Annaly Capital Management ((NLY)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Annaly Capital Management’s recent earnings call painted a picture of strong financial performance, marked by consecutive positive economic returns and effective capital raising efforts. Despite these achievements, the company faces challenges in the housing market and a decline in book value per share. The call underscored significant positives, such as record securitization activity and robust MSR performance, while also acknowledging market hurdles.
Positive Economic Return and Earnings
Annaly Capital Management reported a commendable economic return of 0.7% for the second quarter, with earnings available for distribution reaching $0.73 per share, surpassing the dividend. This achievement marks the seventh consecutive quarter of positive economic returns, showcasing the company’s consistent financial strength.
Accretive Capital Raising
The company successfully raised over $750 million through its ATM program, predominantly deploying this capital in the agency sector. This strategic move highlights Annaly’s ability to effectively leverage capital to bolster its financial position.
Record Securitization Activity
Annaly’s Onslow Bay platform achieved its highest quarterly securitization activity to date, closing $3.6 billion across seven transactions. This record-setting performance underscores the company’s robust operational capabilities in the securitization market.
Strong MSR Portfolio Performance
The MSR portfolio demonstrated strong performance, generating well-defined durable cash flows. With a 3-month CPR of 4.6% and stable serious delinquencies at 50 basis points, the portfolio remains a key asset for Annaly.
Improvement in Net Interest Metrics
Annaly reported an increase in net interest spread ex PAA to 1.47% in Q2, up from 1.24% a year ago. Similarly, the net interest margin ex PAA improved to 1.71% in Q2, reflecting the company’s enhanced profitability in interest metrics.
Decline in Book Value Per Share
Despite positive financial metrics, Annaly experienced a 3% decline in book value per share, bringing it down to $18.45. This decrease highlights the challenges the company faces in maintaining its asset value amidst market fluctuations.
Muted Demand for Agency MBS
The demand for Agency MBS has been slow to recover, with muted interest from overseas and the banking community. This lack of demand poses a challenge for Annaly in optimizing its agency MBS portfolio.
Housing Market Challenges
The housing market has encountered difficulties, with increased supply leading to four consecutive months of negative home price appreciation (HPA). These challenges reflect broader market conditions impacting Annaly’s operations.
Forward-Looking Guidance
Looking ahead, Annaly Capital Management remains focused on maintaining a diversified funding strategy, with approximately $7.4 billion in assets available for financing. The company reported a total economic return of 3.7% year-to-date and continues to prioritize strategic capital deployment in the agency sector. Despite a 3% decline in book value per share, Annaly’s agency portfolio’s market value grew by 6% quarter-over-quarter, indicating a positive outlook for future growth.
In summary, Annaly Capital Management’s earnings call highlighted a strong financial performance with positive economic returns and effective capital raising. While the company faces challenges in the housing market and a decline in book value per share, its record securitization activity and robust MSR performance provide a solid foundation for future growth. Investors will be keen to see how Annaly navigates these challenges and capitalizes on its strategic initiatives moving forward.