After the close on Wednesday, Annaly Capital (NYSE:NLY) announced earnings for the fourth quarter. There's plenty to digest and even more so after the company's conference call tomorrow. Here are three points that immediately jumped out at me in its earnings release.
During the quarter and year ended December 31, 2012, the Company repurchased approximately 27.8 million shares of its outstanding common stock for $397.1 million.
Annaly's not the only mortgage REIT that's talked about doing share buybacks. However, it is among the few -- the only? -- that haven't sent mixed signals by also issuing new stock during the year.
I'm general wary of being too excited about the big gains in mREITs' book value driven by increasing mortgage-bond prices. However, to the extent that Annaly is reaping those gains and using them to buy back the stock at prices below its per-share book value -- Annaly currently trades at around 0.9 times book -- it strikes me as a distinct positive for shareholders.
2. That darn Fed meddling
Close followers of Annaly are no doubt plenty aware of how much management has bristled at the way the Federal Reserve has been noodling around in Annaly's sandbox. In the press release, Annaly's CEO said:
In our market, indeed every market, decisions made by policymakers continue to have exceptional influence on pricing and behavior. ... These market conditions are likely to persist, however, as structural imbalances here and abroad continue to affect economic activity. In this environment, we believe that remaining conservative in our management approach is in the best long-term interests of shareholders.
The short-term consequences of being defensive and conservative in the face of this uncertainty may not look great on Annaly's bottom line. But I think being careful here could pay off for shareholders over the longer term.
3. No big surprise: tighter spread
The interest rate spread for Annaly continued to fall during the quarter, with an annualized spread of 0.95% during the quarter, compared to 1.02% during the third quarter and 1.71% during the fourth quarter of 2011. Investors shouldn't be shocked by this because there's been no change in the investing environment that would have led to a rebound in spreads. Looking ahead, this should continue to be a concern.
On the other hand, what was a little more surprising -- at face value, at least -- was the fact that the constant prepayment rate (CPR) -- a measure of how quickly the company's mortgage-backed securities are being repaid -- fell to 19% from 20% in the prior quarter. Lower rates drive prepayments and prepayments reduce the returns for investors like Annaly. The change isn't much and it's just one quarter, but this is a notable stat for investors to key in on.