ANNALY CAPITAL MANAGEMENT INC [NLY] Filings

10-Q 1 nly-20220630.htm 10-Q nly-20220630


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: June 30, 2022

☐ 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 July 22, 2022 was 1,624,307,055.


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 June 30, 2022 (Unaudited) and December 31, 2021 (Derived from the audited consolidated financial statements at December 31, 2021)			1
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and six months ended June 30, 2022 and 2021			2
Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and six months ended June 30, 2022 and 2021			3
Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2022 and 2021			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			9
Note 6. Loans			13
Note 7. Mortgage Servicing Rights			15
Note 8. Variable Interest Entities			16
Note 9. Sale of Commercial Real Estate Business			19
Note 10. Sale of Middle Market Lending Portfolio			19
Note 11. Derivative Instruments			19
Note 12. Fair Value Measurements			25
Note 13. Goodwill and Intangible Assets			28
Note 14. Secured Financing			29
Note 15. Capital Stock			30
Note 16. Interest Income and Interest Expense			32
Note 17. Net Income (Loss) per Common Share			33
Note 18. Income Taxes			33
Note 19. Risk Management			34

Note 20. Lease Commitments and Contingencies			35
Note 21. Arcola Regulatory Requirements			35
Note 22. Subsequent Events			36
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			37
Special Note Regarding Forward-Looking Statements			37
Overview			39
Business Environment			39
Results of Operations			41
Financial Condition			54
Capital Management			58
Risk Management			59
Critical Accounting Estimates			68
Glossary of Terms			71
Item 3. Quantitative and Qualitative Disclosures about Market Risk			80
Item 4. Controls and Procedures			80
PART II - OTHER INFORMATION
Item 1. Legal Proceedings			81
Item 1A. Risk Factors			81
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			81
Item 5. Other Information			81
Item 6. Exhibits			81
SIGNATURES			83

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)
	June 30,		December 31,
	2022		2021 (1)
	(Unaudited)
Assets
Cash and cash equivalents (includes pledged assets of $653,657 and $1,222,505, respectively) (2)	$	853,932	$	1,342,090
Securities (includes pledged assets of $53,145,730 and $56,675,447, respectively) (3)	59,042,734		63,655,674
Loans, net (includes pledged assets of $1,631,103 and $2,462,776, respectively) (4)	1,487,133		4,242,043
Mortgage servicing rights	1,421,420		544,562
Interests in MSR	83,622		69,316
Assets transferred or pledged to securitization vehicles	8,877,247		6,086,308

Assets of disposal group held for sale	97,414		194,138


Derivative assets	748,432		170,370


Receivable for unsettled trades	434,227		2,656
Principal and interest receivable	300,028		234,983


Goodwill and intangible assets, net	18,195		24,241
Other assets	272,865		197,683

Total assets	$	73,637,249	$	76,764,064
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements	$	51,364,097	$	54,769,643
Other secured financing	—		903,255

Debt issued by securitization vehicles	7,502,483		5,155,633
Participations issued	696,944		1,049,066

Liabilities of disposal group held for sale	3,608		154,956


Derivative liabilities	379,708		881,537
Payable for unsettled trades	1,995,960		147,908
Interest payable	91,962		91,176

Dividends payable	354,027		321,142
Other liabilities	158,560		94,423
Total liabilities	62,547,349		63,568,739
Stockholders’ equity







Preferred stock, par value $0.01 per share, 63,500,000 authorized, issued and outstanding	1,536,569		1,536,569
Common stock, par value $0.01 per share, 2,936,500,000 authorized, 1,609,215,497 and 1,459,736,258 issued and outstanding, respectively	16,092		14,597
Additional paid-in capital	21,281,077		20,313,832
Accumulated other comprehensive income (loss)	(4,310,926)		958,410
Accumulated deficit	(7,496,061)		(9,653,582)
Total stockholders’ equity	11,026,751		13,169,826
Noncontrolling interests	63,149		25,499
Total equity	11,089,900		13,195,325
Total liabilities and equity	$	73,637,249	$	76,764,064

(1)Derived from the audited consolidated financial statements at December 31, 2021.
(2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.4 million and $16.2 million at June 30, 2022 and December 31, 2021, respectively.
(3)Excludes $30.1 million and $44.2 million at June 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $971.9 million and $350.4 million at June 30, 2022 and December 31, 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition.
(4)Includes $1.5 million and $2.3 million of residential mortgage loans held for sale at June 30, 2022 and December 31, 2021, respectively.

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 June 30,				For The Six Months Ended June 30,
	2022		2021		2022		2021
Net interest income
Interest income	$	645,615	$	383,906	$	1,301,465	$	1,147,284
Interest expense	170,475		61,047		245,397		137,020
Net interest income	475,140		322,859		1,056,068		1,010,264
Net servicing income
Servicing and related income	$	55,685	$	10,519	$	90,400	$	19,748
Servicing and related expense	5,949		2,603		9,706		4,900
Net servicing income	49,736		7,916		80,694		14,848
Other income (loss)
Net gains (losses) on investments and other	(615,216)		20,207		(775,020)		58,612
Net gains (losses) on derivatives	1,015,643		(581,962)		2,657,671		587,421
Loan loss (provision) reversal	26,913		(494)		26,305		139,126
Business divestiture-related gains (losses)	(23,955)		1,527		(24,309)		(248,036)


Other, net	(5,486)		(6,241)		(2,428)		295
Total other income (loss)	397,899		(566,963)		1,882,219		537,418















General and administrative expenses
Compensation expense	22,243		32,013		55,245		63,531
Other general and administrative expenses	13,795		21,513		26,557		37,900
Total general and administrative expenses	36,038		53,526		81,802		101,431
Income (loss) before income taxes	886,737		(289,714)		2,937,179		1,461,099
Income taxes	23,420		5,134		49,968		4,813
Net income (loss)	863,317		(294,848)		2,887,211		1,456,286
Net income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Net income (loss) attributable to Annaly	866,696		(295,642)		2,888,951		1,455,171
Dividends on preferred stock	26,883		26,883		53,766		53,766
Net income (loss) available (related) to common stockholders	$	839,813	$	(322,525)	$	2,835,185	$	1,401,405
Net income (loss) per share available (related) to common stockholders
Basic	$	0.55	$	(0.23)	$	1.90	$	1.00
Diluted	$	0.55	$	(0.23)	$	1.90	$	1.00
Weighted average number of common shares outstanding
Basic	1,522,436,766		1,410,239,138		1,492,068,912		1,404,755,496
Diluted	1,523,595,000		1,410,239,138		1,493,254,890		1,405,764,272
Other comprehensive income (loss)
Net income (loss)	$	863,317	$	(294,848)	$	2,887,211	$	1,456,286
Unrealized gains (losses) on available-for-sale securities	(2,503,250)		(191,541)		(6,071,929)		(1,620,468)
Reclassification adjustment for net (gains) losses included in net income (loss)	657,806		(30,415)		802,593		26,408
Other comprehensive income (loss)	(1,845,444)		(221,956)		(5,269,336)		(1,594,060)
Comprehensive income (loss)	(982,127)		(516,804)		(2,382,125)		(137,774)
Comprehensive income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Comprehensive income (loss) attributable to Annaly	(978,748)		(517,598)		(2,380,385)		(138,889)
Dividends on preferred stock	26,883		26,883		53,766		53,766
Comprehensive income (loss) attributable to common stockholders	$	(1,005,631)	$	(544,481)	$	(2,434,151)	$	(192,655)


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 June 30,				For The Six Months Ended June 30,
	2022		2021		2022		2021
Preferred stock
Beginning of period	$	1,536,569	$	1,536,569	$	1,536,569	$	1,536,569



End of period	$	1,536,569	$	1,536,569	$	1,536,569	$	1,536,569
Common stock
Beginning of period	$	14,610	$	13,985	$	14,597	$	13,982
Issuance	1,480		456		1,488		456

Stock-based award activity	2		1		7		4


End of period	$	16,092	$	14,442	$	16,092	$	14,442
Additional paid-in capital
Beginning of period	$	20,321,952	$	19,754,826	$	20,313,832	$	19,750,818
Issuance	948,015		419,970		954,111		419,970

Stock-based award activity	11,110		3,896		13,134		7,904



End of period	$	21,281,077	$	20,178,692	$	21,281,077	$	20,178,692
Accumulated other comprehensive income (loss)
Beginning of period	$	(2,465,482)	$	2,002,231	$	958,410	$	3,374,335
Unrealized gains (losses) on available-for-sale securities	(2,503,250)		(191,541)		(6,071,929)		(1,620,468)
Reclassification adjustment for net gains (losses) included in net income (loss)	657,806		(30,415)		802,593		26,408
End of period	$	(4,310,926)	$	1,780,275	$	(4,310,926)	$	1,780,275
Accumulated deficit
Beginning of period	$	(7,980,407)	$	(9,251,804)	$	(9,653,582)	$	(10,667,388)


Net income (loss) attributable to Annaly	866,696		(295,642)		2,888,951		1,455,171
Dividends declared on preferred stock (1)	(26,883)		(26,883)		(53,766)		(53,766)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)	(355,467)		(318,534)		(677,664)		(626,880)

End of period	$	(7,496,061)	$	(9,892,863)	$	(7,496,061)	$	(9,892,863)
Total stockholder’s equity	$	11,026,751	$	13,617,115	$	11,026,751	$	13,617,115
Noncontrolling interests
Beginning of period	$	51,528	$	11,788	$	25,499	$	13,480
Net income (loss) attributable to noncontrolling interests	(3,379)		794		(1,740)		1,115
Equity contributions from (distributions to) noncontrolling interests	15,000		9,479		39,390		7,466
End of period	$	63,149	$	22,061	$	63,149	$	22,061
Total equity	$	11,089,900	$	13,639,176	$	11,089,900	$	13,639,176

(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,
	2022		2021
Cash flows from operating activities
Net income (loss)	$	2,887,211	$	1,456,286
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net	19,404		313,306
Amortization of securitized debt premiums and discounts and deferred financing costs	(4,378)		(4,269)
Depreciation, amortization and other noncash expenses	11,145		17,718
Net (gains) losses on investments and derivatives	(1,944,200)		(808,867)
Business divestiture-related (gains) losses	24,309		248,036
Income (loss) from unconsolidated joint ventures	(10,378)		5,889
Loan loss provision (reversal)	(26,305)		(139,126)

Payments on purchases of loans held for sale	—		(49,586)

Proceeds from sales and repayments of loans held for sale	1,619		84,991






Net receipts (payments) on derivatives	1,639,329		606,454
Net change in

Other assets	(42,741)		(121,876)
Interest receivable	(19,128)		18,677
Interest payable	435		(16,165)
Other liabilities	180,529		(40,425)
Net cash provided by (used in) operating activities	2,716,851		1,571,043
Cash flows from investing activities
Payments on purchases of securities	(14,422,639)		(12,581,731)
Proceeds from sales of securities	8,390,532		6,350,647
Principal payments on securities	5,737,737		10,228,935
Payments on purchases and origination of loans	(3,981,495)		(2,754,376)
Proceeds from sales of loans	1,832,930		116,570
Principal payments on loans	1,073,579		1,498,768
Payments on purchases of MSR	(683,972)		(98,983)
Proceeds from sales of MSR	9,065		376
Payments on purchases of interests in MSR	(4,913)		(47,098)
Investments in real estate	—		(1,815)
Proceeds from sales of real estate	—		53,910
Proceeds from reverse repurchase agreements	7,750,024		12,084,313
Payments on reverse repurchase agreements	(7,750,024)		(12,084,313)
Distributions in excess of cumulative earnings from unconsolidated joint ventures	—		290

Proceeds from sale of equity securities	—		6,957


Net cash provided by (used in) investing activities	(2,049,176)		2,772,450
Cash flows from financing activities
Proceeds from repurchase agreements and other secured financing	1,849,361,390		1,129,837,127
Payments on repurchase agreements and other secured financing	(1,853,629,599)		(1,134,179,055)

Proceeds from issuances of securitized debt	3,946,614		969,165
Principal payments on securitized debt	(843,470)		(863,095)
Payments from relief of securitized debt	(2,990)		—

Net proceeds from stock offerings, direct purchases and dividend reinvestments	955,599		420,426

Proceeds from participations issued	1,216,950		499,864
Payments on repurchases of participations issued	(1,468,384)		(223,828)
Principal payments on participations issued	(31,844)		(4,015)
Net principal receipts (payments) on mortgages payable	—		(659)
Net contributions (distributions) from (to) noncontrolling interests	39,390		7,466

Settlement of stock-based awards in satisfaction of withholding tax requirements	(3,050)		(992)
Dividends paid	(696,439)		(669,144)
Net cash provided by (used in) financing activities	(1,155,833)		(4,206,740)
Net (decrease) increase in cash and cash equivalents	$	(488,158)	$	136,753
Cash and cash equivalents including cash pledged as collateral, beginning of period	1,342,090		1,243,703
Cash and cash equivalents including cash pledged as collateral, end of period	$	853,932	$	1,380,456
Supplemental disclosure of cash flow information
Interest received	$	1,144,124	$	1,478,377
Dividends received	$	—	$	51


Interest paid (excluding interest paid on interest rate swaps)	$	170,594	$	183,952
Net interest received (paid) on interest rate swaps	$	(75,898)	$	(137,018)
Taxes received (paid)	$	(1,661)	$	(333)
Noncash investing and financing activities
Receivable for unsettled trades	$	434,227	$	14,336
Payable for unsettled trades	$	1,995,960	$	154,405
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	$	(5,269,336)	$	(1,594,060)


Dividends declared, not yet paid	$	354,027	$	317,714
Derecognition of assets of consolidated VIEs	$	—	$	976,690
Derecognition of securitized debt of consolidated VIEs	$	—	$

ANNALY CAPITAL MANAGEMENT INC [NLY] Filings
ANNALY CAPITAL MANAGEMENT INC [NLY-PF] Filings
ANNALY CAPITAL MANAGEMENT INC [NLY-PG] Filings
ANNALY CAPITAL MANAGEMENT INC [NLY-PI] Filings
10-Q	[2022-08-01]
10-Q	[2022-05-04]
10-K	[2022-02-18]
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-PF] Filings

ANNALY CAPITAL MANAGEMENT INC [NLY-PG] Filings

ANNALY CAPITAL MANAGEMENT INC [NLY-PI] Filings