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Annaly Capital's (NLY) Q2 Earnings In-Line; Decline Y/Y

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Annaly Capital Management, Inc. (NLY - Free Report) – the mortgage real estate investment trust (mREIT) – reported second-quarter 2016 core earnings of 29 cents per share, down from 33 cents earned in the year-ago quarter. The Zacks Consensus Estimate for the second-quarter earnings was pegged at 29 cents.
 
Net interest income in the quarter totaled $304.4 million, down 40.5% year over year. The Zacks Consensus Estimate of $211 million.

Quarter in Detail

For the reported quarter, average yield on interest-earning assets was 2.48%, while average cost of interest-bearing liabilities (including interest expense on interest rate swaps) was 1.68%.

This led to a net interest rate spread of 0.80% for the quarter, reflecting a year-over-year decrease of 93 basis points. NIM came in at 1.15% compared with 2.06% in the year-ago period.

The company’s investment at fair value (including Agency mortgage-backed securities and Agency debentures) was $64.9 billion as of Jun 30, 2016, down from $68 billion as of Jun 30, 2015.

Annaly’s book value per share came in at $11.50 as of Jun 30, 2016, compared with $12.32 as of Jun 30, 2015. At the end of second-quarter 2016, the company’s capital ratio (representing the ratio of stockholders’ equity to total assets) was 13.2%, down from 14.6% at the end of second-quarter 2015.

Leverage was 5.3:1 as of Jun 30, 2016, compared with 4.8:1 as of Jun 30, 2015. The company offered an annualized core return on average equity of 9.73% in second-quarter 2016, down from 10.31% 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 - Free Report) – reported second-quarter 2016 net spread and dollar roll income of 56 cents per share (excluding estimated "catch-up" premium amortization benefit) that beat the Zacks Consensus Estimate of 51 cents. The reported figure also came higher than 52 cents earned in the prior quarter.

ANNALY CAP MGMT Price, Consensus and EPS Surprise

ANNALY CAP MGMT Price, Consensus and EPS Surprise | ANNALY CAP MGMT Quote

While Annaly currently carries a Zacks Rank #4 (Sell), American Capital Agency has a Zacks Rank #3 (Hold).

Investors interested in the mREIT industry may consider stocks like Chimera Investment Corporation (CIM - Free Report) and Redwood Trust, Inc. (RWT - Free Report) , both holding a Zacks Rank #2 (Buy).

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