Dismal Q3 Earnings at Annaly Capital - Analyst Blog
07 Novembre 2013 - 7:50PM
Zacks
Annaly Capital Management Inc. (NLY) – the
mortgage real estate investment trust (mREIT) reported
disappointing third-quarter 2013 results. The company’s core
earnings per share came in at 28 cents, 6 cents below the Zacks
Consensus Estimate of 34 cents and a cent down from the prior
quarter. As a result, the shares slumped nearly 1.5% in after-hours
trading on the New York Stock Exchange.
Results continue to reflect the impact of the monetary policy on
the mortgage market and the uncertainties tied to the future course
of the policy. The company’s book value per share continued to
fall. It came in at $12.70 as of Sep 30, 2013, reflecting a 2.5%
sequential decrease and a 23.5% year-over-year decline.
Net interest income came in at $551.7 million, down 4.8% year over
year. However, it was up 0.5% sequentially and well ahead of the
Zacks Consensus Estimate of $333 million.
Nevertheless, amid the headwinds in the mortgage market, the
company is boosting its commercial investments portfolio. This
portfolio, which includes commercial real estate investments and
corporate debt, represented 11% of stockholders’ equity as of Sep
30, 2013, compared with 8% as of Jun 30, 2013. Commercial real
estate investments increased 30% sequentially to $1.3 billion as of
Sep 30, 2013, from $1.0 billion as of Jun 30, 2013.
Quarter in Detail
For the reported quarter, annualized yield on average
interest-earning assets was 2.82% while annualized cost of funds on
average interest-bearing liabilities (including the net interest
payments on interest rate swaps) was 1.81%. This led to an average
interest rate spread for the quarter of 1.01%, reflecting a 3 basis
points increase from the prior quarter.
The uptick, primarily driven by higher annualized yield on average
interest-earning assets, was helped by lower amortization expense
on its investment securities. This resulted from lower prepayment
speeds experienced during the reported quarter. The constant
prepayment rate for the quarter was 13% compared with 16% in the
prior quarter.
The benefit was partly dwarfed by an increase in annualized cost of
funds on average interest-bearing liabilities, mainly due to lower
repurchase agreement balances combined with increased interest rate
swap notional amounts.
Annaly Capital’s Investment Securities (includes Agency
mortgage-backed securities, Agency debentures and corporate debt)
were $83.1 billion as of Sep 30, 2013, reflecting a decline from
$95.9 billion in the prior quarter.
Notably, as of Sep 30, 2013, fixed-rate agency mortgage-backed
securities and debentures comprised 91% of its investment
securities portfolio while the remaining consisted of
adjustable-rate agency mortgage-backed securities and
debentures.
Annaly Capital recognized a gain of $43.6 million by disposing
$13.0 billion of investment securities during the reported quarter,
while it experienced a gain of $148.0 million from disposing $14.8
billion of investment securities in the prior quarter.
As of Sep 30, 2013, the company’s capital ratio (representing the
ratio of stockholders’ equity to total assets) was 13.9%, compared
with 12.9% in the prior quarter. Leverage was 5.4:1 as of Sep 30,
2013, compared with 6.2:1 at Jun 30, 2013. Annaly Capital offered
an annualized return on average equity, on a core earnings basis,
of 8.62% for third-quarter 2013, up from 8.24% in the prior
quarter.
Our Take
The volatility in the interest rates and mortgage spreads continue
to affect the results of mREITs. Moreover, the uncertainty
surrounding the future course of monetary policy seems to
negatively affect the performance of these companies. Last month,
American Capital Agency Corp. (AGNC) also reported
disappointing third-quarter 2013 results with its net spread income
per share coming in at 61 cents, significantly lagging the Zacks
Consensus Estimate of 84 cents. The company’s book value also
continued to descend.
However, we believe that the diversification of Annaly Capital into
the commercial assets is encouraging and this would help mitigate a
part of this negative impact.
Annaly Capital currently has a Zacks Rank #3 (Hold). Other mREIT
stocks which are performing well and deserve a look are
Apollo Commercial Real Estate Finance Inc. (ARI)
and CYS Investments, Inc. (CYS), both carrying a
Zacks Rank #2 (Buy).
AMER CAP AGENCY (AGNC): Free Stock Analysis Report
APOLLO COMMERCL (ARI): Free Stock Analysis Report
CYS INVESTMENTS (CYS): Free Stock Analysis Report
ANNALY CAP MGMT (NLY): Free Stock Analysis Report
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