UNITED STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Date
of Report (Date of earliest event reported)
August
7, 2013
Annaly
Capital Management, Inc.
(Exact
Name of Registrant as Specified in its Charter)
Maryland |
1-13447 |
22-3479661 |
||
(State or Other Jurisdiction Of Incorporation) |
(Commission File Number) |
(I.R.S. Employer Identification No.) |
1211 Avenue of the Americas Suite 2902 New York, New York |
10036 |
|
(Address of Principal Executive Offices) |
(Zip Code) |
Registrant’s
telephone number, including area code: (212) 696-0100
(Former
Name or Former Address, if Changed Since Last Report)
Check the
appropriate box below if the Form 8-K filing is intended to
simultaneously satisfy the filing obligation of the registrant under any
of the following provisions:
⃞
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
⃞
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
⃞
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
⃞
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
Item 2.02. Results of Operations and Financial Condition
On August 7, 2013, the registrant issued a press release announcing its financial results for the quarter ended June 30, 2013. A copy of the press release is furnished as Exhibit 99.1 to this report.
On August 7, 2013, the registrant posted supplemental financial information on the Investor Relations section of its website (www.annaly.com). A copy of the supplemental financial information is furnished as Exhibit 99.2 to this report and incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits
(c) Exhibits
99.1 Press Release, dated August 7, 2013, issued by Annaly Capital Management, Inc.
99.2 Supplemental Financial Information for the quarter ended June 30, 2013
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ANNALY CAPITAL MANAGEMENT, INC. |
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By: |
/s/ Kathryn Fagan |
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Name: |
Kathryn Fagan |
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Title: |
Chief Financial Officer |
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Dated: |
August 7, 2013 |
Exhibit 99.1
Annaly Capital Management, Inc. Reports Results for the 2nd Quarter 2013
NEW YORK--(BUSINESS WIRE)--August 7, 2013--Annaly Capital Management, Inc. (NYSE: NLY) today reported GAAP net income for the quarter ended June 30, 2013 of $1.6 billion or $1.71 per average common share as compared to GAAP net income of $870.3 million or $0.90 per average common share for the quarter ended March 31, 2013, and GAAP net loss of $91.2 million or $0.10 per average common share for the quarter ended June 30, 2012.
Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes due 2015 (the “4% Convertible Notes”), impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. (“CreXus”), net income for the quarter ended June 30, 2013 was $460.6 million or $0.47 per average common share as compared to $464.4 million or $0.47 per average common share for the quarter ended March 31, 2013, and $546.2 million or $0.55 per average common share for the quarter ended June 30, 2012.
Agency mortgage-backed securities, Agency debentures, and corporate debt are considered Investment Securities. During the quarter ended June 30, 2013, the Company disposed of $14.8 billion of Investment Securities, resulting in a realized gain of $148.0 million. During the quarter ended March 31, 2013, the Company disposed of $17.2 billion of Investment Securities, resulting in a realized gain of $182.8 million. During the quarter ended June 30, 2012, the Company disposed of $6.4 billion of Investment Securities, resulting in a realized gain of $94.8 million.
Common dividends declared for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012 were $0.40, $0.45, and $0.55 per common share, respectively. The Company distributes dividends based on its current estimate of taxable earnings per common share, not GAAP earnings. Taxable and GAAP earnings will typically differ due to items such as non-taxable unrealized and realized gains and losses, differences in premium amortization and discount accretion, and non-deductible general and administrative expenses. The annualized dividend yield on the Company’s common stock for the quarter ended June 30, 2013, based on the June 30, 2013 closing price of $12.57, was 12.73%, as compared to 11.33% for the quarter ended March 31, 2013, and 13.11% for the quarter ended June 30, 2012.
On a GAAP basis, the Company produced an annualized return on average equity for the quarter ended June 30, 2013 of 45.87%, an annualized return on average equity for the quarter ended March 31, 2013 of 22.29%, and an annualized loss on average equity for the quarter ended June 30, 2012 of 2.26%. Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Notes, impairment of goodwill and loss on previously held equity interest in CreXus, the Company provided an annualized return on average equity for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, of 12.90%, 11.90%, and 13.56%, respectively. Leverage at June 30, 2013, March 31, 2013, and June 30, 2012, was 6.2:1, 6.6:1 and 6.0:1, respectively. Leverage includes loan participations and mortgage payable which are non-recourse to the Company.
Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly, commented on the Company’s results. “While the resulting sell-off in the bond market put pressure on asset values during the 2nd quarter, I believe that our focus on prudent risk management and the evolution of our capital allocation strategy has helped protect our portfolio and positions Annaly to take advantage of current market opportunities. We are prepared to be opportunistic given our low leverage, strong liquidity and sizeable capital production.”
For the quarter ended June 30, 2013, the annualized yield on average interest-earning assets was 2.51% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 1.53%, which resulted in an average interest rate spread of 0.98%. This was a 7 basis point increase from the 0.91% average interest rate spread for the quarter ended March 31, 2013, and a 56 basis point decrease from the 1.54% average interest rate spread for the quarter ended June 30, 2012.
Fixed-rate Agency mortgage-backed securities and debentures comprised 92% of the Company’s Investment Securities portfolio at June 30, 2013. Adjustable-rate Agency mortgage-backed securities and debentures comprised 8% of the Company’s Investment Securities portfolio. At June 30, 2013, the Company had entered into interest rate swaps with a notional amount of $48.5 billion, or 53% of the Company’s Agency mortgage-backed securities and debentures. Changes in the unrealized gains or losses on the interest rate swaps are reflected in the Company’s consolidated statements of comprehensive income. The purpose of the interest rate swaps is to mitigate the risk of rising interest rates that affect the Company’s cost of funds. Since the Company receives a floating rate on the notional amount of the swaps, the intended effect of the swaps is to lock in cost of financing. As of June 30, 2013, the swap portfolio had a weighted average pay rate of 2.05%, a weighted average receive rate of 0.22% and weighted average years to maturity of 5.04. As of June 30, 2013, substantially all of the Company’s Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and debentures.
The following table summarizes portfolio information for the Company:
June 30, 2013 | March 31, 2013 | June 30, 2012 | |||||||
Leverage at period-end * | 6.2:1 | 6.6:1 | 6.0:1 | ||||||
Fixed-rate Agency mortgage-backed securities and debentures as a percentage of portfolio |
92% | 92% | 92% | ||||||
Adjustable-rate Agency mortgage-backed securities and debentures as a percentage of portfolio |
8% | 8% | 7% | ||||||
Floating-rate Agency mortgage-backed securities and debentures as a percentage of portfolio |
- | - | 1% | ||||||
Notional amount of interest rate swaps as a percentage of Investment Securities |
53% | 46% | 41% | ||||||
Annualized yield on average interest-earning assets during the quarter |
2.51% |
2.37% |
3.04% |
||||||
Annualized cost of funds on average interest-bearing liabilities during the quarter |
1.53% | 1.46% | 1.50% | ||||||
Annualized interest rate spread during the quarter | 0.98% | 0.91% | 1.54% | ||||||
Weighted average days to maturity on interest-bearing liabilities at period-end |
196 | 202 | 216 | ||||||
Weighted average receive rate on interest rate swaps at period-end |
0.22% | 0.23% | 0.30% | ||||||
Weighted average pay rate on interest rate swaps at period-end |
2.05% | 2.08% | 2.29% | ||||||
* Includes loan participations and mortgage payable which are non-recourse to the Company. | |||||||||
The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2013:
Current | Weighted Average | Weighted Average | Weighted Average Years to | ||||||||||||
Maturity | Notional | Pay Rate | Receive Rate | Maturity | |||||||||||
|
(dollars in thousands) |
||||||||||||||
0 - 3 years | $ | 21,567,050 | 1.94 | % | 0.21 | % | 2.18 | ||||||||
3 - 6 years | 14,738,490 | 1.69 | % | 0.23 | % | 3.99 | |||||||||
6 - 10 years | 7,700,000 | 2.31 | % | 0.25 | % | 7.53 | |||||||||
Greater than 10 years | 4,466,750 | 3.32 | % | 0.22 | % | 18.08 | |||||||||
Total / Weighted Average | $ | 48,472,290 | 2.05 | % | 0.22 | % | 5.04 | ||||||||
The following table presents the maturities of repurchase agreements at June 30, 2013:
Maturity | Principal Balance | Weighted Average Rate | ||||||
|
|
(dollars in thousands) |
||||||
Within 30 days | $ | 32,749,247 | 0.42 | % | ||||
30 to 59 days | 18,675,058 | 0.41 | % | |||||
60 to 89 days | 2,827,502 | 0.58 | % | |||||
90 to 119 days | 6,522,227 | 0.37 | % | |||||
Over 120 days(1) | 20,623,301 | 1.27 | % | |||||
Total | $ | 81,397,335 | 0.64 | % |
(1) Of the total repurchase agreements, approximately 13% have a remaining maturity over 1 year.
The Constant Prepayment Rate for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, was 16%, 18% and 19%, respectively. The weighted average purchase price of the Company’s Agency mortgage-backed securities and debentures at June 30, 2013, March 31, 2013, and June 30, 2012, was 103.7%, 103.9% and 103.2%, respectively. The net amortization of premiums and accretion of discounts on Agency mortgage-backed securities and debentures for the quarters ended June 30, 2013, March 31, 2013, and June 30, 2012, was $320.2 million, $421.1 million, and $302.8 million, respectively. The total net premium and discount balance on Agency mortgage-backed securities and debentures at June 30, 2013, March 31, 2013, and June 30, 2012, was $5.3 billion, $5.4 billion, and $4.5 billion, respectively. At June 30, 2013, March 31, 2013, and June 30, 2012, the Company had a common stock book value per share of $13.03, $15.19 and $16.23, respectively.
Annaly’s principal business objective is to generate net income for distribution to its shareholders from its Investment Securities and from dividends it receives from its subsidiaries.
The Company prepares a supplement to provide additional quarterly information for the benefit of its shareholders. The supplement can be found at the Company’s website in the Investor Relations section under “Quarterly Supplemental Information”.
The Company will hold the 2013 second quarter earnings conference call on August 8, 2013 at 10:00 a.m. EDT. The number to call is 888-317-6003 for domestic calls and 412-317-6061 for international calls. The conference passcode is 4925037. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10031615. The replay is available for 48 hours after the earnings call. There will be a web cast of the call on www.annaly.com. If you would like to be added to the e-mail distribution list, please visit www.annaly.com, click on Investor Relations, then select Email Alerts and complete the email notification form.
This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements which are based on various assumptions (some of which are beyond our control) may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates, changes in the yield curve, changes in prepayment rates, the availability of mortgage-backed securities and other securities for purchase, the availability of financing and, if available, the terms of any financing, changes in the market value of our assets, changes in business conditions and the general economy, our ability to consummate any contemplated investment opportunities, our ability to integrate the commercial mortgage business, changes in government regulations affecting our business, our ability to maintain our qualification as a REIT for federal income tax purposes, our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended, and risks associated with the broker-dealer business of our subsidiary, and risks associated with the investment advisory business of our subsidiaries, including the removal by clients of assets they manage, their regulatory requirements and competition in the investment advisory business. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. We do not undertake, and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except share and per share data) |
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June 30,
2013 (Unaudited) |
March 31, 2013 (Unaudited) |
December 31, 2012(1) |
September 30, 2012 (Unaudited) |
June 30, 2012 (Unaudited) |
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ASSETS | |||||||||||||||||||||||||
Cash and cash equivalents | $ | 725,537 | $ | 1,862,550 | $ | 615,789 | $ | 2,264,854 | $ | 924,374 | |||||||||||||||
Reverse repurchase agreements | 171,234 | 4,933,465 | 1,811,095 | 1,612,384 | 2,025,471 | ||||||||||||||||||||
Investments, at fair value: | |||||||||||||||||||||||||
U.S. Treasury securities | - | 1,645,930 | 752,076 | 2,242,039 | 1,998,363 | ||||||||||||||||||||
Securities borrowed | 2,425,024 | 2,688,485 | 2,160,942 | 1,602,692 | 1,465,327 | ||||||||||||||||||||
Agency mortgage-backed securities | 92,487,318 | 108,256,671 | 123,963,207 | 129,597,714 | 118,500,649 | ||||||||||||||||||||
Agency debentures | 3,306,473 | 3,970,279 | 3,009,568 | 2,935,538 | 1,250,506 | ||||||||||||||||||||
Investments in affiliates | 134,948 | 267,547 | 234,120 | 224,899 | 203,057 | ||||||||||||||||||||
Commercial real estate investments | 1,005,560 | - | - | - | - | ||||||||||||||||||||
Corporate debt, held for investment | 61,682 | 66,539 | 63,944 | 64,928 | 60,638 | ||||||||||||||||||||
Receivable for investments sold | 1,499,140 | 1,292,478 | 290,722 | 470,266 | 1,320,996 | ||||||||||||||||||||
Accrued interest and dividends receivable | 340,671 | 388,665 | 419,259 | 434,026 | 420,390 | ||||||||||||||||||||
Receivable from Prime Broker | - | - | - | 3,272 | 3,272 | ||||||||||||||||||||
Receivable for investment advisory income | 10,374 | 12,817 | 17,730 | 20,271 | 20,743 | ||||||||||||||||||||
Intangible for customer relationships | 6,474 | 6,731 | 6,989 | 9,146 | 9,714 | ||||||||||||||||||||
Goodwill | 102,783 | 55,417 | 55,417 | 55,417 | 55,417 | ||||||||||||||||||||
Interest rate swaps, at fair value | 38,950 | - | - | - | - | ||||||||||||||||||||
Other derivatives | 91,270 | - | 9,830 | 559 | 3,717 | ||||||||||||||||||||
Other assets | 61,146 | 54,282 | 41,607 | 38,595 | 41,937 | ||||||||||||||||||||
Total assets | $ | 102,468,584 | $ | 125,501,856 | $ | 133,452,295 | $ | 141,576,600 | $ | 128,304,571 | |||||||||||||||
LIABILITIES AND STOCKHOLDERS’ EQUITY | |||||||||||||||||||||||||
Liabilities: | |||||||||||||||||||||||||
U.S. Treasury securities sold, not yet purchased, at fair value | $ | - | $ | 611,167 | $ | 495,437 | $ | 1,418,750 | $ | 1,884,922 | |||||||||||||||
Repurchase agreements | 81,397,335 | 100,322,942 | 102,785,697 | 101,033,146 | 96,760,797 | ||||||||||||||||||||
Securities loaned, at fair value | 2,284,245 | 2,330,060 | 1,808,315 | 1,248,968 | 1,113,107 | ||||||||||||||||||||
Payable for investments purchased | 2,833,214 | 3,203,461 | 8,256,957 | 16,107,038 | 7,387,410 | ||||||||||||||||||||
Payable for share buyback program | - | - | 141,149 | - | - | ||||||||||||||||||||
Convertible Senior Notes | 824,229 | 824,902 | 825,541 | 999,749 | 1,245,915 | ||||||||||||||||||||
Mortgage payable | 19,361 | - | - | - | - | ||||||||||||||||||||
Participation sold | 14,324 | - | - | - | - | ||||||||||||||||||||
Accrued interest payable | 164,190 | 175,749 | 186,896 | 181,502 | 174,819 | ||||||||||||||||||||
Dividends payable | 396,888 | 426,173 | 432,154 | 487,237 | 535,898 | ||||||||||||||||||||
Interest rate swaps, at fair value | 1,189,178 | 2,259,173 | 2,584,907 | 2,926,461 | 2,822,264 | ||||||||||||||||||||
Accounts payable and other liabilities | 82,316 | 37,048 | 10,798 | 83,086 | 94,853 | ||||||||||||||||||||
Other derivatives | - | 4,812 | - | - | - | ||||||||||||||||||||
Total liabilities | 89,205,280 | 110,195,487 | 117,527,851 | 124,485,937 | 112,019,985 | ||||||||||||||||||||
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 |
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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, 18,400,000, 18,400,000, 18,400,000 and 0 authorized, issued and outstanding, respectively |
445,457 | 445,457 | 445,457 | 445,457 | - | ||||||||||||||||||||
Common stock, par value $0.01 per share, 1,956,937,500, 1,956,937,500, 1,956,937,500, 1,956,937,500, and 1,975,337,500, authorized, 947,483,487, 947,293,099, 947,213,204, 974,799,779,and 974,684,401, issued and outstanding, respectively |
9,475 |
9,473 |
9,472 |
9,748 |
9,747 |
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Additional paid-in capital | 14,754,681 | 14,746,579 | 14,740,774 | 15,144,200 | 15,168,020 | ||||||||||||||||||||
Accumulated other comprehensive income (loss) | (1,289,246 | ) | 2,003,248 | 3,053,242 | 4,069,607 | 3,413,320 | |||||||||||||||||||
Accumulated deficit | (1,124,665 | ) | (2,365,990 | ) | (2,792,103 | ) | (3,045,951 | ) | (2,774,103 | ) | |||||||||||||||
Total stockholders’ equity | 13,263,304 | 15,306,369 | 15,924,444 | 17,090,663 | 16,284,586 | ||||||||||||||||||||
Total liabilities and stockholders’ equity | $ | 102,468,584 | $ | 125,501,856 | $ | 133,452,295 | $ | 141,576,600 | $ | 128,304,571 | |||||||||||||||
(1) Derived from the audited consolidated financial statements at December 31, 2012. | |||||||||||||||||||||||||
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands, except share and per share data) |
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For the quarters ended | |||||||||||||||||||||||||
June 30, | March 31, |
December 31, |
September 30, |
June 30, | |||||||||||||||||||||
2013 | 2013 | 2012 | 2012 | 2012 | |||||||||||||||||||||
Interest income: | |||||||||||||||||||||||||
Investment Securities | $ | 686,577 | $ | 724,820 | $ | 748,122 | $ | 751,739 | $ | 874,984 | |||||||||||||||
U.S. Treasury securities | 7,242 | 5,996 | 3,819 | 4,588 | 7,397 | ||||||||||||||||||||
Securities loaned | 2,302 | 2,612 | 2,106 | 2,581 | 2,698 | ||||||||||||||||||||
Commercial real estate investments | 13,906 | - | - | - | - | ||||||||||||||||||||
Reverse repurchase agreements | 2,775 | 3,636 | 2,449 | 2,225 | 1,122 | ||||||||||||||||||||
Other | 134 | 153 | 165 | 132 | 123 | ||||||||||||||||||||
Total interest income | 712,936 | 737,217 | 756,661 | 761,265 | 886,324 | ||||||||||||||||||||
Interest expense: | |||||||||||||||||||||||||
Repurchase agreements | 141,945 | 157,064 | 165,600 | 158,150 | 139,579 | ||||||||||||||||||||
Convertible Senior Notes | 16,364 | 15,813 | 15,503 | 18,026 | 18,965 | ||||||||||||||||||||
U.S. Treasury securities sold, not yet purchased | 4,075 | 2,788 | 2,930 | 3,739 | 5,801 | ||||||||||||||||||||
Securities borrowed | 1,737 | 1,925 | 1,458 | 1,978 | 2,098 | ||||||||||||||||||||
Participation sold | 134 | - | - | - | - | ||||||||||||||||||||
Total interest expense | 164,255 | 177,590 | 185,491 | 181,893 | 166,443 | ||||||||||||||||||||
Net interest income | 548,681 | 559,627 | 571,170 | 579,372 | 719,881 | ||||||||||||||||||||
Other income (loss): | |||||||||||||||||||||||||
Investment advisory income | 12,187 | 13,408 | 18,773 | 20,915 | 21,810 | ||||||||||||||||||||
Net gains (losses) on disposal of investments | 147,998 | 182,843 | 114,831 | 142,172 | 94,837 | ||||||||||||||||||||
Net loss on extinguishment of 4% Convertible Senior Notes | - | - | (75,012 | ) | (87,328 | ) | - | ||||||||||||||||||
Dividend income from affiliates | 4,048 | 6,431 | 7,097 | 7,097 | 6,621 | ||||||||||||||||||||
Net gains (losses) on trading assets | 54,046 | 1,549 | 15,181 | 1,368 | 1,105 | ||||||||||||||||||||
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities |
111,521 |
80,127 |
(31,148 |
) |
(33,563 |
) |
(26,103 |
) |
|||||||||||||||||
Impairment of goodwill | (23,987 | ) | - | - | - | - | |||||||||||||||||||
Loss on previously held equity interest in CreXus | (18,896 | ) | - | - | - | - | |||||||||||||||||||
Other income (loss) | 7,192 | 132 | 161 | 119 | 119 | ||||||||||||||||||||
Subtotal | 294,109 | 284,490 | 49,883 | 50,780 | 98,389 | ||||||||||||||||||||
Realized gains (losses) on interest rate swaps(1) | (212,727 | ) | (225,476 | ) | (228,155 | ) | (224,272 | ) | (222,002 | ) | |||||||||||||||
Realized gains (losses) on termination of interest rate swaps | (35,649 | ) | (16,378 | ) | - | - | - | ||||||||||||||||||
Unrealized gains (losses) on interest rate swaps | 1,109,022 | 325,734 | 341,554 | (104,197 | ) | (611,215 | ) | ||||||||||||||||||
Subtotal | 860,646 | 83,880 | 113,399 | (328,469 | ) | (833,217 | ) | ||||||||||||||||||
Total other income (loss) | 1,154,755 | 368,370 | 163,282 | (277,689 | ) | (734,828 | ) | ||||||||||||||||||
General and administrative expenses: | |||||||||||||||||||||||||
Compensation and management fee | 43,764 | 38,443 | 25,842 | 52,310 | 53,536 | ||||||||||||||||||||
Other general and administrative expenses | 21,367 | 13,469 | 14,242 | 10,694 | 11,020 | ||||||||||||||||||||
Total general and administrative expenses | 65,131 | 51,912 | 40,084 | 63,004 | 64,556 | ||||||||||||||||||||
Income (loss) before income taxes | 1,638,305 | 876,085 | 694,368 | 238,679 | (79,503 | ) | |||||||||||||||||||
Income taxes | 92 | 5,807 | (6,127 | ) | 13,921 | 11,656 | |||||||||||||||||||
Net income (loss) | 1,638,213 | 870,278 | 700,495 | 224,758 | (91,159 | ) | |||||||||||||||||||
Dividends on preferred stock | 17,992 | 17,992 | 19,717 | 9,367 | 6,508 | ||||||||||||||||||||
Net income (loss) available (related) to common shareholders | $ | 1,620,221 | $ | 852,286 | $ | 680,778 | $ | 215,391 | ($97,667 | ) | |||||||||||||||
Net income (loss) per share available (related) to common shareholders: |
|||||||||||||||||||||||||
Basic | $ | 1.71 | $ | 0.90 | $ | 0.70 | $ | 0.22 | ($0.10 | ) | |||||||||||||||
Diluted | $ | 1.64 | $ | 0.87 | $ | 0.68 | $ | 0.22 | ($0.10 | ) | |||||||||||||||
Weighted average number of common shares outstanding: | |||||||||||||||||||||||||
Basic | 947,411,380 | 947,249,901 | 970,602,863 | 974,729,078 | 974,555,392 | ||||||||||||||||||||
Diluted | 995,229,637 | 994,815,169 | 1,017,925,849 | 997,007,829 | 974,555,392 | ||||||||||||||||||||
Net income (loss) | $ | 1,638,213 | $ | 870,278 | $ | 700,495 | $ | 224,758 | ($91,159 | ) | |||||||||||||||
Other comprehensive income (loss): | |||||||||||||||||||||||||
Unrealized gains (losses) on available-for-sale securities | (3,144,496 | ) | (867,151 | ) | (894,972 | ) | 798,269 | 741,727 | |||||||||||||||||
Reclassification adjustment for net (gains) losses included in net income (loss) |
(147,998 |
) |
(182,843 |
) |
(121,393 |
) |
(141,982 |
) |
(94,837 |
) |
|||||||||||||||
Other comprehensive income (loss) | (3,292,494 | ) | (1,049,994 | ) | (1,016,365 | ) | 656,287 | 646,890 | |||||||||||||||||
Comprehensive income (loss) | ($1,654,281 | ) | ($179,716 | ) | ($315,870 | ) | $ | 881,045 | $ | 555,731 | |||||||||||||||
|
(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.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (dollars in thousands, except share and per share data) |
||||||||||
For the six months ended |
||||||||||
June 30, 2013 | June 30, 2012 | |||||||||
Interest income: | ||||||||||
Investment Securities | $ | 1,411,397 | $ | 1,725,408 | ||||||
U.S. Treasury securities | 13,238 | 8,815 | ||||||||
Securities loaned | 4,914 | 5,216 | ||||||||
Commercial real estate investments | 13,906 | - | ||||||||
Reverse repurchase agreements | 6,411 | 1,544 | ||||||||
Other | 287 | 236 | ||||||||
Total interest income | 1,450,153 | 1,741,219 | ||||||||
Interest expense: | ||||||||||
Repurchase agreements | 299,009 | 253,493 | ||||||||
Convertible Senior Notes | 32,177 | 33,692 | ||||||||
U.S. Treasury securities sold, not yet purchased | 6,863 | 8,445 | ||||||||
Securities borrowed | 3,662 | 4,158 | ||||||||
Participation sold | 134 | - | ||||||||
Total interest expense | 341,845 | 299,788 | ||||||||
Net interest income | 1,108,308 | 1,441,431 | ||||||||
Other income (loss): | ||||||||||
Investment advisory income | 25,595 | 42,450 | ||||||||
Net gains (losses) on disposal of investments | 330,841 | 175,136 | ||||||||
Dividend income from affiliates | 10,479 | 14,142 | ||||||||
Net gains (losses) on trading assets | 55,595 | 6,361 | ||||||||
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities |
191,648 |
4,774 |
||||||||
Impairment of goodwill | (23,987 | ) | - | |||||||
Loss on previously held equity interest in CreXus | (18,896 | ) | - | |||||||
Other income (loss) | 7,324 | 245 | ||||||||
Subtotal | 578,599 | 243,108 | ||||||||
Realized gains (losses) on interest rate swaps(1) | (438,203 | ) | (441,342 | ) | ||||||
Realized gains (losses) on termination of interest rate swaps | (52,027 | ) | (2,385 | ) | ||||||
Unrealized gains (losses) on interest rate swaps | 1,434,756 | (269,576 | ) | |||||||
Subtotal | 944,526 | (713,303 | ) | |||||||
Total other income (loss) | 1,523,125 | (470,195 | ) | |||||||
General and administrative expenses: | ||||||||||
Compensation and management fee | 82,207 | 112,550 | ||||||||
Other general and administrative expenses | 34,836 | 19,921 | ||||||||
Total general and administrative expenses | 117,043 | 132,471 | ||||||||
Income (loss) before income taxes | 2,514,390 | 838,765 | ||||||||
Income taxes | 5,899 | 28,118 | ||||||||
Net income (loss) | 2,508,491 | 810,647 | ||||||||
Dividends on preferred stock | 35,984 | 10,446 | ||||||||
Net income (loss) available (related) to common shareholders | $ | 2,472,507 | $ | 800,201 | ||||||
Net income (loss) per share available (related) to common
shareholders: |
||||||||||
Basic | $ | 2.61 | $ | 0.82 | ||||||
Diluted | $ | 2.51 | $ | 0.78 | ||||||
Weighted average number of common shares outstanding: | ||||||||||
Basic | 947,331,087 | 973,141,546 | ||||||||
Diluted | 995,151,942 | 1,052,888,301 | ||||||||
Net income (loss) | $ | 2,508,491 | $ | 810,647 | ||||||
Other comprehensive income (loss): | ||||||||||
Unrealized gains (losses) on available-for-sale securities | (4,011,647 | ) | 579,468 | |||||||
Reclassification adjustment for net (gains) losses included in net income (loss) |
(330,841 |
) |
(175,136 |
) |
||||||
Other comprehensive income (loss) | (4,342,488 | ) | 404,332 | |||||||
Comprehensive income (loss) | ($1,833,997 | ) | $ | 1,214,979 |
CONTACT:
Annaly Capital Management, Inc.
Investor Relations
1-888-8Annaly
www.annaly.com
Exhibit 99.2
2Q 2013 Stockholder Supplement August 7, 2013
This presentation, other written or oral communications 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) that may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities for purchase; the availability of financing and, if available, the terms of any financings; changes in the market value of our assets; changes in business conditions and the general economy; our ability to integrate and grow the commercial mortgage business; our ability to consummate any contemplated investment opportunities; risks associated with the businesses of our subsidiaries, including the investment advisory business of our wholly-owned subsidiaries, including: the removal by clients of assets managed, their regulatory requirements, and competition in the investment advisory business; risks associated with the broker-dealer business of our wholly-owned subsidiary; changes in government regulations affecting our business; our ability to maintain our qualification as a REIT for federal income tax purposes; and our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended. 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. Safe Harbor Notice
(1)Adjusted net income excludes unrealized gains (losses) on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes, impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. (2)Includes loan participations and mortgages payable which are non-recourse to the Company. (3)Includes Investment Securities, U.S. Treasury Securities, securities loaned, commercial real estate investments and reverse repurchase agreements. (4)Includes Agency mortgage-backed securities, Agency debentures and corporate debt. (5)Does not include $29.7 million of Real Estate Held-for-sale at June 30, 2013. (6)Based on GAAP net income, excluding depreciation and amortization expense, utilizing average net equity for the quarter ended June 30, 2013. 2Q13 Financial Overview .GAAP net income of $1.6 billion, or $1.71 per average common share, generating an annualized return on average equity of 45.87% .Adjusted net income(1) of $460.6 million, or $0.47 per average common share, generating an annualized adjusted return on average equity of 12.90% .Declared a $0.40 dividend per common share .Common stock book value per share of $13.03 .End of period total debt to equity of 6.2x(2) .Weighted average days to maturity on interest-bearing liabilities of 196 days . Annualized yield on average interest-earning assets(3) of 2.51% and annualized interest rate spread of 0.98% during the quarter .End of period Investment Securities(4) of $95.9 billion .End of period commercial real estate debt and preferred equity of $938.4 million with a weighted-average yield of 9.90% at quarter end .End of period commercial real estate held for investment of $37.5 million(5) with a net equity yield of 14.13%(6) Income Statement Balance Sheet Portfolio Unaudited 3
(1)Includes Agency mortgage-backed securities, Agency debentures and corporate debt. (2)Includes loan participations and mortgages payable which are non-recourse to the Company. Strategy Overview .Reinvest annual projected principal payments of $14 billion to $16 billion from existing holdings into higher yielding Agency mortgage-backed securities (“MBS”) .30-year and 15-year FNMA current coupon mortgages increased by 70 basis points and 73 basis points, respectively, in 2Q13 .Expected return on equity of 14% to 18% on purchase of Agency MBS in current market environment .Expected unlevered return on equity of 7.50% to 11.00% on new commercial real estate investments .Maintain conservative leverage profile (6.2x(2) at end of 2Q13) while increasing asset hedges .Maintain long-duration interest rate swaps while increasing notional as a percentage of Investment Securities(1) .Utilize derivatives to hedge against spikes in volatility and resultant interest rates Portfolio Positioning Market Opportunities Liability and Interest Rate Management .Allocate up to 25% of stockholders’ equity to investments outside of Agency mortgage-backed securities .Completed acquisition of CreXus shares not previously owned for $876.3 million .Manage Agency portfolio to further mitigate against market volatility and anticipation of tapering of Federal Reserve’s Quantitative Easing by continuing to shift position into lower duration assets .Disposed of $14.8 billion and $17.2 billion of Investment Securities(1) during 2Q13 and 1Q13, respectively, resulting in realized gains of $148.0 million and $182.8 million, respectively Unaudited 4
Last Four Quarters Financial Performance (1)Adjusted net income excludes unrealized gains (losses) on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes, impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. Unaudited, dollars in thousands except per share amounts Adjusted EPS(1) Annualized Adjusted Return on Equity Adjusted Net Income(1) Annualized Yield on Average Interest-Earning Assets $0.45 $0.46 $0.47 $0.47 $0.30 $0.40 $0.50 $0.60 3Q12 4Q12 1Q13 2Q13 10.78% 11.27% 11.90% 12.90% 8.00% 10.00% 12.00% 14.00% 16.00% 3Q12 4Q12 1Q13 2Q13 $449,846 $465,101 $464,417 $460,553 $350,000 $400,000 $450,000 $500,000 $550,000 3Q12 4Q12 1Q13 2Q13 2.54% 2.45% 2.37% 2.51% 0.00% 1.00% 2.00% 3.00% 4.00% 3Q12 4Q12 1Q13 2Q13 5
Illustrative Impact of Commercial Diversification Note: Dollar amounts of stockholders’ equity allocated to commercial based on 2Q13 amount of $13.3 billion. Agency MBS assumptions: 2.52% hedged unlevered yield, 0.35% borrowing cost and 6.0:1 total debt to stockholders’ equity supporting Agency portfolio. Commercial assumptions: 9.25% unlevered yield with no leverage added. Unaudited 2.59% 2.67% 2.76% 2.86% 2.97% 3.10% 6.0x 5.7x 5.4x 5.1x 4.8x 4.5x 2.30% 2.40% 2.50% 2.60% 2.70% 2.80% 2.90% 3.00% 3.10% 3.20% 4.0x 4.5x 5.0x 5.5x 6.0x 6.5x 7.0x 0.00% 5.00% 10.00% 15.00% 20.00% 25.00% Percentage and Dollar Amounts of Stockholders' Equity Allocated to Commercial ROE Per Unit of Leverage Total debt to stockholders' equity 6
Illustrative MBS Price Changes Source: Bloomberg. Note: Price information is provided for illustrative purposes only is for generic TBA Fannie Mae MBS. Prices can vary. (1)Change from end of 1Q13 to end of 2Q13. Unaudited Risk management involves numerous variables: .Coupon and maturity selection is imperative for MBS performance .Liquidity in each sector of the market can impact performance, especially in heightened volatility .Shorter-stated maturity does not always equate to less risk 30-Year MBS by Coupon 3.00% 3.50% 4.00% 4.50% 5.00% 5.50% Average QoQ total price change(1) ($5.34) ($4.06) ($2.41) ($1.88) ($0.63) ($0.38) ($2.45) Rate Move Attribution ($3.62) ($2.54) ($1.76) ($1.30) ($1.04) ($0.73) ($1.83) Basis Move Attribution ($1.72) ($1.52) ($0.65) ($0.58) $0.41 $0.35 ($0.62) 15-Year MBS by Coupon 2.00% 2.50% 3.00% 3.50% 4.00% 4.50% Average QoQ total price change(1) ($4.16) ($3.19) ($2.31) ($1.78) ($1.56) ($1.66) ($2.44) Rate Move Attribution ($3.22) ($2.49) ($1.71) ($1.14) ($0.88) ($0.68) ($1.69) Basis Move Attribution ($0.94) ($0.70) ($0.60) ($0.64) ($0.68) ($0.98) ($0.76) Total Debt to Stockholders' Equity 5.0x 6.0x 7.0x 8.0x 9.0x Levered 30-year price change ($14.69) ($17.14) ($19.58) ($22.03) ($24.48) Levered 15-year price change ($14.66) ($17.10) ($19.54) ($21.98) ($24.43)
Unaudited, numbers in thousands except per share amounts Summary Balance Sheet and Applicable Information (1)Includes Agency mortgage-backed securities, Agency debentures and corporate debt. (2)Includes common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. (3)Includes loan participations and mortgages payable which are non-recourse to the Company. For the quarters ended June 30, March 31, June 30, 2013 2013 2012 Agency mortgage-backed securities and debentures $95,793,791 $112,226,950 $119,751,155 Commercial real estate investments 1,005,560 - - Corporate debt held 61,682 66,539 60,638 Total Investment Securities(1) and commercial real estate investments 96,861,033 112,293,489 119,811,793 Repurchase agreements $81,397,335 $100,322,942 $96,760,797 Convertible Senior Notes 824,229 824,902 1,245,915 Mortgages payable 19,361 - - Participation sold 14,324 - - Total debt $82,255,249 $101,147,844 $98,006,712 Cumulative redeemable preferred stock $913,059 $913,059 $467,602 Common equity(2) 12,350,245 14,393,310 15,816,984 Total stockholders' equity $13,263,304 $15,306,369 $16,284,586 Total debt to total stockholders' equity(3) 6.2x 6.6x 6.0x Common stock book value per share $13.03 $15.19 $16.23 Total common stock shares outstanding 947,483 947,293 974,684
Unaudited, dollars in thousands except per share amounts Summary Income Statement and Applicable Information (1)Includes realized gains (losses) on interest rate swaps. (2)Adjusted net income excludes unrealized gains (losses) on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes, impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. For the quarters ended June 30, March 31, June 30, 2013 2013 2012 Total interest income $712,936 $737,217 $886,324 Total economic interest expense(1) 376,982 403,066 388,445 Economic net interest income(1) $335,954 $334,151 $497,879 Net income (loss) $1,638,213 $870,278 ($91,159) Net income (loss )available to common shareholders 1,620,221 852,286 (97,667) Earnings per common share $1.71 $0.90 ($0.10) Adjusted net income (loss)(2) $460,553 $464,417 $546,159 Adjusted net income available to common shareholders(2) 442,561 446,425 539,651 Adjusted earnings per common share(2) $0.47 $0.47 $0.55 Dividends declared per common share $0.40 $0.45 $0.55 Annualized return on average equity 45.87% 22.29% (2.26%) Annualized adjusted return on average equity(2) 12.90% 11.90% 13.56% Annualized yield on average interest-earning assets 2.51% 2.37% 3.04% Annualized cost of funds on average interest-bearing liabilities 1.53% 1.46% 1.50% Annualized interest rate spread 0.98% 0.91% 1.54% Weighted average three-month constant prepayment rate (CPR) 16% 18% 19%
Unaudited, dollars in thousands Components of Economic Net Interest Income (1)Includes Agency mortgage-backed securities, Agency debentures and corporate debt. (2)Includes realized gains (losses) on interest rate swaps. (3)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. For the quarters ended June 30, March 31, June 30, 2013 2013 2012 Interest income: Investment Securities(1) $686,577 $724,820 $874,984 U.S. Treasury securities 7,242 5,996 7,397 Securities loaned 2,302 2,612 2,698 Commercial real estate investments 13,906 - - Reverse repurchase agreements 2,775 3,636 1,122 Other 134 153 123 Total interest income $712,936 $737,217 $886,324 Economic interest expense:(2) Repurchase agreements $141,945 $157,064 $139,579 Realized gains (losses) on interest rate swaps(3) 212,727 225,476 222,002 Convertible Senior Notes 16,364 15,813 18,965 U.S. Treasury Securities sold, not yet purchased 4,075 2,788 5,801 Securities borrowed 1,737 1,925 2,098 Participation sold 134 - - Total economic interest expense(2) $376,982 $403,066 $388,445 Economic net interest income(2) $335,954 $334,151 $497,879
Unaudited Change in Annualized Interest Rate Spread Change from 1Q13 to 2Q13 Note: Graph shows relative changes in contribution from 1Q13 to 2Q13. For example, net amortization of premiums and accretion of discounts increased annualized interest rate spread by 0.24% more in 2Q13 versus 1Q13. (1) Includes realized gains (losses) on interest rate swaps. 0.24% 0.00% 0.25% 0.50% 0.75% 1.00% 1.25% 1Q13 Annualized interest rate spread Net amortization of premiums and accretion of discounts Cost of funds on average interest-bearing liabilities(1) Coupon on average interest-earning assets 2Q13 Annualized interest rate spread 0.91% (0.08%) (0.09%) 0.98%
Unaudited, dollars in thousands Reconciliation to Adjusted Net Income Reconciliation of 2Q13 Net Income to Adjusted Net Income(1) (1) Adjusted net income excludes unrealized gains (losses) on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes, impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. $23,987 ($1,109,022) ($111,521) $1,638,213 $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 Net income Impairment of goodwill Loss on previously held equity interest in CreXus Unrealized gains / losses on interest rate swaps Unrealized gains / losses on Agency interest-only MBS Adjusted net income $18,896 $460,553
Unaudited Change in Annualized Return on Average Equity Change from 1Q13 to 2Q13 Note: Graph shows relative changes in contribution from 1Q13 to 2Q13. For example, unrealized gains/losses on interest rate swaps increased annualized ROE by 22.71% more in 2Q13 versus 1Q13. (1) Includes realized gains (losses) on interest rate swaps. (2) Other includes investment advisory income, dividend income from affiliates, impairment of goodwill, loss on previously held equity interest in CreXus Investment Corp., other income (loss), realized gains (losses) on termination of interest rate swaps, general and administrative expenses, and income taxes. 22.71% 2.00% 1.82% 22.29% 0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 1Q13 ROE Unrealized gains / losses on interest rate swaps Realized / unrealized gains / losses on inv. and trading assets Net amortization of premiums and accretion of discounts Economic interest expense(1) Coupon income Other(2) 2Q13 ROE (1.98%) (0.74%) (0.24%) 45.87%
Unaudited Change in Annualized Adjusted Return on Average Equity Change from 1Q13 to 2Q13 Note: Graph shows relative changes in contribution from 1Q13 to 2Q13. For example, economic interest expense decreased annualized adjusted ROE by 0.24% more in 2Q13 versus 1Q13. (1) Includes realized gains (losses) on interest rate swaps. (2) Other includes investment advisory income, dividend income from affiliates, other income (loss), realized gains (losses) on termination of interest rate swaps, general and administrative expenses, and income taxes. 1.82% 0.93% 11.90% 0.00% 4.00% 8.00% 12.00% 16.00% 1Q13 Adjusted ROE Net amortization of premiums and accretion of discounts Realized gains / losses on inv. and trading assets Economic interest expense(1) Coupon income Other(2) 2Q13 Adjusted ROE (0.24%) (0.74%) (0.77%) 12.90%
Unaudited, dollars in thousands Agency MBS Portfolio Net Premium and Discount Balance and Constant Prepayment Rate $4,467,122 $5,453,012 $5,833,988 $5,367,186 $5,352,223 19% 20% 19% 18% 16% 27.43% 31.91% 36.64% 35.07% 40.35% 0% 10% 20% 30% 40% 50% 60% $0 $1,000,000 $2,000,000 $3,000,000 $4,000,000 $5,000,000 $6,000,000 $7,000,000 2Q12 3Q12 4Q12 1Q13 2Q13 Net premium and discount balance Weighted average three-month constant prepayment rate Net premium and discount balance as % of stockholders' equity
Unaudited Interest Rate and Liability Management Note: Interest rates do not take into consideration outstanding Convertible Senior Notes, loan participations or mortgages payable. 216 220 197 202 196 0.59% 0.61% 0.63% 0.59% 0.64% 1.99% 1.96% 1.97% 1.85% 1.83% 100 120 140 160 180 200 220 240 0.25% 0.75% 1.25% 1.75% 2.25% 2.75% 3.25% 2Q12 3Q12 4Q12 1Q13 2Q13 Weighted average days to maturity on interest-bearing liabilities Weighted average rate on repurchase agreements Weighted average net rate on interest rate swaps
Unaudited, dollars in thousands Interest Rate Swaps, Swaptions and Repurchase Agreements as of June 30, 2013 (1) Of the total repurchase agreements, approximately 13% have a remaining maturity over one year. Interest Rate Swaps Current Weighted Avg. Weighted Avg. Weighted Avg. Maturity Notional Pay Rate Receive Rate Years to Maturity 0 - 3 years $21,567,050 1.94% 0.21% 2.18 3 - 6 years 14,738,490 1.69% 0.23% 3.99 6 - 10 years 7,700,000 2.31% 0.25% 7.53 Greater than 10 years 4,466,750 3.32% 0.22% 18.08 Total / Weighted Avg. $48,472,290 2.05% 0.22% 5.04 Interest Rate Swaptions Weighted-Avg. Weighted-Avg. Weighted Avg. Weighted Avg. Current Underlying Underlying Underlying Underlying Months to Notional Pay Rate Receive Rate Years to Maturity Expiration $2,525,000 2.50% 0.27% 10.25 5.98 Repurchase Agreements Principal Weighted Avg. Maturity Balance Rate Within 30 days $32,749,247 0.42% 30 to 59 days 18,675,058 0.41% 60 to 89 days 2,827,502 0.58% 90 to 119 days 6,522,227 0.37% Over 120 days(1) 20,623,301 1.27% Total / Weighted Avg. $81,397,335 0.64%
Unaudited, dollars in thousands Agency MBS and Debentures Overview as of June 30, 2013 (1) Weighted averages for % originated pre-June 2009 and three-month CPR exclude Callables and Step-Up securities. Agency Fixed-Rate Securities Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Subject to Weighted Avg. Estimated Years to Maturity Face Value % Coupon Amortized Cost Fair Value HARP 3-Month CPR Fair Value <=15 years $3,631,071 4.7% 3.52% 104.2% 103.9% 10.7% 10.5% $3,772,708 20 years 8,655,861 11.2% 3.69% 104.4% 103.8% 1.0% 16.4% 8,983,658 >=30 years 64,720,462 83.7% 3.98% 105.4% 103.4% 6.3% 16.5% 66,908,014 Callables 340,798 0.4% 2.65% 99.4% 91.6% 0.0% 0.0% 312,245 Total/Weighted Avg.(1) $77,348,192 100.0% 3.92% 105.2% 103.4% 5.9% 16.2% $79,976,625 Agency Adjustable-Rate Securities Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Subject to Weighted Avg. Estimated Months to Reset Face Value % Coupon Amortized Cost Fair Value HARP 3-Month CPR Fair Value 0 - 24 months $2,891,027 38.8% 3.17% 100.3% 106.8% 90.1% 18.9% $3,084,677 25 - 40 months 133,018 1.8% 6.03% 100.2% 107.7% 100.0% 42.4% 142,911 41 - 60 months 510,451 6.8% 5.00% 101.3% 106.6% 59.0% 39.2% 543,334 61 - 90 months 328,974 4.4% 4.08% 102.8% 105.8% 0.6% 39.0% 348,058 >90 months 443,960 6.0% 3.49% 103.5% 104.1% 0.0% 26.1% 462,078 Step-Ups 3,144,725 42.2% 2.22% 99.9% 95.2% 0.0% 0.0% 2,994,228 Total/Weighted Avg.(1) $7,452,155 100.0% 3.00% 100.5% 101.7% 70.6% 24.3% $7,575,286
Unaudited, dollars in thousands Agency MBS and Debentures Overview as of June 30, 2013 (cont’d) Agency Fixed-Rate and Floating-Rate Collateralized Mortgage-Backed Obligations Current Weighted Avg. Weighted Avg. Weighted Avg. Subject to Weighted Avg. Estimated Type Face Value % Coupon Amortized Cost Fair Value HARP 3-Month CPR Fair Value Fixed-Rate $6,906,853 100.0% 3.67% 102.5% 102.1% 11.2% 23.3% $7,053,632 Floating-Rate Total/Weighted Avg. $6,906,853 100.0% 3.67% 102.5% 102.1% 11.2% 23.3% $7,053,632 Agency Interest-Only Collateralized Mortgage-Backed Obligations Current Notional Weighted Avg. Weighted Avg. Weighted Avg. Subject to Weighted Avg. Estimated Type Value % Coupon Amortized Cost Fair Value HARP 3-Month CPR Fair Value Interest-Only $6,979,941 87.2% 3.60% 13.2% 14.0% 11.5% 15.4% $976,491 Inverse Interest-Only 1,024,030 12.8% 6.04% 21.1% 20.7% 0.0% 10.5% 211,757 Total/Weighted Avg. $8,003,971 100.0% 3.91% 14.2% 14.9% 10.0% 14.8% $1,188,248
Interest Rate and MBS Spread Sensitivity Analysis as of June 30, 2013 Unaudited Assumptions: .The interest rate sensitivity and spread sensitivity are based on the portfolio as of June 30, 2013 .The interest rate sensitivities are instantaneous parallel shifts in rates .The spread sensitivity shifts MBS spreads instantaneously and reflects exposure to MBS basis risk .Both tables assume no active management of the portfolio Interest Rate Sensitivity Interest Rate Change (bps) Estimated Change in Portfolio Market Value Estimated Change as a % of NAV -75 1.1% 8.3% -50 0.9% 6.6% -25 0.5% 4.0% 25 -0.6% -4.3% 50 -1.2% -9.3% 75 -1.9% -14.8% MBS Spread Sensitivity MBS Spread Shock (bps) Estimated Change in Portfolio Market Value Estimated Change as a % of NAV -25 1.0% 7.9% -15 0.6% 4.9% -5 0.2% 1.8% 5 -0.2% -1.3% 15 -0.6% -4.6% 25 -1.0% -8.0%
Unaudited, dollars in thousands Commercial Real Estate Overview as of June 30, 2013 (1) Based on most recent third party appraisal, which may be prior to loan origination\purchase date. (2) Maturity dates assume all of the borrowers’ extension options are exercised. (3) Based on GAAP net income, excluding depreciation and amortization expense, utilizing average assets for the quarter ended June 30, 2013. (4) Based on GAAP net income, excluding depreciation and amortization expense, utilizing average net equity for the quarter ended June 30, 2013. (5) Does not include $29.7 million of Real Estate Held-for-sale at June 30, 2013. Carrying Amount % of Commercial Portfolio Weighted Average Coupon (WAC) Weighted Average Yield Weighted Average LTV(1) Weighted Average Maturity (WAM)(2) Senior Debt $331,372 33.96% 8.42% 8.63% 65.35% 2.42 years Subordinate and Mezzanine Debt 567,900 58.20% 10.56% 10.51% 72.15% 4.03 years Preferred Equity 39,085 4.01% 11.00% 11.67% 82.22% 10.18 years Total Commercial Real Estate Debt and Preferred Equity $938,357 96.16% 9.82% 9.90% 70.17% 3.72 years Carrying Amount % of Portfolio Gross Asset Yield(3) Net Equity Yield(4) Real Estate Held for Investment(5) $37,492 3.84% 6.86%(3) 14.13%(4)
Unaudited, dollars in thousands except per share amounts Last Five Quarters Summary Data (1) Includes realized gains (losses) on interest rate swaps. (2) Adjusted net income excludes unrealized gains (losses) on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes, impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp. For the quarters ended June 30, March 31, December 31, September 30, June 30, 2013 2013 2012 2012 2012 Total interest income $712,936 $737,217 $756,661 $761,265 $886,324 Total economic interest expense(1) $376,982 $403,066 $413,646 $406,165 $388,445 Economic net interest income(1) $335,954 $334,151 $343,015 $355,100 $497,879 Net income (loss) $1,638,213 $870,278 $700,495 $224,758 ($91,159) Net income (loss) available (related) to common shareholders $1,620,221 $852,286 $680,778 $215,391 ($97,667) Earnings per common share $1.71 $0.90 $0.70 $0.22 ($0.10) Adjusted net income (loss)(2) $460,553 $464,417 $465,101 $449,846 $546,159 Adjusted net income (loss) available (related) to common shareholders(2) $442,561 $446,425 $445,384 $440,479 $539,651 Adjusted earnings per common share(2) $0.47 $0.47 $0.46 $0.45 $0.55 Dividends declared per common share $0.40 $0.45 $0.45 $0.50 $0.55 Total common and preferred dividends declared $396,888 $444,165 $451,870 $496,606 $542,406 Annualized return on average equity 45.87% 22.29% 16.97% 5.39% (2.26%) Annualized adjusted return on average equity(2) 12.90% 11.90% 11.27% 10.78% 13.56% Annualized interest rate spread during the quarter: Annualized yield on average interest-earning assets 2.51% 2.37% 2.45% 2.54% 3.04% Annualized cost of funds on average interest-bearing liabilities 1.53% 1.46% 1.50% 1.52% 1.50% Annualized interest rate spread 0.98% 0.91% 0.95% 1.02% 1.54%
Unaudited, dollars in thousands Last Five Quarters Summary Data (cont’d) (1)Includes Agency mortgage-backed securities, Agency debentures and corporate debt. For the quarters ended June 30, March 31, December 31, September 30, June 30, 2013 2013 2012 2012 2012 Total Agency mortgage-backed securities and debentures $95,793,791 $112,226,950 $126,972,775 $132,533,252 $119,751,155 % Fixed-rate 92% 92% 93% 93% 92% % Adjustable-rate 8% 8% 7% 7% 7% % Floating-rate 0% 0% 0% 0% 1% Weighted-average three-month constant prepayment rate (CPR) 16% 18% 19% 20% 19% Net premium and discount balance in Agency MBS portfolio $5,352,223 $5,367,186 $5,833,988 $5,453,012 $4,467,122 Net premium and discount balance as % of stockholder's equity 40.35% 35.07% 36.64% 31.91% 27.43% Weighted-average purchase price 103.7% 103.9% 103.8% 103.7% 103.2% Commercial real estate investments $1,005,560 Corporate debt $61,682 $66,539 $63,944 $64,928 $60,638 Investment Securities(1) and commercial real estate investments $96,861,033 $112,293,489 $127,036,719 $132,598,180 $119,811,793 Interest rate swaps: Notional amount of interest rate swaps as a % of Investment Securities(1) 53% 46% 40% 38% 41% Weighted average pay rate on interest swaps 2.05% 2.08% 2.21% 2.23% 2.29% Weighted average receive rate on interest swaps 0.22% 0.23% 0.24% 0.27% 0.30% Weighted average net rate on interest swaps 1.83% 1.85% 1.97% 1.96% 1.99%
Unaudited, dollars in thousands except per share amounts Last Five Quarters Summary Data (cont’d) (1)Includes common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. (2)Includes loan participations and mortgages payable which are non-recourse to the Company. (3)Rates do not take into consideration outstanding Convertible Senior Notes, loan participations or mortgages payable. For the quarters ended June 30, March 31, December 31, September 30, June 30, 2013 2013 2012 2012 2012 Repurchase agreements $81,397,335 $100,322,942 $102,785,697 $101,033,146 $96,760,797 Convertible Senior Notes $824,229 $824,902 $825,541 $999,749 $1,245,915 Mortgages payable $19,361 Participation sold $14,324 Total debt $82,255,249 $101,147,844 $103,611,238 $102,032,895 $98,006,712 Cumulative redeemable preferred stock $913,059 $913,059 $913,059 $913,059 $467,602 Common equity(1) $12,350,245 $14,393,310 $15,011,385 $16,177,604 $15,816,984 Total stockholders' equity $13,263,304 $15,306,369 $15,924,444 $17,090,663 $16,284,586 Total debt to total stockholders' equity(2) 6.2x 6.6x 6.5x 6.0x 6.0x Common stock book value per share $13.03 $15.19 $15.85 $16.60 $16.23 Total common stock shares outstanding 947,483 947,293 947,213 974,800 974,684 Weighted average days to maturity of interest-bearing liabilities 196 202 197 220 216 Weighted average rate on repurchase agreements(3) 0.64% 0.59% 0.63% 0.61% 0.59%
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