Annaly Capital Management, Inc. Reports 3rd Quarter 2014 Results

Released : 11/05/2014
Annaly Capital Management, Inc. Reports 3rd Quarter 2014 Results
Company Release - 11/05/2014 16:05
  • GAAP net income of $354.9 million, $0.36 earnings per common share
  • Core earnings of $308.6 million, $0.31 earnings per common share
  • Strong capital position with capital ratio of 15.0% and leverage of 5.4:1
  • Net interest margin of 1.61%, up from 1.57% in prior quarter
  • Common stock book value of $12.87

NEW YORK--(BUSINESS WIRE)-- Annaly Capital Management, Inc. (NYSE:NLY) today announced its financial results for the quarter ended September 30, 2014.

Financial Performance

GAAP net income for the quarter ended September 30, 2014 was $354.9 million, or $0.36 per average common share, compared to a GAAP net loss of $335.5 million, or $0.37 per average common share, for the quarter ended June 30, 2014, and GAAP net income of $192.5 million, or $0.18 per average common share, for the quarter ended September 30, 2013. The increase in net income from the quarter ended June 30, 2014 to the quarter ended September 30, 2014 was primarily attributable to net losses on terminations of interest rate swaps incurred in the prior quarter, partially offset by lower unrealized gains on swaps for the current quarter. The increase from the quarter ended September 30, 2013 to the quarter ended September 30, 2014 was largely driven by higher unrealized gains on interest rate swaps and lower realized losses on interest rate swaps during the current quarter. Core earnings for the quarter ended September 30, 2014 was $308.6 million, or $0.31 per average common share, compared to $300.4 million, or $0.30 per average common share, for the quarter ended June 30, 2014, and $282.3 million, or $0.28 per average common share, for the quarter ended September 30, 2013. "Core earnings" represents a non-GAAP measure and is defined as net income (loss) excluding gains or losses on disposals of investments and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net gains and losses on trading assets, impairment losses, and certain other non-recurring gains or losses.

Net interest margin for the quarters ended September 30, 2014, June 30, 2014 and September 30, 2013 was 1.61%, 1.57% and 1.34%, respectively. Net interest margin represents the Company’s annualized economic net interest income, inclusive of interest expense on interest rate swaps, divided by its average interest-earning assets. For the quarter ended September 30, 2014, the average yield on interest earning assets was 2.99% and the average cost of interest bearing liabilities, including the net interest payments on interest rate swaps, was 1.64%, which resulted in a net interest spread of 1.35%. Our average yield on interest earning assets decreased for the quarter ended September 30, 2014 when compared to the quarter ended June 30, 2014 as a result of higher amortization expense in the current quarter driven by faster prepayment speeds experienced quarter over quarter due to loan seasonality. Our average cost of interest bearing liabilities decreased for the quarter ended September 30, 2014 when compared to the quarter ended June 30, 2014 due to interest rate swap unwinds throughout the prior quarter.

Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly, commented on the Company’s results. “We welcome the end of Quantitative Easing and look forward to the opportunities it presents as the mortgage market begins to adjust to fewer direct policy impacts on fundamentals. We expect the market to endure higher levels of volatility but remain comfortable in our continued ability to deliver attractive relative returns.”

Asset Portfolio

Investment Securities, which are comprised of Agency mortgage-backed securities and Agency debentures, were $82.8 billion at September 30, 2014, compared to $82.4 billion at June 30, 2014 and $83.0 billion at September 30, 2013. As of September 30, 2014, substantially all of the Company’s Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and debentures. Fixed-rate Agency mortgage-backed securities and debentures comprised 95% of the Company’s Investment Securities portfolio at September 30, 2014. Adjustable-rate Agency mortgage-backed securities and debentures comprised 5% of the Company’s Investment Securities portfolio. During the quarter ended September 30, 2014, the Company disposed of $4.2 billion of Investment Securities, resulting in a realized gain of $4.7 million. During the quarter ended June 30, 2014, the Company disposed of $6.1 billion of Investment Securities, resulting in a realized gain of $5.9 million. During the quarter ended September 30, 2013, the Company disposed of $13.0 billion of Investment Securities, resulting in a realized gain of $43.6 million.

The Constant Prepayment Rate for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013, was 9%, 7% and 13%, respectively. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013, was $197.7 million, $149.6 million, and $201.9 million, respectively. The total net premium balance on Investment Securities at September 30, 2014, June 30, 2014, and September 30, 2013, was $5.5 billion, $5.4 billion, and $4.7 billion, respectively. The weighted average amortized cost basis of the Company’s non-interest-only Investment Securities at September 30, 2014, June 30, 2014, and September 30, 2013, was 105.4%, 105.5%, and 104.7%, respectively. The weighted average amortized cost basis of the Company’s interest-only Investment Securities at September 30, 2014, June 30, 2014, and June 30, 2013, was 15.2%, 15.1%, and 13.8%, respectively.

The Company’s commercial investment portfolio consists of commercial real estate investments and corporate debt. Commercial real estate debt and preferred equity, including securitized loans, totaled $1.6 billion and investments in commercial real estate totaled $73.8 million at September 30, 2014. Commercial real estate debt and preferred equity, including securitized loans, totaled $1.6 billion and investments in commercial real estate totaled $74.4 million at June 30, 2014. The commercial investment portfolio, net of financing, represented 11% of stockholders’ equity at September 30, 2014, compared to 11% at June 30, 2014. The weighted average yield on commercial real estate debt and preferred equity as of September 30, 2014, June 30, 2014, and September 30, 2013, was 9.23%, 8.93% and 9.71%, respectively. The weighted average levered equity yield on investments in commercial real estate, excluding real estate held-for-sale, as of September 30, 2014, June 30, 2014, and September 30, 2013, was 8.33%, 9.23% and 14.13%, respectively.

Capital and Funding

At September 30, 2014, total stockholders’ equity was $13.1 billion. Leverage at September 30, 2014, June 30, 2014, and September 30, 2013, was 5.4:1, 5.3:1 and 5.4:1, respectively. Leverage includes repurchase agreements, Convertible Senior Notes, securitized debt, loan participation and mortgages payable. Securitized debt, loan participation and mortgages payable are non-recourse to the Company. At September 30, 2014, June 30, 2014, and September 30, 2013, the Company’s capital ratio, which represents the ratio of stockholders’ equity to total assets, was 15.0%, 15.4%, and 13.9%, respectively. At September 30, 2014, June 30, 2014, and September 30, 2013, the Company’s net capital ratio was 15.0%, 15.4%, and 14.8%, respectively. The Company’s net capital ratio takes into account the net balances of its U.S Treasury securities and U.S Treasury securities sold, not yet purchased, reverse repurchase agreements and repurchase agreements, and securities borrowed and securities loaned. On a GAAP basis, the Company produced an annualized return (loss) on average equity for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013 of 10.69%, (10.32%), and 5.87%, respectively. On a Core earnings basis, the Company provided an annualized return on average equity for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013, of 9.30%, 9.24%, and 8.62%, respectively.

At September 30, 2014, June 30, 2014, and September 30, 2013 the Company had outstanding $69.6 billion, $70.4 billion, and $69.2 billion of repurchase agreements, respectively, with weighted average remaining maturities of 159 days, 173 days, and 200 days, respectively, and with weighted average borrowing rates of 1.61%, 1.59%, and 2.02%, respectively, after giving effect to the Company’s interest rate swaps.

At September 30, 2014, June 30, 2014, and September 30, 2013, the Company had a common stock book value per share of $12.87, $13.23 and $12.70, respectively.

The following table presents the principal balance and weighted average rate of repurchase agreements by maturity at September 30, 2014:

           
Maturity       Principal Balance       Weighted Average Rate

 

(dollars in thousands)

Within 30 days $ 20,641,847 0.28 %
30 to 59 days 14,241,967 0.37 %
60 to 89 days 2,871,206 0.38 %
90 to 119 days 10,548,578 0.37 %
Over 120 days(1)   21,307,124       1.14 %
Total $ 69,610,722       0.58 %

(1) Approximately 12% of the total repurchase agreements have a remaining maturity over 1 year.

 

Hedge Portfolio

At September 30, 2014, the Company had outstanding interest rate swaps with a net notional amount of $31.5 billion and interest rate swaptions with a net notional amount of $1.9 billion, representing 48% of the Company’s repurchase agreements. Interest rate swaps and swaptions represented 48% of the Company’s repurchase agreements at June 30, 2014 and 85% of the Company’s repurchase agreements at September 30, 2013. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss). 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 pays a fixed rate and receives a floating rate on the notional amount of the swaps, the intended effect of the swaps is to lock in a cost of financing. As of September 30, 2014, the swap portfolio, excluding forward starting swaps, had a weighted average pay rate of 2.48%, a weighted average receive rate of 0.21% and weighted average maturity of 8.61 years.

At September 30, 2014, the Company had entered into interest rate swaptions with a net notional amount of $1.9 billion. Changes in the unrealized gains or losses on the interest rate swaptions are reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss). The interest rate swaptions provide the Company with the option to enter into an interest rate swap agreement for a specified notional amount, duration, and pay and receive rates. As of September 30, 2014, the long swaption portfolio had a weighted average pay rate of 3.13% and weighted average maturity of 4.82 months. As of September 30, 2014, there were no short swaption positions.

The following table summarizes certain characteristics of the Company’s interest rate swaps at September 30, 2014:

               
Maturity     Current Notional (1)    

Weighted
Average Pay
Rate (2) (3)

   

Weighted
Average Receive
Rate (2)

   

Weighted
Average Years
to Maturity (2)

(dollars in thousands)
0 - 3 years $ 2,202,522 1.47 % 0.16 % 2.84
3 - 6 years 11,013,000 2.06 % 0.22 % 5.34
6 - 10 years 13,204,000 2.65 % 0.22 % 8.71
Greater than 10 years   5,051,800     3.58 %     0.19 %     19.78
Total / Weighted Average $ 31,471,322     2.48 %     0.21 %     8.61
 
(1) Notional amount includes $0.8 billion in forward starting pay fixed swaps.
(2) Excludes forward starting swaps.
(3) Weighted average fixed rate on forward starting pay fixed swaps was 3.24%.
 

The following table summarizes certain characteristics of the Company’s interest rate swaptions at September 30, 2014:

                   

Current Underlying
Notional

   

Weighted Average
Underlying Pay
Rate

   

Weighted Average
Underlying Receive
Rate

   

Weighted Average
Underlying Years to
Maturity

   

Weighted Average Months
to Expiration

 

(dollars in thousands)

Long $ 1,900,000 3.13% 3M LIBOR 10.02 4.82
Short - - - - -
 

Key Metrics

The following table presents key metrics of the Company’s portfolio, liabilities and hedging positions, and performance as of and for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013:

      September 30, 2014     June 30, 2014     September 30, 2013

Portfolio Related Metrics:

       
Fixed-rate Agency mortgage-backed securities and debentures as a percentage of portfolio 95% 95% 91%
Adjustable-rate Agency mortgage-backed securities and debentures as a percentage of portfolio 5% 5% 9%
Weighted average yield on commercial real estate debt and preferred equity at period-end 9.23% 8.93% 9.71%
Weighted average net equity yield on investments in commercial real estate at period-end (1) 8.33%     9.23%     14.13%
 

Liabilities and Hedging Metrics:

Weighted average days to maturity on repurchase agreements outstanding at period-end 159 173 200
Notional amount of interest rate swaps and swaptions as a percentage of repurchase agreements 48% 48% 85%
Weighted average pay rate on interest rate swaps at period-end (2) 2.48% 2.48% 2.06%
Weighted average receive rate on interest rate swaps at period-end (2) 0.21% 0.21% 0.21%
Weighted average net rate on interest rate swaps at period-end (2) 2.27% 2.27% 1.85%
Leverage at period-end (3) 5.4:1 5.3:1 5.4:1
Capital ratio at period end 15.0% 15.4% 13.9%
Net capital ratio at period end 15.0%     15.4%     14.8%
 

Performance Related Metrics:

Net interest margin (4) 1.61% 1.57% 1.34%
Average yield on interest earning assets (5) 2.99% 3.20% 2.88%
Average cost of interest bearing liabilities (6) 1.64% 1.94% 1.81%
Net interest spread 1.35% 1.26% 1.07%
Annualized return (loss) on average equity 10.69% (10.32%) 5.87%
Annualized Core return on average equity 9.30% 9.24% 8.62%
Common dividend declared during the quarter $0.30 $0.30 $0.35
Book value per common share $12.87     $13.23     $12.70
(1)   Excludes real estate held-for-sale.
(2) Excludes forward starting swaps.
(3) Includes repurchase agreements, Convertible Senior Notes, securitized debt, loan participation and mortgages payable. Securitized debt, loan participation and mortgages payable are non-recourse to the Company.
(4) Represents the Company’s annualized economic net interest income, inclusive of interest expense on interest rate swaps, divided by its average interest-earning assets.
(5) Average interest earning assets reflects the average amortized cost of our investments during the period.
(6) Includes interest expense on interest rate swaps.
 

The following table presents a reconciliation between GAAP net income and Core earnings for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013:

      For the quarters ended
September 30, 2014     June 30, 2014     September 30, 2013
(dollars in thousands)
GAAP net income (loss) $ 354,856     $ (335,512 )     $ 192,458
Realized (gains) losses on termination of interest rate swaps - 772,491 36,658
Unrealized (gains) losses on interest rate swaps (98,593 ) (175,062 ) (6,343 )
Net (gains) losses on disposal of investments (4,693 ) (5,893 ) (43,602 )
Net (gains) losses on trading assets (4,676 ) 46,489 96,022
Net unrealized (gains) losses on interest-only Agency mortgage-backed securities 37,944 (2,085 ) 7,099
Other non-recurring loss (1)   23,783         -         -  
Core earnings $ 308,621       $ 300,428       $ 282,292  
 
GAAP net income (loss) per average common share $ 0.36       $ (0.37 )     $ 0.18  
Core earnings per average common share $ 0.31       $ 0.30       $ 0.28  
 
(1)   Represents a one-time payment made by FIDAC to Chimera Investment Corp. (Chimera) to resolve issues raised in derivative demand letters sent to Chimera’s board of directors. This amount is a component of Other income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss).
 

The following table presents the components of the Company’s interest income and interest expense for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013:

             
For the quarters ended
September 30, June 30, September 30,
2014     2014     2013
(dollars in thousands)
 
Interest income:
Investment Securities $ 606,331 $ 640,287 $ 657,786
Commercial investment portfolio(1) 38,113 43,325 27,338
U.S. Treasury securities - - 7,718
Securities loaned - - 1,787
Reverse repurchase agreements 135 271 2,461
Other   61       79       70
Total interest income   644,640       683,962       697,160
Interest expense:
Repurchase agreements 102,750 103,773 120,123
Convertible Senior Notes 22,376 20,319 17,092
U.S. Treasury securities sold, not yet purchased - - 6,688
Securities borrowed - - 1,405
Securitized debt of consolidated VIE 1,780 1,853 -
Participation sold   163       162       168
Total interest expense   127,069       126,107       145,476
Net interest income $ 517,571     $ 557,855     $ 551,684

(1) Consists of commercial real estate debt and preferred equity and corporate debt.

 

Dividend Declarations

Common dividends declared for the quarters ended September 30, 2014, June 30, 2014, and September 30, 2013 were $0.30, $0.30, and $0.35 per common share, respectively. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP net income. Taxable earnings and GAAP net income will typically differ due to items such as non-taxable unrealized and realized gains and losses, differences in premium amortization and discount accretion, non-deductible general and administrative expenses and other GAAP to tax differences. The annualized dividend yield on the Company’s common stock for the quarter ended September 30, 2014, based on the September 30, 2014 closing price of $10.68, was 11.24%, compared to 10.50% for the quarter ended June 30, 2014, and 12.09% for the quarter ended September 30, 2013.

Other Information

Annaly’s principal business objective is to generate net income for distribution to its shareholders from its investments. Annaly is a Maryland corporation that has elected to be taxed as a real estate investment trust (“REIT”). Annaly is managed and advised by Annaly Management Company LLC.

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”.

Conference Call

The Company will hold the third quarter 2014 earnings conference call on November 6, 2014 at 10:00 a.m. Eastern Time. The number to call is 888-317-6003 for domestic calls and 412-317-6061 for international calls. The conference passcode is 7019208. There will also be an audio webcast of the call on www.annaly.com. The replay of the call is available for one week following the conference call. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10054796. 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 which are based on various assumptions (some of which are beyond our control) and 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 financings; changes in the market value of our assets; changes in business conditions and the general economy; our ability to grow the commercial mortgage business; credit risks related to our investments in commercial real estate assets and corporate debt; our ability to consummate any contemplated investment opportunities; 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; risks associated with the businesses of our subsidiaries, including the investment advisory business of a wholly-owned subsidiary and the broker-dealer business of a wholly-owned subsidiary. 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 per share data)
           
 
 

September 30,

June 30,

March 31,

December 31,

September 30,

2014 2014 2014

2013 (1)

2013
(Unaudited)   (Unaudited)   (Unaudited)       (Unaudited)
ASSETS
 
Cash and cash equivalents $ 1,178,621 $ 1,320,666 $ 924,197 $ 552,436 $ 1,122,722
Reverse repurchase agreements - - 444,375 100,000 31,074
Securities borrowed - - 513,500 2,582,893 3,439,954
Investments, at fair value:
U.S. Treasury securities - - - 1,117,915 2,459,617
Agency mortgage-backed securities 81,462,387 81,055,337 75,350,388 70,388,949 79,902,834
Agency debentures 1,334,181 1,348,727 2,408,259 2,969,885 3,128,853
Investment in affiliates 136,748 143,495 137,647 139,447 136,748
Commercial real estate debt and preferred equity (2) 1,554,958 1,586,169 1,640,206 1,583,969 1,227,182
Investments in commercial real estate 73,827 74,355 40,313 60,132 60,424
Corporate debt, held for investment 144,451 151,344 145,394 117,687 75,988
Receivable for investments sold 855,161 856,983 19,116 1,193,730 934,964
Accrued interest and dividends receivable 287,231 283,423 276,007 273,079 297,161
Receivable for investment advisory income 8,369 6,380 6,498 6,839 10,055
Intangible for customer relationships - - - - 4,572
Goodwill 94,781 94,781 94,781 94,781 103,245
Interest rate swaps, at fair value 198,066 170,604 340,890 559,044 360,373
Other derivatives, at fair value 19,407 7,938 40,105 146,725 85,180
Other assets   39,798       50,743       33,101       34,949       52,211  
 
Total assets $ 87,387,986     $ 87,150,945     $ 82,414,777     $ 81,922,460     $ 93,433,157  
 
LIABILITIES AND STOCKHOLDERS’ EQUITY
 
Liabilities:
U.S. Treasury securities sold, not yet purchased, at fair value $ - $ - $ - $ 1,918,394 $ 2,403,524
Repurchase agreements 69,610,722 70,372,218 64,543,949 61,781,001 69,211,309
Securities loaned 7 7 513,510 2,527,668 3,299,090
Payable for investments purchased 2,153,789 781,227 1,898,507 764,131 2,546,467
Convertible Senior Notes 836,625 831,167 827,486 825,262 824,512
Securitized debt of consolidated VIE 260,700 260,700 260,700 - -
Mortgages payable 42,635 30,316 19,317 19,332 19,346
Participation sold 13,768 13,866 13,963 14,065 14,164
Accrued interest payable 180,345 157,782 170,644 160,921 162,755
Dividends payable 284,278 284,261 284,247 284,230 331,557
Interest rate swaps, at fair value 857,658 928,789 1,272,616 1,141,828 1,504,258
Other derivatives, at fair value - 6,533 6,045 55,518 125,468
Accounts payable and other liabilities   36,511       35,160       39,081       25,055       44,983  
 
Total liabilities   74,277,038       73,702,026       69,850,065       69,517,405       80,487,433  
 
Stockholders’ Equity:
7.875% Series A Cumulative Redeemable Preferred Stock:

7,412,500 authorized, issued and outstanding

177,088 177,088 177,088 177,088 177,088
7.625% Series C Cumulative Redeemable Preferred Stock

12,650,000 authorized, 12,000,000 issued and outstanding

290,514 290,514 290,514 290,514 290,514
7.50% Series D Cumulative Redeemable Preferred Stock:

18,400,000 authorized, issued and outstanding

445,457 445,457 445,457 445,457 445,457
Common stock, par value $0.01 per share, 1,956,937,500 authorized, 947,540,823, 947,488,945, 947,432,862, 947,304,761 and 947,483,487 issued and outstanding, respectively 9,476 9,475 9,475 9,474 9,473
Additional paid-in capital 14,781,308 14,776,302 14,770,553 14,765,761 14,759,738
Accumulated other comprehensive income (loss) (967,820 ) (572,256 ) (2,088,479 ) (2,748,933 ) (1,454,790 )
Accumulated deficit   (1,625,075 )     (1,677,661 )     (1,039,896 )     (534,306 )     (1,281,756 )
 
Total stockholders’ equity   13,110,948       13,448,919       12,564,712       12,405,055       12,945,724  
 
Total liabilities and stockholders’ equity $ 87,387,986     $ 87,150,945     $ 82,414,777     $ 81,922,460     $ 93,433,157  
(1)   Derived from the audited consolidated financial statements at December 31, 2013.
(2) Includes senior securitized mortgages of consolidated VIE with a carrying value of $398.4 million at September 30, 2014.
 
 
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF 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,
2014   2014   2014   2013 2013
 
Net interest income:
Interest income $ 644,640 $ 683,962 $ 655,901 $ 771,249 $ 697,160
Interest expense   127,069       126,107       124,971       137,393     145,476  
Net interest income   517,571       557,855       530,930       633,856     551,684  
 
Other income (loss):
Realized gains (losses) on interest rate swaps(1) (169,083 ) (220,934 ) (260,435 ) (242,182 ) (227,909 )
Realized gains (losses) on termination of interest rate swaps - (772,491 ) (6,842 ) (13,177 ) (36,658 )
Unrealized gains (losses) on interest rate swaps   98,593       175,062       (348,942 )     561,101     6,343  
Subtotal   (70,490 )     (818,363 )     (616,219 )     305,742     (258,224 )
Investment advisory income 8,253 6,109 6,123 8,490 9,558
Net gains (losses) on disposal of investments 4,693 5,893 79,710 28,602 43,602
Dividend income from affiliates 4,048 4,048 13,045 4,048 4,048
Net gains (losses) on trading assets 4,676 (46,489 ) (146,228 ) 41,936 (96,022 )
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities (37,944 ) 2,085 (20,793 ) 60,181 (7,099 )
Other income (loss)   (22,249 )     4,687       1,460       3,945     4,212  
Subtotal   (38,523 )     (23,667 )     (66,683 )     147,202     (41,701 )
Total other income (loss)   (109,013 )     (842,030 )     (682,902 )     452,944     (299,925 )
 
General and administrative expenses:
Compensation and management fee 39,028 39,277 38,521 43,385 41,774
Other general and administrative expenses   12,289       12,912       8,857       12,909     16,970  
Total general and administrative expenses   51,317       52,189       47,378       56,294     58,744  
 
Income (loss) before income taxes 357,241 (336,364 ) (199,350 ) 1,030,506 193,015
 
Income taxes   2,385       (852 )     4,001       1,757     557  
 
Net income (loss) 354,856 (335,512 ) (203,351 ) 1,028,749 192,458
 
Dividends on preferred stock   17,992       17,992       17,992       17,992     17,992  
 
Net income (loss) available (related) to common stockholders $ 336,864     $ (353,504 )   $ (221,343 )   $ 1,010,757   $ 174,466  
 
Net income (loss) per share available (related) to common stockholders:
Basic $ 0.36     $ (0.37 )   $ (0.23 )   $ 1.07   $ 0.18  
Diluted $ 0.35     $ (0.37 )   $ (0.23 )   $ 1.03   $ 0.18  
 
Weighted average number of common shares outstanding:
Basic   947,565,432       947,515,127       947,458,813       947,386,060     947,303,205  
Diluted   987,315,527       947,515,127       947,458,813       995,625,622     955,690,471  
 
Net income (loss) $ 354,856     $ (335,512 )   $ (203,351 )   $ 1,028,749   $ 192,458  
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities (390,871 ) 1,522,126 741,172 (1,244,500 ) (121,942 )
Reclassification adjustment for net (gains) losses included in net income (loss)   (4,693 )     (5,903 )     (80,718 )     (49,643 )   (43,602 )
Other comprehensive income (loss)   (395,564 )     1,516,223       660,454       (1,294,143 )   (165,544 )
Comprehensive income (loss) $ (40,708 )   $ 1,180,711     $ 457,103     $ (265,394 ) $ 26,914  
(1)   Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).
 
 
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
(Unaudited)
         
For the nine months ended
September 30, September 30,
2014     2013
 
Net interest income:
Interest income $ 1,984,503 $ 2,147,313
Interest expense   378,147         487,321  
Net interest income   1,606,356         1,659,992  
 
Other income (loss):
Realized gains (losses) on interest rate swaps(1) (650,452 ) (666,112 )
Realized gains (losses) on termination of interest rate swaps (779,333 ) (88,685 )
Unrealized gains (losses) on interest rate swaps   (75,287 )       1,441,099  
Subtotal   (1,505,072 )       686,302  
Investment advisory income 20,485 35,153
Net gains (losses) on disposal of investments 90,296 374,443
Dividend income from affiliates 21,141 14,527
Net gains (losses) on trading assets (188,041 ) (40,427 )
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities (56,652 ) 184,549
Impairment of goodwill - (23,987 )
Loss on previously held equity interest in CreXus - (18,896 )
Other income (loss)   (16,102 )       11,536  
Subtotal   (128,873 )       536,898  
Total other income (loss)   (1,633,945 )       1,223,200  
 
General and administrative expenses:
Compensation and management fee 116,826 123,981
Other general and administrative expenses   34,058         51,806  
Total general and administrative expenses   150,884         175,787  
 
Income (loss) before income taxes (178,473 ) 2,707,405
 
Income taxes   5,534         6,456  
 
Net income (loss) (184,007 ) 2,700,949
 
Dividends on preferred stock   53,976         53,976  
 
Net income (loss) available (related) to common stockholders $ (237,983 )     $ 2,646,973  
 
Net income (loss) per share available (related) to common stockholders:
Basic $ (0.25 )     $ 2.79  
Diluted $ (0.25 )     $ 2.69  
 
Weighted average number of common shares outstanding:
Basic   947,513,514         947,321,691  
Diluted   947,513,514         995,319,670  
 
Net income (loss) $ (184,007 )     $ 2,700,949  
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities 1,872,427 (4,133,589 )
Reclassification adjustment for net (gains) losses included in net income (loss)   (91,314 )       (374,443 )
Other comprehensive income (loss)   1,781,113         (4,508,032 )
Comprehensive income (loss) $ 1,597,106       $ (1,807,083 )
(1)   Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).
 

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

Source: Annaly Capital Management, Inc.