Annaly Capital Management (NYSE:NLY) released first-quarter financial results and hosted an earnings call on Wednesday. Read the complete transcript below.
Benzinga APIs provide real-time access to earnings call transcripts and financial data. Visit https://www.benzinga.com/apis/ to learn more.
The full earnings call is available at https://event.choruscall.com/mediaframe/webcast.html?webcastid=LgH6ZSW8
Summary
Annaly Capital Management reported a 1.5% economic return for Q1 2026, with earnings available for distribution per share increasing to $0.76.
The company raised $510 million in common equity, deploying most of it into residential credit and mortgage servicing rights (MSR) due to market conditions.
Annaly’s portfolio saw strong performance despite volatility, with a conservative leverage of 5.7 times and maintained a diversified housing finance platform.
The company anticipates continued strong risk-adjusted returns from its investment strategies, driven by favorable market conditions and technicals.
Management highlighted the flexibility to dynamically allocate capital and the resilience of its housing finance platform amid geopolitical and market volatility.
Full Transcript
OPERATOR
Good day and welcome to the first quarter 2026 Annaly Capital Management Earnings Conference Call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the STAR key followed by zero. After today’s presentation, there will be an opportunity to ask questions. To ask a question, you may press Star then one on your telephone keypad. To withdraw your question, please press Star then two. Please note this event is being recorded. I would now like to turn the conference over to Shawn Kensel, Director Investor Relations. Please go ahead
Shawn Kensel (Director Investor Relations)
Good morning and welcome to the first quarter 2026 earnings call for Annaly Capital Management. Any forward looking statements made during today’s call are subject to certain risks and uncertainties which are outlined in the Risk Factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward looking statements. We encourage you to read the disclaimer in our earnings release in addition to our quarterly and annual filings. Additionally, the content of this conference call may contain time sensitive information that is accurate only as of the date hereof. We do not undertake and specifically disclaim any obligation to update or revise this information. During this call we may present both GAAP and non GAAP financial measures. A reconciliation of GAAP to non GAAP measures is included in our earnings release. Content referenced in today’s call can be found in our first quarter 2026 investor presentation and first quarter 2026 financial supplement, both found under the Presentation section of our website. Please also note this event is being recorded. Participants on this morning’s call include David Finkelstein, Chief Executive Officer and Co Chief Investment Officer Serena Wolf, Chief Financial Officer Mike Fannia, Co Chief Investment Officer and Head of Residential Credit VS Srinivasan, Head of Agency and Ken Adler, Head of Mortgage Servicing Rights. And with that, I’ll turn the call over to David. Thank you, Sean Good morning everyone and thank you for joining us on our first quarter earnings call. I’ll open with a brief review of the macro landscape before discussing our performance. Then I’ll provide further detail on each of our three investment strategies and conclude with our outlook. Serena will then discuss our financials before opening up the call to Q and A. Now, starting with the macro backdrop: January and February saw a continuation of many of the trends seen in the second half of 2025, highlighted by a resilient economy as well as modest stabilization in the labor market. Consequently, fixed income markets initially experienced continued strong investor demand and generally muted volatility. Ultimately, however, the war in the Middle East ruptured the calm as it introduced an energy price shock that may challenge the performance of the US Economy as the rest of the year unfolds. Although the US Is better insulated from higher commodity prices than most of Europe and Asia, rising oil and food prices risk further squeezing a consumer that is already facing slowing income growth and persistent affordability constraints. The bond market reacted sharply to the Middle East conflict and higher commodity prices as treasury yields sold off meaningfully in March. Short term rates led the sell off as investors priced higher near term inflation while long term yields rose on increased term premium. Expectations for monetary policy shifted significantly with markets pricing limited probability of any rate cuts this year compared to roughly two and a half cuts priced in at the end of February. For the time being, it appears Fed officials will be best served by waiting to evaluate incoming data for clear signs that inflation pressures are receding or the labor market is more markedly weakening before further lowering rates. This past quarter also saw the release of the Federal Reserve’s reproposed bank capital requirements, which were generally in line with market expectations. The newly proposed capital standards are more market friendly than Both the original 2023 Basel Endgame proposal and current standards, providing the potential for deployment of excess capital from banks into fixed income and housing finance. The reproposal also specifically targets the mortgage market as residential mortgage loan RWAs are estimated to decline by 30%. This could accelerate prime bank loan growth and lower agency MBS securitization rates, a positive technical for prime loans and agency mbs. Also, the elimination of a provision that deducted mortgage servicing rights above a specific threshold from regulatory capital may at the margin lead to slightly higher demand to hold MSRs on the part of banks. Now, with respect to our portfolio performance in the first quarter we delivered an economic return of 1.5% reflecting the strength of our diversified housing finance platform across a volatile market backdrop. Leverage remained conservative at 5.7 turns and we generated 76 cents of earnings available for distribution per share. Capital markets remained supportive in the first quarter and we were able to raise approximately $510 million of common equity through our ATM in Q1. The majority of capital raised was deployed in our residential credit and MSR strategies given the tightening experienced in agency in January and as such, our aggregate capital allocation to RESI and MSR increased from 38% to to 44% at the end of the quarter. Now, turning to our investment strategies and beginning with agency spreads tightened sharply in early January following the GSE purchase announcement before ultimately drifting wider initially simply on tight valuations and later on increased rate volatility following the outbreak of the Iran war. Now, despite the wide intra quarter range, MBS widened only modestly quarter over quarter, with lower coupons outperforming for our agency strategy. The story for the first quarter was about our ability to allocate capital dynamically as relative value shifts. Following the January tightening, we redeployed capital away from agency and into our credit businesses, which exhibited a more attractive return profile. However, the ultimate retracement of MBS spreads back to more reasonable levels later in the quarter left us entering Q2 with a more balanced view of the relative value landscape across our three businesses. The further support for agency currently is the strong technical backdrop the sector is exhibiting as aside from GSE purchase mandate, weekly flows into fixed income funds are strong and CMO issuance continues to absorb over 30% of gross supply as banks have ramped up buying CMO floaters. Moreover, recent changes to bank capital rules encourage banks to retain more loans, which could lower securitization rates and decrease organic growth in agency MBS. In our agency portfolio specifically, we ended the quarter at 92 billion in market value, a marginal decrease from year end. With agency representing 56% of the firm’s capital. We opportunistically repositioned the portfolio during the late quarter, sell off in rates, rotating down in coupon from sixes into 4.5 TBAs, and notably four and a half, provide more durable cash flows and improve the portfolio convexity should rates retest recent lows Also to note, we added modestly to our agency CMBS portfolio in the quarter. We maintained conservative interest rate exposure throughout Q1, with continued focus on protecting book value and managing risk through disciplined measured hedging. Heightened rate macro volatility led to more active tactical hedge adjustments in the quarter as markets moved quickly in response to geopolitical developments. Despite this activity, the net impact by quarter end was modest, with overall hedge levels changing only slightly. We remain comfortable maintaining exposure in swap spreads given the increased clarity around bank capital regulation and the growing presence of mortgage investors who actively hedge using swaps. That said, Treasuries have proven to be a more effective hedge in sharp volatility episodes such as March, which is why they continue to be an important part of our overall hedge composition. Now moving to residential credit, our portfolio ended the first quarter at $10.3 billion in market value, increasing to 23% of the firm’s capital. Driven largely by continued growth in our whole loan correspondent channel. Residential credit spreads tightened at the outset of the year as the strong move in the agency basis drove a rally across securitized products. However, similar to agency, credit spreads gave back their tightening in late February and March with AAA non QM spreads ending the quarter 10 to 15 basis points wider. We acquired 6.7 billion in whole loans on the quarter, approximately 80% sourced via our correspondent channel. Our lock volume was very strong at 7.4 billion, a 16% increase quarter over quarter and 41% increase year over year. Securitization markets remained healthy with Q1 residential credit gross issuance of 79 billion, a 63% increase year over year. Our OBX platform settled eight securitizations for 4.7 billion on the quarter generating 570 million of high quality proprietary assets for Annaly’s balance sheet and our joint venture and subsequent to quarter end we priced an additional four securitizations and now brought 12 transactions to market totaling 6.6 billion. Year to date, Onslow Bay remains the largest non bank securitizer of residential credit and is well positioned to continue to benefit from the growth of the private label market and we maintained our tight credit standards as our quarter end locked pipeline is represented by a764 weighted average FICO a 67% combined LTV with less than 2% of the portfolio greater than 80 LTV now shifting to MSR. Our portfolio ended the first quarter at $4.2 billion in market value and our capital allocation MSR increased 21% of the firm’s capital during the quarter. We committed to purchase $24 billion in principal balance or roughly $388 million in market value of MSR with a weighted average Note rate of 3.4% and these purchases came across four bulk packages as well as our flow channels. We were the second largest buyer of conventional MSR in the first quarter as measured by transfers and we are now ranked as the fifth largest non bank conventional servicer bulk supply in the first quarter roughly 80 billion UPB was above Q1.25 and we expect supply levels to remain ample throughout the balance of the year and we continue to scale our flow MSR capabilities in order to acquire current coupon MSR when attractive and our active flow partners more than tripled quarter over quarter as we purchased 1.9 billion UPB via Flow. Though still a small share of our overall purchases, underlying fundamentals within our MSR portfolio remain strong with prepay speeds muted at 4.2 CPR in Q1. While our credit profile continues to be high quality with serious Delinquencies just under 50 basis points the portfolio’s weighted average note rate of 3.3% continues to provide significant prepayment protection and is the lowest note rate among the top 20 largest agency MSR holders and our MSR valuation multiple increased modestly to a 5.94 multiple, primarily driven by the increase in interest rates. And lastly, to touch on our outlook, we believe each of our investment strategies is well positioned to deliver attractive risk adjusted returns through the remainder of the year, supported by a constructive market and housing finance backdrop. Again, agency spreads are at a more reasonable level today than earlier in the year, offering prospective new money returns in the mid teens. And as I noted earlier, market technicals are …
This post was originally published here
