ANNALY CAPITAL MANAGEMENT INC
For the period ended Mar 31, 2025. Filed May 8, 2025.
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Mar 31, 2025 · Filed May 8, 2025
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Premium Amortization Expense
In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency MBS, excluding interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the calculation of the effective yield. We recalculate the effective yield as differences between anticipated and actual prepayments occur. Using third party models and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.
Our GAAP metrics include the unadjusted impact of amortization and accretion associated with this method. Certain of our non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term Constant Prepayment Rate (“CPR”).
The following table illustrates the impact of the PAA on premium amortization expense for our Residential Securities portfolio for the periods presented:
| For the Three Months Ended March 31, | ||
|---|---|---|
| 2025 | 2024 | |
| (dollars in thousands) | ||
| Premium amortization expense | $57,412 | $26,732 |
| Less: PAA cost (benefit) | 12,296 | (3,013) |
| Premium amortization expense (excluding PAA) | $45,116 | $29,745 |
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