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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 percentage of portfolio 71% 65% 69%
Adjustable-rate investment securities as a percentage of portfolio 24% 27% 25%
Floating-rate investment securities as a percentage of portfolio 5% 8% 6%
Notional amount of interest rate swaps as a percentage of portfolio 32% 33% 31%
Annualized yield on average earning assets during the quarter 4.89% 5.62% 5.04%
Annualized cost of funds on average repurchase balance during the 2.24% 3.54% 2.57%
quarter
Annualized interest rate spread during the quarter 2.65% 2.08% 2.47%
Weighted average yield on assets at period-end 4.55% 5.27% 4.67%
Weighted average cost of funds at period-end 2.15% 3.59% 2.54%
Interest rate spread at period-end 2.40% 1.68% 2.13%
Weighted average receive rate on interest rate swaps at period-end 0.28% 2.69% 0.38%
Weighted average pay rate on interest rate swaps at period-end 3.98% 4.70% 4.20%
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, December 31, September 30,
2009 2009 2009 2008(1) 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
ASSETS
Cash and cash equivalents $ 1,723,341 $ 1,352,798 $ 1,035,118 $ 909,353 $ 1,083,814
Reverse repurchase agreements with affiliate 226,264 170,916 452,480 562,119 619,657
Reverse repurchase agreements 100,000 - - - -
Mortgage-Backed Securities, at fair value 66,837,761 65,165,126 58,785,456 55,046,995 54,840,928
Agency debentures, at fair value 625,615 616,893 - 598,945 618,352
Investments with affiliates 239,740 156,990 51,418 52,795 22,490
Trading securities, at fair value - - - - 2,199
Receivable for Mortgage-Backed Securities sold - 412,214 33,009 75,546 2,446,342
Accrued interest and dividends receivable 332,861 313,772 291,347 282,532 295,925
Receivable from Prime Broker(2) 16,886 16,886 16,886 16,886 -
Receivable for advisory and service fees 12,807 10,039 6,507 6,103 3,581
Intangible for customer relationships 10,791 11,091 11,399 12,380 6,726
Goodwill 27,917 27,917 27,917 27,917 22,966
Interest rate swaps, at fair value - 7,267 - - -
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 agreements $ 55,842,840 $ 51,326,930 $ 48,951,178 $ 46,674,885 $ 51,075,758
Payable for Investment Securities purchased 3,644,420 7,017,444 2,121,670 2,062,030 839,235
Trading securities sold, not yet purchased, at fair value - - - - 30,903
Accrued interest payable 97,693 102,662 112,457 199,985 168,361
Dividends payable 381,411 326,612 272,170 270,736 296,254
Accounts payable and other liabilities 37,991 40,115 23,970 8,380 26,385
Interest rate swaps, at fair value 788,065 722,700 1,012,574 1,102,285 384,258
Total liabilities 60,792,420 59,536,463 52,494,019 50,318,301 52,821,154
6.00% Series B Cumulative Convertible Preferred Stock: 63,114 63,118 63,185 96,042 108,957
4,600,000
shares authorized, 2,604,614, 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: 7,412,500 177,088 177,088 177,088 177,088 177,088
authorized, 7,412,500 shares issued and outstanding
Common stock, par value $.01 per share, 987,987,500 authorized, 5,528 5,444 5,443 5,415 5,402
552,778,531, 544,353,997, 544,339,785, 541,475,366 and 540,189,101
issued and outstanding, respectively
Additional paid-in capital 7,811,356 7,668,988 7,667,769 7,633,438 7,616,528
Accumulated other comprehensive income (loss) 1,959,994 1,362,134 1,121,551 252,230 (661,498 )
Accumulated deficit (646,822 ) (545,980 ) (811,801 ) (884,899 ) (102,049 )
Total stockholders' equity 9,307,144 8,667,674 8,160,050 7,183,272 7,035,471
Total liabilities, Series B Cumulative
Convertible Preferred Stock and stockholders' equity $ 70,162,678 $ 68,267,255 $ 60,717,254 $ 57,597,615 $ 59,965,582
(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
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 and service fees 14,620 11,736 7,761 7,224 7,663
Gain (loss) on sale of Mortgage-Backed Securities 591 2,364 5,023 (468 ) (1,066 )
(Loss) income from trading securities - - - (2,010 ) 7,671
Dividend income from available-for-sale equity securities 5,398 3,221 918 612 580
Loss on other-than-temporarily impaired securities(1) - - - - (31,834 )
Unrealized (loss) gain on interest rate swaps(2) (128,687 ) 230,207 35,545 (768,268 ) -
Total other (loss) income (108,078 ) 247,528 49,247 (762,910 ) (16,986 )
Expenses
Distribution fees 478 432 428 287 299
General and administrative expenses 33,344 30,046 29,882 26,957 25,455
Total expenses 33,822 30,478 30,310 27,244 25,754
Income (loss) before income taxes 294,846 604,855 356,327 (500,677 ) 309,669
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 stock 4,625 4,625 4,626 5,135 5,335
Net income (loss) available (related) to common shareholders $ 280,564 $ 592,429 $ 345,267 ($512,114 ) $ 296,796
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 securities 542,396 176,013 820,178 863,018 (200,513 )
Unrealized gain on interest rate swaps 56,055 66,934 54,166 50,242 16,740
Reclassification adjustment for (gains) losses included in net (591 ) (2,364 ) (5,023 ) 468 1,066
income
Other comprehensive income (loss) 597,860 240,583 869,321 913,728 (182,707 )
Comprehensive income $ 883,049 $ 837,637 $ 1,219,214 $ 406,749 $ 119,424
(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 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 Securities 7,978 11,181
Income from trading securities - 11,705
Dividend income from available-for-sale equity securities 9,537 2,101
Loss on other-than-temporarily impaired securities(1) - (31,834 )
Unrealized gain (loss) on interest rate swaps(2) 137,065 -
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 noncontrolling interest 1,256,028 872,892
Income taxes 23,892 19,675
Net income 1,232,136 853,217
Noncontrolling interest - 58
Net income attributable to controlling interest 1,232,136 853,159
Dividends on preferred stock 13,876 16,042
Net income available to common shareholders $ 1,218,260 $ 837,117
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 available-for-sale securities 1,538,587 (511,958 )
Unrealized gain on interest rate swaps 177,155 13,838
Reclassification adjustment for gains included in net income (7,978 ) (11,181 )
Other comprehensive income (loss) 1,707,764 (509,301 )
Comprehensive income (loss) $ 2,939,900 $ 343,858
(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.
SOURCE: Annaly Capital Management, Inc.
Annaly Capital Management, Inc. Investor Relations 1-888-8Annaly www.annaly.com
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