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

By Patrick Morris – Feb 25, 2014 at 6:46PM

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Mortgage REIT Annaly Capital Management saw its core earnings top $350 million in the fourth quarter as its interest margin rose and the company reduced its total leverage.

In its after-hours earnings report, Annaly Capital Management (NLY 0.65%) 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." 

Patrick Morris and The Motley Fool have no position in any of the stocks mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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