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Agency MBS Market Decline to Hurt Annaly's (NLY) Q3 Earnings
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The Agency Group, one of the major investment groups of Annaly (NLY - Free Report) , is expected to have faced persistent headwinds in third-quarter 2022. Thus, the same is not likely to support NLY’s results, scheduled to be announced on Oct 26.
Global macroeconomic and monetary policy uncertainty weakness in the financial markets, particularly in the fixed-income markets, continued in the third quarter of 2022. This affected U.S. Treasury and Agency mortgage-backed securities (MBS) valuation and contributed to the underperformance of Agency MBS investments in the third quarter.
Consequently, mortgage spreads to benchmark interest rates widened significantly. Also, the Federal Reserve has been delivering one of the fastest series of rate hikes seen, driving further volatility.
As of the second-quarter end, Annaly’s Agency portfolio had $74.9 billion in assets, a decrease of 2% from first-quarter 2022. The decline is expected to have continued in the third quarter as well.
Declines in the portfolio balance and the valuation of the investment are expected to have reduced net interest income (NII) for the September-end quarter.
Q3 Earnings & NII Growth Expectations
The company’s activities in the third quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for third-quarter earnings has been revised downward to $1.03 in a month. This indicates a year-over-year decline of 8%.
The consensus estimate for third-quarter NII of $366.6 million indicates a 1.1% rise from the year-ago reported figure.
Annaly Capital Management Inc Price and EPS Surprise
Click here to know about the other factors that are likely to have impacted NLY’s overall performance.
Our Take
Though the performance of the Agency Group is expected to have been muted, reduced levels of refinancing are anticipated to have alleviated pressure from Annaly’s MBS holdings. This is expected to have reduced net premium amortization in the third quarter, offering scope for growth in interest income and average asset yield.
Owing to higher rates, mortgage spread widening and an expected decline in valuations on NLY’s Agency position, book value is expected to have deteriorated in the third quarter.
Amid high market volatility, the company disclosed preliminary updates on its third-quarter performance. Per the update, it expects a BVPS share of $19.85- $20.05 (as of the third-quarter end). This indicates a decline of 15.4% (at the mid-point of the above range), whereas it reported $23.59 per common share at the second-quarter end.
A couple of finance stocks which are scheduled to release quarterly earnings this week are Civista Bancshares (CIVB - Free Report) and Ares Management (ARES - Free Report) .
Civistacarries a Zacks Rank #2 (Buy) at present. The company is slated to report results on Oct 27.
Ares Management is scheduled to release quarterly results on Oct 27. ARES currently has a Zacks Rank #3.
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Agency MBS Market Decline to Hurt Annaly's (NLY) Q3 Earnings
The Agency Group, one of the major investment groups of Annaly (NLY - Free Report) , is expected to have faced persistent headwinds in third-quarter 2022. Thus, the same is not likely to support NLY’s results, scheduled to be announced on Oct 26.
Global macroeconomic and monetary policy uncertainty weakness in the financial markets, particularly in the fixed-income markets, continued in the third quarter of 2022. This affected U.S. Treasury and Agency mortgage-backed securities (MBS) valuation and contributed to the underperformance of Agency MBS investments in the third quarter.
Consequently, mortgage spreads to benchmark interest rates widened significantly. Also, the Federal Reserve has been delivering one of the fastest series of rate hikes seen, driving further volatility.
As of the second-quarter end, Annaly’s Agency portfolio had $74.9 billion in assets, a decrease of 2% from first-quarter 2022. The decline is expected to have continued in the third quarter as well.
Declines in the portfolio balance and the valuation of the investment are expected to have reduced net interest income (NII) for the September-end quarter.
Q3 Earnings & NII Growth Expectations
The company’s activities in the third quarter were inadequate to gain analysts’ confidence. Consequently, the Zacks Consensus Estimate for third-quarter earnings has been revised downward to $1.03 in a month. This indicates a year-over-year decline of 8%.
The consensus estimate for third-quarter NII of $366.6 million indicates a 1.1% rise from the year-ago reported figure.
Annaly Capital Management Inc Price and EPS Surprise
Annaly Capital Management Inc price-eps-surprise | Annaly Capital Management Inc Quote
Click here to know about the other factors that are likely to have impacted NLY’s overall performance.
Our Take
Though the performance of the Agency Group is expected to have been muted, reduced levels of refinancing are anticipated to have alleviated pressure from Annaly’s MBS holdings. This is expected to have reduced net premium amortization in the third quarter, offering scope for growth in interest income and average asset yield.
Owing to higher rates, mortgage spread widening and an expected decline in valuations on NLY’s Agency position, book value is expected to have deteriorated in the third quarter.
Amid high market volatility, the company disclosed preliminary updates on its third-quarter performance. Per the update, it expects a BVPS share of $19.85- $20.05 (as of the third-quarter end). This indicates a decline of 15.4% (at the mid-point of the above range), whereas it reported $23.59 per common share at the second-quarter end.
Annaly currently carries a Zacks Rank of 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Earnings Dates of Other Finance Stocks
A couple of finance stocks which are scheduled to release quarterly earnings this week are Civista Bancshares (CIVB - Free Report) and Ares Management (ARES - Free Report) .
Civistacarries a Zacks Rank #2 (Buy) at present. The company is slated to report results on Oct 27.
Ares Management is scheduled to release quarterly results on Oct 27. ARES currently has a Zacks Rank #3.
Stay on top of upcoming earnings announcements with the Zacks Earnings Calendar.