Economic Return: 3% economic return during the first quarter. Dividend: Increased to $0.70 per share. Economic Leverage: Increased modestly to 5.7 turns. Liquidity: $7.5 billion in total assets available for financing. Residential Credit Portfolio: Ended the quarter at $6.6 billion in market value. Book Value Per Share: $19.02, a modest decline of less than 1% quarter over quarter. Earnings Available for Distribution (EAD) Per Share: $0.72 per share, consistent with the prior quarter. Repo Rates: Lower average repo rates of 4.56% compared to 4.93% in the prior quarter. Unencumbered Assets: $6.3 billion, including cash and unencumbered agency MBS of $4.7 billion. MSR Portfolio: Ended the first quarter at $3.3 billion in market value. Warehouse Capacity: Total capacity of $5.8 billion across both Residential Credit and MSR businesses.

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Release Date: May 01, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

Annaly Capital Management Inc (NYSE:NLY) delivered a 3% economic return during the first quarter. The company increased its common stock dividend to $0.70 per share, highlighting earnings momentum. Annaly Capital Management Inc (NYSE:NLY) maintained a disciplined approach to interest rate exposure, enhancing liquidity to $7.5 billion in total assets available for financing. The MSR portfolio remained stable with low note rates and delinquency attributes, contributing to strong returns. The OBX securitization platform closed six transactions in Q1, reflecting the programmatic nature of the platform and strong investor demand.

Negative Points

The macro environment remains uncertain with elevated volatility, impacting economic growth and financial asset stability. Interest rate volatility and widening agency MBS spreads present challenges for the company's portfolio. The housing market shows signs of regional disparity, with some areas experiencing a modest reversal in home price appreciation trends. Economic leverage increased modestly to 5.7 turns, though it remains at the low end of the historical range. Book value per share experienced a modest decline of less than 1% quarter over quarter.

Q & A Highlights

Q: Can I get an update on your book value quarter to date? A: As of Tuesday evening, our book value inclusive of the dividends, so, economic return was off roughly 3.5%. Coming out of the Easter holiday weekend, the economic return was roughly off 4.5%. - David Finkelstein, CEO

Story Continues

Q: Can you talk about your outlook for spreads and how the swap market plays into that? A: Swap spreads have tightened due to volatility, but we expect them to normalize as trade negotiations improve and market volatility subsides. Regulatory reforms, including SLR adjustments, could also impact swap spreads positively. - David Finkelstein, CEO

Q: How are you thinking about leverage given the current market conditions? A: While wider spreads suggest taking more risk, high volatility makes increased leverage risky. We are balancing these forces and keeping leverage modestly increased but still conservative. - David Finkelstein, CEO

Q: Do you see weaker housing prices becoming systemic or isolated? A: Weaker housing prices are more regional, particularly in the South and Southeast, due to increased inventory. However, the national housing market remains stable with low delinquencies and strong borrower equity. - Michael Fania, Co-Chief Investment Officer

Q: What are your thoughts on the potential release of GSEs from conservatorship? A: While conservatorship shouldn't last forever, any changes should be done carefully to avoid negative impacts on the mortgage market. A smaller GSE footprint could benefit both our agency and residential credit businesses. - David Finkelstein, CEO

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

This article first appeared on GuruFocus.

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