,987,987,500
authorized,
947,293,099,
947,213,204,
974,799,779,
974,684,401,
and
974,325,338,
issued and              9,473             9,472             9,748             9,747             9,743
outstanding,
respectively
Additional              14,746,579        14,740,774        15,144,200        15,168,020        15,127,882
paid-in capital
Accumulated
other                   2,003,248         3,053,242         4,069,607         3,413,320         2,766,430
comprehensive
income
Accumulated             (2,365,990  )     (2,792,103  )     (3,045,951  )     (2,774,103  )     (2,140,538  )
deficit
                                                                                               
Total
stockholders’           15,306,369        15,924,444        17,090,663        16,284,586        15,940,605   
equity
Total
liabilities and
                      $ 125,501,856     $ 133,452,295     $ 141,576,600     $ 128,304,571     $ 120,281,540  
stockholders’
equity
 

        (1)   Derived from the audited consolidated financial statements at
              December 31, 2012.

                        
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(dollars in thousands, except share and per share data)
                          
                         For the quarters ended
                         March 31,         December 31,        September 30,     June 30,          March 31,
                           2013              2012                2012              2012              2012           
Interest income:
Investments              $ 728,609         $ 750,736           $ 754,096         $ 876,229         $ 850,959
U.S. Treasury              5,996             3,819               4,588             7,397             1,418
Securities
Securities loaned          2,612             2,106               2,581             2,698             2,518          
Total interest             737,217           756,661             761,265           886,324           854,895        
income
                                                                                                    
Interest expense:
Repurchase                 157,064           165,600             158,150           139,579           113,914
agreements
Convertible Senior         15,813            15,503              18,026            18,965            14,727
Notes
U.S. Treasury
Securities sold,           2,788             2,930               3,739             5,801             2,644
not yet purchased
Securities                 1,925             1,458               1,978             2,098             2,060          
borrowed
Total interest             177,590           185,491             181,893           166,443           133,345        
expense
                                                                                                    
Net interest               559,627           571,170             579,372           719,881           721,550        
income
                                                                                                    
Other income
(loss):
Investment
advisory and other         13,540            18,934              21,034            21,929            20,766
fee income
Net gains (losses)
on disposal of             182,843           114,831             142,172           94,837            80,299
investments
Net loss on
extinguishment of          -                 (75,012       )     (87,328     )     -                 -
4% Convertible
Senior Notes
Dividend income            6,431             7,097               7,097             6,621             7,521
from affiliates
Net gains (losses)         1,549             15,181              1,368             1,105             5,256
on trading assets
Net unrealized
gains (losses) on
interest-only
Agency mortgage-
backed securities          80,127            (31,148       )     (33,563     )     (26,103     )     30,877         
Subtotal                   284,490           49,883              50,780            98,389            144,719        
Realized gains
(losses) on                (225,476    )     (228,155      )     (224,272    )     (222,002    )     (219,340      )
interest rate
swaps^(1)
Realized gains
(losses) on
termination of             (16,378     )     -                   -                 -                 (2,385        )
interest rate
swaps
Unrealized gains
(losses) on                325,734           341,554             (104,197    )     (611,215    )     341,639        
interest rate
swaps
Subtotal                   83,880            113,399             (328,469    )     (833,217    )     119,914        
Total other income         368,370           163,282             (277,689    )     (734,828    )     264,633        
(loss)
                                                                                                    
Expenses:
Compensation               38,443            25,842              52,310            53,536            59,014
expense
Other general and
administrative             13,469            14,242              10,694            11,020            8,901          
expenses
Total general and
administrative             51,912            40,084              63,004            64,556            67,915         
expenses
                                                                                                    
Income before              876,085           694,368             238,679           (79,503     )     918,268
income taxes
                                                                                                    
Income taxes               (5,807      )     6,127               (13,921     )     (11,656     )     (16,462       )
                                                                                                    
Net income (loss)          870,278           700,495             224,758           (91,159     )     901,806
                                                                                                    
Dividends on               17,992            19,717              9,367             6,508             3,938          
preferred stock
                                                                                                    
Net income (loss)
available
(related) to             $ 852,286         $ 680,778           $ 215,391           ($97,667    )   $ 897,868        
common
shareholders
                                                                                                    
Net income (loss)
per share
available
(related) to
common

shareholders:
Basic                    $ 0.90            $ 0.70              $ 0.22              ($0.10      )   $ 0.92           
Diluted                  $ 0.87            $ 0.68              $ 0.22              ($0.10      )   $ 0.89           
                                                                                                    
Weighted average
number of common
shares
outstanding:
Basic                      947,249,901       970,602,863         974,729,078       974,555,392       971,727,701    
Diluted                    994,815,169       1,017,925,849       997,007,829       974,555,392       1,010,588,609  
                                                                                                    
Net income (loss)        $ 870,278         $ 700,495           $ 224,758           ($91,159    )   $ 901,806        
Other
comprehensive
income (loss):
Unrealized gains
(losses) on                (867,151    )     (894,972      )     798,269           741,727           (162,259      )
available-for-sale
securities
Reclassification
adjustment for net
(gains) losses
included in net
income (loss)              (182,843    )     (121,393      )     (141,982    )     (94,837     )     (80,299       )
Other
comprehensive              (1,049,994  )     (1,016,365    )     656,287           646,890           (242,558      )
income (loss)
Comprehensive              ($179,716   )     ($315,870     )   $ 881,045         $ 555,731         $ 659,248        
income (loss)
                                                                                                    

      Interest expense related to the Company’s interest rate swaps is
(1)   recorded in Realized gains (losses) on interest rate swaps on the
      Consolidated Statements of Comprehensive Income.

Contact:

Annaly Capital Management, Inc.
Investor Relations
1-888-8Annaly
www.annaly.com
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