Annaly(US:NLY)2024-07-24 20:15Q2 2024 Results Overview Annaly Capital Management, Inc. reported its second quarter 2024 results Financial Highlights Annaly reported a GAAP net loss of ($0.09) per share but generated Earnings Available for Distribution (EAD) of $0.68 per share for Q2 2024, achieving a positive economic return of 0.9% for the quarter and 5.7% year-to-date, while maintaining a quarterly dividend of $0.65 per share, with book value per common share at $19.25 and modest increases in both GAAP and economic leverage to 7.1x and 5.8x respectively Q2 2024 Financial Metrics | Metric | Q2 2024 Value | | :--- | :--- | | GAAP net income (loss) per share | ($0.09) | | Earnings available for distribution (EAD) per share | $0.68 | | Economic return | 0.9% | | Year-to-date economic return | 5.7% | | Book value per common share | $19.25 | | GAAP leverage | 7.1x | | Economic leverage | 5.8x | | Quarterly common stock dividend | $0.65 | Business Highlights Annaly's business strategy in Q2 focused on opportunistically growing its Agency MBS portfolio and expanding its Residential Credit and MSR platforms, resulting in a total portfolio of $74.8 billion with the Agency portfolio increasing by 2% quarter-over-quarter, record loan lock volume in the Residential Credit correspondent channel, and 5% growth in the MSR portfolio's market value Investment and Strategy The company strategically grew its Agency MBS portfolio and expanded its Residential Credit and MSR platforms - The total portfolio value is $74.8 billion, with the highly liquid Agency portfolio comprising $66.0 billion5 - The Agency portfolio grew by 2% QoQ due to opportunistic additions, with a focus on higher coupon, high-quality specified pools. It represents 58% of dedicated equity capital5 - The Residential Credit portfolio slightly decreased to $5.9 billion due to accretive sales, while the correspondent channel hit a record loan lock volume of $4.1 billion in Q25 - The Mortgage Servicing Rights (MSR) portfolio market value increased by 5% QoQ to $2.8 billion, representing 22% of dedicated equity capital5 Financing and Capital Annaly maintained strong liquidity and increased financing capacity while managing its cost of liabilities - The company holds $6.3 billion of total assets available for financing, including $3.5 billion in cash and unencumbered Agency MBS5 - Average economic cost of interest-bearing liabilities rose by 12 basis points to 3.90% QoQ5 - Annaly increased its financing capacity by $250 million, bringing total warehouse capacity for its Residential Credit and MSR businesses to $4.2 billion5 - The company remains the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS since the beginning of 2023, having priced 13 whole loan securitizations totaling $6.7 billion in 202457 Corporate Responsibility & Governance The company published its fifth Corporate Responsibility Report, titled 'Powering American Homeownership,' highlighting its commitment to sustainable business practices and sound corporate governance - Published the fifth Corporate Responsibility Report, emphasizing commitment to sustainable practices, governance, and culture4 Financial Performance Annaly's financial performance in Q2 2024 saw a decrease in book value per common share and a GAAP net loss, but an increase in non-GAAP Earnings Available for Distribution (EAD) per share and a widened net interest margin Key Performance Indicators In Q2 2024, Annaly's book value per common share decreased to $19.25 from $19.73 in the prior quarter, with GAAP net income shifting to a loss of ($0.09) per share from a gain of $0.85 in Q1 2024, while non-GAAP Earnings Available for Distribution (EAD) per share increased to $0.68 from $0.64, and the non-GAAP net interest margin (excluding PAA) widened to 1.58% from 1.43% due to a higher yield on assets Key Performance Indicators Comparison | Performance Indicator | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | GAAP Metrics | | | | | Book value per common share | $19.25 | $19.73 | $20.73 | | GAAP net income (loss) per share | $(0.09) | $0.85 | $0.27 | | GAAP leverage at period-end | 7.1:1 | 6.7:1 | 6.1:1 | | Net interest margin | 0.24% | (0.03%) | (0.15%) | | Non-GAAP Metrics | | | | | EAD per average common share | $0.68 | $0.64 | $0.72 | | Economic leverage at period-end | 5.8:1 | 5.6:1 | 5.8:1 | | Net interest margin (excl. PAA) | 1.58% | 1.43% | 1.66% | | Net interest spread (excl. PAA) | 1.24% | 1.09% | 1.45% | Financial Statements Annaly's financial statements for Q2 2024 reflect an increase in total assets and liabilities, a slight decrease in total equity, and a shift to a net loss attributable to common stockholders Consolidated Statements of Financial Condition (Balance Sheet) As of June 30, 2024, Annaly's total assets increased to $93.7 billion from $91.5 billion in the prior quarter, primarily driven by a rise in assets transferred to securitization vehicles, while total liabilities also grew to $82.4 billion from $80.0 billion mainly due to increased repurchase agreements, leading to a slight decrease in total equity to $11.3 billion from $11.5 billion Consolidated Statements of Financial Condition (in thousands) | Balance Sheet Item (in thousands) | June 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Total assets | $93,668,577 | $91,483,546 | | Total liabilities | $82,405,673 | $79,987,433 | | Total equity | $11,262,904 | $11,496,113 | - Key asset changes QoQ include an increase in Securities to $67.0B (from $66.5B) and Mortgage servicing rights to $2.8B (from $2.7B)17 - Key liability changes QoQ include an increase in Repurchase agreements to $60.8B (from $59.0B) and Debt issued by securitization vehicles to $15.8B (from $13.7B)17 Consolidated Statements of Comprehensive Income (Loss) For Q2 2024, Annaly reported a net loss attributable to common stockholders of ($46.6 million), or ($0.09) per share, a sharp contrast to the net income of $425.8 million, or $0.85 per share, in Q1 2024, primarily driven by net losses on investments not fully offset by gains on derivatives, though net interest income turned positive to $53.6 million from a loss of ($6.5 million), resulting in net income available to common stockholders of $379.2 million, or $0.76 per share, for the first six months of 2024 Consolidated Statements of Comprehensive Income (in thousands) | Income Statement Item (in thousands) | Q2 2024 | Q1 2024 | Q2 2023 | | :--- | :--- | :--- | :--- | | Net interest income | $53,558 | $(6,451) | $(31,963) | | Net servicing income | $107,898 | $102,868 | $74,860 | | Total other income (loss) | $(113,467) | $406,384 | $175,482 | | Net income (loss) | $(8,833) | $465,174 | $161,187 | | Net income (loss) available to common stockholders | $(46,641) | $425,831 | $131,267 | | Basic net income (loss) per share | $(0.09) | $0.85 | $0.27 | Six Months Ended June 30 Income Summary (in thousands) | Six Months Ended June 30 (in thousands) | 2024 | 2023 | | :--- | :--- | :--- | | Net interest income | $47,107 | $(12,500) | | Net income (loss) | $456,341 | $(678,141) | | Net income (loss) available to common stockholders | $379,190 | $(744,864) | | Basic net income (loss) per share | $0.76 | $(1.51) | Portfolio and Performance Metrics Annaly's portfolio remains predominantly in fixed-rate residential securities, with an increased weighted average experienced CPR and a stable hedge ratio, alongside a shorter-term financing structure Key Portfolio and Hedging Metrics The company's portfolio remains predominantly in fixed-rate residential securities (98%), with the weighted average experienced CPR increasing to 7.4% in Q2 2024 from 6.0% in Q1, a stable hedge ratio at 98%, and a decrease in weighted average days to maturity on repurchase agreements to 36 days Key Portfolio and Hedging Metrics | Metric | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Weighted average experienced CPR | 7.4% | 6.0% | 7.0% | | Weighted avg days to maturity on repos | 36 | 43 | 44 | | Hedge ratio | 98% | 97% | 105% | | Weighted avg pay rate on swaps | 3.13% | 3.20% | 2.50% | Investment Portfolio Composition As of Q2 2024, Annaly's total investment portfolio grew to $90.3 billion, with the core Agency mortgage-backed securities portfolio increasing to $64.4 billion, alongside significant investments in residential mortgage loans ($2.5 billion), mortgage servicing rights ($2.8 billion), and non-agency securities ($1.7 billion) Investment Portfolio Composition (in thousands) | Investment (in thousands) | June 30, 2024 | March 31, 2024 | June 30, 2023 | | :--- | :--- | :--- | :--- | | Agency mortgage-backed securities | $64,390,905 | $63,542,230 | $67,764,264 | | Residential mortgage loans | $2,548,228 | $2,717,823 | $1,154,320 | | Mortgage servicing rights | $2,785,614 | $2,651,279 | $2,018,896 | | Total investment portfolio | $90,325,407 | $87,484,541 | $85,694,096 | Non-GAAP Financial Measures Annaly utilizes non-GAAP financial measures such as Earnings Available for Distribution (EAD), Economic Leverage, and Economic Net Interest Income to provide a clearer view of its operating performance and financial health Earnings Available for Distribution (EAD) Annaly uses Earnings Available for Distribution (EAD) to measure its operating performance and ability to pay dividends, adjusting GAAP net income by excluding unrealized gains/losses on investments and derivatives, and other non-cash or episodic items, with Q2 2024 EAD attributable to common stockholders at $340.0 million, or $0.68 per share, an increase from $320.9 million, or $0.64 per share, in Q1 2024 - EAD is a non-GAAP measure used by management to assess the company's progress in generating net income for distribution. It adjusts for items like unrealized gains/losses and the premium amortization adjustment (PAA)2932 Earnings Available for Distribution Reconciliation (in thousands) | EAD Reconciliation (in thousands) | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | GAAP net income (loss) | $(8,833) | $465,174 | | Adjustments for (gains)/losses | $436,759 | $(52,875) | | Other adjustments | $(43,798) | $(54,337) | | Earnings available for distribution | $377,139 | $357,962 | | Dividends on preferred stock | $37,158 | $37,061 | | EAD attributable to common stockholders | $339,981 | $320,901 | | EAD per average common share | $0.68 | $0.64 | Economic Leverage and Capital Ratios The company's economic leverage ratio, a non-GAAP measure that excludes non-recourse debt from securitizations, increased slightly to 5.8:1 from 5.6:1 in the prior quarter, providing insight into the company's recourse leverage, while the economic capital ratio, which adjusts total assets for derivatives and non-recourse debt, was 14.2% at quarter-end - Economic leverage is calculated as recourse debt (including repos and TBAs) divided by total equity. It excludes non-recourse debt issued by securitization vehicles42 Economic Leverage Ratio (in thousands) | Leverage Ratio | June 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Economic debt* (in thousands) | $65,778,149 | $64,404,856 | | Total equity (in thousands) | $11,262,904 | $11,496,113 | | Economic leverage ratio* | 5.8:1 | 5.6:1 | Economic Capital Ratio (in thousands) | Capital Ratio | June 30, 2024 | March 31, 2024 | | :--- | :--- | :--- | | Total economic assets* (in thousands) | $79,474,410 | $78,918,664 | | Total equity (in thousands) | $11,262,904 | $11,496,113 | | Economic capital ratio* | 14.2% | 14.6% | Economic Net Interest Income and Related Metrics Economic net interest income (excluding PAA), a key non-GAAP metric, rose to $363.5 million in Q2 2024 from $320.7 million in Q1, adjusting GAAP interest income for the PAA and GAAP interest expense for the net interest component of swaps, resulting in a widened net interest spread (excluding PAA) to 1.24% from 1.09% QoQ, reflecting improved core profitability - Economic interest expense includes GAAP interest expense plus the net interest component of interest rate swaps to reflect the total contractual cost of financing47 Economic Net Interest Income Reconciliation (in thousands) | Economic Net Interest Income Reconciliation (in thousands) | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Interest income (excluding PAA)* | $1,170,019 | $1,091,475 | | Economic interest expense* | $806,470 | $770,790 | | Economic net interest income (excluding PAA)* | $363,549 | $320,685 | Economic Metrics (excluding PAA) | Economic Metrics (excluding PAA) | Q2 2024 | Q1 2024 | | :--- | :--- | :--- | | Average yield on interest earning assets* | 5.14% | 4.87% | | Average economic cost of interest bearing liabilities* | 3.90% | 3.78% | | Net interest spread* | 1.24% | 1.09% | | Net interest margin* | 1.58% | 1.43% | Other Information Additional information regarding Annaly's Q2 2024 results, including conference call details, is provided Conference Call Information Annaly will host its second quarter 2024 earnings conference call on July 25, 2024, at 9:00 a.m. Eastern Time, with an audio webcast and replay available on the company's website - The Q2 2024 earnings conference call is scheduled for July 25, 2024, at 9:00 a.m. Eastern Time14 - A webcast and replay of the call will be available on the company's website, www.annaly.com[15](index=15&type=chunk)