The short answer is yes, but there is more to be done. American Capital Agency, Javelin Mortgage and others all should see the report. Annaly Capital(NLY) just announced its financial results for the quarter ended June 30, 2014.
Financial Performance
GAAP net loss for the quarter ended June 30, 2014 was $335.5 million or $0.37 per average common share as compared to GAAP net loss of $203.4 million or $0.23 per average common share for the quarter ended March 31, 2014, and GAAP net income of $1.6 billion or $1.71 per average common share for the quarter ended June 30, 2013. The decrease from the quarter ended March 31, 2014 to the quarter ended June 30, 2014 was largely due to a decline in other income, partially offset by higher interest income. The decrease in other income is primarily attributable to higher net losses on interest rate swaps, a significant portion of which were realized upon terminations of interest rate swaps with shorter remaining maturities during the current quarter, and lower gains on disposal of investments, partially offset by lower unrealized losses on interest-only Agency mortgage-backed securities and trading assets. The decrease from the quarter ended June 30, 2013 to the quarter ended June 30, 2014 was largely attributable to higher net losses on interest rate swaps, a significant portion of which were realized upon terminations of interest rate swaps with shorter remaining maturities during the current quarter, and higher unrealized losses on interest-only Agency mortgage-backed securities and trading assets. Core earnings for the quarter ended June 30, 2014 was $300.4 million or $0.30 per average common share as compared to $239.7 million or $0.23 per average common share for the quarter ended March 31, 2014, and $294.2 million or $0.29 per average common share for the quarter ended June 30, 2013. "Core earnings" represents a non-GAAP measure and 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 Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes due 2015, net gains and losses on trading assets, impairment losses and loss on previously held equity interest in CreXus Investment Corp.
For the quarter ended June 30, 2014, the annualized yield on average interest-earning assets was 3.20% and the annualized cost of funds on average interest-bearing liabilities, including the net interest payments on interest rate swaps, was 1.94%, which resulted in an average interest rate spread of 1.26%. This represented a 36 basis point increase from the 0.90% average interest rate spread for the quarter ended March 31, 2014, and a 25 basis point increase from the 1.01% average interest rate spread for the quarter ended June 30, 2013. Net interest margin for the quarters ended June 30, 2014, March 31, 2014 and June 30, 2013 was 1.57%, 1.32% and 1.20%, respectively. Our annualized yield on average interest-earning assets was relatively unchanged for the quarter ended June 30, 2014 when compared to the quarter ended March 31, 2014. Our annualized cost of funds on average interest-bearing liabilities decreased for the quarter ended June 30, 2014 when compared to the quarter ended March 31, 2014 as a result of the Company unwinding a significant portion of its interest rate swaps with shorter remaining maturities during the period.
Wellington J. Denahan, Chairman and Chief Executive Officer of Annaly, commented on the Companys results. We welcome the continued reduction of monetary policy influences on the markets and all the opportunities it brings. We continue to feel comfortable in our ability to sustain attractive risk-adjusted returns in the quarters ahead.
Asset Portfolio
Investment Securities, which are comprised of Agency mortgage-backed securities and Agency debentures, were $82.4 billion at June 30, 2014, compared to $77.8 billion at March 31, 2014 and $95.8 billion at June 30, 2013. As of June 30, 2014, substantially all of the Companys Investment Securities were Fannie Mae, Freddie Mac and Ginnie Mae mortgage-backed securities and debentures. Fixed-rate Agency mortgage-backed securities and debentures comprised 95% of the Companys Investment Securities portfolio at June 30, 2014. Adjustable-rate Agency mortgage-backed securities and debentures comprised 5% of the Companys Investment Securities portfolio. During the quarter ended June 30, 2014, the Company disposed of $6.1 billion of Investment Securities, resulting in a realized gain of $5.9 million. During the quarter ended March 31, 2014, the Company disposed of $5.0 billion of Investment Securities, resulting in a realized gain of $80.7 million. During the quarter ended June 30, 2013, the Company disposed of $14.8 billion of Investment Securities, resulting in a realized gain of $148.0 million.
The Constant Prepayment Rate for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013, was 7%, 6% and 17%, respectively. The net amortization of premiums and accretion of discounts on Investment Securities for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013, was $149.6 million, $119.0 million, and $320.2 million, respectively. The total net premium balance on Investment Securities at June 30, 2014, March 31, 2014, and June 30, 2013, was $5.4 billion, $5.1 billion, and $5.3 billion, respectively. The amortized cost basis of the Companys non-interest-only Investment Securities at June 30, 2014, March 31, 2014, and June 30, 2013, was 105.5%, 105.2%, and 104.6%, respectively. The amortized cost basis of the Companys interest-only Investment Securities at June 30, 2014, March 31, 2014, and June 30, 2013, was 15.1%, 14.7%, and 14.2%, respectively.
The Companys commercial investment portfolio consists of commercial real estate investments and corporate debt. Commercial real estate debt and preferred equity, including securitized loans, totaled $1.6 billion and investments in commercial real estate totaled $74.4 million at June 30, 2014. Commercial real estate debt and preferred equity, including securitized loans, totaled $1.6 billion and investments in commercial real estate totaled $40.3 million at March 31, 2014. The commercial investment portfolio, net of financing, represented 11% of stockholders equity at June 30, 2014, compared to 12% at March 31, 2014. The weighted average yield on commercial real estate debt and preferred equity as of June 30, 2014, March 31, 2014, and June 30, 2013, was 8.93%, 9.13% and 9.90%, respectively. The weighted average levered equity yield on investments in commercial real estate, excluding real estate held-for-sale, as of June 30, 2014, March 31, 2014, and June 30, 2013, was 9.23%, 11.69% and 12.71%, respectively. Current quarter acquisitions of commercial real estate have a lower weighted average yield during the first year as a result of transaction costs. The weighted average levered stabilized equity yield related to current quarter acquisitions is estimated to be 13.39%.
Capital and Funding
At June 30, 2014, total stockholders equity was $13.4 billion. Leverage at June 30, 2014, March 31, 2014, and June 30, 2013, was 5.3:1, 5.2:1 and 6.2:1, respectively. Leverage includes repurchase agreements, Convertible Senior Notes, securitized debt, loan participation and mortgages payable. Securitized debt, loan participation and mortgages payable are non-recourse to the Company. At June 30, 2014, March 31, 2014, and June 30, 2013, the Companys capital ratio, which represents the ratio of stockholders equity to total assets, was 15.4%, 15.2%, and 12.9%, respectively. At June 30, 2014, March 31, 2014, and June 30, 2013, the Companys net capital ratio was 15.4%, 15.4%, and 13.3%, respectively. The Companys net capital ratio takes into account the net balances of its U.S Treasury securities and U.S Treasury securities sold, not yet purchased, reverse repurchase agreements and repurchase agreements, and securities borrowed and securities loaned. On a GAAP basis, the Company produced an annualized return (loss) on average equity for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013 of (10.32%), (6.52%), and 45.87%, respectively. On a Core earnings basis, the Company provided an annualized return on average equity for the quarters ended June 30, 2014, March 31, 2014, and June 30, 2013, of 9.24%, 7.68%, and 8.24%, respectively.
At June 30, 2014, March 31, 2014, and June 30, 2013 the Company had outstanding $70.4 billion, $64.5 billion, and $81.4 billion of repurchase agreements, respectively, with weighted average borrowing rates of 1.59%, 2.43%, and 1.72%, respectively, after giving effect to the Companys interest rate swaps, and weighted average remaining maturities of 173 days, 187 days, and 191 days, respectively.
At June 30, 2014, March 31, 2014, and June 30, 2013, the Company had a common stock book value per share of $13.23, $12.30 and $13.03, respectively.
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