Annaly Capital (NYSE:NLY) Management, Inc. NLY reported fourth-quarter 2020 core earnings, excluding premium amortization adjustment (PAA), of 30 cents per share that met the Zacks Consensus Estimate. Moreover, the figure compared favorably with the year-ago quarter’s 26 cents.
Net interest income (NII) was $432.7 million, surpassing the Zacks Consensus Estimate of $420.9 million. However, it compared unfavorably with the year-ago quarter’s $454.2 million.
While the decline in cost of interest-bearing liabilities supported Annaly, continued fall in average yield on interest-earning assets was spoilsport. Nonetheless, the company also registered sequential improvement in book value per share (BVPS).
For 2020, Annaly reported core earnings, excluding PAA per share of $1.10, up 10% from the prior year’s $1 and also outpaced the Zacks Consensus Estimate of $1.09. NII of $1.33 billion jumped 32.7% year over year and also outpaced the Zacks Consensus Estimate of $1.32 billion.
Inside the Headlines
As of the fourth-quarter end, the company had $101.6 billion of total assets, which included $94.6 billion in a highly-liquid Agency portfolio. Moreover, at the fourth-quarter 2020 end, unencumbered assets stood at $8.7 billion.
Markedly, Annaly modestly increased capital allocation to credit businesses to 22% from 20% in the fourth quarter.
In the reported quarter, average yield on interest-earning assets (excluding PAA) was 2.80%, down from the prior quarter’s 2.86%.
Moreover, net interest spread (excluding PAA) of 1.93% for the fourth quarter was stable from the prior quarter. Net interest margin (excluding PAA) in the quarter was 1.98 % compared with 2.05% witnessed in third-quarter 2020.
Also, Annaly’s book value per share was $8.92 as of Dec 31, 2020, sequentially up 2.5%. However, BVPS compared unfavorably with $9.66 as of Dec 31, 2019. At the end of the December quarter, the company’s capital ratio was 13.6%, unchanged from third-quarter 2020.
For the December-end quarter, weighted average actual constant prepayment rate (CPR) was 24.7%, up from 22.9% witnessed in third-quarter 2020.
Economic leverage was 6.2:1 as of Dec 31, 2020, stable from Sep 30, 2020. The company offered an annualized core return on average equity (excluding PAA) of 13.03% in the October-December period, down from the prior quarter’s 13.79%.
Share repurchased of common stock for 2020 amounted to $209 million.
Conclusion
Low interest rates and stability in the repo market have reduced Annaly’s funding costs. This along with the company’s low leverage levels and ample liquidity positions the company to capitalize on the improving outlook for residential mortgage finance. Further, it completed four residential whole loan securitizations totaling $1.8 billion in 2020.
However, amid the current low-rate environment, faster prepayment speed is concerning for the company, exposing it to reinvestment risks.
Annaly currently 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 other REITs like SBA Communications Corporation (NASDAQ:SBAC) SBAC, PS Business Parks (NYSE:PSB), Inc. PSB and Extra Space Storage (NYSE:EXR) EXR, which are slated to report fourth-quarter results on Feb 22.
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