Annaly(US:NLY)2024-04-25 17:00Financial Data and Key Metrics Changes - The economic return for the quarter was 4.8% with earnings available for distribution (EAD) of $0.64 per share, reflecting a decrease of $0.04 compared to the previous quarter [36][39] - Book value per share increased to $19.73, primarily due to asset spread appreciation with minimal interest rate exposure [39] - Total cost of funds rose by 36 basis points to 3.78%, while net interest margin (NIM) decreased by 15 basis points to 143 basis points [9][18] Business Line Data and Key Metrics Changes - The Residential Credit portfolio ended the quarter at $6.2 billion in market value, with a 21% increase in the firm's capital [6] - The Mortgage Servicing Rights (MSR) portfolio reached $2.7 billion in market value, with transaction volumes remaining elevated and a commitment to purchase over $100 million in bulk packages expected to close in Q2 [7] - The Agency CMBS portfolio remained largely unchanged, with spreads tightening by 10 to 15 basis points [15][84] Market Data and Key Metrics Changes - The first quarter of 2024 saw resilient economic data, a healthy labor market, and an uptick in inflation, leading to a modest sell-off in interest rates [14] - The Onslow Bay correspondent channel registered $3.7 billion in expanded credit locks, up 40% quarter-over-quarter, with a robust pipeline of $2 billion at quarter end [37] - The MSR market experienced modest multiple expansion, contributing to the overall performance of the company's housing finance strategies [36] Company Strategy and Development Direction - The company is focused on expanding its Onslow Bay channel to solidify its position as a market leader in the Residential Credit market [16] - A conservative approach to interest rate risk is maintained, with the current leverage at its lowest level since 2014, allowing for flexibility in response to market changes [27] - The company aims to continue generating attractive risk-adjusted returns across its investment strategies while remaining vigilant to market volatility [38] Management's Comments on Operating Environment and Future Outlook - Management expressed optimism about the outlook for all three business lines, citing strong economic data and a supportive capital market environment [38] - The company is prepared for potential volatility and is confident in the durability of its earnings profile, with expectations for a modest increase in NIM in the second quarter [77] - The management highlighted the importance of maintaining a disciplined approach to capital allocation and asset sourcing [38] Other Important Information - The company has approximately $6.2 billion in assets available for financing, unchanged from the previous quarter, indicating a strong liquidity position [41] - The average repo rates remained stable, with a slight nominal decline, reflecting the company's effective management of funding strategies [40] Q&A Session Summary Question: How are MSRs performing as rates increase and their effectiveness in hedging the MBS portfolio? - Management noted that MSRs are performing stably with increased cash flow, and slower speeds are beneficial for MSRs while being less favorable for MBS [21][22] Question: What is driving the increase in Onslow Bay correspondent activity? - The increase is attributed to the maturation of the correspondent channel, seasonal factors, and the growth of larger non-bank participants in the market [23] Question: How does the company view its capital allocation in the current environment? - The company is satisfied with its current capital allocation, emphasizing that all three sectors are fully scaled and contributing positively to returns [26] Question: What is the outlook for dividends in 2024? - Dividends are deemed appropriately set for 2024, dependent on asset yields and market conditions, with expectations for modest increases in NIM [77] Question: What changes have been made within the portfolio in response to recent rate movements? - The company sold a couple of billion in Agency MBS early in the quarter and is managing its rate exposure conservatively [55][56]