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    NLY
    Earnings call· Mar 2026(Q1 FY26)

    ANNALY CAPITAL MANAGEMENT Q1 FY26 earnings call NLY

    Apr 22, 2026 Source

    Executive summary

    Annaly Capital Management Q1 FY26 — Strong Economic Return Amidst Volatility

    Annaly Capital Management delivered a resilient Q1 FY26, achieving a positive economic return despite market volatility driven by geopolitical events and shifting rate expectations. The company strategically reallocated capital towards Residential Credit and MSR, capitalizing on more attractive return opportunities while maintaining a disciplined hedging approach. Management expressed confidence in the balanced opportunity set across its diversified housing finance platform for the remainder of the year.

    Highlights

    5

    • Achieved a 1.5% economic return in Q1 FY26, reflecting platform strength.

    • Generated $0.76 of earnings available for distribution per share, exceeding the quarterly dividend of $0.70.

    • Increased capital allocation to Residential Credit and MSR strategies from 38% to 44% of firm's capital, leveraging attractive return profiles.

    • Residential Credit securitization business achieved a record quarter, issuing $4.7 billion across 8 securitizations, with lock volume up 41% YoY.

    • MSR portfolio grew to $4.2 billion in market value, with $24 billion in principal balance committed for purchase and a low weighted average note rate of 3.3%.

    Concerns

    3

    • Book value per share decreased by 1.9% to $19.82 from the prior quarter.

    • MBS spreads widened modestly quarter-over-quarter due to increased rate volatility and geopolitical developments.

    • AAA non-QM spreads widened 10 to 15 basis points in late February and March.

    Guidance & targets

    6
    CategoryTargetConfidence
    MSR supply levels
    remain ample
    medium materiality
    High
    MSR acquisitions
    further add MSR this year with increasing usage of our flow acquisition channels
    medium materiality
    High
    Allocated capital to Residential Credit
    continue growing
    high materiality
    High
    Agency new money returns
    mid-teens
    high materiality
    Medium
    New money returns across strategies
    compelling
    high materiality
    High
    Usage of swaps for hedging
    slight increase
    low materiality
    Medium

    Segment performance

    3
    SegmentRevenueYoYQoQMargin
    Agency
    Spreads tightened sharply in early January, then drifted wider due to tight valuations and increased rate volatility. MBS widened modestly quarter-over-quarter. Capital was redeployed away from Agency following January tightening. Strong technical backdrop with GSE purchase mandate, fixed income fund flows, and CMO issuance. Maintained conservative interest rate exposure and active tactical hedge adjustments.
    Market Value: $92 billionCapital Allocation: 56% of firm's capitalPortfolio Repositioning: rotated down in coupon from 6s into 4.5 TBAs
    		————
    Residential Credit
    Portfolio increased largely due to continued growth in whole loan correspondent channel. Spreads tightened at the outset of the year but gave back tightening in late February and March, with AAA non-QM spreads widening 10 to 15 basis points. Onslow Bay remains the largest non-bank securitizer of Residential Credit. Maintained tight credit standards. Performance has been very consistent, with cumulative losses still a handful of basis points.
    Market Value: $10.3 billionCapital Allocation: 23% of firm's capitalWhole Loans Acquired: $6.7 billionWhole Loans Sourced via Correspondent Channel: 80%Lock Volume: $7.4 billionLock Volume QoQ Increase: 16%Lock Volume YoY Increase: 41%Q1 Gross Issuance: $79 billionQ1 Gross Issuance YoY Increase: 63%OBX Securitizations Settled: 8 for $4.7 billionProprietary Assets Generated for Balance Sheet/JV: $570 millionYTD Securitizations Priced: 12 for $6.6 billionLocked Pipeline Weighted Average FICO: 764Locked Pipeline Combined LTV: 67%Locked Pipeline >80 LTV: less than 2%Serious Delinquencies (D90+): 140 bps
    		————
    MSR
    Second largest buyer of conventional MSR in Q1, ranked fifth largest nonbank conventional servicer. Expect ample supply throughout the year. Scaling flow MSR capabilities. Underlying fundamentals remained strong with muted prepay speeds and high credit quality. Valuation multiple increased modestly due to higher interest rates.
    Market Value: $4.2 billionCapital Allocation: 21% of firm's capitalCommitted to Purchase Principal Balance: $24 billionCommitted to Purchase Market Value: $388 millionWeighted Average Note Rate (new purchases): 3.4%Bulk Supply Q1 UPB: $80 billionFlow MSR Purchased UPB: $1.9 billionPrepay Speeds: 4.2 CPRSerious Delinquencies: just under 50 bpsPortfolio Weighted Average Note Rate: 3.3%Valuation Multiple: 5.94x
    		————

    Operational metrics

    32
    Economic return
    1.5%
    Q1 FY26

    Reflecting the strength of the diversified housing finance platform.

    Earnings available for distribution per share
    $0.76increased by $0.02
    Q1 FY26

    Exceeded the quarterly dividend.

    Book value per share
    $19.82decreased by 1.9%
    Q1 FY26 end

    After accounting for the $0.70 dividend.

    Dividend per share
    $0.70
    Q1 FY26

    Quarterly dividend.

    Average repo rate
    3.9%30 basis point improvement
    Q1 FY26

    Contributed to EAD.

    Net interest margin
    1.71%improved 2 basis points
    Q1 FY26

    Benefited from reduction in cost of funds.

    Net interest spread
    1.42%declined modestly
    Q1 FY26

    Remained strong despite modest decline.

    Q1 reported earning repo rate
    3.87%down 15 basis points
    Q1 FY26

    Reported earning repo rate for the quarter.

    Weighted average repo days to mature
    36%up 1 day
    Q1 FY26 end

    Maturity profile of repo book.

    Total warehouse capacity
    $7.6 billion
    Q1 FY26 end

    Across Residential Credit and MSR businesses.

    Residential Credit warehouse utilization rate
    65%
    Q1 FY26 end

    Utilization of available warehouse capacity.

    MSR warehouse utilization rate
    50%
    Q1 FY26 end

    Utilization of available warehouse capacity.

    Unencumbered assets
    $7.4 billion
    Q1 FY26 end

    Includes cash and unencumbered Agency MBS.

    Cash and unencumbered Agency MBS
    $5 billion
    Q1 FY26 end

    Component of total unencumbered assets.

    Fair value of MSR pledged to committed warehouse facilities
    $1.6 billion
    Q1 FY26 end

    Amount remains undrawn and can be quickly converted to cash.

    Total assets available for financing
    $9 billiondown $300 million from prior quarter
    Q1 FY26 end

    Represents about 55% of total capital base, providing significant liquidity.

    Efficiency ratio
    1.29%fell 2 basis points
    Q1 FY26

    Continuing trend of being one of the lowest in the mortgage REIT sector.

    Common equity raised via ATM
    $510 million
    Q1 FY26

    Capital raised through the At-The-Market program.

    Aggregate capital allocation to Residential Credit and MSR
    44%increased from 38%
    Q1 FY26 end

    Strategic shift in capital deployment.

    Economic return (annualized)
    double-digit
    last 3 years

    Demonstrates ability to perform across different market environments.

    Book value per share (economic terms)
    up 4%
    Q2 FY26 quarter-to-date

    Inclusive of the dividend accrued.

    MSR risk weighting (Basel III)
    250%
    current

    Under reproposed bank capital requirements; expected to be lobbied by banks.

    Third-party securities portfolio
    $2.1 billionup $435 million
    Q1 FY26 end

    Component of non-agency portfolio.

    CRE CLOs purchased
    $395 million
    Q1 FY26

    Part of third-party securities acquisitions.

    BB non-QM bonds levered ROE
    12% to 13%
    Q1 FY26

    Levered return on equity for BB non-QM bonds purchased.

    NPL, RPL A2s purchased
    $55 million
    Q1 FY26

    Part of third-party securities acquisitions.

    OBX portfolio
    $3.5 billion
    Q1 FY26 end

    Component of non-agency portfolio, generating higher returns.

    Whole loans portfolio increase
    $1.65 billion
    Q1 FY26

    Increase in whole loans on the quarter.

    Whole loans on warehouse lines levered ROE
    11% to 12%
    Q1 FY26

    Levered return on equity for whole loans held on warehouse lines.

    Whole loans manufactured into OBX securities levered ROE
    15%
    Q1 FY26

    Levered return on equity once whole loans are securitized through OBX.

    Non-QM AAA securitization cost of funds
    1.20 SOFR all-in / SOFR + 1.50
    current

    Current market pricing for AAA non-QM securitizations.

    Hedging ratio (swaps vs treasuries)
    2/3
    current

    Comfortable hedge composition between swaps and treasuries.

    Industry KPIs

    5
    MetricValueDetails
    Investment volume closed$6.7 billionUSD
    Net debt adjusted EBITDA5.7xx
    Leasing bookings volume signed$7.4 billionUSD
    Ffo core ffo normalized ffo per share$0.76per share
    Third party strategic capital fund jv platform$570 millionUSD

    Orderbook & backlog

    1
    MSR Purchase Commitments$24 billion principal balance / $388 million market valueQ1 FY26 end

    Committed to purchase across 4 bulk packages and flow channels.

    Deals & partnerships

    1
    Unnamed originatorPartnership transaction for securitization, charging for use of Annaly's shelf, without taking principal risk.

    The partner's incentive was to gain additional capital markets distribution away from the GSEs. This involved Agency owner-occupied collateral.

    Risks & headwinds

    4
    Geopolitical conflict (Middle East) leading to energy price shockrest of the year

    Risk of further squeezing consumers already facing slowing income growth and persistent affordability constraints.

    Mitigation: Proactive hedging strategy protected against interest rate volatility; dynamic capital allocation to more attractive assets.

    Shift in Monetary Policy Expectationsthis year

    Market pricing limited probability of any rate cuts this year compared to roughly 2.5 cuts priced in at the end of February.

    Mitigation: Maintaining conservative interest rate exposure and disciplined hedging; dynamic capital allocation.

    Mortgage Market Profitability Challenges2025 (historical), ongoing

    Net profit margin for independent mortgage bankers was 21 basis points in 2025.

    Mitigation: Focus on non-bank securitization and correspondent channels where Annaly has competitive advantages; not focused on direct origination.

    High Mortgage Rates and Affordabilityongoing

    Mortgage rates are higher, folks are locked in and home prices are high.

    Mitigation: Acknowledged need for lower rates, but structural economic problems need addressing; Annaly's diversified model performs across different market environments.

    What to watch in Q2 FY26

    5

    Book Value Per Share Trend

    next quarter
    CurrentUp 4% quarter-to-date (as of April 19, 2026)
    TargetContinued positive trend

    Why it matters

    Book value per share is a key indicator of shareholder value and overall portfolio performance for a mortgage REIT.

    As of Friday, we were up 4% in economic terms.

    Q&A highlights

    8

    Will the new bank capital rules significantly change bank balance sheets regarding mortgage holdings and origination, potentially shifting the trend of mortgages moving to non-banks?

    Management believes the rules could free up over $600 billion in balance sheet capacity for mortgages and reduce Agency issuance. However, they do not expect banks to re-enter mortgage origination significantly due to non-banks' established investments and the current low profitability of the origination market.

    “the secular trend of nonbanks, that's going to stay in place. They've invested in terms of technology resources, but also the profitability of the mortgage origination market as well is currently challenging.”

    asked by Crispin Love · answered by David Finkelstein

    2 min read6 chapters

    Detailed Narrative

    01

    Macroeconomic Backdrop and Market Reaction

    The quarter began with resilient economic trends and muted volatility, but the Middle East conflict introduced an energy price shock, leading to a sharp sell-off in Treasury yields in March. Short-term rates rose on inflation concerns, and long-term yields increased due to higher term premium, shifting monetary policy expectations to limited rate cuts for the year. This volatility necessitated active tactical hedge adjustments.

    02

    Impact of Bank Capital Rules

    The Federal Reserve's reproposed bank capital requirements are more market-friendly than previous proposals, potentially freeing up excess capital for fixed income and housing finance. Residential mortgage loan RWAs are estimated to decline by 30%, which could accelerate prime bank loan growth, lower Agency MBS securitization rates, and slightly increase demand for MSRs from banks. However, management does not expect banks to re-enter mortgage origination significantly.

    03

    Dynamic Capital Allocation Strategy

    Annaly demonstrated its ability to dynamically allocate capital, shifting away from Agency MBS in January due to tight valuations and deploying approximately $510 million of common equity raised via ATM into Residential Credit and MSR strategies. This strategic pivot increased the aggregate capital allocation to these segments from 38% to 44% of the firm's capital by quarter-end, aiming for a long-term target of 50% Agency, 30% Resi Credit, 20% MSR.

    04

    Residential Credit Growth and Securitization

    The Residential Credit business saw strong growth, acquiring $6.7 billion in whole loans, with 80% sourced through its correspondent channel. Lock volume increased 41% year-over-year to $7.4 billion. The OBX platform settled 8 securitizations for $4.7 billion in Q1, generating $570 million of proprietary assets, and has brought 12 transactions totaling $6.6 billion year-to-date, maintaining tight credit standards with a 764 weighted average FICO.

    05

    MSR Portfolio Expansion and Performance

    The MSR portfolio expanded to $4.2 billion, with capital allocation increasing to 21%. The company committed to purchase $24 billion in principal balance ($388 million market value) of MSRs at a weighted average note rate of 3.4%. Prepay speeds remained muted at 4.2 CPR, and serious delinquencies were low at under 50 basis points, supported by a portfolio weighted average note rate of 3.3%. Annaly was the second largest conventional MSR buyer in Q1.

    06

    Hedging Strategy and Market Technicals

    Annaly maintained conservative interest rate exposure with disciplined hedging, making tactical adjustments in response to geopolitical volatility🌐. The company noted strong technicals in the Agency sector, including GSE purchase mandates, strong fixed income fund flows, and increased CMO issuance absorption, making it a more investable sector despite spread movements. The company is comfortable with a 2/3 hedge ratio between swaps and treasuries, with potential for increased swap usage.

    AI-generated summary of the company’s earnings call. Not investment advice.