Annaly Capital Management, Inc. Q1 FY2026 earnings call

• Macro backdrop: January and February saw resilient economy and labor market stabilization, then Middle East war caused energy price shock and bond market reaction. - Portfolio performance: Delivered 1.5% economic return, 76 cents of earnings available for distribution per share. - Agency strategy: Allocated capital dynamically, ended quarter at $92 billion in market value, repositioned portfolio during rate sell-off. - Residential credit: Portfolio value increased, acquired whole loans, securitization market healthy. - MSR strategy: Committed to purchase MSR, supply levels ample, underlying fundamentals strong. - Financials: Book value per share decreased by 1.9%, earnings available for distribution per share increased to 76 cents, net interest margin improved, residential credit securitization business had record quarter.

Agency: Ended the quarter at $92 billion in market value, marginal decrease from year-end, representing 56% of the firm's capital. Residential Credit: Portfolio ended at $10.3 billion in market value, increasing to 23% of the firm's capital, with $6.7 billion in whole loans acquired, lock volume at $7.4 billion. MSR: Portfolio ended at $4.2 billion in market value, capital allocation increased to 21% of the firm's capital, committed to purchase $24 billion in principal balance of MSR.

• Believes each investment strategy well-positioned to deliver attractive risk-adjusted returns. - Agency spreads at reasonable level, technicals favorable. - Residential credit business sees strong growth. - MSR portfolio expected to add more MSR with flow acquisition channels. - Entering second quarter with more balanced opportunity set.

• Middle East war introduced energy price shock challenging U.S. economy. - Bond market reacted sharply to Middle East conflict and higher commodity prices. - Expectations for monetary policy shifted with limited rate cuts expected. - Re-proposed bank capital requirements have certain impacts but uncertainties remain. - Geopolitical developments caused rate macro volatility requiring hedge adjustments.

• Q: Do bank capital rules drive significant changes in bank balance sheets?

A: Estimated $600 billion balance sheet capacity, reduce agency issuances, banks not likely to return to origination. - Q: Update on book value quarter to date?

A: Up 4% in economic return terms inclusive of dividend accrual. - Q: Expand on non-agency subsectors returns?

A: Broken down into third-party securities, OBX, whole loans with different return ranges. - Q: Impact of non-QM delinquencies on investor appetite?

A: 2024 and 2025 vintages show lower delinquencies, serious delinquencies in portfolio consistent. - Q: Aggressiveness in raising capital and deployment?

A: Capital raised for resi credit and MSR, agency looks investable but will be thoughtful in allocation. - Q: Dynamic of originators selling loans in non-agency vs agency channel?

A: LLPAs cause originators to prefer non-agency channel, some originators using PLS market for owner-occupied collateral. - Q: Hedging portfolio changes and outlook?

A: More comfortable with swaps due to Fed and bank capital rule changes, still maintain treasuries for shock hedging. - Q: Disaggregate book value decline and Onslow Bay business outlook?

A: Agency lagged, Resi and MSR performed better, Onslow Bay business seen as resilient with market growth.