Annaly Capital Management, Inc. (NLY) Q2 2026 Earnings Report, Transcript and Summary

Thank you for standing by, and welcome, everyone, to the Annaly Capital Second Quarter 2026 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. If you would like to ask a question during this time, simply press the star key followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press star 1. At this time, I would like to turn the conference over to Sean Kensil, Director of Investor Relations. Please go ahead.

Good morning. And welcome to the second quarter 2026 earnings call for Annaly Capital Management. Please note that this call is being recorded. As a reminder, materials for today's call are available on our website at www.annaly.com. Today's call may include forward-looking statements, which are subject to certain risks and uncertainties. That could cause actual results to differ materially and refer to certain non GAAP measures. Please see the notices in our earnings release for important information regarding forward-looking statements and non GAAP measures. Participants on this morning's call include David Finkelstein, Chief Executive Officer and Co-Chief Investment Officer Serena Wolfe, Chief Financial Officer; Michael Fania, Co-Chief Investment Officer and Head of Residential Credit Srinivasan, Head of Agency; and Ken Adler, Head of mortgage servicing rights. And with that, I will turn the call over to David.

Thank you, Seana. Morning, everyone, and thanks for joining us. Today, I will open with a brief macro update before discussing our performance for the quarter, then I will provide further detail on each of our 3 investment strategies and finish with our outlook. Serena Wolfe will then discuss our financials in more detail. Before opening up the call to Q&A. Now starting with the macro landscape, The U. S. Economy continued to display resiliency during the second quarter as healthy consumer spending and tech related investment activity drove economic growth. Also, labor market appears to have gained some momentum in recent months, which is a welcome shift from the softer trend seen in the second half of 2025. Now that said, Fed officials have become increasingly concerned about persistent elevated inflation, notwithstanding last week's softer CPI print. Eric pressures have been driven by a confluence of factors. Including the energy price shock from the conflict in the Middle East, residual effects from tariffs, the strong demand for computing equipment given the AI build-out. And with policymakers more vocal about the potential to tighten policy, Interest rates continue to rise led by the front end of the yield curve. And after pricing roughly 25 basis point cuts earlier this year, Current market pricing suggests the Fed to hike at least once in 2026. Now despite this pressure on the bond market, lower rate volatility provided a tailwind for our portfolio this past quarter, and we delivered a 5.5% economic return once again demonstrating strong performance of our diversified housing finance model. Additionally, we generated $0.79 of earnings available for distribution marking the 9th consecutive quarter that our EAD has exceeded the dividend. And the reinforced durability of our earnings power helped inform our recent increase in our quarterly common dividend to $0.75 per share. And also to note, we continue to operate with conservative economic leverage of 5.6x, and we raised roughly $450 million in equity through our ATM program during the quarter, Now turning to our investment strategies and beginning with the agency sector, spreads tightened in the second quarter. As de-escalation in the Middle East led to a decline in both realized and implied rate volatility. And demand for agency MBS remained strong. Driven by healthy fixed income inflows, increased purchases from overseas investors, and a robust CMO market, which is absorbing roughly 30% of gross issuance and broadly distributing the risk to a diversified set of investors. Given this attractive environment, we grew our agency portfolio by roughly $3 billion ending the quarter at $95 billion in market value. Which increased our capital allocation to agency to 57%. As far as portfolio activity, we rotated slightly up in coupon by reducing our exposure to 4s in favor of 5.5s and 6s, And we invested capital raised primarily in the production coupon MBS and agency CMBS. Over the first half of the year, specified pools outperformed despite a relatively benign rate volatility and a subdued prepayment outlook, which typically favors more generic collateral and TBA. Notably, pool outperformance was largely driven by strong GSE demand. We took advantage of these valuations and reduced our payoff exposure by moving to lower pay up pools and increasing our TBA holdings. Late in the second quarter, pool valuations became more attractive as GSE demand waned, and as a consequence, we expect new investments to be more balanced across TBAs and specified pools. With respect to our hedge profile, we were conservative in managing our rate exposure. And proactively added additional swap hedges to protect against rising rates. Our portfolio remains diversified across treasury futures and swaps, with a preference for the latter given more attractive carry. Comfort around balance sheet availability going forward. Now moving to residential credit, Our portfolio ended the second quarter at $10.4 billion in market value. Virtually unchanged quarter over quarter and representing 22% of the firm's capital. Resi credit spreads moved in tandem with broader fixed income markets, with AAAs ending the quarter approximately 10 basis points tighter. Our Onslow Bay correspondent channel produced another strong quarter of volume with $700 million of locks and $5.1 billion of fundings. Including whole loan, bulk purchases, and our partnerships, Annaly acquired $7.1 billion of loans in Q2, which is a new quarterly record for the business. And despite record volumes, the credit quality of our loan pipeline continues to improve, as best evidenced by the locked pipeline's 765 FICO and 67% CLTV. Nonagency gross securitization issuance totaled over $150 billion year to date, up approximately 50% year over year. Putting the private label market on pace for its largest gross issuance year since 2007. And Annaly remains the largest issuer of expanded credit mortgages, and the second largest issuer overall as we closed 13 deals for $6.8 billion in principal balance in the second quarter. Creating approximately $780 million of proprietary investments. Year to date, we have executed 25 transactions totaling $14.2 billion And notably, we have securitized 8 different forms of residential collateral, underscoring the depth and diversity of our platform. The OBX securitization program also had the distinction of closing the first billion dollar new origination non QM transaction demonstrating Annaly's leadership position in the non agency market. This inaugural billion dollar deal was well received by investors, which allowed us to price a second equally sizable transaction approximately 2 weeks later. Our residential credit platform is well positioned for continued growth of the nonagency market, given the substantial investments we have made over the last several years, which we believe is a key differentiator, which should continue to result in annually manufacturing high yielding, proprietary investments that are difficult to duplicate and scale. Now shifting to MSR, our portfolio was roughly unchanged at $4.1 billion in market value, with our allocation of the sector representing 21% of the firm's capital. During the quarter, we modestly rotated the portfolio higher in loan balance, as we committed to purchase approximately $200 million in market value of MSR across our various sourcing channels while also committing to sell 2 bulk pools with lower loan balances for $220 million in proceeds. These transactions capitalized on differing buyer economics across the MSR market, highlighting our value approach in portfolio flexibility. Moving into higher average loan balance MSR meaningfully enhances our return profile as our cost to service is contractually fixed amount per loan, in contrast to in-house servicers with high fixed costs and a variable cost per incremental loan. Bolt supply in the second quarter decreased modestly from Q1, though we expect supply to remain healthy throughout the balance of the year given ongoing originator profitability constraints and industry consolidation. And a minor note, our flow purchase channel is picking up with $31 million in market value purchases for the quarter, and it should become an increasingly important avenue to acquire current coupon MSR and allows us to offset portfolio pay downs. Our MSR portfolio fundamentals remain compelling. As prepayment speeds increase in line with seasonal trends to 5.2% CPR in Q2. They which were still below our initial model projections. Providing potential upside returns. The credit quality of the portfolio remains exceptional. With serious delinquencies range bound at approximately 50 basis points. At a weighted average note rate of 3.3%, the lowest among the 20 largest MSR holders, our portfolio continues to generate durable, cash flows with meaningful prepayment protection. MSR valuations remain well supported in the current interest rate environment. And our multiple increased marginally to 5.97. Largely driven by the increase in rates offset by a flatter curve. And finally, to touch on our outlook, we continue to see compelling opportunities across our 3 strategies, underpinned by a healthy fixed income and housing finance investment environment. Agency spreads remain at attractive levels with mid teens levered returns, and very favorable technicals, and we will look to further deploy new capital in the sector balanced against relative value opportunities in our other businesses. Our residential credit platform continues to exhibit substantial growth supported by our loan sourcing and capital markets capabilities. Longstanding originator relationships, and skilled platform. And our MSR business is performing well ahead of our expectations anchored by a deliberately constructed portfolio with a low note rate, high credit quality that would be difficult to replicate. At scale in today's market. Importantly, Annaly offers investors a differentiated way to access value across the housing finance sector. Without assuming the operational intensity and volume dependency of a traditional origination model. We are not relying on loan volumes to sustain the economics of our portfolios, which allows us to remain selective. Invest with scale, and allocate capital to the opportunities offering the most attractive risk adjusted returns. And that is a structural advantage that transcends market cycles, and it has contributed to our ability to generate double digit economic returns while operating with less leverage than our peers. And in an environment that continues to challenge origination dependent business, the capital efficiency, scale, and flexibility of our platform meaningfully sets us apart. And now with that, I will hand it over to Serena Wolfe to discuss the financials.

Thank you, David. Today, I will briefly review the financial highlights for the quarter ended June 30, 2026, As in prior quarters, our earnings release discloses GAAP and non GAAP earnings metrics, And my comments will focus on our non GAAP EAD and related key performance metrics, which exclude PAA. As David noted, the second quarter was characterized by a constructive fixed income investment environment, despite geopolitical uncertainty and rising yields. Against this backdrop, our diversified platform delivered strong performance. Elevated portfolio yields, tighter mortgage spreads, favorable hedge performance, and disciplined risk management supported both earnings and book value during the quarter. As of June 30, 2026, our book value per share increased by 1.7% from the prior quarter to $20.15 Including our $0.75 quarterly dividend, we generated a positive economic return of 5.5% for the quarter, bringing our economic return for the first half of the year to 6.9%. Earnings available for distribution per share increased by $0.03 to $0.79 per share. And exceeded our newly increased quarterly dividend of $0.75 per share. The increase was primarily driven by higher average yields on our agency portfolio as our weighted average coupon on our assets increased 11 basis points to 5.11%. As well as higher securitization volumes within our residential credit business, and favorable funding costs with average repo rate declining 6 basis points to 3.4% during the quarter. These benefits were partially offset by lower levels of swap income, reflecting lower average receive rates as SOFR declined during the quarter. Net interest margin increased 5 basis points to 1.76%, while net interest spread improved 8 basis points to 1.5%. With both measures benefiting from higher asset yields, which more than offset modest increases in economic funding costs. Our balance sheet remained conservatively positioned, with economic leverage declining slightly to 5.6x, from 5.7x in the prior quarter. A reflection of the increase in our book value for Q2. Our reported ending repo rate decreased 2 basis points to 3.85%, while weighted average repo days to maturity ended the quarter at 33 days. down 3 days from the prior quarter. Our residential credit platform continued to demonstrate strong momentum, generating significant securitization activity during the quarter, as David discussed. Earlier. Additionally, to support continued growth across our residential credit and MSR businesses, our total warehouse capacity increased to $8.3 billion including $2.8 billion of committed capacity. We maintain ample available capacity in both businesses, with utilization rates of 61% for residential credit and 50% for MSR. We ended the second quarter with $8 billion in unencumbered assets. including $5.5 billion in cash and unencumbered agency MBS. In addition, we had approximately $1.6 billion in fair value of MSR pledged to committed warehouse facilities, which remains undrawn and provides an additional source of liquidity subject to market advance rates. In total, we had $9.6 billion of total assets available for financing at quarter end, up approximately $580 million from the prior quarter. This represented approximately 57% of our total capital base, and provides us with significant liquidity and financial flexibility to support portfolio growth, while maintaining a conservative risk profile. Finally, our OpEx to equity ratio increased 11 basis points to 1.4% this quarter. Bringing our year to date ratio to 1.34%. The increase was driven in part by elevated expenses incurred during the quarter, which we expect to moderate in future periods. Overall, the quarter highlighted the benefits of our diversified housing finance platform and disciplined risk management approach. We generated book value growth, a positive economic return, strong earnings, and maintained our conservative yet flexible balance sheet positioning. That concludes our remarks. We will now take your questions.

Thank you, operator.

Thank you. We will now begin the question-and-answer session. You have dialed in and would like to ask a question, please press *1 on your telephone keypad simply press 1 again. We will take our first question from Bose George at KBW.

Actually, first, the question is on the mark to market book value. Could we get an update?

Sure, Bose. Good morning. So as of Friday, book value was off a little over 1%. So economic return off roughly 0.5%.

Okay. Great. Thanks. And then just wanted to ask about dividend coverage. Obviously, you raised the dividend. So clearly you are comfortable with it. But just can you just discuss the economic return of the portfolio relative to the required ROE that is needed to cover the dividend, which looks like it is a little under 15%.

Sure. So in terms of the economic return and the returns available in the market, we obviously show that depiction in the investor supplement with agency 14% and upwards of 15% resi and upwards of 13% for MSR. Funded through warehouse financing. So the way we look at it is we have line of sight, I think, into the near term using the forwards. And when the board sets the dividend, they are very methodical, and we want to make sure that it is earnable. And we do not take these decisions lightly. So we were certainly encouraged by the fact that we feel like it is earnable over the foreseeable future, and we are on track to modestly out earn the dividend this quarter, all else equal. Now in terms of the portfolio, where we own our assets is in a very good position and it covers very well. And prepayments are relatively low and we have assets locked in for a very long time. So generally, we feel very good about dividend coverage on a go forward basis.

Okay. Great. Thanks.

Thank you, Bose.

We will move next to Crispin Love at Piper Sandler.

Thank you. Good morning. David, can you kind of build in on that prior question, but just give us a little bit of a view of where you are looking to add incremental capital across your 3 strategies? Looking at slide 7 and the returns you referenced, the returns are pretty stable with last quarter. Or are stable with last quarter. And last quarter, you seem to be leaning a little bit more into resi credit. So just curious on any shifts that you have, kind of where you are most interested in putting the incremental dollar across the 3 strategies, especially as agency technicals remain strong.

Sure, Crispin. And so both agency technicals and MSR technicals are very strong, the strongest we have seen in quite some time. However, residential credit we believe exhibits the best risk adjusted returns. So yes, we would like to incrementally add to residential credit, but we have to be responsible as it relates to the underlying credit. But we are making a lot of progress. We priced 4 transactions already in July, and we are in the market with another deal as we speak. So we do expect to add in resi credit, but agency is certainly very investable particularly when you consider the tech and how broad the demand is. And so we feel it is a safe place to invest. Volatility has come down, notwithstanding the recent turbulence geopolitically. So we feel good about it. So I would say the marginal dollar will probably go into agency with the resi credit as we can add. And MSR is still right there. As a matter of fact, we added up a package just yesterday. We purchased an MSR package with the sub-3% note rate that we feel very good about with a strong OAS. And so that is it. You know, when it comes to raising capital, Crispin, and investing it, I think we would like to, just take a second here and talk about what we have accomplished over the past couple of years when we started raising capital again. Beginning in the third quarter of 2024. We raised $5.4 billion in capital in the last 2 years, including our preferred. Last summer. And it is been very intentional. Obviously, price to book has to be has to be accretive. Assets have to be attractive. And to your question, we have to be able to nurture these other businesses, namely Resi and MSR. And when you look at the capital allocation associated with those raises. We added $2.6 billion in capital to both residential credit and MSR over the past 2 years. And that is helped grow those businesses. And so the capital raising has fostered the development of these businesses. And has been very accretive. We generated nearly $280 million in accretion. it is added considerable scale, enabled us to develop more partnerships and really been a game changer for us. And as a consequence, over the past 2 years, we have generated just over a 33% economic return since starting to raise capital again, and the shareholder has noticed and we have delivered a 53% TSR in those 8 quarters. So we feel really good about what we have accomplished both from a capital allocation standpoint, as well as capital raising. Standpoint.

Great, David. I appreciate that. Just 1 last question for me. Just on the administration FHFA GSEs. From your seat, how do you think they have been acting just the impacts of the mortgage market and spreads? They were definitely very vocal earlier in the year. Would you expect additional actions in the balance of the year? Or do you think it is enough for the GSEs to continue buying agents Agency MBS, which they have been doing in what seems to be a pretty prudent way with definitely some more room to go in the coming months.

Yes. So we cannot say whether there will be more action, whether it be raising the caps or anything otherwise. But they do have plenty of dry powder left. I think through May, they have settled roughly $45 billion in pools. And, you know, obviously, the mandate was $200 billion. What I would say about the GSEs and their approach broadly is it is been very constructive for the agency market. You know, in January, when spreads tightened as much as they did on the announcement, we were obviously quite concerned. About being crowded out. But what it feels like today is they are acting much like a relative value market participant. When spreads are wider, they provide support and add, and they slow down the pace or stop buying when spreads tighten. And so that is that is served to help stabilize mortgage spreads and it is made it an easier investment environment. And we welcome their participation. You know, when it is all said and done, let's say, you know, they are they are they get to the $200 billion and that is it. We expect them to be, a generally responsible participant. They are very good. We know the people there. A lot of them are from prior lives that we worked with in the past and we respect them a great deal. And so we are welcoming their participation, and we expect them to be a positive force in the agency market.

Great. Great. Thank you, David.

Thanks, Crispin.

We will move next to Ameeta Lobo Nelson at UBS.

Thank you, and good morning. Just looking at current coupon spreads compared to prior periods of Fed leadership transitions? Do you feel that today's mortgage market is pricing in a larger uncertainty premium than normal? How much of the current coupon spread do you think reflects the uncertainty?

Thanks, Marissa. I think when you look at mortgages, today, what is really driving is realized and implied volatility is very low. And the supply demand technicals are very strong. David mentioned after the Iran crisis, we saw after the de escalation, now we saw both realized and implied vol come down and the basis tightened. And supply has been more muted than what we expected at the beginning of the year. With most people expecting that supply around $160 billion for 2020 compared to what we have penciled in at around $200 billion at the beginning of the year. And fixed income flows have been really strong. 30% of gross insurance is going into CMOs, which is distributed to a wide range of accounts. So I think market pricing is really not looking at the uncertainty from the Fed. They are basically looking at where market's pricing volatility. And market's basically pricing volatility to be like there is not a lot of uncertainty from the Fed.

that is helpful. Thank you. And just shifting to growth in the other segments. So you have spoken about scale being a competitive advantage. And as you grow resi credit and MSRs, where do you still see the greatest opportunities for operating leverage here?

Well, look. When it comes to operating leverage, we are an operating light company, and it served us very well. I talked in the prepared remarks about the lack of origination and servicing, and we feel like we can these businesses with the current operating leverage, and it is been beneficial for us. We are not obligated to invest in any 1 sector because we do not have a lot of operating leverage. Relying on partnerships has been a distinct advantage, particularly in times like these. And we are here ready with capital. To deploy it to the extent there is an opportunity to add operating leverage, we will look at it. But for the time being, being a capital participant has served us very well. And given where we are at in the cycle, we think it will continue to do so for the foreseeable future, Ameeta. Great. Thank you for the answers. Thank you, Ameeta.

We will take our next from Douglas Harter at BTIG.

Thanks, and good morning. Can you talk a little bit about on the resi credit side, the ability to source the magnitude of loans, the diversity of loans, and talking to others. Across the industry, it definitely seems like sourcing is enough volume is a challenge. Can you sort of talk about where you are seeing the volume coming from, the advantages you have there? And kind of how that translates into the returns on the portfolio?

Sure. Thanks, Doug. This is Mike. I think that there is a number of key advantages that we have 1 is that we have been in this market. We have been buying non QM and DSCR loans for over 10 years. We have been doing it through the correspondent channel for over 5 years. Annaly has, given the capital that we have raised, we have always delivered consistent pricing. I think that is something that not all of our peers and competitors can say. A lot of our peers are private equity. There are certain times where they are not able to deliver a rate sheet that is competitive because they are raising capital in a different component of the fund's life. So I think having that having that capital, the reputation that we have earned, I think has been-- has been has been well earned. I think it is been hard earned. We have been buying loans during COVID, where we have honored commitments that others have not done. Originators do not always have short memories, so I think that there is a lot of goodwill that is been built up through time. On the operational side, we are much deeper than a lot of our competitors and a lot of our peers. We face, at this point, now over 350 correspondents. You know, when you look at a lot of the other correspondent channels that we are competing against, they may be trying to, face the top 50 originators. We have gone much further down the chain. We also recently expanded into nondelegated correspondent. We did that in the beginning of the year. So that is added significant volume, and it is added volume that is a little bit more price insensitive than the delegated channel. The service level is very strong. We have a fully staffed scenario desk. We have a fully staffed exception desk. We have invested a lot as David mentioned, in terms of, technology, infrastructure, The ability to face 350 originators is very challenging. And then lastly, I will say that our execution on the back end is better than our peers and better than our competitors. We are pricing larger deals, which is able to spread fixed costs. And have lower fixed costs because it is a larger balance, Our variable costs, including underwriting fees, are lower than our peers because of the size of the deals that we are able to bring. And then we are also pricing tighter than the majority of other issuers. So that means at the same level of margin, as some of our peers and competitors, you know, we are able to offer a higher price. So we are getting the same ROE at a price. Given some of that secondary, you know, execution. So, you know, there is a lot of new entrants, and the market is competitive. We actually our lot volume actually decreased quarter over quarter. It was $6.7 billion. it is actually down 9% to 10%. Part of that is because you know, as David mentioned, we are looking to earn mid teens ROEs We are not just going to, you know, be out in the market and leading with a you know, pricing and leading with the rate sheet. So we will be diligent, But I think the infrastructure that we have built, the number of originators, the relationships that we have, the pricing advantages, that has allowed us to source these assets, you know, at a greater clip than a lot of our competitors.

Appreciate that, Mike. And then just 1 clarification. In what you talked about in the presentation, how of like the economic assets and residential credit were relatively flat. Do I square that with you know, the level of activity that you talked about, kind of what are the puts and takes there?

Yeah. So if you look at the actual portfolio, loans are effectively flat quarter over quarter, $4.7 billion of residential loans. So this is on an economic basis. Those are loans that are held on balance sheet that have yet to be securitized. Then when you look at our OBX portfolio on an economic basis, obviously, we report GAAP. But when you look at an economic basis, the OBX portfolio was up $400 million that is through retained securities. But the third party securities portfolio was down a little over $350 million We sold $260 million of triple a CRE CLOs, as they tightened in. We took advantage of redeploying that into agency. And then our CRT portfolio was also down close to $65 million. So credit spreads did tighten, And especially across third party securities, we have the ability to monetize that. So that is really why you see that, you know, the flattish portfolio quarter over quarter.

Yeah. Douglas, just to add, OBX and whole loans represent over 80% of the resi credit balance sheet, and that is been the objective. You know, we have used third party securities to generate yield over time, but manufactured securities in house are higher returning assets. And so the objective is to have the portfolio predominantly characterized by OBX. Related assets.

Great. Appreciate it. Thank you, guys.

Thanks, Doug.

We will move to our next question from Harsh Hemnani at Green Street.

I guess, given what we have seen happen with rates, recently, prepayment risk in the market has certainly decreased. And we are sort of seeing average base average coupons move up again across mortgage rate portfolios. How are you sort of balancing that against maybe your outlook for prepayments going forward? I know added some agency CMBS, but is there anything we should be thinking about on, you know, how you may see the calls in the other directions And deal with them.

I mean, our strategy last 2 or 3 years has been that when we move up this coupon, we prefer to do it in quality specified pools. And we have, and if you look at on page 11 of our investor presentation, we disclose the quality of our pools by coupon. And so we do not have a lot of we have a lot of call protection in most of our sixes and 6.5 coupons. On 5.5, we kind of-- we will tactically take on some generic pools or some PPAs. When pricing is attractive,, convert them into specified pools. So Our main strategy for prepayment risk. Is to buy pools with call protection. And that is sort of how we have built this constructed this portfolio for the last 3 years, and it was very deliberate. that is why it took us a while to go up in coupon because we did not want to be exposed to a sharp rally in rates and be in a TBA space. And we will continue to do and continue that strategy. it is just that in the first half of this year, with GSE participation, spec pool valuations went up Well, spec pools were pretty tight. So if you noticed in the first half of the year, we went down in coupon. In the first quarter, we actually went down in coupon into 4.5. Because we did not want to add a lot of TBA 5.5. But over the second quarter, we kind of moved up and going forward and specified full valuations starting to look more attractive. So we will continue to add specified pools.

And, Harsh, from another big picture standpoint, if you look at the overall prepayment and where we take it, we are taking prepayment risk in the agency portfolio with higher note rate collateral, obviously, but we are taking virtually no prepayment risk in the MSR portfolio. And the reason being is you want your prepayment risk in more liquid securities because you can trade around them easier when there are surprises. And then and then the MSR portfolio being very stable, we do not have to worry about prepayment risk nearly to that extent.

Got it. that is helpful. Thank you.

Thanks, Harsh.

We will go next to Jason Stewart at Compass Point.

Hey. Thanks. A question on the MSR market. It sounds activity was pretty consistent and the market remains relatively liquid. Throughout the second quarter. Can you just give us some more color on whether there are any opportunities to be opportunistic? I mean, to your point about originators needing or being more reliant on selling MSR for cash? Has that created any idiosyncratic opportunities or any impact from that trend?

Yeah. Yeah. Hi. This is Ken. Thanks for the thanks for the question. Our model is as mentioned in comments, being, you know, operationally light and kind of working with partners and being, you know, primarily variable cost has really allowed us to kind of, you know, participate in a way most other others cannot. So those MSR holders who service their own loans when they need liquidity, you know, if they sell MSR to another buyer who also services their own loans, Not only do they have the gain or loss from selling the MSR, but they are left often with stranded costs. So our model, you know, it is pretty unique because we are operating at this scale. And utilizing sub servicers. So we are generally the favored buyer because we are not, you know, competing for those units on our platform. So that is been a real niche that we have been able to capitalize on. So we have this portfolio of not just subservicers, but many of them are also MSR sellers to us. And in those situations, you know, we are really not competing with the bulk of the buyers. Think another niche is in the in the flow market. David mentioned we kind of picked up some activity there. what is going on there is we are also an opportunistic buyer there. And we are not forced to generically buy flow. So now we have increased and we are seeing that volume increase because we have grown our network of sellers. We are now up to over close to 200, over 175. And what we are seeing there is we are utilizing very granular pricing. So we are the only large MSR holder who also maintains a large specified pool portfolio. So all the analytics that go into our specified pool pricing goes into very granular MSR pricing that we do not really see others doing. So you know, we are able to pick up better OAS, better convexity, in that in that way. And we think we are very differentiated there as well.

Yeah. Jason, another way to characterize it is we do not want to compete with banks and banks do have demand for MSR in the current environment, particularly considering, you know, the capital rule proposals. And the way we operate, the channel in which we operate using subservicers and buying MSR servicing retained not competing in that channel, and that enables us to extract better value than that which, you know, appears to be apparent in the market and headline pricing.

Yeah. Okay. That makes sense. Then a follow-up to Doug's question, Mike, on resi credit. To the extent pricing on the origination side changes, is there, in theory, a point at which you would find and I guess I understand this completely theoretical, a point you would find secondary security opportunities more attractive? And if it was, would you pivot back to securities rather than organically created assets?

Yeah. And I think that thanks, Jason. I think that we did show that in Q1 where there was significant growth. Part of the, you know, the CRE CLO portfolio, that got to be $395 million, as it was, you know, it was a reallocation from agency MBS tightening early in January given the GSE announcement. As that has tightened 5 to 10 basis points, we have taken that off and redeployed In the first quarter, we also were active in buying non QM b ones from third party shelves. We were also active buying unrated, A2s, MPL, RPLs, which at the time were, like, 13% to 14% ROEs. Now most of the third party securities that we see, they are closer to 11% to 12% ROEs. You know, with Q2 is actually a really good environment to show how important it is to have a manufacturing entity. When you look at actual spreads, triple a spreads, as David mentioned, on the call, they were 10 basis points tighter, quarter over quarter on the triple a level. On the BBB level, spreads were actually 25 basis points tighter. The credit curve actually flattened. So I think this quarter was a reflection of our ability to move out of third party securities and continue to invest in the, you know, the proprietary assets that we have better line of sight, and we also have the ability to set those margins. But yes, I think that, you know, we have a flexible capital, you know, capital allocation model. Both, you know, on the actual 3 businesses, but then also within the 3 businesses. So if that becomes an opportunity, we certainly have the, the acumen and personnel to be able to capitalize on it.

Got it. Okay. Thanks a lot.

Thanks, Jason.

We will go next to Hong Ling Zhang at JPMorgan.

Yeah. Hey, guys. I guess, how do you guys think about your ability to tap the equity markets at your current stock price?

Well, look, the 3 criteria, obviously, to book, assets need to be attractive. And as I mentioned earlier, we need to be able to feed the businesses. So when we look at the stock price, we certainly think it warrants premium given what we have created and the franchise value and the fact that nobody can replicate what we can do in our track record. You know? We have just completed the 11th straight quarter of a positive economic return and invest are valuing it. We are our premium is not is not very high. it is modest. We think it is actually low given the value creation and what we built in the proprietary ability to acquire assets and manage those. And as we look at raising capital, you know, we wanna be gentle with the market. We did raise nearly $450 million last quarter. We were very soft with respect to our footprint. We were not in the market on days when the stock was not performing well. We are very low percentage of volume. And in fact, the overall capital raise was, you know, a little over 2.5% of the outstanding, which relative to, you know, some participants in the in the space is very low. As a percentage of cap as a percentage of overall capital. So that is how we will behave. We do not wanna disrupt the stock price. We need to make sure we can buy assets. And we need to make sure we can generate positive returns. And to the extent that is available, and we are gentle, and we respect the stock, we will continue to do so. Got it. Thank you. Thank you, Hongling. Give Rick our best, please. Will do. Mhmm.

We will move to our next question from Trevor Cranston at Citizens JMP.

Hey. Thanks. 1 more question on the residential credit side. You guys mentioned that you were able to price a couple of large non QM transactions. I was curious as you look ahead to the second half of the year, if there is any particular collateral type that you guys are focused on as the best opportunity to deploy capital And, generally, if you see much kind of dispersion in risk adjusted returns available across the different collateral types you guys are focused on? Thanks.

Yeah. Thanks. This is Mike. So yeah, as David mentioned, we have priced 25 deals, $14.2 billion. Of that number, 70% is non-QM and DSCR. That will continue to remain the core collateral that you know, Annaly is, well suited to purchase. We still believe that actually is the highest ROE, but it is also the highest capital that you can commit, you know, relative to some of these other products. So owner occupied agency loans, investor loans, HELOCs, close in seconds, They are not as scalable at this point in time. And a lot of it is just our competitive advantage is the infrastructure It is facing those 350 originators. So our cost basis is lower, because we are able to buy that much deeper in the chain. So, I think what really what the point we are trying to make is that we have the ability to flex into other areas of the residential credit market. But non QM and DSCR really will remain, you know, the core competency of the company. In terms of, you know, some of our goals, you know, for this year is really was bring larger deals. So Dave mentioned it again on the script, but you know, we did a billion dollar deal. It was it was non-QM 8. And then subsequently, we did another billion dollar deal within 2 weeks, non-QM 9. A lot of that is just a reflection of the growth in the market itself. there is already been $65 billion of non-QM issuance this year. It will probably be north of $100 billion. So it is 40% of the entire residential credit market. But a lot of it is a reflection of our team's hard work in terms of you know, the OBX securitizations. You know, we treat our investors as business partners. We have a long term view in terms of trying to increase demand towards our securitizations, which has led to us being able to do those billion dollar deals. You know, we certainly want best economics for our shareholders, but I think we act in a little bit more equitable way than some of our peers. We are not trying to tighten and test every single deal that we bring. We want both our investors and ourselves to walk away from these transactions and feel good about the process and the experience. And the reason is because we are averaging 3.5 deals, you know, per month. So it does not, you know, it does not benefit us to, you know, to have our investors not have, you know, really strong experience So I think that, you know, we feel really good with where we are positioned. The average deal size within non QM this year, it is been over $900 million. there is no other company that can say that. And we really would like to move to, a programmatic issuance where we are doing a billion dollar plus transactions. And, you know, the increase in the non QM market and then also our investor base has also increased. We have had over 250 investors participate in the OBX securitization platform since 2018. And our average deal, I will say that we probably have between 45 to 50 different investors participate on our non QM transactions. So that is where we see the bulk of the opportunity, but know, we can we can pivot to other collateral claims, you know, as we have shown here this quarter.

Got it. Okay. Very helpful color. Thank you.

Thanks, Trevor.

And next, we will go to Kenneth Lee at Capital Markets.

Hey, good morning, and thanks for taking my question. Just 1 more on the recent dividend increase here. Want to get your thoughts around the resiliency or how you think about the resiliency of the earnings power, especially in the context of any continued geopolitical uncertainty and the flattening yield curve? Thanks.

Sure. As I mentioned earlier, Ken, we take the dividend decision very seriously, and our board is very thoughtful. About it. And we do stress, you know, the environment to make sure that the dividend is earnable. We expect to be able to cover the dividend over a period of time. You know, there will be quarters where we will out earn it, and maybe we might you know, be on top or even a touch below. But over a longer period of time with all the information we have today, we expect to earn the dividend, and that is what informed the decision to increase it. Now there is a lot of uncertainty. We are still living beneath the lion's paw, so to speak, as it relates to the geopolitical environment and volatility. But generally speaking, we feel good about it. So we made the decision, and we expect it to be a good 1.

Gotcha. Very helpful there. And just 1 follow-up, if I may. You mentioned the prepared remarks modestly rotating into higher loan balances within MSRs. Wondering if you could just talk a little bit more about that, some of the motivations behind that. Thanks.

Yeah. And as was mentioned again, we are on a on pretty much a completely variable cost model, so we pay a fixed cost per loan to have our collateral subserviced. So that impact on the yield changes with the actual average loan size being serviced. So it has, you know, less impact on higher loan balance than it does on lower loan balance. So what we found is you know, the costs we are paying are really the best in class of the industry's marginal cost plus a marginal profit margin. As opposed to something closer to the average cost of the industry. So our cost to service our portfolio is, we believe, materially lower than the average cost of industry using subservicers, again, because we are priced at marginal cost plus a profit margin. Now when portfolios come out for the market, those participants that service their own loans they model things at their marginal cost. So they are much more aggressive on low loan balance collateral. So our, you know, selling low loan balance and buying high loan balance is a total pickup in economics and yield for us. Where when you service your own loans, you really need to keep units on the platform. Right? We can be an opportunistic buyer. Where these other participants are forced buyers. Does that make sense?

Yep. That makes sense. Very helpful there. Thanks again.

Thank you, Ken.

And that concludes our Q and A session. I will now turn the conference back over to David for closing remarks.

Much appreciated, Audrey, and thank you, everybody, for joining us enjoy the rest of your summer. We will talk to you soon.

And this concludes today's conference call. Thank you for your participation. You may now disconnect.