• Economic Return (Q4 2024): 1.3%
• Full-Year Economic Return (2024): 11.9%
• Economic Leverage: Decreased to 5.5 turns
• Earnings Available for Distribution (Q4 2024): $0.72 per share
• Capital Raised (Q4 2024): Over $400 million
• Book Value per Share (as of Dec 31, 2024): $19.15
• Agency MBS Portfolio Market Value: $71 billion
• Residential Credit Portfolio Market Value: $7 billion
• MSR Portfolio Market Value: $3.3 billion
• Net Interest Spread (ex PAA): Improved by 15 basis points to 1.47%
• Net Interest Margin (ex PAA): Improved by 19 basis points to 1.71%
• Unencumbered Assets (as of Dec 31, 2024): $5.8 billion
• OpEx to Equity Ratio (Q4 2024): Decreased to 1.39%

• Warning! GuruFocus has detected 5 Warning Signs with NLY.

Release Date: January 30, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Annaly Capital Management Inc (NYSE:NLY) achieved a full-year 2024 economic return of 11.9%, demonstrating the strength and diversity of its housing finance portfolio.
• Earnings available for distribution per share increased significantly to $0.72, exceeding the dividend for the quarter due to lower borrowing costs.
• The company raised over $400 million of accretive common equity through its ATM in Q4, bringing the total capital raised in 2024 to $1.6 billion.
• Annaly's residential credit business closed on four securitizations totaling $2.3 billion in Q4, contributing to a record $11 billion in cumulative issuance for the year.
• The MSR portfolio ended the fourth quarter at $3.3 billion in market value, representing a 25% increase year over year, with strong fundamental performance and lower-than-expected prepayment speeds and delinquencies.

Negative Points

• Book value per share decreased by 2% from $19.54 in the prior quarter to $19.15 as of December 31, 2024.
• The company incurred losses on its Agency MBS portfolio of $4.14 per share and on its residential credit portfolio of $0.26 per share during the quarter.
• Despite a decrease in economic leverage, the portfolio's duration extension required proactive management through increased hedges at the long end of the yield curve.
• The competitive landscape in the MSR space is changing significantly, with increased competition from originators focused on recapture.
• The outlook for volatility remains uncertain, with potential impacts on returns, particularly in the Agency MBS segment.

Q & A Highlights

Q: The $0.72 EAD seems to equate to around a 15% net ROE. Is this level of EAD in line with the current normalized economic return of your portfolio? A: Generally, over the quarter, we didn't see much change in spreads. Agency is at 15% to 17%, likely at the higher end. With lower expenses due to the equity raise, this is reasonably contextual. We don't have long-term guidance, but for Q1, earnings should be consistent with Q4.

Q: Given the run rate of earnings, is it fair to say the dividend looks well covered? A: Yes, for 2025, the dividend feels safe. We evaluate the dividend every quarter with our Board, focusing on durability. We feel optimistic about maintaining this run rate.

Q: How is the competitive landscape in the MSR space changing, especially with lower origination volumes expected in 2025? A: Lower volume and profitability mean lenders are less able to retain MSR, needing to monetize quickly. We're excited about this opportunity and are growing our network of partners needing this execution.

Q: Can you provide thoughts on GSE reform and the expanded credit market? A: The hurdles for meaningful GSE transformation are high. The GSEs are effective in providing housing finance, and we hope this is recognized. We expect the GSE footprint to reduce, opening opportunities for private capital, which we're well-positioned to provide.

Q: How do you view the outlook for volatility this year, and how does it impact your return ranges? A: Volatility can erode returns, especially in Agency MBS. We manage the portfolio to minimize hedging costs. In residential credit and MSR, volatility impact is minimal. We expect better rate volatility outlook and contained spread volatility, which supports agency market investments.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.