ANNALY CAPITAL MANAGEMENT INC Q1 FY2025 earnings call

• First quarter delivered a 3% economic return, and dividend was increased to $0.70 per share.
• Macro landscape in April had trade policy impacts leading to rate volatility. Interest rates and financial assets exhibited meaningful volatility post tariff announcements.
• Agency: $3.5 billion notional portfolio growth in first quarter driven by intermediate coupon TBAs; disciplined hedging approach maintained.
• Residential Credit: Portfolio decreased by $340 million quarter-over-quarter; credit spreads widened in March, but new issue market remained open. Lock and acquisition volumes remained strong.
• MSR: Portfolio ended relatively unchanged; settled $28 billion in principal balance, added UPB; strategically aligned with subservicing partners; fundamental performance exceeded initial model expectations.

Agency

• In the first quarter, there was $3.5 billion in notional portfolio growth, driven by purchases of intermediate coupon TBAs which offered favorable convexity and carry.

Residential Credit

• Portfolio ended the quarter at $6.6 billion in market value with $2.4 billion in capital. There was a $340 million decrease quarter-over-quarter due to opportunistic sales of third party securities and increased securitizations.

MSR

• Portfolio ended at $3.3 billion in market value. Settled $28 billion in principal balance of previously disclosed purchases while adding approximately $3 billion in UPB across bulk and flow acquisition channels. MSR valuation increased modestly with positive tailwinds from float income.

• Dividend maintained at $0.70 per share for the remainder of 2025.
• Expect OpEx to normalize with full-year OpEx to equity ratios aligning with historical levels.
• Maintained low economic leverage, enhanced liquidity to $7.5 billion in total assets available for financing.

• Trade policy impact on consumer and business confidence, potentially slowing economic growth and affecting inflation.
• Significant interest rate and financial asset volatility following tariff announcements.
• Regulatory changes such as bank SLR and their potential impact on market liquidity and dynamics.
• Market liquidity risks during periods of macro stress.

Q: Update on your book value quarter-to-date?

A: As of Tuesday evening, our book value inclusive of the dividend, economic return was off roughly 3.5%. And to give you context of how it has evolved coming out of the Easter holiday weekend, the economic return was roughly off 4.5%.

Q: Can you talk about your outlook for spreads? And how does the what’s happening in the swap market play into that? Does it have more to do with swaps normalizing? And also just any thoughts on what regulators might end up doing with the bank SLR and what that could mean for the market?

A: Let’s first talk about swap spreads... Swap spreads tightened, anticipation of regulatory reform, SLR impact on market.

Q: Just thinking now that spreads have widened and how you’re thinking about leverage today, whether this is an opportunity to increase it or with volatility likely or potentially to remain high, you would kind of keep it as is?

A: You bring up the two opposing forces in terms of how we look at leverage. Number one is that spreads are wider, which would suggest you would take more risk and add more leverage, but on the other side of the equation, a lot of that is driven by higher volatility. And as a consequence, it makes taking leverage up more risky. We’re going to keep things close to home.