Annaly Capital Earnings Call Highlights Resilient Returns

Annaly Capital Management ((NLY)) has held its Q1 earnings call. Read on for the main highlights of the call.

Annaly Capital Management’s latest earnings call struck a cautiously upbeat tone as management highlighted solid returns and dividend coverage despite intense rate and geopolitical volatility. Executives stressed that disciplined leverage, ample liquidity, and growing exposure to Residential Credit and mortgage servicing rights, or MSR, are helping the firm navigate choppy markets and protect shareholder value.

Economic Return and Dividend Coverage

Annaly posted a 1.5% economic return for the first quarter of 2026, underscoring resilience in a turbulent backdrop. Earnings available for distribution came in at $0.76 per share, up $0.02 sequentially and comfortably ahead of the $0.70 dividend, signaling that current payout levels remain well supported by underlying cash earnings.

Leverage Discipline and Liquidity Strength

The company kept economic leverage at 5.7 times, emphasizing a conservative stance versus many peers in the mortgage REIT space. Liquidity remained robust, with $7.4 billion of unencumbered assets, including $5.0 billion in cash and unencumbered Agency MBS, and roughly $9.0 billion of total assets still available for financing.

Equity Raise and Capital Reallocation

Annaly raised about $510 million of common equity through its at‑the‑market program, giving it fresh dry powder to deploy into higher‑return opportunities. Management used that capital to lift the combined allocation to Residential Credit and MSR from 38% to 44% of capital, reflecting a clear pivot toward segments offering better relative value than pure Agency exposure.

Residential Credit Expansion and Securitization Momentum

The Residential Credit portfolio grew to $10.3 billion, now representing 23% of capital as the platform scaled aggressively. The firm acquired $6.7 billion of whole loans and recorded $7.4 billion of lock volume, while its OBX securitization shelf settled eight deals totaling $4.7 billion and helped drive $79 billion of industry issuance, up sharply year over year.

MSR Scale and Supportive Credit Performance

Annaly’s MSR book ended the quarter with a $4.2 billion market value, or about 21% of capital, underscoring its importance as a strategic hedge to rate and prepayment risk. The company also committed to purchase $24 billion in unpaid principal balance, with very low average note rates around the mid‑3% range and muted prepayments and delinquencies reinforcing the portfolio’s defensive qualities.

Net Interest Margin and Funding Profile

Funding costs improved as the average repo rate moved down by roughly 30 basis points to around 3.9%, offering some relief after prior tightening cycles. Net interest margin ticked up by 2 basis points to 1.71%, while the net interest spread held at a still‑healthy 1.42%, indicating Annaly is preserving core profitability despite cross‑currents in funding markets.

Efficiency and Operating Scale

Operating expenses stayed tightly controlled, with the efficiency ratio at just 1.29%, edging 2 basis points lower from the prior quarter. Management highlighted this as one of the sector’s lowest cost structures, made more notable because the firm now runs three fully scaled businesses spanning Agency, Residential Credit, and MSR.

Platform Advantages and Market Position

Onslow Bay, Annaly’s Residential Credit arm, remains the largest non‑bank securitizer in the sector, giving the company consistent access to capital markets and proprietary assets. Together with its correspondent channel and OBX platform, Annaly argued this integrated setup has delivered double‑digit annualized economic returns over the last three years while relying on lower leverage than many competitors.

Book Value Pressure and Q2 Recovery Signs

Book value per share fell 1.9% quarter on quarter to $19.82 as late‑quarter volatility and higher hedging costs weighed on marks, partially offsetting operating gains. Management noted that quarter‑to‑date economic book value in April was up roughly 4% including the accrued dividend, suggesting some of the Q1 mark‑to‑market pain has already begun to reverse.

Impact of Geopolitics and Agency Spread Volatility

The war in the Middle East triggered a sharp March sell‑off in Treasuries and a roughly 50‑basis‑point swing in 10‑year swaps, pushing up hedging costs and driving renewed MBS spread volatility. Agency spreads first tightened hard in January, then widened late in the quarter, leaving the Agency portfolio modestly negative even as Residential Credit and MSR outperformed.

Credit Spread Re‑Widening and Liquidity Headroom

After tightening early in the year, key credit benchmarks such as AAA non‑QM gave back some ground, ending Q1 around 10 to 15 basis points wider and tempering price gains. While Annaly still holds about $9.0 billion of assets available for financing, total availability dipped by roughly $300 million and warehouse lines are materially utilized, slightly reducing immediate liquidity headroom.

Macro Risks and Consumer Affordability Pressures

Management pointed to rising energy and food costs and slowing income growth as emerging risks for household balance sheets and housing demand. With markets now assigning a lower chance of rate cuts this year, mortgage rates could stay higher for longer, potentially capping refi activity and impacting future origination volumes and housing turnover.

Guidance and Strategic Outlook

Looking ahead to the rest of 2026, Annaly believes each of its three core strategies is positioned to deliver attractive risk‑adjusted returns, with new Agency investments offering prospective mid‑teens returns. The company reiterated its long‑term capital mix target of roughly 50% Agency, 30% Residential Credit, and 20% MSR, while stressing its willingness to dynamically shift allocations as relative values and market conditions evolve.

Annaly’s earnings call painted a picture of a mortgage REIT using conservative leverage, strong liquidity, and a diversified platform to manage through intense interest‑rate and geopolitical volatility. While book value remains sensitive to spread moves, the firm’s growing Residential Credit and MSR franchises, solid dividend coverage, and disciplined risk management left management confident about delivering competitive returns through 2026.