ANNALY CAPITAL MANAGEMENT INC
For the period ended Jun 30, 2024. Filed Jul 29, 2024.
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Jun 30, 2024 · Filed Jul 29, 2024
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Residential Securities
Substantially all of our Agency MBS at June 30, 2024 and December 31, 2023 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties. Our mortgage-backed securities were largely Fannie Mae, Freddie Mac, or Ginnie Mae pass through certificates or CMOs, which have an actual or implied credit rating that is the same as that of the U.S. government. We carry all of our Agency MBS at fair value in the Consolidated Statements of Financial Condition.
We accrete discount balances as an increase to interest income over the expected life of the related interest earning assets and we amortize premium balances as a decrease to interest income over the expected life of the related interest earning assets. At June 30, 2024 and December 31, 2023, we had in our Consolidated Statements of Financial Condition a total of $1.3 billion and $1.4 billion, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities acquired at a price below principal value) and a total of $2.2 billion and $2.4 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities acquired at a price above principal value).
The weighted average experienced prepayment speed on our Agency MBS portfolio for the three months ended June 30, 2024 and 2023 was 7.4% and 7.0%, respectively. The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of June 30, 2024 and 2023 was 8.5% and 8.6%, respectively.
Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period. Similarly, if mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net premium balance over a longer time period.
The following table presents our Residential Securities that were carried at fair value at June 30, 2024 and December 31, 2023.
| June 30, 2024 | December 31, 2023 | |
|---|---|---|
| Estimated Fair Value | ||
| Agency | ||
| Fixed-rate pass-through | $60,474,480 | $62,198,941 |
| Adjustable-rate pass-through | 177,761 | 191,489 |
| CMO | 76,919 | 82,972 |
| Interest-only | 273,556 | 264,005 |
| Multifamily | 3,361,183 | 3,544,528 |
| Reverse mortgages | 27,006 | 26,853 |
| Total agency securities | $64,390,905 | $66,308,788 |
| Residential credit | ||
| Credit risk transfer | $838,437 | $974,059 |
| Alt-A | 156,928 | 150,235 |
| Prime | 32,812 | 180,647 |
| Subprime | 259,366 | 235,605 |
| NPL/RPL | 1,096,168 | 1,197,555 |
| Prime jumbo (>= 2010 vintage) | 157,585 | 344,232 |
| Total residential credit securities | $2,541,296 | $3,082,333 |
| Total Residential Securities | $66,932,201 | $69,391,121 |
The following table summarizes certain characteristics of our Residential Securities (excluding interest-only mortgage-backed securities) and interest-only mortgage-backed securities at June 30, 2024 and December 31, 2023.
| June 30, 2024 | December 31, 2023 | |
|---|---|---|
| Residential Securities (1) · (dollars in thousands) | ||
| Principal amount | $68,250,510 | $70,078,626 |
| Net premium | 35,644 | 63,902 |
| Amortized cost | 68,286,154 | 70,142,528 |
| Amortized cost / principal amount | 100.05% | 100.09% |
| Carrying value | 66,166,223 | 68,701,769 |
| Carrying value / principal amount | 96.95% | 98.04% |
| Weighted average coupon rate | 4.94% | 4.68% |
| Weighted average yield | 4.91% | 4.64% |
| Adjustable-rate Residential Securities (1) | ||
| Principal amount | $1,044,405 | $1,206,700 |
| Weighted average coupon rate | 8.94% | 8.79% |
| Weighted average yield | 8.11% | 8.09% |
| Weighted average term to next adjustment (2) | 7 Months | 8 Months |
| Weighted average lifetime cap (3) | 9.33% | 9.34% |
| Principal amount at period end as % of total residential securities | 1.53% | 1.72% |
| Fixed-rate Residential Securities (1) | ||
| Principal amount | $67,206,105 | $68,871,926 |
| Weighted average coupon rate | 4.88% | 4.61% |
| Weighted average yield | 4.86% | 4.58% |
| Principal amount at period end as % of total residential securities | 98.47% | 98.28% |
| Interest-only Residential Securities | ||
| Notional amount | $30,734,260 | $25,918,105 |
| Net premium | 913,589 | 865,467 |
| Amortized cost | 913,589 | 865,467 |
| Amortized cost / notional amount | 2.97% | 3.34% |
| Carrying value | 765,978 | 689,352 |
| Carrying value / notional amount | 2.49% | 2.66% |
| Weighted average coupon rate | 0.48% | 0.43% |
| Weighted average yield | NM | NM |
| (1) Excludes interest-only MBS.(2) Excludes non-Agency MBS and CRT securities.(3) Excludes non-Agency MBS and CRT securities as this attribute is not applicable to these asset classes.NM Not meaningful. | ||
The following tables summarize certain characteristics of our Residential Credit portfolio at June 30, 2024.
| Payment Structure · Investment Characteristics (1) | |||||||
|---|---|---|---|---|---|---|---|
| Product | Estimated Fair Value | Senior | Subordinate | Coupon | Credit Enhancement | 60+Delinquencies | 3M VPR (2) |
| (dollars in thousands) | |||||||
| Credit risk transfer | $838,437 | $— | $838,437 | 9.81% | 1.69% | 0.81% | 4.92% |
| Alt-A | 156,928 | — | 156,928 | 7.07% | 9.34% | 2.86% | 12.34% |
| Prime | 32,812 | 20,653 | 12,159 | 4.05% | 0.74% | 2.45% | 2.96% |
| Subprime | 259,366 | 65,321 | 194,045 | 7.38% | 23.20% | 11.02% | 8.52% |
| Re-performing loan securitizations | 708,262 | 403,469 | 304,793 | 5.81% | 27.64% | 15.99% | 3.86% |
| Non-performing loan securitizations | 387,906 | 341,407 | 46,499 | 5.84% | 39.59% | 60.06% | 6.72% |
| Prime jumbo (>=2010 vintage) | 157,585 | 87,771 | 69,814 | 5.30% | 1.02% | 0.45% | 5.21% |
| Total/weighted average | $2,541,296 | $918,621 | $1,622,675 | 7.31% | 18.30% | 15.98% | 5.72% |
| (1) Investment characteristics exclude the impact of interest-only securities. (2) Represents the 3 month voluntary prepayment rate (“VPR”). | |||||||
| Bond Coupon | |||||
|---|---|---|---|---|---|
| Product | ARM | Fixed | Floater | Interest-Only | Estimated Fair Value |
| (dollars in thousands) | |||||
| Credit risk transfer | $— | $— | $838,437 | $— | $838,437 |
| Alt-A | 1,242 | 155,686 | — | — | 156,928 |
| Prime | — | 18,573 | — | 14,239 | 32,812 |
| Subprime | — | 238,662 | 20,622 | 82 | 259,366 |
| Re-performing loan securitizations | — | 708,262 | — | — | 708,262 |
| Non-performing loan securitizations | — | 387,906 | — | — | 387,906 |
| Prime jumbo (>=2010 vintage) | — | 49,563 | 20,251 | 87,771 | 157,585 |
| Total | $1,242 | $1,558,652 | $879,310 | $102,092 | $2,541,296 |
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