Annaly Capital Management, Inc. Reports 3rd Quarter 2016 Results

Annaly Capital Management, Inc. (NYSE:NLY) (the "Company" or "Annaly") today announced its financial results for the quarter ended September 30, 2016.

"Our diversified investment strategy has proven that we can provide stable, durable earnings while protecting and opportunistically growing our book value. We believe Annaly has a platform for predictable results, as evidenced again in this most recent quarter," commented Kevin Keyes, Chief Executive Officer and President. "In this world of low and negative yields, our broad menu of complementary investment alternatives, coupled with a prudent and rigorous capital allocation process, allow us to provide our shareholders with dependable and attractive returns."

"As we progress toward year end and 2017," Mr. Keyes continued, "we believe the investment landscape in our core Agency strategy will remain favorable and our three credit businesses, which have reached efficient scale, are uniquely positioned to take advantage of market inefficiencies and dislocations resulting from the impact of regulation and structural market changes."

Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended September 30, 2016, June 30, 2016, and September 30, 2015:
        For the quarters ended
September 30, 2016     June 30, 2016     September 30, 2015
Book value per common share $11.83     $11.50     $11.99
Economic leverage at period-end (1) 6.1:1 6.1:1 5.8:1
GAAP net income (loss) per common share $0.70 ($0.32) ($0.68)
Core earnings per common share* (2) $0.29 $0.29 $0.30
Annualized return (loss) on average equity 23.55% (9.60%) (20.18%)
Annualized core return on average equity* 10.09% 9.73% 9.67%
Net interest margin 1.40% 1.15% 1.27%
Core net interest margin* (3) 1.42% 1.54% 1.65%
Net interest spread 1.13% 0.80% 0.83%
Core net interest spread* 1.15% 1.27% 1.29%
Average yield on interest earning assets 2.70% 2.48% 2.48%
Core average yield on interest earning assets* 2.72% 2.95% 2.94%
 
*   Represents a non-GAAP financial measure. Please refer to the 'Non-GAAP Financial Measures' section for additional information.
(1) Computed as the sum of recourse debt, TBA derivative notional outstanding and net forward purchases of investments divided by total equity. Recourse debt consists of repurchase agreements, other secured financing and Convertible Senior Notes. Securitized debt, participation sold and mortgages payable are non-recourse to the Company and are excluded from this measure.
(2) Core earnings 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 investments measured at fair value through earnings, net gains and losses on trading assets, impairment losses, net income (loss) attributable to noncontrolling interest, the premium amortization adjustment resulting from the quarter-over-quarter change in estimated long-term CPR, corporate acquisition related expenses and certain other non-recurring gains or losses, and inclusive of dollar roll income (a component of Net gains (losses) on trading assets) and realized amortization of MSRs (a component of net unrealized gains (losses) on investments measured at fair value through earnings).
(3) Represents the sum of the Company's annualized economic core net interest income (exclusive of the premium amortization adjustment (referred to herein as "PAA") and inclusive of interest expense on interest rate swaps used to hedge cost of funds) plus TBA dollar roll income (less interest expense on swaps used to hedge dollar roll transactions) divided by the sum of its average interest earning assets plus average outstanding TBA derivative balances. PAA excludes the component of premium amortization representing the quarter-over-quarter change in estimated long-term constant prepayment rates ("CPR"). Average interest earning assets reflects the average amortized cost of our investments during the period.
iRepresents a non-GAAP financial measure. Please refer to the 'Non-GAAP Financial Measures' section for additional information.

GAAP Earnings

The Company reported GAAP net income for the quarter ended September 30, 2016 of $730.9 million, or $0.70 per average common share, compared to a GAAP net loss of ($278.5) million, or ($0.32) per average common share, for the quarter ended June 30, 2016, and a GAAP net loss of ($627.5) million, or ($0.68) per average common share, for the quarter ended September 30, 2015. The increase in GAAP net income (loss) for the quarter ended September 30, 2016 compared to the quarters ended June 30, 2016 and September 30, 2015 is primarily due to favorable changes in realized and unrealized gains (losses) on interest rate swaps, net gains (losses) on trading assets and net unrealized gains on investments measured at fair value through earnings, as well as incremental net interest income earned on the assets acquired as part of the Company's acquisition of Hatteras Financial Corp. ("Hatteras") and the resulting bargain purchase gain, offset by transaction expenses, during the quarter ended September 30, 2016.

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