Annaly’s Q1 Earnings & Revenues Miss Estimates

Annaly Capital Management, Inc. (NLY - Analyst Report) – the mortgage real estate investment trust (mREIT) – reported first-quarter 2016 normalized core earnings of 30 cents per share, down from 34 cents earned in the year-ago quarter. The Zacks Consensus Estimate for the first-quarter earnings was pegged at 32 cents. Net interest income (“NII”) in the quarter totaled $240.7 million, down 38.2% year over year. Further, the figure lagged the Zacks Consensus Estimate of $271.8 million.

Quarter in Detail

For the reported quarter, average yield on interest-earning assets was 2.09%, while average cost of interest-bearing liabilities (including interest expense on interest rate swaps) was 1.73%.

This led to a net interest rate spread of 0.36% for the quarter, reflecting a year-over-year decrease of 54 basis points (bps). NIM came in at 0.79% compared with 1.29% in the year-ago period.

The company’s investment at fair value (including Agency mortgage-backed securities and Agency debentures) was $65.6 billion as of Mar 31, 2016, down from $70.4 billion as of Mar 31, 2015.

Annaly’s book value per share came in at $11.61 as of Mar 31, 2016, compared with $12.88 as of Mar 31, 2015. At the end of first-quarter 2016, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 13.2%, down from 14.3% at the end of first-quarter 2015.

Leverage was 5.3:1 as of Mar 31, 2016, compared with 4.8:1 as of Dec 31, 2015. The company offered an annualized core return on average equity of 4.19% in first-quarter 2016, down from 7.69% in the year-ago quarter.

Our Take

Going forward, we believe Annaly’s diversification into commercial assets would help enhance its top-line growth.

Another mREIT – American Capital Agency Corp. (AGNC - Analyst Report) – reported first-quarter 2016 net spread and dollar roll income of 52 cents per share (excluding estimated “catch-up” premium amortization benefit) that missed the Zacks Consensus Estimate of 57 cents. The reported figure also came lower than 54 cents earned in the prior quarter.