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Annaly (NLY) Meets Q3 Earnings Estimates, Witnesses Lower NII

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Annaly Capital Management, Inc. (NLY - Free Report) reported third-quarter 2018 core earnings, excluding premium amortization adjustment (PAA), of 30 cents per share, meeting the Zacks Consensus Estimate. Further, the figure remained flat year over year.

During the quarter, the company increased its credit capital allocation from 24% in the year beginning to 30% in third-quarter 2018. However, results, to a great extent, were impacted by higher interest expenses, and general and administrative expenses.

Also, net interest income (NII) totaling $315.6 million, witnessed a sequential decline of around 5.5% in the third quarter.

Quarter in Detail

In the reported quarter, average yield on interest-earning assets (excluding PAA) was 3.21%, up from 3.04% recorded in the previous quarter.

Net interest spread (excluding PAA) of 1.14% for the third quarter edged down from 1.18% reported in the prior quarter. Net interest margin (excluding PAA) in the quarter came in at 1.50% compared with 1.56% witnessed in the previous quarter.

The company’s investment at fair value of Agency mortgage-backed securities was around $89.3 million as of Sep 30, 2018, up from approximately $86.6 million as of Jun 30, 2018.

Further, Annaly’s book value per share came in at $10.03 as of Sep 30, 2018, compared with $10.35 as of Jun 30, 2018. At the end of the third quarter, the company’s capital ratio was 12.6%, down from 13.2% reported at the end of the last quarter.

Leverage was 5:9:1 as of Sep 30, 2018, compared with 6:0:1 as of Jun 30, 2018. The company offered an annualized core return on average equity of 10.85% in the Sep-end quarter, down from 11.05% in the prior quarter.

Our Take

During the third quarter, the company significantly increased its hedge ratio to 96% from 70% as of Dec 31, 2017. Also, in September, Annaly closed the merger with MTGE Investment Corp. which is expected to provide further scale and diversification options to the company’s investment platform, increasing the number of investment options to 37.

In addition, the company raised fresh capital worth nearly $1.1 billion through an at-the-market (ATM) equity offering program and overnight common equity offering.

However, persistent rise in interest expense is impacting Annaly’s NII growth. Furthermore, the company’s general and administrative expenses have been flaring up which may dent bottom-line growth. 

Annaly Capital Management Inc Price, Consensus and EPS Surprise

Currently, Annaly carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We now look forward to the earnings releases of Host Hotels & Resorts, Inc.  (HST - Free Report) , Lamar Advertising Company (LAMR - Free Report) and Outfront Media Inc. (OUT - Free Report) . While Host Hotels is scheduled to report its quarterly numbers on Nov 2, Lamar and Outfront are slated to report their third-quarter earnings on Nov 8 and Nov 5, respectively.

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