Annaly Capital Management (NLY-PG) Q2 2026 Earnings Call Summary

1Key Financial Results and Metrics

Earnings Available for Distribution (EAD): $0.79 per share, exceeding the increased quarterly dividend of $0.75.

Economic Return: 5.5% for Q2, bringing the year-to-date return to 6.9%.

Book Value per Share: Increased by 1.7% to $20.15.

Economic Leverage: Remained conservative at 5.6x, slightly down from 5.7x in the previous quarter.

Net Interest Margin: Increased to 1.76%, with a net interest spread of 1.5%.

Cash and Unencumbered Assets: $5.5 billion in cash and $8 billion in total unencumbered assets.

2Strategic Updates and Business Highlights

Agency Sector: Expanded the Agency portfolio by approximately $3 billion, now valued at $95 billion, representing 57% of total capital. Strong demand for Agency MBS was noted, driven by healthy fixed income inflows and overseas purchases.

Residential Credit: Portfolio value stable at $10.4 billion, with record loan purchases of $7.1 billion in Q2. Annaly remains the largest issuer of Expanded Credit mortgages.

Mortgage Servicing Rights (MSR): Portfolio value unchanged at $4.1 billion, with a focus on higher loan balance MSRs to enhance return profiles.

Capital Raising: Successfully raised $450 million through an ATM program, supporting growth across Residential Credit and MSR businesses.

3Forward Guidance and Outlook

Investment Strategy: Expect to continue deploying capital across Agency, Residential Credit, and MSR sectors, with a focus on balancing investments based on relative value opportunities.

Market Conditions: Anticipate continued strong performance in the housing finance sector, with favorable technicals in Agency spreads and ongoing growth in the non-agency market.

Dividend Coverage: Management expressed confidence in the sustainability of the increased dividend, projecting the ability to cover it over the foreseeable future.

4Bad News, Challenges, or Points of Concern

Geopolitical Risks: Ongoing geopolitical tensions, particularly in the Middle East, could impact economic conditions and market volatility.

Interest Rate Environment: Rising interest rates and potential Fed rate hikes may pose challenges to the bond market and overall economic conditions.

Prepayment Risks: Although prepayment risk has decreased, management remains cautious about potential impacts on portfolio performance.

Operational Costs: An increase in operating expenses was noted, which may affect profitability if not managed effectively.

5Notable Q&A Insights

Dividend Coverage: Management reassured investors about the sustainability of the dividend, citing a strong economic return and a well-positioned portfolio.

Capital Allocation: There is a strategic preference for investing in Residential Credit due to its attractive risk-adjusted returns, with Agency investments also seen as favorable.

Market Dynamics: The GSEs' participation in the Agency MBS market has been constructive, and management expects them to continue supporting mortgage spreads.

Sourcing Loans: Annaly's extensive correspondent network and operational efficiencies provide a competitive advantage in sourcing loans, despite challenges in the broader market. Overall, Annaly Capital Management reported solid financial performance in Q2 2026, demonstrating resilience amid a complex economic landscape, while also highlighting strategic growth initiatives and a cautious outlook on potential risks.