NLY — Annaly Capital Management, Inc.

Summary of Annaly Capital Management Q2 2026 Earnings Call

1. Key Financial Results and Metrics

• Earnings Available for Distribution (EAD): $0.79 per share, exceeding the increased quarterly dividend of $0.75 per share. This marks the ninth consecutive quarter of EAD exceeding the dividend.
• Economic Return: 5.5% for Q2 2026, bringing the year-to-date economic return to 6.9%.
• Book Value per Share: Increased by 1.7% to $20.15.
• Economic Leverage: Remained conservative at 5.6x, down from 5.7x in the previous quarter.
• Net Interest Margin: Increased to 1.76%, and net interest spread improved to 1.5%.
• Cash and Unencumbered Assets: $5.5 billion in cash and unencumbered Agency MBS, with total assets available for financing at $9.6 billion.

2. Strategic Updates and Business Highlights

• Agency Sector: Grew the Agency portfolio by approximately $3 billion to $95 billion in market value, increasing capital allocation to 57%. The firm shifted its exposure to higher coupon MBS, reflecting a strategic rotation in response to market conditions.
• Residential Credit: The portfolio remained stable at $10.4 billion, with record loan purchases of $7.1 billion in Q2. Annaly closed 13 deals totaling $6.8 billion, maintaining its position as the largest issuer of Expanded Credit mortgages.
• Mortgage Servicing Rights (MSR): Portfolio value stable at $4.1 billion, with a focus on higher loan balance MSRs to enhance returns. The firm executed transactions to capitalize on market conditions effectively.

3. Forward Guidance and Outlook

• Investment Strategy: Annaly plans to continue deploying capital across Agency, Residential Credit, and MSR sectors, with a focus on Residential Credit for its risk-adjusted returns.
• Market Conditions: The firm expects favorable conditions in the fixed income and housing finance environment, with agency spreads remaining attractive and a strong outlook for the Residential Credit market.

4. Challenges and Points of Concern

• Geopolitical Risks: Ongoing geopolitical tensions, particularly in the Middle East, could impact economic stability and interest rates.
• Interest Rate Environment: The potential for future rate hikes by the Federal Reserve may create headwinds for the bond market, although lower rate volatility has recently provided a tailwind.
• Operational Costs: Operating expenses increased slightly, which could affect profitability if not managed effectively.
• Market Competition: Increased competition in the Residential Credit space, particularly from private equity firms, may pressure pricing and margins.

5. Notable Q&A Insights

• Dividend Coverage: Management expressed confidence in the sustainability of the dividend, citing a strong economic return and stable asset performance.
• Capital Allocation: The firm is focused on balancing investments across its strategies, with a preference for Residential Credit while remaining opportunistic in Agency and MSR sectors.
• Sourcing Loans: Annaly highlighted its competitive advantages in sourcing loans through a broad network of correspondents, which has allowed it to maintain volume and pricing stability.
• MSR Market Dynamics: Management noted that their operational model allows them to capitalize on unique opportunities in the MSR market, differentiating them from competitors who service their own loans.

Overall, Annaly Capital Management reported strong financial performance in Q2 2026, with a positive outlook despite potential challenges from geopolitical risks and interest rate fluctuations. The firm remains strategically positioned to leverage its diversified housing finance model for continued growth.