Annaly Capital Management Inc.'s Core Earnings Rise 4.5%

In its after-hours earnings report, Annaly Capital Management (NYSE: NLY  ) announced core earnings of $350 million in the fourth quarter of 2013, representing increases over the $282 million of net income seen in the third quarter and $335 million in the fourth quarter of 2012.

The company had even more impressive growth in its net income, which was more than $1 billion in the fourth quarter of 2013, versus $700 million in the fourth quarter of 2012. However, this jump was largely attributable to gains realized in derivative positions at Annaly known as interest-rate swaps. These positions are used across mortgage real estate investment trusts as a means to hedge against risk.

Annaly's annualized core return on average equity expanded to more than 11% at the end of the fourth quarter of 2013, versus 9.1% in the fourth quarter of 2012. In addition, its interest rate spread expanded from 0.94% at the end of 2012 to stand at 1.43% in the fourth quarter of 2013. For the full year of 2013, core earnings per share stood at $1.21, down from $1.54 in 2012.

Chairman and CEO Wellington Denahan noted of the company's results: "We are encouraged by the reduced uncertainty in the fixed income markets with the introduction of monetary policy tapering. Our commercial assets continue to build momentum, with commercial investments now representing 14% of our stockholders' equity."

In addition, Annaly dramatically decreased its leverage and size, going from $133 billion in assets with a 6.5-to-1 leverage ratio at the end of 2012 to $82 billion with a 5-to-1 leverage ratio at the end of 2013.

Denahan added that "the lower leverage stance permits us to be opportunistic with capital deployment, allowing us to strengthen earnings in future periods." 


Read/Post Comments (4) | Recommend This Article (9)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 26, 2014, at 11:45 AM, sold4gain wrote:

    Can someone help me to understand the real EPS of NLY? I"m trying to relate EPS to dividend distributions. Below, I've listed data from the NLY's company release of earnings and they have as of 3Q13 switched to "core earnings" from the Non-Gaap earnings which do not equate. What do analysts use as reference to their earnings estimates? I understand that dividends are derived from estimated taxable income but I can't determine where that number comes from either?

    11/6/13 - NLY - 3Q13, 2Q13, 1Q13, 4Q12, 3Q12

    Non-Gaap EPS *** NM, .47, .47, .46, .45

    new Core EPS ** .28, .29, NM, NM, .30

    Non-Gaap EPS *** Without the effect of the unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities and net loss on extinguishment of 4% Convertible Senior Notes.

    Core EPS ** represents a non-GAAP measure and is defined as net income (loss) excluding gains or losses on disposals of investments and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes due 2015, net gains and losses on trading assets, impairment losses and loss on previously held equity interest in CreXus Investment Corp.

    Thank you in advance for your reply.

  • Report this Comment On February 26, 2014, at 2:58 PM, TMFMorris wrote:

    Hello @sold4gain.

    At first glance, the difference between the Adjusted earnings per common share (0.47 0.47, etc) and the newly reported "Core earnings," is the core earnings now "excludes net gains (losses) on trading assets and disposal of investments."

    The definitions are as follows:

    Core earnings excludes net gains (losses) on trading assets and disposal of investments, unrealized gains (losses) on interest rate swaps and Agency interest-only mortgage-backed securities, realized gains (losses) on termination of interest rate swaps, net loss on extinguishment of the 4% Convertible Senior Notes, impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp

    Adjusted net income excludes unrealized gains (losses) on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes, impairment of goodwill and loss on previously held equity interest in CreXus Investment Corp.

    The last five quarters of the "core earnings," are in the final slide of the following presentation: http://investor.annaly.com/Cache/1001183871.PDF?Y=&O=PDF...

    I cannot speak to analysts estimates and what they use, but I would suspect they are based on core earnings, but it could be very between different firms.

  • Report this Comment On February 26, 2014, at 5:11 PM, TMFHelical wrote:

    "<I>However, this jump was largely attributable to gains realized in derivative positions at Annaly known as interest-rate swaps. </I>"

    These are largely unrealized gains.

  • Report this Comment On March 02, 2014, at 1:14 PM, sold4gain wrote:

    Thank you TMFMorris for your input but my main question is what are the real EPS and/or estimated taxable earnings? How do I determine NLY's ability to maintain or increase the dividend distributions?

Add your comment.

DocumentId: 2854300, ~/Articles/ArticleHandler.aspx, 8/1/2014 6:59:27 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement