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Annaly Capital: Book Value Up, Higher Net Interest Margin, 9.7% Yield

The Asian Investor profile picture
The Asian Investor


  • Annaly expanded on net interest margin gains in the 1st quarter.
  • Net interest margin gains were fueled by higher yields and record low funding costs.
  • But headwinds are real and the net interest margin is poised to decline.

Skycraper in the "City" of London
Photo by Luca Ponti/iStock Editorial via Getty Images

Annaly (NYSE:NLY) benefited from record low funding costs in the 1st quarter which boosted the mREIT’s net interest margin and supported a Q/Q gain in book value. Rising inflation and a

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The Asian Investor profile picture
I look for high-risk, high-reward situations. Five largest portfolio holdings: Bitcoin, SoFi, Alibaba, PayPal, Western Alliance. Early buyer of cryptocurrencies. I live in Thailand :)

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Comments (8)

Risk Advisor profile picture
Shown below is an analysis of NLY’s first quarter 2021 Consolidated Statement of Comprehensive Income supporting the argument that the second quarter common stock dividend will be increased to $.25 per share payable on 07/31/21:

1) For the quarter ended 03/31/21, NLY recorded Net Interest Income of $687.4 million, the fourth consecutive quarter of increases in NII. With repo borrowing costs continuing to approximate .4%, NII should continue to increase during the second quarter.
2) The net realized gains (losses) on interest rate swaps was $772 million in the first quarter, with increases recorded for three consecutive quarters.
3) The net gains (losses) on other derivatives and financial instruments were $405.3 million which included a $249.6 million business divestiture loss on the sale of the commercial real estate business. The business divestiture loss was a one-time expense which will be non-recurring going forward.
4) For the first quarter of 2021, NLY recorded net income available to common shareholders of $1.724 billion up from $841.7 million in the fourth quarter of 2020, an $882 million improvement.
5) Finally for the first quarter of 2021, NLY recorded net unrealized gains (losses) on available-for sale-securities of ($1.372 billion) reducing the comprehensive income attributable to common shareholders to only $351.8 million. With a quarterly common stock dividend of $.22 per share on 1.4 billion shares this payment made on April 30, 2021 approximated $308,000. That said the unrealized loss on available for-sale securities of $1.372 billion resulted primarily to the increase in the benchmark 10 Year Treasury from .93 on 12/31/20 to 1.74 on 03/31/21. Since 03/31/21, the 10 Year has declined from 1.74 to 1.63 on 05/10/21.

Provided the ten year stays at 1.63 or less from 05/10/21 to 06/30/21, the $1.372 billion net unrealized loss on available for-sale-securities may swing from a loss to a small gain. This would result in comprehensive income attributable to common shareholders of over $1.724 billion for the second quarter of 2021.

NLY needs only $42.0 million of additional cash to pay a quarterly dividend to common shareholder of $.25 per share versus the existing quarterly dividend of $.22 per share, based on 1.4 billion common shares.

In summary, the substantial reduction in the unrealized losses on available for sale securities is the significant factor in the argument for the increase in the quarterly dividend to be declared on or about 06/18/21.
Simply stated: I'll be disappointed if NLY doesn't increase the dividend (finally) by a few cents when it announces somewhere around mid-June. The differential between net and the dividend in Q1 was .07, more than enough to support a small increase unless Q2 is a disaster. I don't expect any real news on this front at this month's annual meeting, as the company rarely gives dividend guidance, though on one occasion not long ago they did provide advance notice of stable dividends for several quarters to come.
Still would have sold my NLY. But things did go amazingly well. Management knows what they are doing. However, it is unlikely these weird winds will remain so favorable.

Good fortune all.
NotARetiree profile picture
Author took Yellen's comments too seriously and now calls for a flattening of the yield curve?
Risk Advisor profile picture
The Fed has repeatedly said that they are not moving away from raising short term rates in the foreseeable future and that inflation is under control. Higher yields do not automatically translate into higher inflation.

NLY is also increasing its hedge ratio to guard against increases in short term rates hoping that the average receive rates under their swaps will begin to exceed their pay rates. Very smart and it appears that their net interest income will once again increase in the second quarter.
Concur on monthly divys!
Need to raise div. And move to monthly distribution
@Priva-sea agreed!
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