8-K: Annaly Capital Management Reports Strong Q4 2023 Results, Driven by Diversified Housing Finance Model

Annaly Capital Management reported a strong economic return and earnings for the fourth quarter of 2023, driven by its diversified housing finance model and growth in non-Agency portfolios.

Summary

• Annaly Capital Management reported earnings available for distribution of $0.68 per average common share for the fourth quarter of 2023, an increase of $0.02 from the previous quarter.
• The company's book value per common share was $19.44.
• A quarterly common stock cash dividend of $0.65 per share was declared.
• Annaly achieved an economic return of 10.1% for the fourth quarter and 6.0% for the full year 2023.
• The total portfolio was $74.3 billion, with $65.7 billion in the highly liquid Agency portfolio, representing 88% of total assets and 62% of dedicated capital.
• The Residential Credit portfolio increased by 9% in the quarter, driven by record growth in the correspondent channel, including $2.7 billion of quarterly lock volume and $1.8 billion of whole loans settled.
• The MSR portfolio increased by 18% quarter-over-quarter, reaching $2.7 billion in assets and representing 18% of dedicated capital.
• Economic leverage decreased to 5.7x from 6.4x in the previous quarter.
• The company has $6.2 billion of total assets available for financing, including $3.8 billion in cash and unencumbered Agency MBS.
• Annaly's Residential Credit Group is the largest non-bank issuer and the second largest issuer overall of Prime Jumbo and Expanded Credit MBS, pricing 16 residential whole loan securitizations totaling $6.3 billion in proceeds since the beginning of 2023.
• The weighted average days to maturity for repurchase agreements decreased to 44 days from 52 days in the prior quarter.
• Financing costs increased modestly, with the average GAAP cost of interest-bearing liabilities at 5.37% and the average economic cost of interest-bearing liabilities at 3.42%.

Sentiment

Score: 8

Explanation: The document presents a positive outlook with strong financial results, growth in key business segments, and a strategic approach to managing risk. The company's performance is better than expected, and the management commentary is optimistic.

Positives

• Annaly generated strong economic returns and earnings that exceeded the dividend.
• The company is well-positioned to capitalize on investment opportunities with low leverage and significant liquidity.
• The diversified housing finance model delivered strong Q4 results.
• The Residential Credit portfolio saw record growth through the correspondent channel.
• The MSR portfolio experienced substantial growth.
• Annaly is a leading securitizer in the Residential Credit market.
• The company has a strong focus on high-quality assets with stable cash flows.
• Annaly has a prudent leverage position with substantial liquidity.
• The company's MSR portfolio has a low weighted average coupon and low prepayment rates.

Negatives

• Financing costs increased modestly, with the average GAAP cost of interest-bearing liabilities at 5.37%, up 10 basis points quarter-over-quarter.
• The average economic cost of interest-bearing liabilities was 3.42%, up 14 basis points quarter-over-quarter.
• The Agency portfolio decreased modestly during the quarter.

Risks

• Changes in interest rates and the yield curve could impact the company's performance.
• Changes in prepayment rates could affect the value of mortgage-backed securities.
• The availability of financing and the terms of any financing could pose risks.
• Changes in the market value of the company's assets could impact results.
• Credit risks related to investments in credit risk transfer securities and residential mortgage-backed securities could affect performance.
• Changes in government regulations or policy could impact the company's business.
• Operational risks or risk management failures, including cybersecurity incidents, could pose challenges.

Future Outlook

The company anticipates the Federal Reserve will cut interest rates to more normalized levels, which should broaden the Agency investor base. They expect the housing market to remain resilient and see potential for activity to modestly accelerate. Annaly expects to continue to focus on high-quality assets with stable cash flows and maintain a prudent leverage position.

Management Comments

• Annaly generated a strong economic return and earnings that outpaced the dividend despite elevated market volatility.
• Annaly remains well-positioned to take advantage of investment opportunities with low leverage and significant liquidity.
• Annaly's diversified housing finance model delivered strong Q4 results as Annaly continued to grow its non-Agency portfolios.

Industry Context

The report highlights Annaly's position as a leading player in the residential credit and MSR markets. The company's growth in these areas reflects a broader trend of non-bank financial institutions expanding their presence in the mortgage market. The company's focus on high-quality assets and strategic securitization aligns with industry best practices.

Comparison to Industry Standards

• Annaly's Residential Credit Group is the largest non-bank issuer and the second largest issuer overall of Prime Jumbo and Expanded Credit MBS, indicating a strong market position compared to peers like JP Morgan, Invictus Capital Partners, and Goldman Sachs.
• The company's MSR portfolio growth and ranking as the fifth largest buyer of MSR in 2023 places it among top players like Mr. Cooper, Lakeview, and JP Morgan.
• Annaly's credit strategy has the lowest D60+ across the Top 10 Non-QM issuers, suggesting superior credit risk management compared to competitors.
• The company's economic leverage of 5.7x is lower than the previous quarter's 6.4x, indicating a more conservative approach compared to some peers.

Stakeholder Impact

• Shareholders will benefit from the strong economic return and dividend payments.
• Employees will benefit from the company's growth and success.
• Customers will benefit from the company's continued provision of housing finance solutions.
• Suppliers will benefit from the company's continued business activity.
• Creditors will benefit from the company's strong financial position and low leverage.

Next Steps

• Annaly will continue to focus on high-quality assets with stable cash flows.
• The company will maintain a prudent leverage position with substantial liquidity.
• Annaly will continue to grow its non-Agency portfolios.
• The company will continue to be a programmatic securitization issuer.

Key Dates

Keywords

Annaly Capital Management, Mortgage REIT, Residential Credit, Mortgage Servicing Rights, Agency MBS, Securitization, Leverage, Liquidity, Interest Rates, Dividends, Earnings, Book Value