ANNALY CAPITAL MANAGEMENT INC [NLY] Filings

10-Q 1 nly-20210930.htm 10-Q nly-20210930


UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED: September 30, 2021

☐ 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)


Maryland		22-3479661
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

1211 Avenue of the Americas
New York,	New York	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:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered

Common Stock, par value $0.01 per share	NLY	New York Stock Exchange




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

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.

Large accelerated filer

☑

Accelerated
filer

☐

Non-accelerated filer

☐

Smaller reporting company

☐

Emerging growth company

☐

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 October 22, 2021 was 1,450,120,688.


ANNALY CAPITAL MANAGEMENT, INC.
FORM 10-Q
TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION			Page
Item 1. Financial Statements			1
Consolidated Statements of Financial Condition at September 30, 2021 (Unaudited) and December 31, 2020 (Derived from the audited consolidated financial statements at December 31, 2020)			1
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine months ended September 30, 2021 and 2020			2
Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2021 and 2020			3
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2021 and 2020			4
Notes to Consolidated Financial Statements (Unaudited)			5
Note 1. Description of Business			5
Note 2. Basis of Presentation			5
Note 3. Significant Accounting Policies			6
Note 4. Financial Instruments			9
Note 5. Securities			10
Note 6. Loans			13
Note 7. Mortgage Servicing Rights			22
Note 8. Variable Interest Entities			23
Note 9. Sale of Commercial Real Estate Business			26
Note 10. Derivative Instruments			28
Note 11. Fair Value Measurements			34
Note 12. Goodwill and Intangible Assets			37
Note 13. Secured Financing			38
Note 14. Capital Stock			39
Note 15. Interest Income and Interest Expense			41
Note 16. Net Income (Loss) per Common Share			42
Note 17. Income Taxes			42
Note 18. Risk Management			43
Note 19. Related Party Transactions			44
Note 20. Lease Commitments and Contingencies			44
Note 21. Arcola Regulatory Requirements			45
Note 22. Subsequent Events			45
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			47
Special Note Regarding Forward-Looking Statements			47
Overview			49
Business Environment and COVID-19			49
Results of Operations			51
Financial Condition			66
Capital Management			70
Risk Management			71
Critical Accounting Policies and Estimates			81
Glossary of Terms			83
Item 3. Quantitative and Qualitative Disclosures about Market Risk			92
Item 4. Controls and Procedures			92
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			93
Item 1A. Risk Factors			93
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			93
Item 5. Other Information			93
Item 6. Exhibits			93
SIGNATURES			95

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

PART I - FINANCIAL INFORMATION


ITEM 1. FINANCIAL STATEMENTS


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share data)
	September 30,		December 31,
	2021		2020 (1)
	(Unaudited)
Assets
Cash and cash equivalents (includes pledged assets of $896,255 and $1,137,809, respectively) (2)	$	1,046,300	$	1,243,703
Securities (includes pledged assets of $57,950,911 and $67,471,074, respectively) (3)	65,622,352		75,652,396
Loans, net (includes pledged assets of $2,267,661 and $2,231,035, respectively) (4)	3,580,521		3,083,821
Mortgage servicing rights (includes pledged assets of $0 and $5,541, respectively) (5)	572,259		100,895
Interests in MSR	57,530		—
Assets transferred or pledged to securitization vehicles	4,738,481		6,910,020
Real estate, net	—		656,314
Assets of disposal group held for sale (includes pledged assets of $52,684 and $0, respectively)	238,042		—


Derivative assets	331,395		171,134


Receivable for unsettled trades	42,482		15,912
Principal and interest receivable	234,810		268,073


Goodwill and intangible assets, net	25,371		127,341
Other assets	172,890		225,494

Total assets	$	76,662,433	$	88,455,103
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements	$	55,475,420	$	64,825,239
Other secured financing	729,555		917,876

Debt issued by securitization vehicles	3,935,410		5,652,982
Participations issued	641,006		39,198
Mortgages payable	—		426,256
Liabilities of disposal group held for sale	159,508		—


Derivative liabilities	912,134		1,033,345
Payable for unsettled trades	571,540		884,069
Interest payable	109,586		191,116

Dividends payable	318,986		307,613
Other liabilities	91,421		155,613
Total liabilities	62,944,566		74,433,307
Stockholders’ equity







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, 1,449,935,017 and 1,398,240,618 issued and outstanding, respectively	14,499		13,982
Additional paid-in capital	20,228,366		19,750,818
Accumulated other comprehensive income (loss)	1,638,638		3,374,335
Accumulated deficit	(9,720,270)		(10,667,388)
Total stockholders’ equity	13,697,802		14,008,316
Noncontrolling interests	20,065		13,480
Total equity	13,717,867		14,021,796
Total liabilities and equity	$	76,662,433	$	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 $11.0 million and $22.2 million at September 30, 2021 and December 31, 2020, respectively.
(3)Excludes $46.4 million and $81.5 million at September 30, 2021 and December 31, 2020, respectively, of Agency mortgage-backed securities, $245.8 million and $576.6 million at September 30, 2021 and December 31, 2020, respectively, of non-Agency mortgage-backed securities and $0 and $391.0 million at September 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 September 30, 2021 and December 31, 2020, respectively, and $2.1 million and $0 of corporate loans held for sale at September 30, 2021 and December 31, 2020, respectively.
(5)Includes $86.2 million and $0 million of mortgage servicing rights held for sale at September 30, 2021 and December 31, 2020.

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 COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) (Unaudited)
	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2021		2020		2021		2020
Net interest income
Interest income	$	412,972	$	562,443	$	1,560,256	$	1,702,281
Interest expense	50,438		115,126		187,458		804,631
Net interest income	362,534		447,317		1,372,798		897,650
Realized and unrealized gains (losses)
Net interest component of interest rate swaps	(54,411)		(62,529)		(217,245)		(141,070)
Realized gains (losses) on termination or maturity of interest rate swaps	(1,196,417)		(427)		(1,196,417)		(1,919,720)
Unrealized gains (losses) on interest rate swaps	1,380,946		170,327		2,012,141		(1,162,768)
Subtotal	130,118		107,371		598,479		(3,223,558)
Net gains (losses) on disposal of investments and other	12,002		198,888		(37,561)		652,150
Net gains (losses) on other derivatives and financial instruments	(45,168)		169,316		73,892		546,658
Net unrealized gains (losses) on instruments measured at fair value through earnings	90,817		121,255		198,992		(354,133)
Loan loss (provision) reversal	6,134		21,993		145,260		(146,084)
Business divestiture-related gains (losses)	(14,009)		—		(262,045)		—


Subtotal	49,776		511,452		118,538		698,591
Total realized and unrealized gains (losses)	179,894		618,823		717,017		(2,524,967)
Other income (loss)	16,221		3,714		31,364		23,204
General and administrative expenses
Compensation and management fee	27,859		29,196		91,390		107,057
Other general and administrative expenses	16,023		15,391		53,923		72,165
Total general and administrative expenses	43,882		44,587		145,313		179,222
Income (loss) before income taxes	514,767		1,025,267		1,975,866		(1,783,335)
Income taxes	(6,767)		9,719		(1,954)		(14,928)
Net income (loss)	521,534		1,015,548		1,977,820		(1,768,407)
Net income (loss) attributable to noncontrolling interests	2,290		(126)		3,405		(28)
Net income (loss) attributable to Annaly	519,244		1,015,674		1,974,415		(1,768,379)
Dividends on preferred stock	26,883		35,509		80,649		106,527
Net income (loss) available (related) to common stockholders	$	492,361	$	980,165	$	1,893,766	$	(1,874,906)
Net income (loss) per share available (related) to common stockholders
Basic	$	0.34	$	0.70	$	1.34	$	(1.32)
Diluted	$	0.34	$	0.70	$	1.33	$	(1.32)
Weighted average number of common shares outstanding
Basic	1,445,315,914		1,404,202,695		1,418,424,208		1,419,645,475
Diluted	1,446,357,867		1,404,368,300		1,419,502,205		1,419,645,475

Other comprehensive income (loss)
Net income (loss)	$	521,534	$	1,015,548	$	1,977,820	$	(1,768,407)
Unrealized gains (losses) on available-for-sale securities	(113,451)		(140,671)		(1,733,919)		2,220,271
Reclassification adjustment for net (gains) losses included in net income (loss)	(28,186)		(112,347)		(1,778)		(769,406)
Other comprehensive income (loss)	(141,637)		(253,018)		(1,735,697)		1,450,865
Comprehensive income (loss)	379,897		762,530		242,123		(317,542)
Comprehensive income (loss) attributable to noncontrolling interests	2,290		(126)		3,405		(28)
Comprehensive income (loss) attributable to Annaly	377,607		762,656		238,718		(317,514)
Dividends on preferred stock	26,883		35,509		80,649		106,527
Comprehensive income (loss) attributable to common stockholders	$	350,724	$	727,147	$	158,069	$	(424,041)


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 STOCKHOLDERS' EQUITY (dollars in thousands) (Unaudited)
	For The Three Months Ended September 30,				For The Nine Months Ended September 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	$	14,442	$	14,077	$	13,982	$	14,301
Issuance	55		—		511		—
Buyback of common stock	—		(49)		—		(277)
Stock-based award activity	2		—		6		3

Direct purchase and dividend reinvestment	—		1		—		2
End of period	$	14,499	$	14,029	$	14,499	$	14,029
Additional paid-in capital
Beginning of period	$	20,178,692	$	19,827,216	$	19,750,818	$	19,966,923
Issuance	48,853		—		468,823		(93)
Buyback of common stock	—		(31,363)		—		(174,799)
Stock-based award activity	821		1,510		8,725		4,928


Direct purchase and dividend reinvestment	—		669		—		1,073
End of period	$	20,228,366	$	19,798,032	$	20,228,366	$	19,798,032
Accumulated other comprehensive income (loss)
Beginning of period	$	1,780,275	$	3,842,074	$	3,374,335	$	2,138,191
Unrealized gains (losses) on available-for-sale securities	(113,451)		(140,671)		(1,733,919)		2,220,271
Reclassification adjustment for net gains (losses) included in net income (loss)	(28,186)		(112,347)		(1,778)		(769,406)
End of period	$	1,638,638	$	3,589,056	$	1,638,638	$	3,589,056
Accumulated deficit
Beginning of period - unadjusted	$	(9,892,863)	$	(11,871,927)	$	(10,667,388)	$	(8,309,424)
Cumulative effect of change in accounting principle for credit losses	—		—		—		(39,641)
Beginning of period - adjusted	(9,892,863)		(11,871,927)		(10,667,388)		(8,349,065)
Net income (loss) attributable to Annaly	519,244		1,015,674		1,974,415		(1,768,379)
Dividends declared on preferred stock (1)	(26,883)		(35,509)		(80,649)		(106,527)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)	(319,768)		(309,175)		(946,648)		(976,966)

End of period	$	(9,720,270)	$	(11,200,937)	$	(9,720,270)	$	(11,200,937)
Total stockholder’s equity	$	13,697,802	$	14,182,206	$	13,697,802	$	14,182,206
Noncontrolling interests
Beginning of period	$	22,061	$	4,137	$	13,480	$	4,327
Net income (loss) attributable to noncontrolling interests	2,290		(126)		3,405		(28)
Equity contributions from (distributions to) noncontrolling interests	(4,286)		8,455		3,180		8,167
End of period	$	20,065	$	12,466	$	20,065	$	12,466
Total equity	$	13,717,867	$	14,194,672	$	13,717,867	$	14,194,672

(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 Nine Months Ended September 30,
	2021		2020
Cash flows from operating activities
Net income (loss)	$	1,977,820	$	(1,768,407)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities








Amortization of premiums and discounts of investments, net	555,659

ANNALY CAPITAL MANAGEMENT INC [NLY] Filings
ANNALY CAPITAL MANAGEMENT INC [NLY-PG] Filings
ANNALY CAPITAL MANAGEMENT INC [NLY-PF] Filings
ANNALY CAPITAL MANAGEMENT INC [NLY-PI] Filings
10-Q	[2021-11-05]
10-Q	[2021-08-06]
10-Q	[2021-05-07]
10-K	[2021-02-19]
10-Q	[2020-11-06]
10-Q	[2020-08-06]
10-Q	[2020-05-08]
10-K	[2020-02-14]
10-Q	[2019-11-01]
10-Q	[2019-08-02]
10-Q	[2019-05-03]
10-K	[2019-02-15]
10-Q	[2018-11-02]
10-Q	[2018-08-03]
10-Q	[2018-05-03]
10-K	[2018-02-16]
10-Q	[2017-11-03]
10-Q	[2017-08-04]
10-Q	[2017-05-05]
10-K	[2017-02-23]
10-Q	[2016-11-04]
10-Q	[2016-08-04]
10-Q	[2016-05-05]
10-K	[2016-02-26]
10-Q	[2015-11-06]
10-Q	[2015-08-06]
10-Q	[2015-05-08]
10-K	[2015-02-26]
10-Q	[2014-11-06]
10-Q	[2014-08-07]
10-Q	[2014-05-08]
10-K	[2014-02-27]
10-Q	[2013-11-07]
10-Q	[2013-08-08]
10-Q	[2013-05-07]
10-K	[2013-02-26]
10-Q	[2012-11-06]
10-Q	[2012-08-07]
10-Q	[2012-05-08]
10-K	[2012-02-28]

ANNALY CAPITAL MANAGEMENT INC [NLY] Filings

ANNALY CAPITAL MANAGEMENT INC [NLY-PG] Filings

ANNALY CAPITAL MANAGEMENT INC [NLY-PF] Filings

ANNALY CAPITAL MANAGEMENT INC [NLY-PI] Filings