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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 2021
OR
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO
_________________
COMMISSION FILE NUMBER: 1-13447
ANNALY CAPITAL MANAGEMENT INC
(Exact Name of Registrant as Specified in its Charter)
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Maryland
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22-3479661 |
(State or other jurisdiction of incorporation or
organization) |
(IRS Employer Identification No.) |
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1211 Avenue of the Americas |
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New York, |
New York
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10036 |
(Address of principal executive offices) |
(Zip Code) |
(212) 696-0100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class |
Trading Symbol(s) |
Name of Each Exchange on Which Registered |
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Common Stock, par value $0.01 per share |
NLY |
New York Stock Exchange |
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6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock |
NLY.F |
New York Stock Exchange |
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock |
NLY.G |
New York Stock Exchange |
6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable
Preferred Stock |
NLY.I |
New York Stock Exchange |
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Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes
☑
No
☐
Indicate by check mark whether the registrant has submitted
electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter)
during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files). Yes
☑
No
☐
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated filer, a
smaller reporting company, or an emerging growth company. See the
definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule
12b-2 of the Exchange Act.
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Large accelerated filer |
☑ |
|
Accelerated
filer |
☐ |
|
Non-accelerated filer |
☐ |
|
Smaller reporting company |
☐ |
|
Emerging growth company |
☐ |
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If an emerging growth company, indicate by check mark if the
registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange
Act.
☐
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Act). Yes
☐
No
☑
The number of shares of the registrant’s Common Stock outstanding
on July 23, 2021 was 1,444,273,077.
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ANNALY CAPITAL MANAGEMENT, INC. |
FORM 10-Q |
TABLE OF CONTENTS |
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Page |
Item 1. Financial Statements
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Note
9. Sale of Commercial Real Estate Business
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
PART I - FINANCIAL INFORMATION
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ITEM 1. FINANCIAL STATEMENTS
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data) |
|
June 30, |
|
December 31, |
|
2021 |
|
2020
(1)
|
|
(Unaudited) |
|
|
Assets |
|
|
|
Cash and cash equivalents (includes pledged assets of $1,207,566
and $1,137,809, respectively)
(2)
|
$ |
1,380,456 |
|
|
$ |
1,243,703 |
|
Securities (includes pledged assets of $62,625,413 and $67,471,074,
respectively)
(3)
|
69,032,335 |
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|
75,652,396 |
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Loans, net (includes pledged assets of $1,669,699 and $2,231,035,
respectively)
(4)
|
3,563,008 |
|
|
3,083,821 |
|
Mortgage servicing rights (includes pledged assets of $0 and
$5,541, respectively)
|
202,616 |
|
|
100,895 |
|
Interests in MSR |
49,035 |
|
|
— |
|
Assets transferred or pledged to securitization
vehicles |
4,073,156 |
|
|
6,910,020 |
|
Real estate, net |
— |
|
|
656,314 |
|
Assets of disposal group held for sale (includes pledged assets of
$2,185,727 and $0, respectively)
(5)
|
3,302,001 |
|
|
— |
|
|
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|
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|
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Derivative assets |
181,889 |
|
|
171,134 |
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|
|
|
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Receivable for unsettled trades |
14,336 |
|
|
15,912 |
|
Principal and interest receivable |
250,210 |
|
|
268,073 |
|
|
|
|
|
|
|
|
|
Goodwill and intangible assets, net |
26,502 |
|
|
127,341 |
|
Other assets |
300,761 |
|
|
225,494 |
|
|
|
|
|
Total assets |
$ |
82,376,305 |
|
|
$ |
88,455,103 |
|
Liabilities and stockholders’ equity |
|
|
|
Liabilities |
|
|
|
Repurchase agreements |
$ |
60,221,067 |
|
|
$ |
64,825,239 |
|
Other secured financing |
909,655 |
|
|
917,876 |
|
|
|
|
|
Debt issued by securitization vehicles |
3,315,087 |
|
|
5,652,982 |
|
Participations issued |
315,810 |
|
|
39,198 |
|
Mortgages payable |
— |
|
|
426,256 |
|
Liabilities of disposal group held for sale |
2,362,690 |
|
|
— |
|
|
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|
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Derivative liabilities |
900,259 |
|
|
1,033,345 |
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Payable for unsettled trades |
154,405 |
|
|
884,069 |
|
Interest payable |
173,721 |
|
|
191,116 |
|
|
|
|
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Dividends payable |
317,714 |
|
|
307,613 |
|
Other liabilities |
66,721 |
|
|
155,613 |
|
Total liabilities |
68,737,129 |
|
|
74,433,307 |
|
Stockholders’ equity |
|
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Preferred stock, par value $0.01 per share, 63,500,000 and
85,150,000 authorized, respectively, 63,500,000 issued and
outstanding
|
1,536,569 |
|
|
1,536,569 |
|
Common stock, par value $0.01 per share, 2,936,500,000 and
2,914,850,000 authorized, respectively, 1,444,156,029 and
1,398,240,618 issued and outstanding, respectively
|
14,442 |
|
|
13,982 |
|
Additional paid-in capital |
20,178,692 |
|
|
19,750,818 |
|
Accumulated other comprehensive income (loss) |
1,780,275 |
|
|
3,374,335 |
|
Accumulated deficit |
(9,892,863) |
|
|
(10,667,388) |
|
Total stockholders’ equity |
13,617,115 |
|
|
14,008,316 |
|
Noncontrolling interests |
22,061 |
|
|
13,480 |
|
Total equity |
13,639,176 |
|
|
14,021,796 |
|
Total liabilities and equity |
$ |
82,376,305 |
|
|
$ |
88,455,103 |
|
|
(1)Derived
from the audited consolidated financial statements at December 31,
2020.
(2)Includes
cash of consolidated Variable Interest Entities (“VIEs”) of $17.2
million and $22.2 million at June 30, 2021 and December 31, 2020,
respectively.
(3)Excludes
$48.4 million and $81.5 million at June 30, 2021 and December
31, 2020, respectively, of Agency mortgage-backed securities,
$191.8 million and $576.6 million at June 30, 2021 and
December 31, 2020, respectively, of non-Agency mortgage-backed
securities and $0 and $391.0 million at June 30, 2021 and
December 31, 2020, respectively, of commercial mortgage-backed
securities in consolidated VIEs pledged as collateral and
eliminated from the Company’s Consolidated Statements of Financial
Condition.
(4)Includes
$3.7 million and $47.0 million of residential mortgage loans
held for sale at June 30, 2021 and December 31, 2020, respectively,
and $466.4 million and $0 of corporate loans held for sale at June
30, 2021 and December 31, 2020, respectively.
(5)Excludes
$251.0 million at June 30, 2021 of commercial mortgage-backed
securities in consolidated VIEs pledged as collateral and
eliminated from the Company’s Consolidated Statements of Financial
Condition.
See notes to consolidated financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
(Unaudited)
|
|
For The Three Months Ended June 30, |
|
For The Six Months Ended June 30, |
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Net interest income |
|
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|
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|
Interest income |
$ |
383,906 |
|
|
$ |
584,812 |
|
|
$ |
1,147,284 |
|
|
$ |
1,139,838 |
|
Interest expense |
61,047 |
|
|
186,032 |
|
|
137,020 |
|
|
689,505 |
|
Net interest income |
322,859 |
|
|
398,780 |
|
|
1,010,264 |
|
|
450,333 |
|
Realized and unrealized gains (losses) |
|
|
|
|
|
|
|
Net interest component of interest rate swaps |
(83,087) |
|
|
(64,561) |
|
|
(162,834) |
|
|
(78,541) |
|
Realized gains (losses) on termination or maturity of interest rate
swaps |
— |
|
|
(1,521,732) |
|
|
— |
|
|
(1,919,293) |
|
Unrealized gains (losses) on interest rate swaps |
(141,067) |
|
|
1,494,628 |
|
|
631,195 |
|
|
(1,333,095) |
|
Subtotal |
(224,154) |
|
|
(91,665) |
|
|
468,361 |
|
|
(3,330,929) |
|
Net gains (losses) on disposal of investments and other |
16,223 |
|
|
246,679 |
|
|
(49,563) |
|
|
453,262 |
|
Net gains (losses) on other derivatives and financial
instruments |
(357,808) |
|
|
170,916 |
|
|
119,060 |
|
|
377,342 |
|
Net unrealized gains (losses) on instruments measured at fair value
through earnings |
3,984 |
|
|
254,772 |
|
|
108,175 |
|
|
(475,388) |
|
Loan loss (provision) reversal |
(494) |
|
|
(68,751) |
|
|
139,126 |
|
|
(168,077) |
|
Business divestiture-related gains (losses) |
1,527 |
|
|
— |
|
|
(248,036) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Subtotal |
(336,568) |
|
|
603,616 |
|
|
68,762 |
|
|
187,139 |
|
Total realized and unrealized gains (losses) |
(560,722) |
|
|
511,951 |
|
|
537,123 |
|
|
(3,143,790) |
|
Other income (loss) |
1,675 |
|
|
12,328 |
|
|
15,143 |
|
|
19,490 |
|
General and administrative expenses |
|
|
|
|
|
|
|
Compensation and management fee |
32,013 |
|
|
37,036 |
|
|
63,531 |
|
|
77,861 |
|
Other general and administrative expenses |
21,513 |
|
|
27,734 |
|
|
37,900 |
|
|
56,774 |
|
Total general and administrative expenses |
53,526 |
|
|
64,770 |
|
|
101,431 |
|
|
134,635 |
|
Income (loss) before income taxes |
(289,714) |
|
|
858,289 |
|
|
1,461,099 |
|
|
(2,808,602) |
|
Income taxes |
5,134 |
|
|
2,055 |
|
|
4,813 |
|
|
(24,647) |
|
Net income (loss) |
(294,848) |
|
|
856,234 |
|
|
1,456,286 |
|
|
(2,783,955) |
|
Net income (loss) attributable to noncontrolling
interests |
794 |
|
|
32 |
|
|
1,115 |
|
|
98 |
|
Net income (loss) attributable to Annaly |
(295,642) |
|
|
856,202 |
|
|
1,455,171 |
|
|
(2,784,053) |
|
Dividends on preferred stock |
26,883 |
|
|
35,509 |
|
|
53,766 |
|
|
71,018 |
|
Net income (loss) available (related) to common
stockholders |
$ |
(322,525) |
|
|
$ |
820,693 |
|
|
$ |
1,401,405 |
|
|
$ |
(2,855,071) |
|
Net income (loss) per share available (related) to common
stockholders |
|
|
|
|
|
|
|
Basic |
$ |
(0.23) |
|
|
$ |
0.58 |
|
|
$ |
1.00 |
|
|
$ |
(2.00) |
|
Diluted |
$ |
(0.23) |
|
|
$ |
0.58 |
|
|
$ |
1.00 |
|
|
$ |
(2.00) |
|
Weighted average number of common shares outstanding |
|
|
|
|
|
|
|
Basic |
1,410,239,138 |
|
|
1,423,909,112 |
|
|
1,404,755,496 |
|
|
1,427,451,716 |
|
Diluted |
1,410,239,138 |
|
|
1,423,909,112 |
|
|
1,405,764,272 |
|
|
1,427,451,716 |
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
|
|
|
|
|
Net income (loss) |
$ |
(294,848) |
|
|
$ |
856,234 |
|
|
$ |
1,456,286 |
|
|
$ |
(2,783,955) |
|
Unrealized gains (losses) on available-for-sale
securities |
(191,541) |
|
|
986,146 |
|
|
(1,620,468) |
|
|
2,360,942 |
|
Reclassification adjustment for net (gains) losses included in net
income (loss) |
(30,415) |
|
|
(265,443) |
|
|
26,408 |
|
|
(657,059) |
|
Other comprehensive income (loss) |
(221,956) |
|
|
720,703 |
|
|
(1,594,060) |
|
|
1,703,883 |
|
Comprehensive income (loss) |
(516,804) |
|
|
1,576,937 |
|
|
(137,774) |
|
|
(1,080,072) |
|
Comprehensive income (loss) attributable to noncontrolling
interests |
794 |
|
|
32 |
|
|
1,115 |
|
|
98 |
|
Comprehensive income (loss) attributable to Annaly |
(517,598) |
|
|
1,576,905 |
|
|
(138,889) |
|
|
(1,080,170) |
|
Dividends on preferred stock |
26,883 |
|
|
35,509 |
|
|
53,766 |
|
|
71,018 |
|
Comprehensive income (loss) attributable to common
stockholders |
$ |
(544,481) |
|
|
$ |
1,541,396 |
|
|
$ |
(192,655) |
|
|
$ |
(1,151,188) |
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements. |
|
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|
|
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|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
|
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
(Unaudited)
|
|
|
For The Three Months Ended June 30, |
|
For The Six Months Ended June 30, |
|
|
2021 |
|
2020 |
|
2021 |
|
2020 |
Preferred stock |
|
|
|
|
|
|
|
|
Beginning of period
|
|
$ |
1,536,569 |
|
|
$ |
1,982,026 |
|
|
$ |
1,536,569 |
|
|
$ |
1,982,026 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
1,536,569 |
|
|
$ |
1,982,026 |
|
|
$ |
1,536,569 |
|
|
$ |
1,982,026 |
|
Common stock |
|
|
|
|
|
|
|
|
Beginning of period
|
|
$ |
13,985 |
|
|
$ |
14,304 |
|
|
$ |
13,982 |
|
|
$ |
14,301 |
|
Issuance
|
|
456 |
|
|
— |
|
|
456 |
|
|
— |
|
Buyback of common stock
|
|
— |
|
|
(228) |
|
|
— |
|
|
(228) |
|
Stock-based award activity
|
|
1 |
|
|
— |
|
|
4 |
|
|
3 |
|
|
|
|
|
|
|
|
|
|
Direct purchase and dividend reinvestment
|
|
— |
|
|
1 |
|
|
— |
|
|
1 |
|
End of period |
|
$ |
14,442 |
|
|
$ |
14,077 |
|
|
$ |
14,442 |
|
|
$ |
14,077 |
|
Additional paid-in capital |
|
|
|
|
|
|
|
|
Beginning of period
|
|
$ |
19,754,826 |
|
|
$ |
19,968,372 |
|
|
$ |
19,750,818 |
|
|
$ |
19,966,923 |
|
Issuance
|
|
419,970 |
|
|
— |
|
|
419,970 |
|
|
— |
|
Buyback of common stock
|
|
— |
|
|
(143,436) |
|
|
— |
|
|
(143,436) |
|
Stock-based award activity
|
|
3,896 |
|
|
1,876 |
|
|
7,904 |
|
|
3,325 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct purchase and dividend reinvestment
|
|
— |
|
|
404 |
|
|
— |
|
|
404 |
|
End of period |
|
$ |
20,178,692 |
|
|
$ |
19,827,216 |
|
|
$ |
20,178,692 |
|
|
$ |
19,827,216 |
|
Accumulated other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Beginning of period
|
|
$ |
2,002,231 |
|
|
$ |
3,121,371 |
|
|
$ |
3,374,335 |
|
|
$ |
2,138,191 |
|
Unrealized gains (losses) on available-for-sale
securities
|
|
(191,541) |
|
|
986,146 |
|
|
(1,620,468) |
|
|
2,360,942 |
|
Reclassification adjustment for net gains (losses) included in net
income (loss)
|
|
(30,415) |
|
|
(265,443) |
|
|
26,408 |
|
|
(657,059) |
|
End of period |
|
$ |
1,780,275 |
|
|
$ |
3,842,074 |
|
|
$ |
1,780,275 |
|
|
$ |
3,842,074 |
|
Accumulated deficit |
|
|
|
|
|
|
|
|
Beginning of period - unadjusted
|
|
$ |
(9,251,804) |
|
|
$ |
(12,382,648) |
|
|
$ |
(10,667,388) |
|
|
$ |
(8,309,424) |
|
Cumulative effect of change in accounting principle for credit
losses
|
|
— |
|
|
— |
|
|
— |
|
|
(39,641) |
|
Beginning of period - adjusted
|
|
(9,251,804) |
|
|
(12,382,648) |
|
|
(10,667,388) |
|
|
(8,349,065) |
|
Net income (loss) attributable to Annaly
|
|
(295,642) |
|
|
856,202 |
|
|
1,455,171 |
|
|
(2,784,053) |
|
Dividends declared on preferred stock
(1)
|
|
(26,883) |
|
|
(35,509) |
|
|
(53,766) |
|
|
(71,018) |
|
Dividends and dividend equivalents declared on common stock and
stock-based awards
(1)
|
|
(318,534) |
|
|
(309,972) |
|
|
(626,880) |
|
|
(667,791) |
|
|
|
|
|
|
|
|
|
|
End of period |
|
$ |
(9,892,863) |
|
|
$ |
(11,871,927) |
|
|
$ |
(9,892,863) |
|
|
$ |
(11,871,927) |
|
Total stockholder’s equity |
|
$ |
13,617,115 |
|
|
$ |
13,793,466 |
|
|
$ |
13,617,115 |
|
|
$ |
13,793,466 |
|
Noncontrolling interests |
|
|
|
|
|
|
|
|
Beginning of period
|
|
$ |
11,788 |
|
|
$ |
4,105 |
|
|
$ |
13,480 |
|
|
$ |
4,327 |
|
Net income (loss) attributable to noncontrolling
interests
|
|
794 |
|
|
32 |
|
|
1,115 |
|
|
98 |
|
Equity contributions from (distributions to) noncontrolling
interests
|
|
9,479 |
|
|
— |
|
|
7,466 |
|
|
(288) |
|
End of period |
|
$ |
22,061 |
|
|
$ |
4,137 |
|
|
$ |
22,061 |
|
|
$ |
4,137 |
|
Total equity |
|
$ |
13,639,176 |
|
|
$ |
13,797,603 |
|
|
$ |
13,639,176 |
|
|
$ |
13,797,603 |
|
|
|
|
|
|
|
|
|
|
(1) Refer
to the “Capital Stock” Note for dividends per share for each class
of shares.
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands) |
|
For The Six Months Ended June 30, |
|
2021 |
|
2020 |
Cash flows from operating activities |
|
|
|
Net income (loss) |
$ |
1,456,286 |
|
|
$ |
(2,783,955) |
|
Adjustments to reconcile net income (loss) to net cash provided by
(used in) operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of premiums and discounts of investments,
net |
313,306 |
|
|
881,012 |
|
Amortization of securitized debt premiums and discounts and
deferred financing costs |
(4,269) |
|
|
(4,554) |
|
Depreciation, amortization and other noncash expenses |
17,718 |
|
|
16,895 |
|
Net (gains) losses on disposal of investments and other |
49,563 |
|
|
(453,262) |
|
Net (gains) losses on investments and derivatives |
(858,430) |
|
|
3,350,434 |
|
Net (gains) losses on business divestitures |
248,036 |
|
|
— |
|
Income from unconsolidated joint ventures |
5,889 |
|
|
(1,349) |
|
|
|
|
|
Loan loss provision (reversal) |
(139,126) |
|
|
168,077 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on purchases of loans held for sale |
(49,586) |
|
|
(90,287) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales and repayments of loans held for
sale |
84,991 |
|
|
95,551 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net receipts (payments) on derivatives |
606,454 |
|
|
(2,538,137) |
|
Net change in |
|
|
|
|
|
|
|
Other assets |
(121,876) |
|
|
238,119 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest receivable |
18,677 |
|
|
139,240 |
|
Interest payable |
(16,165) |
|
|
(295,392) |
|
Other liabilities |
(40,425) |
|
|
(62,684) |
|
Net cash provided by (used in) operating activities |
1,571,043 |
|
|
(1,340,292) |
|
Cash flows from investing activities |
|
|
|
Payments on purchases of securities |
(12,581,731) |
|
|
(17,684,740) |
|
Proceeds from sales of securities |
6,350,647 |
|
|
46,806,424 |
|
Principal payments on securities |
10,228,935 |
|
|
9,328,755 |
|
Payments on purchases and origination of loans |
(2,754,376) |
|
|
(1,588,531) |
|
|
|
|
|
Proceeds from sales of loans |
116,570 |
|
|
510,407 |
|
Principal payments on loans |
1,498,768 |
|
|
1,040,569 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments on purchases of MSR |
(98,983) |
|
|
— |
|
Proceeds from sales of MSR |
376 |
|
|
— |
|
Payments on purchases of interests in MSR |
(47,098) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investments in real estate |
(1,815) |
|
|
(820) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sales of real estate |
53,910 |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from reverse repurchase agreements |
12,084,313 |
|
|
37,100,000 |
|
Payments on reverse repurchase agreements |
(12,084,313) |
|
|
(37,100,000) |
|
Distributions in excess of cumulative earnings from unconsolidated
joint ventures |
290 |
|
|
6,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from sale of equity securities |
6,957 |
|
|
— |
|
Cash acquired in asset acquisition |
— |
|
|
3,793 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) investing activities |
2,772,450 |
|
|
38,422,189 |
|
Cash flows from financing activities |
|
|
|
Proceeds from repurchase agreements and other secured
financing |
1,129,837,127 |
|
|
1,910,919,740 |
|
|
|
|
|
|
|
|
|
Payments on repurchase agreements and other secured
financing |
(1,134,179,055) |
|
|
(1,948,434,517) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuances of securitized debt |
969,165 |
|
|
1,423,925 |
|
|
|
|
|
Principal payments on securitized debt |
(863,095) |
|
|
(540,928) |
|
Payment of deferred financing cost |
— |
|
|
(553) |
|
Net proceeds from stock offerings, direct purchases and dividend
reinvestments |
420,426 |
|
|
405 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from participations issued |
499,864 |
|
|
— |
|
Payments on repurchases of participations issued |
(223,828) |
|
|
— |
|
Principal payments on participations issued |
(4,015) |
|
|
— |
|
Net principal receipts (payments) on mortgages payable |
(659) |
|
|
23,373 |
|
Net contributions (distributions) from (to) noncontrolling
interests |
7,466 |
|
|
(288) |
|
|
|
|
|
|
|
|
|
Net payment on share repurchase |
— |
|
|
(143,664) |
|
Settlement of stock-based awards in satisfaction of withholding tax
requirements |
(992) |
|
|
— |
|
Dividends paid |
(669,144) |
|
|
(786,209) |
|
Net cash provided by (used in) financing activities |
(4,206,740) |
|
|
(37,538,716) |
|
Net (decrease) increase in cash and cash equivalents |
$ |
136,753 |
|
|
$ |
(456,819) |
|
Cash and cash equivalents including cash pledged as collateral,
beginning of period |
1,243,703 |
|
|
1,850,729 |
|
Cash and cash equivalents including cash pledged as collateral, end
of period |
$ |
1,380,456 |
|
|
$ |
1,393,910 |
|
Supplemental disclosure of cash flow information |
|
|
|
Interest received |
$ |
1,478,377 |
|
|
$ |
3,354,991 |
|
Dividends received |
$ |
51 |
|
|
$ |
6,180 |
|
|
|
|
|
|
|
|
|
Interest paid (excluding interest paid on interest rate
swaps) |
$ |
183,952 |
|
|
$ |
1,498,708 |
|
Net interest paid on interest rate swaps |
$ |
137,018 |
|
|
$ |
358,218 |
|
Taxes received (paid) |
$ |
333 |
|
|
$ |
603 |
|
|
|
|
|
Noncash investing and financing activities |
|
|
|
Receivable for unsettled trades |
$ |
14,336 |
|
|
$ |
747,082 |
|
Payable for unsettled trades |
$ |
154,405 |
|
|
$ |
2,122,735 |
|
|
|
|
|
|
|
|
|
Net change in unrealized gains (losses) on available-for-sale
securities, net of reclassification adjustment |
$ |
(1,594,060) |
|
|
$ |
1,703,883 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, not yet paid |
$ |
317,714 |
|
|
$ |
309,686 |
|
|
|
|
|
Derecognition of assets of consolidated VIEs |
$ |
976,690 |
|
|
$ |
— |
|
Derecognition of securitized debt of consolidated VIEs |
$ |
893,500 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
See notes to consolidated financial statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
|
|
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) |
|
|
|
|
1. DESCRIPTION OF BUSINESS
|
|
Annaly Capital Management, Inc. (the “Company” or “Annaly”) is a
Maryland corporation that commenced operations on February 18,
1997. The Company is a leading diversified capital manager
with investment strategies across mortgage finance and corporate
middle market lending. The Company owns a portfolio of real estate
related investments, including mortgage pass-through certificates,
collateralized mortgage obligations, credit risk transfer (“CRT”)
securities, other securities representing interests in or
obligations backed by pools of mortgage loans, residential mortgage
loans, mortgage servicing rights (“MSR”) and corporate debt. The
Company’s principal business objective is to generate net income
for distribution to its stockholders and optimize its returns
through prudent management of its diversified investment
strategies.
The Company is an internally-managed company that has elected to be
taxed as a Real Estate Investment Trust (“REIT”) as defined under
the Internal Revenue Code of 1986, as amended, and regulations
promulgated thereunder (the “Code”). Prior to the closing of the
Internalization (as defined in the “Related Pary Transactions”
Note) on June 30, 2020, the Company was externally managed by
Annaly Management Company LLC (the “Former Manager”).
The Company’s investment groups are primarily comprised of the
following:
|
|
|
|
|
|
Investment Groups |
Description |
Annaly Agency Group |
Invests in Agency mortgage-backed securities (“MBS”) collateralized
by residential mortgages which are guaranteed by Fannie Mae,
Freddie Mac or Ginnie Mae and complementary investments within the
Agency market, including MSR and Agency commercial mortgage-backed
securities.
|
Annaly Residential Credit Group |
Invests primarily in non-Agency residential whole loans and
securitized products within the residential and commercial
markets.
|
|
|
Annaly Middle Market Lending Group |
Provides financing to private equity backed middle market
businesses, focusing primarily on senior debt within select
industries.
|
In March 2021, the Company announced that it had entered into a
definitive agreement to sell and exit its Commercial Real Estate
(“CRE”) business. Subject to customary closing conditions,
including applicable regulatory approvals, the sale of the CRE
business is expected to be completed in the second half of 2021.
Refer to the “Sale of Commercial Real Estate Business” and
“Subsequent Events” Notes for additional information.
The accompanying consolidated financial statements and related
notes of the Company have been prepared in accordance with U.S.
generally accepted accounting principles (“GAAP”).
The accompanying consolidated financial statements and related
notes are unaudited and should be read in conjunction with the
audited consolidated financial statements included in the Company’s
most recent Annual Report on Form 10-K for the fiscal year ended
December 31, 2020 (the “2020 Form 10-K”). The consolidated
financial information as of December 31, 2020 has been derived from
audited consolidated financial statements included in the Company’s
2020 Form 10-K.
The preparation of the consolidated financial statements requires
management to make estimates and assumptions that affect the
reported balance sheet amounts and/or disclosures at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
materially from those estimates.
Beginning with the quarter ended June 30, 2021, the Company began
classifying certain portfolio activity- or volume-related expenses
(including but not limited to brokerage and commission fees, due
diligence costs and securitization expenses) as Other income (loss)
rather than Other general and administrative expenses in the
Consolidated Statements of Comprehensive Income (Loss) to better
reflect the nature of the items. As such, prior periods have been
conformed to the current presentation. Other general and
administrative expenses for the three months ended March 31, 2021
decreased by $1.8 million and for the three and six months
ended June 30, 2020 decreased by $2.9 million and
$10.7 million, respectively, and Other income (loss) decreased
by the same amounts for the three months ended March 31, 2021 and
three and six months ended June 30, 2020,
respectively.
In the opinion of management, all normal, recurring adjustments
have been included for a fair presentation of this interim
financial information. Interim period operating results may not be
indicative of the operating results for a full year.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
|
|
|
3. SIGNIFICANT ACCOUNTING POLICIES
|
|
The Company’s significant accounting policies are described below
or are included elsewhere in these notes to the consolidated
financial statements.
Principles of Consolidation
– The consolidated financial statements include the accounts of the
entities where the Company has a controlling financial interest. In
order to determine whether the Company has a controlling financial
interest, it first evaluates whether an entity is a voting interest
entity (“VOE”) or a variable interest entity (“VIE”). All
intercompany balances and transactions have been eliminated in
consolidation.
Voting Interest Entities
– A VOE is an entity that has sufficient equity and in which equity
investors have a controlling financial interest. The Company
consolidates VOEs where it has a majority of the voting equity of
such VOE.
Variable Interest Entities
– A VIE is defined as an entity in which equity investors (i) do
not have the characteristics of a controlling financial interest,
and/or (ii) do not have sufficient equity at risk for the entity to
finance its activities without additional subordinated financial
support from other parties. A VIE is required to be consolidated by
its primary beneficiary, which is defined as the party that has
both (i) the power to control the activities that most
significantly impact the VIE’s economic performance and (ii) the
obligation to absorb losses or the right to receive benefits from
the VIE that could potentially be significant to the
VIE.
The Company performs ongoing reassessments of whether changes in
the facts and circumstances regarding the Company’s involvement
with a VIE causes the Company’s consolidation conclusion to change.
Refer to the “Variable Interest Entities” Note for further
information.
Equity Method Investments
- For entities that are not consolidated, but where the Company has
significant influence over the operating or financial decisions of
the entity, the Company accounts for the investment under the
equity method of accounting. In accordance with the equity method
of accounting, the Company will recognize its share of earnings or
losses of the investee in the period in which they are reported by
the investee. The Company also considers whether there are any
indicators of other-than-temporary impairment of joint ventures
accounted for under the equity method. These investments are
included in real estate, net and Other assets with income or loss
included in Other income (loss).
Cash and Cash Equivalents –
Cash and cash equivalents include cash on hand, cash held in money
market funds on an overnight basis and cash pledged as collateral
with counterparties. Cash deposited with clearing organizations is
carried at cost, which approximates fair value. Cash and securities
deposited with clearing organizations and collateral held in the
form of cash on margin with counterparties to the Company’s
interest rate swaps and other derivatives totaled $1.2 billion and
$1.1 billion at June 30, 2021 and December 31, 2020,
respectively.
Fair Value Measurements and the Fair Value Option
– The Company reports various investments at fair value, including
certain eligible financial instruments elected to be accounted for
under the fair value option (“FVO”). The Company chooses to elect
the FVO in order to simplify the accounting treatment for certain
financial instruments. Items for which the FVO has been elected are
presented at fair value in the Consolidated Statements of Financial
Condition and any change in fair value is recorded in Net
unrealized gains (losses) on instruments measured at fair value
through earnings in the Consolidated Statements of Comprehensive
Income (Loss). For additional information regarding financial
instruments for which the Company has elected the FVO see the table
in the “Financial Instruments” Note.
Refer to the “Fair Value Measurements” Note for a complete
discussion on the methodology utilized by the Company to estimate
the fair value of certain financial instruments.
Offsetting Assets and Liabilities -
The Company elected to present all derivative instruments on a
gross basis as discussed in the “Derivative Instruments” Note.
Reverse repurchase and repurchase agreements are presented net in
the Consolidated Statements of Financial Condition if they are
subject to netting agreements and they meet the offsetting
criteria. Please see below and refer to the “Secured
Financing”
Note for further discussion on reverse repurchase and repurchase
agreements.
Derivative Instruments –
Derivatives are accounted for in accordance with the Financial
Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 815,
Derivatives and Hedging,
which requires recognition of all derivatives as either assets or
liabilities at fair value in the Consolidated Statements of
Financial Condition with changes in fair value recognized in the
Consolidated Statements of Comprehensive Income (Loss). The changes
in the estimated fair value are presented within Net gains (losses)
on other derivatives and financial instruments with the exception
of interest rate swaps which are separately presented. None of the
Company’s derivative transactions have been designated as hedging
instruments for accounting purposes. Refer to the “Derivative
Instruments” Note for further discussion.
Stock-Based Compensation
– The Company measures compensation expense for stock-based awards
at fair value, which is generally based on the grant-date fair
value of the Company’s common stock. Stock-based awards that
contain market-based conditions are valued using a
model.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Compensation expense is recognized ratably over the vesting or
requisite service period of the award. Compensation expense for
awards with performance conditions is recognized based on the
probable outcome of the performance condition at each reporting
date. Compensation expense for awards with market conditions
is recognized irrespective of the probability of the market
condition being achieved and is not reversed if the market
condition is not met. Stock-based awards that do not require future
service (i.e., vested awards) are expensed immediately. Forfeitures
are recorded when they occur. The Company generally issues new
shares of common stock upon delivery of stock-based
awards.
Interest Income -
The Company recognizes interest income primarily on Residential
Securities (as defined in the “Securities” Note), residential
mortgage loans, commercial investments and reverse repurchase
agreements. Interest accrued but not paid is recognized as Interest
receivable on the Consolidated Statements of Financial Condition.
Interest income is presented as a separate line item on the
Consolidated Statements of Comprehensive Income. Refer to the
“Interest Income and Interest Expense” Note for further
discussion.
For its securities, the Company recognizes coupon income, which is
a component of interest income, based upon the outstanding
principal amounts of the financial instruments and their
contractual terms. In addition, the Company amortizes or accretes
premiums or discounts into interest income for its Agency
mortgage-backed securities (other than interest-only securities,
multifamily and reverse mortgages), taking into account estimates
of future principal prepayments in the calculation of the effective
yield. The Company recalculates the effective yield as
differences between anticipated and actual prepayments occur. Using
third party model and market information to project future cash
flows and expected remaining lives of securities, the effective
interest rate determined for each security is applied as if it had
been in place from the date of the security’s acquisition. The
amortized cost of the security is then adjusted to the amount that
would have existed had the new effective yield been applied since
the acquisition date, which results in a cumulative premium
amortization adjustment in each period. The adjustment to amortized
cost is offset with a charge or credit to interest income. Changes
in interest rates and other market factors will impact prepayment
speed projections and the amount of premium amortization recognized
in any given period.
Premiums or discounts associated with the purchase of Agency
interest-only securities, reverse mortgages and residential credit
securities are amortized or accreted into interest income based
upon current expected future cash flows with any adjustment to
yield made on a prospective basis.
Premiums and discounts associated with the purchase of residential
mortgage loans and with those transferred or pledged to
securitization trusts are primarily amortized or accreted into
interest income over their estimated remaining lives using the
effective interest rates inherent in the estimated cash flows from
the mortgage loans. Amortization of premiums and accretion of
discounts are presented in Interest income in the Consolidated
Statements of Comprehensive Income (Loss).
If collection of a loan’s principal or interest is in doubt or the
loan is 90 days or more past due, interest income is not accrued.
For nonaccrual status loans carried at fair value or held for sale,
interest is not accrued but is recognized on a cash basis. For
nonaccrual status loans carried at amortized cost, if collection of
principal is not in doubt but collection of interest is in doubt,
interest income is recognized on a cash basis. If collection of
principal is in doubt, any interest received is applied against
principal until collectability of the remaining balance is no
longer in doubt; at that point, any interest income is recognized
on a cash basis. Generally, a loan is returned to accrual status
when the borrower has resumed paying the full amount of the
scheduled contractual obligation, if all principal and interest
amounts contractually due are reasonably assured of repayment
within a reasonable period of time and there is a sustained period
of repayment performance by the borrower. Refer to the “Interest
Income and Interest Expense” Note for further discussion on
interest.
The Company has made an accounting policy election not to measure
an allowance for loans losses for accrued interest receivable. If
interest receivable is deemed to be uncollectible or not collected
within 90 days of its contractual due date for commercial loans or
120 days for corporate debt carried at amortized cost, it is
written off through a reversal of interest income. Any interest
written off that is recovered is recognized as interest
income.
Refer to the “Interest Income and Interest Expense” Note for
further discussion of interest income.
Income Taxes
– The Company has elected to be taxed as a REIT and intends to
comply with the provisions of the Code, with respect
thereto. As a REIT, the Company will not incur federal income
tax to the extent that it distributes its taxable income to its
stockholders. The Company and certain of its direct and
indirect subsidiaries have made separate joint elections to treat
these subsidiaries as taxable REIT subsidiaries (“TRSs”). As
such, each of these TRSs is taxable as a domestic C corporation and
subject to federal, state and local income taxes based upon its
taxable income. Refer to the “Income Taxes” Note for further
discussion on income taxes.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Recent Accounting Pronouncements
The Company considers the applicability and impact of all
Accounting Standards Updates (“ASUs”). ASUs not listed below
were not applicable, not expected to have a significant impact on
the Company’s consolidated financial statements when adopted or did
not have a significant impact on the Company’s consolidated
financial statements upon adoption.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard |
Description |
Effective Date |
Effect on the Financial Statements or Other Significant
Matters |
Standards that have been adopted |
|
|
|
|
|
|
|
|
ASU 2016-13 Financial instruments - Credit losses (Topic 326):
Measurement of credit losses on financial instruments (“ASU
2016-13”)
|
This ASU updates the existing incurred loss model to a current
expected credit loss (“CECL”) model for financial assets and net
investments in leases that are not accounted for at fair value
through earnings. The amendments affect cash and cash equivalents,
reverse repurchase agreements, certain loans, held-to-maturity debt
securities, trade receivables, net investments in leases,
off-balance sheet credit exposures and any other financial assets
not excluded from the scope. There are also limited
amendments to the impairment model for available-for-sale debt
securities.
|
January 1, 2020 |
The Company adopted ASU 2016-13 using the modified retrospective
method for all financial assets and off-balance-sheet credit
exposures in scope. The modified retrospective approach requires an
adjustment to beginning retained earnings for the cumulative effect
of adopting the standard. Results for reporting periods beginning
after January 1, 2020 are presented in accordance with ASU 2016-13,
while prior periods continue to be reported in accordance with
previously applicable GAAP. As a result of the adoption, the
Company recorded an increase to the loan loss allowance of $37.4
million and a liability of $2.2 million for unfunded loan
commitments, which reduced beginning retained earnings by $39.6
million as of January 1, 2020.
|
ASU 2020-04
Reference Rate Reform (Topic 848): Facilitation of the Effects of
Reference Rate Reform on Financial Reporting
|
This ASU provides optional, temporary relief to accounting for
contract modifications resulting from reference rate
reform.
|
January 1, 2020 |
The Company has elected to retrospectively apply the practical
expedients to modifications of qualifying contracts as continuation
of the existing contract rather than as a new contract. The
adoption had no immediate impact and is not expected to have a
material impact on the Company’s consolidated financial statements
as the guidance continues to be applied to contract modifications
until the ASU’s termination date. |
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table presents characteristics for certain of the
Company’s financial instruments at June 30, 2021 and December 31,
2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Instruments
(1)
|
Balance Sheet Line Item |
Type / Form |
Measurement Basis |
June 30, 2021 |
|
December 31, 2020 |
|
Assets |
(dollars in thousands) |
|
|
|
|
|
|
|
|
|
Securities |
Agency mortgage-backed securities
(2)
|
Fair value, with unrealized gains (losses) through other
comprehensive income |
$ |
65,898,975 |
|
|
$ |
73,562,972 |
|
Securities |
Agency mortgage-backed securities
(3)
|
Fair value, with unrealized gains (losses) through
earnings |
569,544 |
|
|
504,087 |
|
|
|
|
|
|
|
Securities |
Residential credit risk transfer securities |
Fair value, with unrealized gains (losses) through
earnings |
827,328 |
|
|
532,403 |
|
Securities |
Non-agency mortgage-backed securities |
Fair value, with unrealized gains (losses) through
earnings |
1,582,323 |
|
|
972,192 |
|
Securities |
Commercial real estate debt investments - CMBS(4)
|
Fair value, with unrealized gains (losses) through other
comprehensive income |
— |
|
|
31,603 |
|
Securities |
Commercial real estate debt investments - CMBS
(4)(5)
|
Fair value, with unrealized gains (losses) through
earnings |
150,005 |
|
|
45,254 |
|
Securities |
Commercial real estate debt investments - credit risk transfer
securities |
Fair value, with unrealized gains (losses) through
earnings |
4,160 |
|
|
3,885 |
|
Total securities |
|
|
69,032,335 |
|
|
75,652,396 |
|
|
|
|
|
|
|
Loans, net |
Residential mortgage loans |
Fair value, with unrealized gains (losses) through
earnings |
1,029,929 |
|
|
345,810 |
|
Loans, net |
Commercial real estate debt and preferred equity, held for
investment
(4)
|
Amortized cost |
— |
|
|
498,081 |
|
|
|
|
|
|
|
Loans, net |
Corporate debt, held for investment |
Amortized cost |
2,066,709 |
|
|
2,239,930 |
|
Loans, net |
Corporate debt, held for sale |
Lower of amortized cost or fair value |
466,370 |
|
|
— |
|
Total loans, net |
|
|
3,563,008 |
|
|
3,083,821 |
|
Interests in MSR |
Interest in net servicing cash flows |
Fair value, with unrealized gains (losses) through
earnings |
49,035 |
|
|
— |
|
Assets transferred or pledged to securitization
vehicles |
Agency mortgage-backed securities |
Fair value, with unrealized gains (losses) through other
comprehensive income |
605,163 |
|
|
620,347 |
|
Assets transferred or pledged to securitization
vehicles |
Residential mortgage loans |
Fair value, with unrealized gains (losses) through
earnings |
3,467,993 |
|
|
3,249,251 |
|
Assets transferred or pledged to securitization
vehicles |
Commercial mortgage loans
(4)
|
Fair value, with unrealized gains (losses) through
earnings |
— |
|
|
2,166,073 |
|
Assets transferred or pledged to securitization
vehicles |
Commercial mortgage loans
(4)
|
Amortized cost |
— |
|
|
874,349 |
|
Total assets transferred or pledged to securitization
vehicles |
|
4,073,156 |
|
|
6,910,020 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
Repurchase agreements |
Repurchase agreements |
Amortized cost |
60,221,067 |
|
|
64,825,239 |
|
Other secured financing |
Loans |
Amortized cost |
909,655 |
|
|
917,876 |
|
Debt issued by securitization vehicles |
Securities |
Fair value, with unrealized gains (losses) through
earnings |
3,315,087 |
|
|
5,652,982 |
|
Participations issued |
Participations issued |
Fair value, with unrealized gains (losses) through
earnings |
315,810 |
|
|
39,198 |
|
|
|
|
|
|
|
Mortgages payable |
Loans
(6)
|
Amortized cost |
— |
|
|
426,256 |
|
(1)
Receivable for unsettled trades, Principal
and interest receivable, Payable for unsettled trades, Interest
payable and Dividends payable are accounted for at cost. Interests
in MSR are considered financial assets whereas MSR are servicing
assets or obligations.
(2)
Includes Agency pass-through,
collateralized mortgage obligation (“CMO”) and multifamily
securities.
(3)
Includes interest-only securities and
reverse mortgages.
(4)
Excludes Assets of disposal group held for
sale at June 30, 2021.
(5)
Includes single-asset / single-borrower
CMBS.
(6)
Excludes Liabilities of disposal group held
for sale at June 30, 2021.
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The Company’s investments in securities include agency, credit risk
transfer, non-agency and commercial mortgage-backed securities. All
of the debt securities are classified as available-for-sale.
Available-for-sale debt securities are carried at fair value, with
changes in fair value recognized in other comprehensive income,
unless the fair value option is elected in which case changes in
fair value are recognized in Net unrealized gains (losses) on
instruments measured at fair value through earnings in the
Consolidated Statements of Comprehensive Income (Loss).
Transactions for regular-way securities are recorded on trade date,
including TBA securities that meet the regular-way securities scope
exception from derivative accounting. Gains and losses on disposals
of securities are recorded on trade date based on the specific
identification method.
Impairment
– Management evaluates available-for-sale securities and
held-to-maturity debt securities for impairment at least quarterly,
and more frequently when economic or market conditions warrant such
evaluation. When the fair value of an available-for-sale
security is less than its amortized cost, the security is
considered impaired. For securities that are impaired, the Company
determines if it (1) has the intent to sell the security, (2) is
more likely than not that it will be required to sell the security
before recovery of its amortized cost basis, or (3) does not expect
to recover the entire amortized cost basis of the security.
Further, the security is analyzed for credit loss (the difference
between the present value of cash flows expected to be collected
and the amortized cost basis). The credit loss, if any, will then
be recognized in the Consolidated Statements of Comprehensive
Income (Loss) as a Securities Loss Provision and reflected as an
Allowance for Credit Losses on Securities on the Consolidated
Statements of Financial Condition, while the balance of losses
related to other factors will be recognized as a component of Other
comprehensive income (loss). For the three months ended
March 31, 2021, the Company recognized a $0.4 million
impairment on a commercial mortgage-backed security that it intends
to sell. There was no impairment recognized for the three and six
months ended June 30, 2020.
Agency Mortgage-Backed Securities
-
The Company invests in mortgage pass-through certificates,
collateralized mortgage obligations and other MBS representing
interests in or obligations backed by pools of residential or
multifamily mortgage loans and certificates. Many of the underlying
loans and certificates are guaranteed by the Government National
Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage
Corporation (“Freddie Mac”) or the Federal National Mortgage
Association (“Fannie Mae”) (collectively, “Agency mortgage-backed
securities”).
Agency mortgage-backed securities may include forward contracts for
Agency mortgage-backed securities purchases or sales of a generic
pool, on a to-be-announced basis (“TBA securities”). TBA securities
without intent to accept delivery (“TBA derivatives”) are accounted
for as derivatives as discussed in the “Derivative Instruments”
Note.
CRT Securities -
CRT securities are risk sharing instruments issued by Fannie Mae
and Freddie Mac, and similarly structured transactions arranged by
third party market participants. CRT securities are designed to
synthetically transfer mortgage credit risk from Fannie Mae and
Freddie Mac to private investors.
Non-Agency Mortgage-Backed Securities
-
The Company invests in non-Agency mortgage-backed securities such
as those issued in prime loan, Alt-A loan, subprime loan,
non-performing loan (“NPL”) and re-performing loan (“RPL”)
securitizations.
Agency mortgage-backed securities, non-Agency mortgage-backed
securities and residential CRT securities are referred to herein as
“Residential Securities.” Although the Company generally intends to
hold most of its Residential Securities until maturity, it may,
from time to time, sell any of its Residential Securities as part
of the overall management of its portfolio.
Commercial Mortgage-Backed Securities (“Commercial Securities”)
-
Certain commercial mortgage-backed securities (“CMBS”) are
classified as available-for-sale and reported at fair value with
any credit loss recognized through an allowance for credit losses
and any other unrealized gains and losses reported as a component
of Other comprehensive income (loss). Management evaluates its
Commercial Securities for impairment at least quarterly. The
Company elected the fair value option for all other Commercial
Securities, including conduit and credit CMBS, to simplify the
accounting where the unrealized gains and losses on these
financial instruments are recorded through earnings. As of June 30,
2021 and December 31, 2020, CMBS included in the announced sale of
the Company’s CRE business are reported in Assets of disposal group
held for sale and Securities, respectively, in the Consolidated
Statements of Financial Condition. Refer to the “Sale of Commercial
Real Estate Business” Note for additional information on the
announced transaction.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following represents a rollforward of the activity for the
Company’s securities, excluding securities transferred or pledged
to securitization vehicles, for the six months ended June 30,
2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential Securities |
|
Commercial Securities |
|
Total |
|
(dollars in thousands) |
Beginning balance January 1, 2021
|
$ |
75,571,654 |
|
|
$ |
80,742 |
|
|
$ |
75,652,396 |
|
Purchases |
11,684,613 |
|
|
150,006 |
|
|
11,834,619 |
|
Sales and transfers
(1)
|
(6,265,442) |
|
|
(78,770) |
|
|
(6,344,212) |
|
Principal paydowns |
(10,228,923) |
|
|
— |
|
|
(10,228,923) |
|
(Amortization) / accretion |
(307,987) |
|
|
288 |
|
|
(307,699) |
|
Fair value adjustment |
(1,575,745) |
|
|
1,899 |
|
|
(1,573,846) |
|
Ending balance June 30, 2021
|
$ |
68,878,170 |
|
|
$ |
154,165 |
|
|
$ |
69,032,335 |
|
|
|
|
|
|
|
(1)
Includes transfers to assets of disposal group held for
sale.
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following tables present the Company’s securities portfolio,
excluding securities transferred or pledged to securitization
vehicles, that was carried at their fair value at June 30, 2021 and
December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
Principal /
Notional |
|
Remaining Premium |
|
Remaining Discount |
|
Amortized
Cost |
|
Unrealized
Gains |
|
Unrealized
Losses |
|
Estimated Fair Value |
Agency |
(dollars in thousands) |
Fixed-rate pass-through |
$ |
59,813,415 |
|
|
$ |
3,280,197 |
|
|
$ |
(20,729) |
|
|
$ |
63,072,883 |
|
|
$ |
1,905,748 |
|
|
$ |
(259,706) |
|
|
$ |
64,718,925 |
|
Adjustable-rate pass-through |
375,657 |
|
|
1,972 |
|
|
(3,286) |
|
|
374,343 |
|
|
20,677 |
|
|
— |
|
|
395,020 |
|
CMO |
127,620 |
|
|
2,016 |
|
|
— |
|
|
129,636 |
|
|
6,720 |
|
|
— |
|
|
136,356 |
|
Interest-only |
2,398,620 |
|
|
519,494 |
|
|
— |
|
|
519,494 |
|
|
781 |
|
|
(157,583) |
|
|
362,692 |
|
Multifamily(1)
|
2,769,722 |
|
|
169,915 |
|
|
(1,005) |
|
|
777,380 |
|
|
35,262 |
|
|
(1,260) |
|
|
811,382 |
|
Reverse mortgages |
40,939 |
|
|
3,892 |
|
|
— |
|
|
44,831 |
|
|
— |
|
|
(687) |
|
|
44,144 |
|
Total agency securities |
$ |
65,525,973 |
|
|
$ |
3,977,486 |
|
|
$ |
(25,020) |
|
|
$ |
64,918,567 |
|
|
$ |
1,969,188 |
|
|
$ |
(419,236) |
|
|
$ |
66,468,519 |
|
Residential credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
CRT
(2)
|
$ |
824,024 |
|
|
$ |
6,925 |
|
|
$ |
(1,868) |
|
|
$ |
818,842 |
|
|
$ |
10,215 |
|
|
$ |
(1,729) |
|
|
$ |
827,328 |
|
Alt-A |
78,793 |
|
|
52 |
|
|
(17,019) |
|
|
61,826 |
|
|
4,031 |
|
|
(6) |
|
|
65,851 |
|
Prime |
191,516 |
|
|
5,527 |
|
|
(15,517) |
|
|
181,526 |
|
|
12,914 |
|
|
(367) |
|
|
194,073 |
|
Prime interest-only |
97,065 |
|
|
1,378 |
|
|
— |
|
|
1,378 |
|
|
— |
|
|
(854) |
|
|
524 |
|
Subprime |
189,138 |
|
|
460 |
|
|
(17,102) |
|
|
172,496 |
|
|
10,120 |
|
|
(20) |
|
|
182,596 |
|
NPL/RPL |
1,056,963 |
|
|
1,281 |
|
|
(2,482) |
|
|
1,055,762 |
|
|
8,887 |
|
|
(565) |
|
|
1,064,084 |
|
Prime jumbo (>=2010 vintage) |
74,981 |
|
|
530 |
|
|
(5,287) |
|
|
70,224 |
|
|
4,180 |
|
|
(102) |
|
|
74,302 |
|
Prime jumbo (>=2010 vintage) Interest-only |
175,420 |
|
|
5,418 |
|
|
— |
|
|
5,418 |
|
|
— |
|
|
(4,525) |
|
|
893 |
|
Total residential credit securities |
$ |
2,687,900 |
|
|
$ |
21,571 |
|
|
$ |
(59,275) |
|
|
$ |
2,367,472 |
|
|
$ |
50,347 |
|
|
$ |
(8,168) |
|
|
$ |
2,409,651 |
|
Total Residential Securities |
$ |
68,213,873 |
|
|
$ |
3,999,057 |
|
|
$ |
(84,295) |
|
|
$ |
67,286,039 |
|
|
$ |
2,019,535 |
|
|
$ |
(427,404) |
|
|
$ |
68,878,170 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Securities |
$ |
154,000 |
|
|
$ |
6 |
|
|
$ |
(107) |
|
|
$ |
153,899 |
|
|
$ |
267 |
|
|
$ |
(1) |
|
|
$ |
154,165 |
|
Total securities |
$ |
68,367,873 |
|
|
$ |
3,999,063 |
|
|
$ |
(84,402) |
|
|
$ |
67,439,938 |
|
|
$ |
2,019,802 |
|
|
$ |
(427,405) |
|
|
$ |
69,032,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2020 |
|
Principal /
Notional |
|
Remaining Premium |
|
Remaining Discount |
|
Amortized
Cost |
|
Unrealized
Gains |
|
Unrealized
Losses |
|
Estimated Fair Value |
Agency |
(dollars in thousands) |
Fixed-rate pass-through |
$ |
64,800,235 |
|
|
$ |
3,325,020 |
|
|
$ |
(22,143) |
|
|
$ |
68,103,112 |
|
|
$ |
3,200,542 |
|
|
$ |
(1,076) |
|
|
$ |
71,302,578 |
|
Adjustable-rate pass-through |
455,675 |
|
|
2,869 |
|
|
(3,369) |
|
|
455,175 |
|
|
22,341 |
|
|
— |
|
|
477,516 |
|
CMO |
139,664 |
|
|
2,177 |
|
|
— |
|
|
141,841 |
|
|
7,926 |
|
|
— |
|
|
149,767 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-only |
2,790,537 |
|
|
564,297 |
|
|
— |
|
|
564,297 |
|
|
3,513 |
|
|
(145,901) |
|
|
421,909 |
|
Multifamily
(1)
|
1,910,384 |
|
|
50,148 |
|
|
(1,057) |
|
|
1,604,913 |
|
|
59,548 |
|
|
(954) |
|
|
1,663,507 |
|
Reverse mortgages |
47,585 |
|
|
4,183 |
|
|
— |
|
|
51,768 |
|
|
252 |
|
|
(238) |
|
|
51,782 |
|
Total agency investments |
$ |
70,144,080 |
|
|
$ |
3,948,694 |
|
|
$ |
(26,569) |
|
|
$ |
70,921,106 |
|
|
$ |
3,294,122 |
|
|
$ |
(148,169) |
|
|
$ |
74,067,059 |
|
Residential credit |
|
|
|
|
|
|
|
|
|
|
|
|
|
CRT
(2)
|
$ |
544,780 |
|
|
$ |
7,324 |
|
|
$ |
(2,430) |
|
|
$ |
538,941 |
|
|
$ |
3,062 |
|
|
$ |
(9,600) |
|
|
$ |
532,403 |
|
Alt-A |
93,001 |
|
|
51 |
|
|
(17,368) |
|
|
75,684 |
|
|
4,644 |
|
|
— |
|
|
80,328 |
|
Prime |
177,852 |
|
|
5,126 |
|
|
(15,999) |
|
|
166,979 |
|
|
14,607 |
|
|
(77) |
|
|
181,509 |
|
Prime interest-only |
194,687 |
|
|
1,882 |
|
|
— |
|
|
1,882 |
|
|
— |
|
|
(642) |
|
|
1,240 |
|
Subprime |
197,779 |
|
|
584 |
|
|
(18,181) |
|
|
180,182 |
|
|
8,312 |
|
|
(61) |
|
|
188,433 |
|
NPL/RPL |
475,108 |
|
|
821 |
|
|
(2,416) |
|
|
473,513 |
|
|
3,782 |
|
|
(1,448) |
|
|
475,847 |
|
Prime jumbo (>=2010 vintage) |
44,696 |
|
|
207 |
|
|
(5,300) |
|
|
39,603 |
|
|
3,680 |
|
|
— |
|
|
43,283 |
|
Prime jumbo (>=2010 vintage) Interest-only |
291,624 |
|
|
6,803 |
|
|
— |
|
|
6,803 |
|
|
— |
|
|
(5,251) |
|
|
1,552 |
|
Total residential credit securities |
$ |
2,019,527 |
|
|
$ |
22,798 |
|
|
$ |
(61,694) |
|
|
$ |
1,483,587 |
|
|
$ |
38,087 |
|
|
$ |
(17,079) |
|
|
$ |
1,504,595 |
|
Total Residential Securities |
$ |
72,163,607 |
|
|
$ |
3,971,492 |
|
|
$ |
(88,263) |
|
|
$ |
72,404,693 |
|
|
$ |
3,332,209 |
|
|
$ |
(165,248) |
|
|
$ |
75,571,654 |
|
Commercial |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial Securities |
$ |
89,858 |
|
|
$ |
— |
|
|
$ |
(7,471) |
|
|
$ |
82,387 |
|
|
$ |
54 |
|
|
$ |
(1,699) |
|
|
$ |
80,742 |
|
Total securities |
$ |
72,253,465 |
|
|
$ |
3,971,492 |
|
|
$ |
(95,734) |
|
|
$ |
72,487,080 |
|
|
$ |
3,332,263 |
|
|
$ |
(166,947) |
|
|
$ |
75,652,396 |
|
|
(1)
Principal/Notional amount includes $2.2 billion and
$354.6 million of Agency CMBS interest-only securities as of
June 30, 2021 and December 31, 2020, respectively.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
(2)
Principal/Notional amount includes $10.2 million and
$10.7 million of a CRT interest-only security as of June 30,
2021 and December 31, 2020, respectively.
The following table presents the Company’s Agency mortgage-backed
securities portfolio, excluding securities transferred or pledged
to securitization vehicles, by issuing Agency at June 30, 2021 and
December 31, 2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
Investment Type |
(dollars in thousands) |
Fannie Mae |
$ |
52,611,769 |
|
|
$ |
56,218,033 |
|
Freddie Mac |
13,762,498 |
|
|
17,735,041 |
|
Ginnie Mae |
94,252 |
|
|
113,985 |
|
Total |
$ |
66,468,519 |
|
|
$ |
74,067,059 |
|
|
|
|
|
Actual maturities of the Company’s Residential Securities are
generally shorter than stated contractual maturities because actual
maturities of the portfolio are affected by periodic payments and
prepayments of principal on the underlying mortgages.
The following table summarizes the Company’s Residential
Securities, excluding securities transferred or pledged to
securitization vehicles, at June 30, 2021 and December 31, 2020,
according to their estimated weighted average life
classifications:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
|
Estimated Fair Value |
|
Amortized
Cost |
|
Estimated Fair Value |
|
Amortized
Cost |
Estimated weighted average life |
(dollars in thousands) |
Less than one year |
$ |
234,798 |
|
|
$ |
233,247 |
|
|
$ |
110,203 |
|
|
$ |
109,540 |
|
Greater than one year through five years |
17,843,706 |
|
|
17,273,287 |
|
|
45,643,138 |
|
|
43,404,877 |
|
Greater than five years through ten years |
50,258,367 |
|
|
49,253,011 |
|
|
28,509,058 |
|
|
27,610,923 |
|
Greater than ten years |
541,299 |
|
|
526,494 |
|
|
1,309,255 |
|
|
1,279,353 |
|
Total |
$ |
68,878,170 |
|
|
$ |
67,286,039 |
|
|
$ |
75,571,654 |
|
|
$ |
72,404,693 |
|
|
The estimated weighted average lives of the Residential Securities
at June 30, 2021 and December 31, 2020 in the table above are based
upon projected principal prepayment rates. The actual weighted
average lives of the Residential Securities could be longer or
shorter than projected.
The following table presents the gross unrealized losses and
estimated fair value of the Company’s Agency mortgage-backed
securities, accounted for as available-for-sale where the fair
value option has not been elected, by length of time that such
securities have been in a continuous unrealized loss position at
June 30, 2021 and December 31, 2020.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
|
Estimated Fair Value
(1)
|
|
Gross Unrealized Losses
(1)
|
|
Number of Securities
(1)
|
|
Estimated Fair Value
(1)
|
|
Gross Unrealized Losses
(1)
|
|
Number of Securities
(1)
|
|
(dollars in thousands) |
Less than 12 months |
$ |
17,620,478 |
|
|
$ |
(260,373) |
|
|
364 |
|
|
$ |
777,586 |
|
|
$ |
(2,030) |
|
|
30 |
|
12 Months or more |
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
|
— |
|
Total |
$ |
17,620,478 |
|
|
$ |
(260,373) |
|
|
364 |
|
|
$ |
777,586 |
|
|
$ |
(2,030) |
|
|
30 |
|
|
(1)
Excludes interest-only mortgage-backed securities and reverse
mortgages.
|
The decline in value of these securities is solely due to market
conditions and not the quality of the assets. Substantially
all of the Agency mortgage-backed securities are “AAA” rated or
carry an implied “AAA” rating. The investments are not
considered to be impaired because the Company currently has the
ability and intent to hold the investments to maturity or for a
period of time sufficient for a forecasted market price recovery up
to or beyond the cost of the investments, and it is not more likely
than not that the Company will be required to sell the investments
before recovery of the amortized cost bases, which may be
maturity.
During the three and six months ended June 30, 2021, the Company
disposed of $3.3 billion and $6.2 billion of Residential
Securities, respectively. During the three and six months ended
June 30, 2020, the Company disposed of $5.5 billion and $47.4
billion of Residential Securities, respectively. The following
table presents the Company’s net gains (losses) from the disposal
of Residential Securities for the three and six months ended June
30, 2021 and 2020.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Realized Gains |
|
Gross Realized Losses |
|
Net Realized Gains (Losses) |
For the three months ended |
(dollars in thousands) |
June 30, 2021 |
$ |
52,485 |
|
|
$ |
(17,680) |
|
|
$ |
34,805 |
|
June 30, 2020 |
$ |
272,382 |
|
|
$ |
(12,496) |
|
|
$ |
259,886 |
|
For the six months ended
|
|
|
|
|
|
June 30, 2021 |
$ |
57,131 |
|
|
$ |
(83,021) |
|
|
$ |
(25,890) |
|
June 30, 2020 |
$ |
811,637 |
|
|
$ |
(284,494) |
|
|
$ |
527,143 |
|
The Company invests in residential and corporate loans. Loans are
classified as either held for investment or held for sale. Loans
are also eligible to be accounted for under the fair value option.
Excluding loans transferred or pledged to securitization vehicles,
as of June 30, 2021 and December 31, 2020, the Company
reported
$1.0 billion
and $345.8 million, respectively, of loans for which the fair value
option was elected. If loans are held for investment and the fair
value option has not been elected, they are accounted for at
amortized cost less impairment. If the Company intends to sell or
securitize the loans and the securitization vehicle is not expected
to be consolidated, the loans are classified as held for sale. If
loans are held for sale and the fair value option was not elected,
they are accounted for at the lower of cost or fair value and prior
reserves are reversed. Any origination fees and costs or purchase
premiums or discounts are deferred and recognized upon sale. The
Company determines the fair value of loans held for sale on an
individual loan basis.
Allowance for Losses
– The Company evaluates the need for a loss reserve on each of its
loans classified as held-for-investment where the fair value option
is not elected. Allowance for loan losses are written off in the
period the loans are deemed uncollectible.
Given the unique nature of each underlying borrower and any
collateral, the Company assesses an allowance for each individual
loan held-for-investment. A provision is established at origination
or acquisition that reflects management’s estimate of the total
expected credit loss over the expected life of the loan. In
estimating the lifetime expected credit losses, management utilizes
a probability of default and loss given default methodology (“Loss
Given Default methodology”), which considers projected economic
conditions over the reasonable and supportable forecast period. The
forecast incorporates primarily market-based assumptions including,
but not limited to, forward interest rate curves, unemployment rate
estimates and certain indexes sourced from third party vendors. For
any remaining period of the expected life of the loan after the
reasonable and supportable period, the Company reverts to
historical losses on a straight-line basis. Management uses third
party vendors’ loan pool data for loans with similar risk
characteristics to estimate historical losses given the limited
loss history of the Company’s loan portfolio. Changes in the
lifetime expected credit loss are reflected in Loan loss
(provision) reversal in the Consolidated Statements of
Comprehensive Income (Loss).
For loans experiencing credit deterioration, the Company may use a
different methodology to determine the expected credit losses such
as a discounted cash flow analysis. For collateral-dependent loans,
if foreclosure is probable, expected credit losses are based on the
fair value of the collateral at the reporting date, adjusted for
any selling costs, if applicable. Additionally, the Company may
elect the practical expedient for a financial asset for which the
repayment is expected to be provided substantially through the
operation or sale of the collateral when the borrower is
experiencing financial difficulty by measuring the allowance as the
difference between the fair value of the collateral, less costs to
sell, if applicable, and the amortized cost basis of the financial
asset at the reporting date. The Company’s commercial loans are
collateralized by commercial real estate including, but not limited
to, multifamily real estate, office and retail space, hotels and
industrial space. At origination, the fair value of the collateral
generally exceeds the principal loan balance.
Management assesses the credit quality of the portfolio and
adequacy of loan loss reserves on a quarterly basis, or more
frequently as necessary. Significant judgment is required in this
analysis. Depending on the expected recovery of its investment, the
Company considers the estimated net recoverable value of the loans
as well as other factors, including but not limited to the fair
value of any collateral, the amount and the status of any senior
debt, the prospects for the borrower and the competitive landscape
where the borrower conducts business. To determine if loan loss
allowances are required on investments in corporate debt, the
Company reviews the monthly and/or quarterly financial statements
of the borrowers, verifies loan compliance packages, if applicable,
and analyzes current results relative to budgets and sensitivities
performed at inception of the investment. Because these
determinations are based upon projections of future economic
events, which are inherently subjective, the amounts ultimately
realized may differ materially from the carrying value as of the
reporting date.
The Company may be exposed to various levels of credit risk
depending on the nature of its investments and credit enhancements,
if any, supporting its assets. The Company’s core investment
process includes procedures related to the initial
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
approval and periodic monitoring of credit risk and other risks
associated with each investment. The Company’s
investment underwriting procedures include evaluation of the
underlying borrowers’ ability to manage and operate their
respective properties or companies. Management reviews
loan-to-value metrics at origination or acquisition of a new
investment and if events occur that trigger re-evaluation by
management.
The Company recorded net loan loss (provisions) reversals of ($0.5)
million and $139.1 million for the three and six months ended June
30, 2021, respectively. The Company recorded net loan loss
(provisions) reversals of ($68.8) million and ($168.1) million for
the three and six months ended June 30, 2020, respectively. As of
June 30, 2021 and December 31, 2020, the Company’s loan loss
allowance was $33.9 million and $169.5 million,
respectively.
The following table presents the activity of the Company’s loan
investments, including loans held for sale and excluding loans
transferred or pledged to securitization vehicles, for the six
months ended June 30, 2021:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Residential |
|
Commercial |
|
Corporate Debt
|
|
Corporate Debt Held for Sale
(1)
|
|
Total |
|
(dollars in thousands) |
Beginning balance January 1, 2021
|
$ |
345,810 |
|
|
$ |
498,081 |
|
|
$ |
2,239,930 |
|
|
$ |
— |
|
|
$ |
3,083,821 |
|
|
|
|
|
|
|
|
|
|
|
Purchases / originations |
1,466,056 |
|
|
123,939 |
|
|
859,759 |
|
|
466,370 |
|
|
2,916,124 |
|
Sales and transfers
(2)
|
(745,442) |
|
|
(525,436) |
|
|
(581,428) |
|
|
— |
|
|
(1,852,306) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Principal payments |
(20,340) |
|
|
(84,929) |
|
|
(464,933) |
|
|
— |
|
|
(570,202) |
|
Gains / (losses)
(3)
|
(12,733) |
|
|
(12,199) |
|
|
5,693 |
|
|
— |
|
|
(19,239) |
|
(Amortization) / accretion |
(3,422) |
|
|
544 |
|
|
7,688 |
|
|
— |
|
|
4,810 |
|
|
|
|
|
|
|
|
|
|
|
Ending balance June 30, 2021
|
$ |
1,029,929 |
|
|
$ |
— |
|
|
$ |
2,066,709 |
|
|
$ |
466,370 |
|
|
$ |
3,563,008 |
|
|
|
|
|
|
|
|
|
|
|
|
(1)
Represents loans the Company originated during the three months
ended June 30, 2021 and subsequently syndicated and closed. At June
30, 2021, these loans were held at the lower of cost or fair
value.
|
(2)
Includes securitizations, syndications, transfers to securitization
vehicles and commercial loan transfers to assets of disposal group
held for sale. Includes transfer of residential loans to
securitization vehicles with a carrying value of
$987.0 million during the six months ended June 30,
2021.
|
(3)
Includes loan loss allowances.
|
|
The carrying value of the Company’s residential loans held for sale
was $3.7 million and $47.0 million at June 30, 2021 and December
31, 2020, respectively.
The Company also has off-balance-sheet credit exposures related to
unfunded loan commitments, including revolvers, delayed draw term
loans and future funding commitments that are not unconditionally
cancelable by the Company. The Company utilizes the same
methodology in calculating the liability related to the expected
credit losses on these exposures as it does for the calculation of
the allowance for loan losses. In determining the estimate of
credit losses for off-balance-sheet credit exposures, the Company
will consider the contractual period in which the entity is exposed
to credit risk and the likelihood that funding will occur, if
material. Estimated credit losses for off-balance-sheet credit
exposures are included in Other liabilities on the Company’s
Consolidated Statements of Financial Condition.
Residential
The Company’s residential mortgage loans are primarily comprised of
performing adjustable-rate and fixed-rate whole loans. The
Company’s residential loans are accounted for under the fair value
option with changes in fair value reflected in Net unrealized gains
(losses) on instruments measured at fair value through earnings in
the Consolidated Statements of Comprehensive Income (Loss).
Additionally, the Company consolidates a collateralized financing
entity that securitized prime adjustable-rate
jumbo residential mortgage loans. The Company also
consolidates securitization trusts in which it had purchased
subordinated securities because it also has certain powers and
rights to direct the activities of such trusts. Refer to the
“Variable Interest Entities” Note for further information related
to the Company’s consolidated residential mortgage loan
trusts.
The following table presents the fair value and the unpaid
principal balances of the residential mortgage loan portfolio,
including loans transferred or pledged to securitization vehicles,
at June 30, 2021 and December 31, 2020:
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
December 31, 2020 |
|
(dollars in thousands) |
Fair value |
$ |
4,497,922 |
|
$ |
3,595,061 |
|
Unpaid principal balance |
$ |
4,317,278 |
|
$ |
3,482,865 |
|
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table provides information regarding the line items
and amounts recognized in the Consolidated Statements of
Comprehensive Income (Loss) for the three and six months ended June
30, 2021 and 2020 for these investments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
For the Six Months Ended |
|
June 30, 2021 |
|
June 30, 2020 |
|
June 30, 2021 |
|
June 30, 2020 |
|
(dollars in thousands) |
Interest income |
$ |
38,963 |
|
|
$ |
42,872 |
|
|
$ |
76,072 |
|
|
$ |
90,429 |
|
Net gains (losses) on disposal of investments and other |
(21,721) |
|
|
(5,376) |
|
|
(26,941) |
|
|
(17,376) |
|
Net unrealized gains (losses) on instruments measured at fair value
through earnings |
14,456 |
|
|
110,545 |
|
|
36,911 |
|
|
(82,218) |
|
Total included in net income (loss) |
$ |
31,698 |
|
|
$ |
148,041 |
|
|
$ |
86,042 |
|
|
$ |
(9,165) |
|
|
|
|
|
|
|
|
|
The following table provides the geographic concentrations based on
the unpaid principal balances at June 30, 2021 and December 31,
2020 for the residential mortgage loans, including loans
transferred or pledged to securitization vehicles:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Geographic Concentrations of Residential Mortgage Loans |
June 30, 2021 |
|
December 31, 2020 |
Property location |
% of Balance |
|
Property location |
% of Balance |
California |
52.6% |
|
California |
48.9% |
New York |
11.7% |
|
New York |
14.0% |
Florida |
5.9% |
|
Florida |
6.0% |
All other (none individually greater than 5%) |
29.8% |
|
All other (none individually greater than 5%) |
31.1% |
|
|
|
|
|
|
|
|
|
|
Total |
100.0% |
|
|
100.0% |
|
The following table provides additional data on the Company’s
residential mortgage loans, including loans transferred or pledged
to securitization vehicles, at June 30, 2021 and December 31,
2020:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2021 |
|
December 31, 2020 |
|
Portfolio
Range
|
Portfolio Weighted
Average |
|
Portfolio
Range
|
Portfolio Weighted Average |
|
(dollars in thousands) |
Unpaid principal balance |
$0 - $3,500
|
|
$525 |
|
$1 - $3,448
|
|
$473 |
Interest rate |
0.50% - 9.24%
|
|
4.55% |
|
0.50% - 9.24%
|
|
4.89% |
Maturity |
7/1/2029 - 7/1/2061 |
|
10/21/2049 |
|
7/1/2029 - 1/1/2061 |
|
4/17/2046 |
FICO score at loan origination |
604 - 829
|
|
758 |
|
505 - 829
|
|
755 |
Loan-to-value ratio at loan origination |
8% - 103%
|
|
66% |
|
8% - 104%
|
|
67% |
At June 30, 2021 and December 31, 2020, approximately 31% and 37%,
respectively, of the carrying value of the Company’s residential
mortgage loans, including loans transferred or pledged to
securitization vehicles, were adjustable-rate.
Commercial
As of June 30, 2021, commercial real estate loans are reported in
Assets of disposal group held for sale in the Consolidated
Statements of Financial Condition and classified as held for sale.
As of December 31, 2020, commercial real estate loans are reported
in Loans, net in the Consolidated Statements of Financial Condition
and classified as held for investment. Refer to the “Sale of
Commercial Real Estate Business” Note for additional information on
the announced transaction.
The Company’s commercial real estate loans are comprised of
adjustable-rate and fixed-rate loans. The difference between the
principal amount of a loan and proceeds at acquisition is recorded
as either a discount or premium. Commercial real estate loans and
preferred equity interests that were designated as held for
investment and were originated or purchased by the Company were
carried at their outstanding principal balance, net of unamortized
origination fees and costs, premiums or discounts, less an
allowance for losses, if necessary. Origination fees and costs,
premiums or discounts are amortized into interest income over the
life of the loan.
Management generally reviews the most recent financial information
and metrics derived therefrom produced by the borrower, which may
include, but is not limited to, net operating income (“NOI”), debt
service coverage ratios, property debt yields (net cash flow or NOI
divided by the amount of outstanding indebtedness), loan per unit
and rent rolls relating to each of the
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Company’s commercial real estate loans and preferred equity
interests (“CRE Debt and Preferred Equity Investments”), and may
consider other factors management deems important. Management also
reviews market pricing to determine each borrower’s ability to
refinance their respective assets at the maturity of each loan,
economic trends (both macro and those affecting the property
specifically), and the supply and demand of competing projects in
the sub-market in which each subject property is located.
Management monitors the financial condition and operating results
of its borrowers and continually assesses the future outlook of the
borrower’s financial performance in light of industry developments,
management changes and company-specific
considerations.
The Company’s commercial loans are collateral-dependent and, as
such, for loans experiencing credit deterioration, the Company is
required to record an allowance for loans held for investment based
upon the fair value of the underlying collateral if foreclosure is
probable or if the practical expedient is elected. For the six
months ended June 30, 2021, the Company reversed the loan loss
allowance resulting in a loan loss reversal on impaired commercial
loans of $67.4 million as the loans are classified as held for
sale and are carried at lower of cost or fair value. For the three
and six months ended June 30, 2020, the Company recorded a loan
loss provision on impaired commercial loans of $22.0 million
and $74.1 million, respectively based upon the fair value of
the underlying collateral. The Company uses a discounted cash flow
or market based valuation technique based upon the underlying
property to project property cash flows. In projecting these cash
flows, the Company reviewed the borrower financial statements, rent
rolls, economic trends and other factors management deems
important. These nonrecurring fair value measurements are
considered to be in Level 3 of the fair value measurement hierarchy
as there are unobservable inputs, which are significant to the
overall fair value.
For the six months ended June 30, 2021, the Company reversed the
loan loss allowance based upon its Loss Given Default methodology
resulting in a loan loss reversal on commercial loans of
$62.5 million as the loans are classified as held for sale and
are carried at lower of cost or fair value. For the three and six
months ended June 30, 2020, the Company recorded a net loan loss
provision of $39.1 million and $62.3 million, respectively,
based upon its Loss Given Default methodology. As a result of the
implementation of the Loss Given Default methodology under the
modified retrospective method, a cumulative effect loan loss
allowance of $7.8 million was recorded on January 1,
2020.
During the year ended December 31, 2020, the Company modified five
commercial loans with a carrying value of $243.8 million at
December 31, 2020. The maturity dates on four commercial loans were
extended and one commercial loan was granted a 120 day
forebearance. Additionally, as part of the restructuring, two loans
had partial paydowns totaling $4.5 million. The loan loss
allowance recorded for these commercial loans was
$23.6 million at December 31, 2020. Future funding commitments
on the restructured loans totaled $4.1 million at December 31,
2020.
At December 31, 2020, the amortized cost basis of commercial loans
on nonaccrual status was $46.8 million. For the year ended December
31, 2020, the Company recognized interest income on commercial
loans on nonaccrual status of $2.1 million.
At December 31, 2020, the Company had unfunded commercial real
estate loan commitments of $99.3 million. At December 31, 2020, the
liability related to the expected credit losses on the unfunded
commercial loan commitments was $5.1 million.
At December 31, 2020, approximately 94%
of the carrying value, net of allowances of the Company’s CRE Debt
and Preferred Equity Investments, including loans transferred or
pledged to securitization vehicles, were
adjustable-rate.
The sector attributes of the Company’s commercial real estate
investments held for sale at June 30, 2021 and held for investment
at December 31, 2020 were as follows:
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Sector Dispersion |
|
June 30, 2021
|
|
December 31, 2020 |
|
Carrying Value |
|
% of Loan Portfolio |
|
Carrying Value |
|
% of Loan Portfolio |
|
(dollars in thousands) |
Office |
$ |
581,039 |
|
|
43.3 |
% |
|
$ |
650,034 |
|
|
47.4 |
% |
Retail |
249,676 |
|
|
18.6 |
% |
|
256,493 |
|
|
18.7 |
% |
Multifamily |
220,331 |
|
|
16.4 |
% |
|
250,095 |
|
|
18.2 |
% |
Industrial |
116,125 |
|
|
8.7 |
% |
|
60,097 |
|
|
4.4 |
% |
Hotel |
100,942 |
|
|
7.5 |
% |
|
115,536 |
|
|
8.4 |
% |
Other |
54,441 |
|
|
4.1 |
% |
|
20,302 |
|
|
1.5 |
% |
Healthcare |
19,145 |
|
|
1.4 |
% |
|
19,873 |
|
|
1.4 |
% |
Total |
$ |
1,341,699 |
|
|
100.0 |
% |
|
|