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Annaly (NLY) Shares Up 2.4% on Q3 Earnings Beat, NII Declines

Shares of Annaly Capital Management, Inc. NLY have rallied 2.4% since the release of its better-than-expected third-quarter earnings. NLY reported third-quarter 2022 earnings available for distribution (EAD) per average share of $1.06, which surpassed the Zacks Consensus Estimate of $1.03. The figure declined from $1.14 in the year-ago quarter.

Management noted, “During the third quarter of 2022, financial markets continued to experience elevated volatility previously only seen during periods of crisis. Our book value came under pressure as a result of substantial spread widening in Agency MBS and the significant moves in interest rates,”

NLY registered year-over-year declines in book value per share (BVPS) and margin, while the average yield on interest-earning assets improved.

The net interest income (NII) was $278 million, missing the Zacks Consensus Estimate of $367 million. The figure declined 23.3% year over year.

Inside the Headlines

At the third-quarter end, Annaly had $86.2 billion of total assets, with $78.2 billion invested in the Agency portfolio. At the end of the quarter, unencumbered assets stood at $6.1 billion.

In the reported quarter, the average yield on interest-earning assets (excluding premium amortization adjustment or PAA) was 3.24%, up from the prior-year quarter’s 2.63%. The average economic costs of interest-bearing liabilities were 1.54%, increasing from 0.66%.

Net interest spread (excluding PAA) of 1.70% for the third quarter fell from 1.97% in the prior-year quarter. Also, the net interest margin (excluding PAA) in the reported quarter was 1.98% compared with 2.04% in third-quarter 2021.

Annaly’s BVPS was $19.95 as of Sep 30, 2022, sequentially down from $23.59. Moreover, BVPS compared unfavorably with $33.55 as of Sep 30, 2021. At the end of the reported quarter, Annaly’s economic capital ratio was 11.8%, declining from 14.2% in the prior-year quarter.

For the third quarter, the weighted average actual constant prepayment rate was 9.8%, sequentially down from 14.9%.

Economic leverage was 7.1X as of Sep 30, 2022, up from 6.6X (sequentially) and 5.8X in the prior-year quarter. Annaly generated an annualized EAD return on average equity (excluding PAA) of 17.57% in the third quarter, up from the prior-year quarter’s 12.81%.

Annaly Capital Management Inc Price, Consensus and EPS Surprise

 

Annaly Capital Management Inc Price, Consensus and EPS Surprise
Annaly Capital Management Inc Price, Consensus and EPS Surprise

Annaly Capital Management Inc price-consensus-eps-surprise-chart | Annaly Capital Management Inc Quote

Annaly currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Competitive Landscape

AGNC Investment Corp. AGNC reported a third-quarter 2022 net spread and dollar roll income per common share (excluding estimated "catch-up" premium amortization costs) of 84 cents per share, beating the Zacks Consensus Estimate of 71 cents. The reported figure improved from 75 cents in third-quarter 2021.

AGNC’s adjusted net interest and dollar roll income (excluding catch-up premium amortization) was $489 million, rising from the quarter-ago number of $443 million.

We now look forward to the earnings releases of Starwood Property Trust STWD. STWD is scheduled to report results on Nov 9.

Starwood Property carries a Zacks Rank #3 (Hold) at present.


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