8-K: Annaly Capital Management Reports Strong Fourth Quarter and Full Year 2024 Performance

Annaly Capital Management announces a ~12% economic return for the year, driven by strong performance across its diversified housing finance model.

Summary

• Annaly Capital Management generated a ~12% economic return for the year 2024.
• Earnings available for distribution were $0.72 per average common share for the fourth quarter.
• The book value per common share was $19.15.
• A quarterly common stock cash dividend of $0.65 per share was declared.
• Economic leverage decreased to 5.5x in the fourth quarter, down from 5.7x in the third quarter.
• The company has $6.9 billion of total assets available for financing, including $3.9 billion in cash and unencumbered Agency MBS.
• Annaly Residential Credit Group priced 21 residential whole loan securitizations totaling $11.0 billion in proceeds in 2024.
• Financing costs decreased, with the average GAAP cost of interest-bearing liabilities at 4.96%, down 46 basis points quarter-over-quarter.
• The average economic cost of interest-bearing liabilities was 3.79%, down 14 basis points quarter-over-quarter.
• The company raised $1.6 billion of accretive common equity through its at-the-market sales program in 2024.
• The total portfolio is $80.9 billion, including $70.6 billion in Agency MBS.
• The Residential Credit portfolio increased to $7.0 billion, a 17% year-over-year increase.
• The MSR portfolio increased 24% year-over-year to $3.3 billion in market value.
• The correspondent channel achieved $17.6 billion in lock volume and $11.7 billion in funded volume during 2024.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial performance, strategic growth in key segments, and a well-managed portfolio. While risks are acknowledged, the overall tone is optimistic and confident.

Positives

• Annaly generated a ~12% economic return for the year.
• Earnings available for distribution exceeded the dividend.
• Economic leverage decreased from the previous quarter.
• The company increased financing capacity in its Residential Credit and MSR businesses.
• Financing costs decreased quarter-over-quarter.
• The company raised $1.6 billion of accretive common equity.
• The Residential Credit portfolio and MSR portfolio experienced significant year-over-year growth.
• The correspondent channel achieved record lock and funded volumes.

Negatives

• The Agency portfolio decreased modestly during the quarter, driven primarily by market value changes.
• Inflation rose slightly in the fourth quarter, hindering progress towards the Fed's 2% target.

Risks

• Changes in interest rates and the yield curve could impact performance.
• Changes in prepayment rates could affect the value of mortgage-backed securities.
• The availability of financing and its terms could impact profitability.
• Changes in the market value of the company's assets could affect financial results.
• Credit risks related to investments in credit risk transfer securities and residential mortgage-backed securities could lead to losses.
• Operational risks, including cybersecurity incidents, could disrupt business operations.

Future Outlook

The company expects non-Agency issuance to grow ~20%+ driven by strong Non-QM demand, as well as growth in other products including 2nd Lien / HELOC and Jumbo loans in 2025. Further moderation towards $400 billion expected for 2025 in MBS supply.

Industry Context

The company is operating in an environment where the U.S. economy remains strong, but inflation is hindering progress towards the Fed's 2% target. The favorable environment for Agency MBS has resulted from factors including spread levels remaining attractive, steeper yield curve and decreasing financing costs improving carry, supply/demand moving into balance with reduced origination and stable demand from money mangers and banks, prepayment risk remains muted and volatility remains above historical averages.

Comparison to Industry Standards

• Annaly Residential Credit Group remains the largest non-bank issuer and the second largest issuer overall of Prime Jumbo and Expanded Credit MBS.
• OBX is one of the largest and most liquid sponsors of residential credit securitizations, representing nearly 25% of Non-QM issuance and nearly 10% of total gross Non-Agency issuance in 2024.
• Annaly was the third largest buyer of conventional MSR in 2024.
• Annaly remains a top 10 Agency MBS servicer with the lowest note rate among the top 20 servicers.

Stakeholder Impact

• Shareholders benefit from the economic return and dividend payments.
• Employees benefit from the company's growth and success.
• Customers benefit from the company's ability to provide financing solutions.
• Suppliers benefit from the company's continued business activity.
• Creditors benefit from the company's strong financial position.

Next Steps

• The company will continue to focus on rotating further into higher coupons in its Agency portfolio.
• The company will continue to build out flow purchase capabilities and is well-positioned for bulk acquisitions in the MSR market.
• The company will continue to focus on proprietary modeling of the portfolio.

Key Dates