1) "During the quarter ended March 31, 2012, the Company disposed of $5.3 billion of Agency mortgage-backed securities and debentures, resulting in a realized gain of $80.3 million."
This equates to an $0.08 per share. So net interest income is $0.46
2) "At March 31, 2012, the weighted average yield on investment securities was 3.21% and the weighted average cost of funds on borrowings, including the net interest payments on interest rate swaps, was 1.51%, which resulted in an interest rate spread of 1.70%."
Agency MBS increased from $104.3 billion to $110.3 billion, Repos increased from $84.1 billion to $91.7 billion. Given the current balance sheet and interest rate spread, and making a huge assumption that everything stays the same, I am looking for a Q2 EPS of $0.54 of net income. That does number does not have any realized gains or losses from sale of MBS.
3) "At March 31, 2012, the Company had entered into interest rate swaps with a notional amount of $42.1 billion, or 40% of the Company's Agency mortgage-backed securities and debentures. .... The purpose of the interest rate swaps is to mitigate the risk of rising interest rates that affect the Company's cost of funds. Since the Company receives a floating rate on the notional amount of the swaps, the intended effect of the swaps is to lock in a spread relative to the cost of financing."
Rising short term rates are "insured" for 40% of the portfolio, these interest rate swaps account for the majority of the cost of funds in the income statement.
4) Total shares outstanding (basic) rose by 97.5 million to 971.7 million and diluted shares rose by 136 million to 1.010 billion. Of that 2.36 million was to convert Class B Preferred to common stock, there is no mention of the use of the remaining 95.1 million shares, but I believe the capital raising program was in effect raising about $1.4 billion(my calculation).
5) The CPR dropped from 22% in Q4 2011, to 19% in Q1 2012.
I continue to like NLY for the strong dividend and great management. With 40% of the portfolio hedged to protect against rising cost of funds, and a projection above current estimates I will continue to hold this high dividend payer.
Additional disclosure: I am not a licensed broker or analyst, and am not making recommendations to purchase securities, please consult your broker/agent before purchasing any stock.