Annaly Capital Management Q1 Earnings Call Highlights

Key Points

• Annaly reported a 1.5% economic return in Q1 with earnings available for distribution of $0.76 per share (covering the $0.70 quarterly dividend), book value fell 1.9% to $19.82 and leverage stayed conservative at 5.7x.
• The company raised about $510 million via its ATM and materially shifted capital into residential credit and MSR, raising that allocation to 44% from 38% while retaining a long-term target mix of 50% agency / 30% residential credit / 20% MSR.
• Operational growth focused on residential credit and servicing: Annaly bought $6.7 billion of whole loans, settled $4.7 billion of OBX securitizations (12 deals YTD totaling $6.6 billion), held a $4.2 billion MSR portfolio and finished the quarter with $7.4 billion of unencumbered assets.

Annaly Capital Management NYSE: NLY reported first-quarter 2026 results that management said reflected the benefits of its diversified housing finance platform during a period marked by shifting interest-rate expectations and increased geopolitical volatility.

Macro backdrop: energy shock, shifting rate-cut expectations

Chief Executive Officer and Co-Chief Investment Officer David Finkelstein said markets began the quarter with “generally muted volatility” amid a resilient economy and modest stabilization in the labor market, but conditions changed as “the war in the Middle East ruptured the calm as it introduced an energy price shock.” He said Treasury yields “sold off meaningfully in March,” led by short-term rates as investors priced higher near-term inflation, while long-term yields rose on increased term premium.

Finkelstein also noted a sharp shift in market pricing for monetary policy: markets moved to price “limited probability of any rate cuts this year,” compared with “roughly 2.5 cuts priced in at the end of February.” He said Federal Reserve officials appear best served by waiting for clearer signs that inflation pressures are receding or the labor market is weakening before cutting rates further.

Quarterly results: economic return of 1.5% and EAD of $0.76 per share

Finkelstein said the company generated an economic return of 1.5% for the quarter and maintained leverage “conservative at 5.7 turns.” Chief Financial Officer Serena Wolfe said book value per share fell 1.9% sequentially to $19.82 as of March 31, 2026. After the $0.70 dividend, Wolfe said the company achieved the 1.5% economic return.

Wolfe said earnings available for distribution (EAD), which she described as a non-GAAP metric excluding PAA, rose by $0.02 to $0.76 per share and exceeded the quarterly dividend. She attributed the EAD increase primarily to “a 30 basis points improvement in our average repo rate to 3.9%” and higher TBA dollar roll income driven by increased “specialness,” partially offset by lower swap income due to lower average receive rates on declining SOFR.

Net interest margin improved two basis points to 1.71%, while net interest spread declined modestly to 1.42%, Wolfe said.

Capital allocation shifts: increased residential credit and MSR exposure

Management emphasized dynamic capital allocation during the quarter. Finkelstein said the company raised about $510 million of common equity through its at-the-market (ATM) program in Q1 and deployed most of it into residential credit and mortgage servicing rights (MSR) strategies after agency valuations tightened in January. As a result, aggregate capital allocation to residential credit and MSR increased to 44% from 38% at the end of the prior quarter.

In response to a question about long-term targets, Finkelstein reaffirmed a long-term allocation objective of 50% agency, 30% residential credit, and 20% MSR, while reiterating that management is “very patient about getting there.”

Business highlights: agency repositioning, credit growth, and MSR purchases

Agency: Finkelstein said agency MBS spreads tightened sharply in early January after a GSE purchase announcement and later widened amid increased rate volatility tied to the Iran conflict. He said the company ended the quarter with $92 billion in agency portfolio market value, with agency representing 56% of firm capital, a marginal decrease from year-end.

He said Annaly repositioned during the late-quarter rates sell-off, “rotating down in coupon from 6s into 4.5 TBAs,” describing 4.5s as providing “more durable cash flows” and better convexity if rates retest lows. He also noted modest additions to the company’s agency CMBS portfolio and said hedging remained conservative, though more active during the quarter due to fast market moves.

Residential credit: Finkelstein said the residential credit portfolio ended Q1 at $10.3 billion in market value and rose to 23% of firm capital, largely due to growth in the whole-loan correspondent channel. He said Annaly acquired $6.7 billion in whole loans during the quarter, about 80% through its correspondent channel, and posted lock volume of $7.4 billion, up 16% quarter-over-quarter and 41% year-over-year. He also pointed to strong issuance: Q1 residential credit gross issuance of $79 billion, up 63% year-over-year.

Finkelstein said the company’s OBX platform settled eight securitizations totaling $4.7 billion in the quarter, generating $570 million of proprietary assets for Annaly’s balance sheet and a joint venture. After quarter-end, management said it priced four additional securitizations, bringing year-to-date transactions to 12 totaling $6.6 billion.

Mike Fania, Co-Chief Investment Officer and Head of Residential Credit, discussed the return profile of various non-agency allocations and described purchases including AAA CRE CLOs and select non-QM and MPL/RPL securities. On credit performance, Fania said 2024 and 2025 vintages have shown lower delinquencies than 2023, and that within Annaly’s portfolio, serious delinquencies (D90+) have been “pretty much” stable over the past year. He also said the market has not seen realized losses materialize meaningfully, describing cumulative losses in non-QM as “still a handful of basis points across various vintages.”

MSR: Finkelstein said the MSR portfolio ended Q1 at $4.2 billion in market value, with capital allocation rising to 21% of firm capital. Annaly committed to buy $24 billion in unpaid principal balance (UPB), equating to roughly $388 million in market value of MSR, with a weighted average note rate of 3.4%. He said the company was the second-largest buyer of conventional MSR in Q1 by transfers and is now the fifth-largest non-bank conventional servicer.

He said bulk MSR supply was about $80 billion UPB in Q1 and that management expects supply to remain ample for the rest of the year. Finkelstein cited muted prepayment speeds of 4.2 CPR and serious delinquencies “just under 50 basis points” in the MSR portfolio. He also said the MSR valuation multiple increased modestly to 5.94, primarily due to higher interest rates.

Liquidity, leverage, and Q2 update

Wolfe said economic leverage remained at 5.7 times, and the reported ending repo rate was 3.87%, down 15 basis points. She said Annaly had $7.6 billion of total warehouse capacity across residential credit and MSR, including $2.8 billion of committed capacity, with utilization at 65% for residential credit and 60% for MSR. The company ended the quarter with $7.4 billion in unencumbered assets, including $5 billion in cash and unencumbered agency MBS, Wolfe said.

On operating expenses, Wolfe said the efficiency ratio declined two basis points to 1.29%.

During the Q&A, Finkelstein provided a quarter-to-date update, saying that as of the prior Friday the company was “up 4% in economic return terms,” inclusive of dividend accrual. He also said that within Q1 book value performance, residential credit performed best, followed by MSR, with agency lagging due to spread widening and the costs associated with dynamic hedging.

Looking ahead, Finkelstein said agency spreads were at a “more reasonable level” than earlier in the year and described prospective new-money returns in the “mid-teens,” while also stating that the company intends to continue growing allocated capital to residential credit and expects to add MSR during the year, including greater use of flow acquisition channels.

About Annaly Capital Management NYSE: NLY

Annaly Capital Management, Inc is a publicly traded real estate investment trust (REIT) that specializes in generating income through investment in mortgage-related assets. The company's core business activities include the acquisition, financing, and management of a diversified portfolio of agency and non-agency residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and other real estate debt instruments. Annaly seeks to profit from the spread between the interest earned on its mortgage investments and its cost of funds, as well as from capital gains realized through active portfolio management.

Founded in 1997 and headquartered in New York City, Annaly has grown to become one of the largest mortgage REITs in the United States.

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