Annaly(US:NLY)2024-10-24 16:08Financial Data and Key Metrics Changes - The book value per share increased from $19.25 in the prior quarter to $19.54, reflecting strong performance across all business lines [19] - The company generated an economic return of 4.9% for Q3 and 10.5% year-to-date, with earnings available for distribution exceeding the dividend [7][19] - Average asset yields excluding PAA increased by 11 basis points to 5.25% in Q3, while net interest spread excluding PAA improved by 8 basis points to 1.32% [21][22] Business Line Data and Key Metrics Changes - The Agency MBS portfolio grew by over $4 billion notional, with price appreciation contributing to the increase [8] - The residential credit portfolio ended Q3 at $6.5 billion in economic market value, with a quarter-over-quarter increase of $535 million [11] - The MSR portfolio ended Q3 at $2.8 billion in market value, with a minimal decrease in valuation despite an 80 basis point decline in mortgage rates [14] Market Data and Key Metrics Changes - Interest rate volatility declined to the lowest level since the March 2023 regional banking crisis, supporting the attractiveness of fixed income assets [6] - The market value of all three business lines increased quarter-over-quarter, indicating strong institutional demand [8] - The correspondent channel produced record volumes in Q3, with locks and fundings at $4.4 billion and $2.9 billion, respectively [12] Company Strategy and Development Direction - The company remains optimistic about its business model with the Fed's cutting cycle underway and potential for a soft landing [17] - There is a focus on maintaining a disciplined approach to portfolio management concerning leverage, liquidity, and duration exposure [17] - The company aims to grow its residential credit business while being cautious about credit risk in the current cycle [33] Management's Comments on Operating Environment and Future Outlook - Management highlighted the importance of managing rate risk amid political uncertainty and market volatility [25][26] - The company is optimistic about the potential for increased bank demand and foreign buyers in the Agency MBS market as the Fed cutting cycle continues [54] - Management expressed confidence in the dividend outlook, expecting modest earnings growth in Q4 compared to Q3 [29][30] Other Important Information - The company raised $1.2 billion of accretive common equity since the beginning of Q3 through its ATM program [7] - The partnership with Rocket Mortgage is expected to enhance competitiveness in purchasing new MSR and improve recapture capabilities [16] Q&A Session Summary Question: How is the company managing rate risk amid political uncertainty? - Management indicated that they entered the quarter with virtually no rate risk and proactively managed the portfolio by selling approximately $2 billion in Agency MBS [25][26] Question: What is the current status of book value? - The book value was reported to be off just over 1% pre-dividend accrual, approximately 0.5% off when considering dividend accrual [28] Question: What is the outlook for the dividend into 2025? - Management feels good about the dividend and expects to earn slightly more in Q4 than in Q3, but will need to assess the Fed's direction before making definitive statements [29][30] Question: How is capital allocation being managed across the three business lines? - Agency MBS appears to be the most attractive for capital allocation currently, but there is a desire to grow the residential credit business as well [32][33] Question: What is the competitive landscape in the non-QM space? - Management believes they are gaining market share and have established deep relationships in the originator community, which positions them well against new entrants [56][59]