8-K: Annaly Capital Management Reports Strong Fourth Quarter and Full Year 2024 Results, Driven by Growth in Key Portfolios

Annaly Capital Management announces positive financial results for Q4 2024 and the full year, highlighting growth in Agency, Residential Credit, and MSR portfolios.

Summary

• Annaly Capital Management reported GAAP net income of $0.78 per average common share for the fourth quarter of 2024.
• Earnings available for distribution (EAD) were $0.72 per average common share for the quarter.
• The company achieved an economic return of 1.3% for the fourth quarter and 11.9% for the full year 2024.
• Book value per common share stood at $19.15.
• GAAP leverage was 7.1x, increasing from 6.9x in the prior quarter, while economic leverage decreased from 5.7x to 5.5x.
• A quarterly common stock cash dividend of $0.65 per share was declared.
• The total portfolio was $80.9 billion, including $70.6 billion in the highly liquid Agency portfolio.
• The Agency portfolio decreased modestly by 3%, focusing on higher coupon securities.
• The Residential Credit portfolio increased 8% quarter-over-quarter to $7.0 billion.
• Record whole loan locks and settlements were achieved at $5.4 billion and $4.0 billion, respectively.
• The MSR portfolio increased 17% quarter-over-quarter to $3.3 billion.
• Net interest margin increased 69 basis points to 0.75%, and net interest margin (excluding PAA) increased 19 basis points to 1.71%.
• Average GAAP cost of interest-bearing liabilities decreased to 4.96%, down 46 basis points.
• The company has $6.9 billion of total assets available for financing.
• The Agency portfolio increased by nearly $5 billion throughout 2024, increasing the weighted average coupon from 4.57% to 5.00%.
• The Residential Credit portfolio increased 17% year-over-year.
• The MSR portfolio grew by 24% year-over-year.
• Annaly raised $1.6 billion of accretive common equity through its at-the-market sales program.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, growth in key portfolios, and optimistic management commentary. The company's strategic positioning and risk management contribute to a favorable sentiment.

Positives

• Annaly achieved a strong economic return of 11.9% for the full year 2024.
• The Agency portfolio experienced significant growth, increasing by nearly $5 billion.
• The Residential Credit business saw substantial growth, driven by record production.
• The MSR portfolio expanded, enhancing Annaly's leadership in the sector.
• Net interest margin improved, indicating enhanced profitability.
• The company successfully raised $1.6 billion of accretive common equity.
• Annaly's Residential Credit Group priced a record 21 whole loan securitizations totaling $11.0 billion in 2024.
• Financing costs decreased quarter-over-quarter with average GAAP cost of interest-bearing liabilities of 4.96%, down 46 basis points quarter-over-quarter, and average economic cost of interest-bearing liabilities of 3.79%, down 14 basis points quarter-over-quarter.

Negatives

• GAAP leverage increased from 6.9x to 7.1x in the prior quarter.
• The Agency portfolio decreased modestly by 3%.

Risks

• Changes in interest rates could impact the company's performance.
• Changes in prepayment rates could affect the value of mortgage-backed securities.
• The availability of financing and its terms could impact the company's ability to operate.
• Changes in 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 impact performance.
• Operational risks, including cybersecurity incidents, could disrupt business operations.

Future Outlook

Annaly is optimistic about 2025, citing favorable dynamics in Agency MBS, Residential Credit, and MSR portfolios, including attractive returns, improved supply and demand, decreasing financing costs, and a steeper yield curve.

Management Comments

• Annaly generated an economic return of 11.9% in 2024 supported by strong performance from each of our three investment strategies, remarked David Finkelstein, Chief Executive Officer and Co-Chief Investment Officer.
• As we noted in our Investor Day in November, our outlook for 2025 is optimistic given favorable dynamics across each of our businesses.

Industry Context

Annaly's growth in MSR and Residential Credit positions it well to capitalize on market opportunities, while its Agency portfolio remains a stable core asset. The company's focus on managing leverage and liquidity is consistent with a cautious approach in a volatile market.

Comparison to Industry Standards

• Annaly's economic return of 11.9% is competitive within the mortgage REIT sector, where returns can vary widely based on portfolio composition and risk management.
• As the third largest purchaser of MSR in 2024, Annaly's MSR portfolio grew by 24% year-over-year; differentiated portfolio with the lowest note rate out of the top 20 servicers bolstered by recently expanded recapture and subservicing relationships with industry leaders.
• Annaly remained the largest non-bank issuer and the second largest issuer overall of Prime Jumbo and Expanded Credit MBS in 2024.

Management Changes

Stakeholder Impact

• Shareholders benefit from the strong economic return and consistent dividend payments.
• Employees are impacted by compensation expenses and general administrative expenses.
• Customers benefit from the company's investment strategies across mortgage finance.
• Suppliers and creditors are impacted by the company's financing and capital management activities.

Next Steps

• The company will hold the fourth quarter 2024 earnings conference call on January 30, 2025.
• Investors are encouraged to monitor the company's website and LinkedIn account for updates.

Key Dates