2018 was a year Annaly Capital Management again demonstrated the strength and stability of its business model. So said Glenn Votek, CFO, on the firm’s Q4 earnings call. According to Votek, the company’s diversification strategy continued to advance, supported by an operating platform that provides efficiencies of scale and a funding model offering attractive and diverse financing sources to support the company’s continued growth.
“We generated core earnings per share excluding PAA of $0.29 for the quarter, $1.20 for the full year and a full year GAAP loss of $0.06. Core earnings supported the cumulative 2018 dividend distributions made in the year of $1.20 per share,” he said on the call. “The portfolio generated 149 basis points of NIM, relatively flat versus Q3. And trends in both our core earnings and NIM illustrate the stability of our model. For example, over the past three years, the standard deviation of our quarterly core EPS and NIM is about $0.01 and four basis points respectively. Now over that same period, comparable peer earnings have been three times more volatile and NIM 50% more volatile.”
Core ROE for the quarter was just under 11.5% for the quarter, and approximately 11% for the full year, he explained on the call. “Our core ROE per unit of leverage, which was 164 basis points in Q4, is another indicator of the stability of our performance with a standard deviation of just six basis points over the past three years, while peer results have been over two times more volatile. Now in addition to the stability of these metrics, they’re also attractive on an absolute basis and the performance of our investment groups have been quite impressive over this period given the market environment that we’ve all been challenged by.”
In terms of diversification, the REIT continues to opportunistically grow our portfolio, increasing credit assets year-over-year by 32% and growing credit asset revenues by approximately 40% over that same period. “Our Resi Credit business achieved a milestone in the year exceeding $3 billion in total assets with growth of 18%, while our Commercial Real Estate portfolio saw annual growth of 24% to $2.5 billion. And our Middle Market Lending portfolio nearly doubled in the year and is fast approaching the $2 billion asset mark.”
Now the build out of the REIT’s Credit Group also punctuates the economies of scale of its operating platform, he explained, “while the credit businesses are generally more cost-intensive, we’ve been able to scale them without sacrificing operating efficiencies. Our efficiency metrics remain among the best across a broad cross section of both peers and other comparable companies, and our success integrating companies that we’ve acquired further highlights our operating leverage and scale, following both the 2018 MTGE acquisition and the 2016 Hatteras transactions. We added no incremental staff or systems and we were able to integrate both companies within our existing operations generating annualized savings of roughly $50 million.”
And finally, he notes that the during the past 12 months, they have added 900 million of new funding capacity across the commercial businesses. “We also repriced existing facilities with savings ranging from 25 to 50 basis points, which represents pricing improvement of about 12% to 22%.”