Annaly Capital Management Inc.
) - the mortgage real estate investment trust (mREIT) reported
first-quarter 2014 core earnings of 23 cents per share, missing the
Zacks Consensus Estimate by 4 cents. The results also fell short of
the prior-quarter core earnings of 35 cents per share and the
year-ago period figure of 29 cents.
Results reflect interest spread compression in the quarter. Net
interest income came in at $530.9 million, down 16.2% sequentially
and 5.1% year over year.
Quarter in Detail
For the reported quarter, annualized yield on average
interest-earning assets was 3.21% while annualized cost of funds on
average interest-bearing liabilities (including the net interest
payments on interest rate swaps) was 2.31%.
This led to an average interest rate spread of 0.90% for the
quarter, reflecting a 53 basis points decrease from the prior
quarter and 1 basis point fall from the year-ago quarter. The
decline was due to higher amortization expense on its investment
However, the company's investment securities (includes Agency
mortgage-backed securities, Agency debentures) were $77.8 billion
as of Mar 31, 2014, reflecting an uptick from $73.4 billion as of
Dec 31, 2013 but down from $112.2 billion as of Mar 31, 2013.
Annaly's book value per share came in at $12.30 as of Mar 31, 2014.
Though this reflected a sequential rise of 1.4%, on a
year-over-year basis, it fell 19.0%. As of Mar 31, 2014, the
company's capital ratio (representing the ratio of stockholders'
equity to total assets) was 15.2%, compared with 15.1% at the end
of the prior quarter and 12.2% in the year-ago quarter end.
Leverage was 5.2:1 as of Mar 31, 2014, compared with 5.0:1 as of
Dec 31, 2013 and 6.6:1 as of Mar 31, 2013. The company offered an
annualized core return on average equity of 7.68% in the quarter
under review, compared with 11.05% in the prior quarter and 7.59%
in the year-ago period.
The company completed the first securitization of commercial real
estate loans in the reported quarter with an aggregate principal
balance of $399.5 million. The commercial investment portfolio, net
of financing, represented 12% of stockholders' equity as of Mar 31,
2014, compared with 14% as of Dec 31, 2013.
Amid the continued Fed tapering of bond purchases and anticipation
of rising interest rates in the long term, Annaly is making
concerted efforts to lower its leverage level. However, the US
Treasury 10-year note yield fell in the first quarter and spread
compression in the quarter affected its results. Nevertheless, we
believe that the diversification of Annaly into the commercial
assets would help enhance the company's top-line growth going
Annaly currently has a Zacks Rank #3 (Hold). Some better-ranked
stocks in the same industry include
AG Mortgage Investment Trust, Inc.
Arbor Realty Trust Inc.
Anworth Mortgage Asset Corporation
). All these stocks hold a Zacks Rank #2 (Buy).
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