Annaly Capital Q2 Earnings Beat Estimates, NII Moves Up - Analyst Blog


Annaly Capital Management Inc. ( NLY ) - the mortgage real estate investment trust (mREIT) - reported second-quarter 2014 core earnings of 30 cents per share, beating the Zacks Consensus Estimate by 4 cents. The results also came in above the prior-quarter core earnings of 23 cents per share and the year-ago figure of 29 cents per share.

Results reflect interest spread expansion in the quarter. Net interest income (NII) came in at $557.9 million, up 5.1% sequentially and 1.7% year over year.

Annaly Capital Management, Inc - Earnings Surprise | FindTheBest

Quarter in Detail

For the reported quarter, annualized yield on average interest-earning assets was 3.20% while annualized cost of funds on average interest-bearing liabilities (including the net interest payments on interest rate swaps) was 1.94%.

This led to an average interest rate spread of 1.26% for the quarter, reflecting a 36 basis point (bps) increase from the prior quarter and a 25 bps uptick from the year-ago quarter. Net interest margin (NIM) for the quarter came in at 1.57% compared with 1.32% in the prior quarter and 1.20% in the year-ago period.

The company's investment securities (including Agency mortgage-backed securities, Agency debentures) were $82.4 billion as of Jun 30, 2014, up from $77.8 billion as of Mar 31, 2014 but down from $95.8 billion as of Jun 30, 2013. The commercial investment portfolio, net of financing, denoted 11% of stockholders' equity as of Jun 30, 2014, compared with 12% as of Mar 31, 2014.

Annaly's book value per share came in at $13.23 as of Jun 30, 2014, up from $12.30 as of Mar 31, 2014 and $13.03 as of Jun 30, 2013. As of Jun 30, 2014, the company's capital ratio (representing the ratio of stockholders' equity to total assets) was 15.4%, compared with 15.2% at the end of the prior quarter and 12.9% at year-ago quarter end.

Leverage was 5.3:1 as of Jun 30, 2014, compared with 5.2:1 as of Mar 31, 2014 and 6.2:1 as of Jun 30, 2014. The company offered an annualized core return on average equity of 9.24% in the quarter under review, compared with 7.68% in the prior quarter and 8.24% in the year-ago period.

Our Take

Amid the continued Fed tapering of bond purchases and anticipation of rising interest rates in the long term, Annaly is making concerted efforts to enhance its book value and manage its leverage level. Moreover, we believe that the diversification of Annaly into commercial assets would help enhance the company's top-line growth, going forward.

Annaly currently has a Zacks Rank #3 (Hold). Investors interested in the mREIT industry may also consider stocks like American Capital Mortgage Investment Corp. ( MTGE ), Altisource Portfolio Solutions S.A. ( ASPS ) and ZAIS Financial Corp. ( ZFC ). All these stocks carry a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Earnings , Stocks

Referenced Stocks: NIM , MTGE , ZFC , ASPS , NLY

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