Annaly beats Wall Street estimates, eyes more MSR buys

Annaly Capital Management beat Wall Street earnings expectations for the fourth quarter and full year, as it eyes more mortgage servicing rights opportunities in a slower housing market. 

The industry's third-largest buyer of conforming MSR last year reported $0.78 earnings per common share under generally accepted accounting principles, beating Standard & Poor's IQ consensus mean of $0.71. It also beat annual expectations, with $1.62 EPS for the full year compared to the S&P consensus mean of $1.53.

The firm's adjusted, or normalized EPS also edged out S&P estimates at $0.72 in the fourth quarter. Annaly's recent performance was aided by lower financing costs with the Federal Reserve's cutting cycle and a steepening of the yield curve, said David Finkelstein, CEO and co-chief investment officer. 

The real estate investment trust improved significantly on its results to close 2023, when it reported GAAP EPS of negative $0.88 in the fourth quarter and negative $3.61 for the year. 

Annaly reported closing on four securitizations in the final months of 2024, and 21 total transactions over the year for $11 billion. In October the company also entered into a subserving agreement with industry leader Rocket Mortgage. 

Finkelstein said the firm anticipates MSR bulk activity to stay elevated relative to historical levels as the origination landscape remains challenged by high rates, low origination volumes and compressed gain-on-sale margins. While MSR supply has waned, lenders are also less able to retain their MSRs, said Ken Adler, head of MSRs and portfolio analytics. 

"So they really are in need to kind of monetize that MSR very quickly" he said. "… So we're kind of super excited to set up for that opportunity."

The company's non-agency correspondent arm also reported $11.7 billion in lock volume for the year, including a 24% quarterly increase in the fourth quarter to $5.4 billion in locks. Annaly says its Onslow Bay unit is the industry's largest non-bank issuer of prime jumbo and expanded credit mortgage-backed securities. 

"Credit discipline remains a top priority as evidenced by the shelf continuing to report the lowest delinquencies out of the top 10 largest non-QM issuers," said Finkelstein. 

Annaly reversed its net income results, with the fourth quarter's $443.35 million soaring past the $440.9 million net loss to close 2023. In the year, it recorded $847.4 million in net income, rebounding from 2023's full-year $1.7 billion net loss. 

Its total portfolio of $80.9 billion includes $70.6 billion in its agency holdings. Annaly had $196.6 billion in total servicing unpaid balance to end the year. 

The company added a combined $450 million in warehouse capacity for its MSR and residential credit lines, respectively. In all, Annaly disclosed a 41% utilization rate of its $5.2 billion warehouse capacity. 

Annaly had a book value of common share down 2% quarterly to $19.15. That decline was ahead of Keefe, Bruyette and Woods' estimate of a decline to $18.98, and a less damaging slide than competitors who've reported earnings, AGNC (-4.6%) and Dynex (-2.3%), according to an analyst flash note. 

The REIT's stock was trading at 20.38 per share midday Thursday, up 3% from the market's open after its earnings results went live Wednesday evening. 

Finkelstein also opined on anticipated government-sponsored enterprise reform, suggesting it would be difficult but that the GSEs could have a smaller footprint moving forward. Around 20% of GSE guarantees are "non-core" assets like second-home loans, investor properties and cash-out refinances, the executive said. 

"You could see higher (loan-level price adjustments) on those types of products, which opens the door for private capital," said Finkelstein. "And (our) business is perfectly set up to provide that liquidity."