Annaly Capital Management Inc.

Good morning, and welcome to the first quarter 2025 Earnings Call for Annually Capital Management. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. To withdraw your question, please press star, then two. Please note, this event is being recorded. I would now like to turn the conference over to Sean Kensal of Investor Relations. Please go ahead.

Good morning, and welcome to the first quarter 2025 earnings call for Annalee Capital Management. Any forward-looking statements made during today's call are subject to certain risks and uncertainties, which are outlined in the risk factors section in our most recent annual and quarterly SEC filings. Actual events and results may differ materially from these forward-looking statements. We encourage you to read the disclaimer in our earnings release in addition to our quarterly and annual filing. Additionally, the content of this conference call may contain time-sensitive information that is accurate only as of the date hereof. We do not undertake and specifically disclaim any obligation to update or revise this information. During this call, we may present both GAAP and non-GAAP financial measures. A reconciliation of GAAP to non-GAAP measures is included in our earnings release. Content referenced in today's call can be found in our first quarter 2025 investor presentation and first quarter 2025 financial supplement, both found under the presentation section of our website. Please also note this event is being recorded. Participants on this morning's call include David Finkelstein, Chief Executive Officer and Co-Chief Investment Officer, Serena Wolf, Chief Financial Officer, Mike Fania, Co-Chief Investment Officer and Head of Residential Credit, V.S. Sreenivasan, head of agency, and Ken Adler, head of mortgage servicing rights. And with that, I'll turn the call over to David.

Thank you, Sean. Good morning, everyone, and thank you for joining us. Today, I'll briefly review the first quarter and our performance before turning to the current environment, given the elevated volatility we've seen post-quarter end, and then I'll provide an update on our outlook and positioning for each of our businesses. Serena will then discuss our financials before opening up the call to Q&A. The first quarter looked relatively benign in hindsight, though 10-year Treasury yields did trade in the 65 basis point range over the quarter and ultimately foreshadowed some of the rate volatility we experienced in April. January and February were characterized by generally healthy fixed income demand and positive risk sentiment. However, conditions began to deteriorate somewhat in March amidst discussion of the new administration's trade policy, which shifted the outlook and led to an underperformance in risk assets and a retracing of the tightening and spreads from the first two months of the quarter. Our portfolio performed well, delivering a 3 percent economic return during the quarter. And in addition, we increased our common stock dividend to 70 cents per share, underscoring our earnings momentum. Our capital allocation agency increased slightly to 61 percent as we deployed creative capital raised through our ATM into the sector. Economic leverage increased modestly to 5.7 turns at the end of the quarter, though remained at the low end of our historical range. Now, turning to the macro landscape in April, markets have been struggling to decipher competing narratives in recent weeks. The shift in U.S. trade policy has further weighed on consumer and business confidence and is likely to impact economic growth over the foreseeable future. And while inflation slowed in the first quarter, Tariffs should lead to higher goods prices over the medium term, which risks 2025 representing a second consecutive year of limited inflation progress for the Fed. Interest rates and financial assets broadly have exhibited meaningful volatility following the tariff announcements, and in just the past few weeks, we've seen Treasury yields traverse a similar size trading range as they experienced during the entirety of the first quarter. And this has led to a cheapening in balance sheet intensive assets and a widening of agency MBS spreads in tandem with other spread products. As we have conveyed in recent quarters, we believe it pays to be prudent given that we have earned our dividend at lower relative levels of risk. And accordingly, we entered the year with our lowest economic leverage in a decade and enhanced our liquidity throughout the first quarter to $7.5 billion in total assets available for financing. Combined with an actively managed and well-hedged portfolio, this prepared us well for the volatility that ensued in April. Now, to focus specifically on our businesses and beginning with agency, $3.5 billion in notional portfolio growth in the first quarter was driven by purchases of largely intermediate coupon TVAs, which lag relative to production coupons during the rate sell-off in the fourth quarter and early part of Q1. These securities also offered a more favorable convexity profile and attractive carry as roles improved in the first quarter. Additionally, they should prove the most durable area to invest. The economy continues to slow. On the hedging side, we maintained a disciplined approach with respect to our interest rate exposure given the macro uncertainty. The prospect of regulatory reform led to a widening in swap spreads early in the first quarter, which allowed us to better balance our hedge exposure by shifting some of our longer-dated swaps into Treasury futures. We also layered in a modest swaption position, as implied volatility cheapened somewhat in the first quarter. Post-quarter end, the MBS widening, which began in March and accelerated in April, has been more pronounced versus swaps relative to Treasuries, as swap spreads have narrowed to historically tight levels. Now, it is important to note that throughout this recent volatility episode, funding markets have demonstrated stability. And when macro stress further subsides, we do expect the focus around MBS to return to the fundamentals, inexpensive valuations, a muted prepayment environment, and durable financing markets for the agency sector. Now, shifting to residential credit, our portfolio ended the quarter at $6.6 billion in market value with $2.4 billion in capital. The decrease in portfolio size of $340 million quarter-over-quarter is attributable to opportunistic sales of third-party securities, as well as an increased pace of securitizations in the first quarter. Credit spreads began to widen in March, as AAA non-QM spreads were approximately 20 basis points cheaper on the quarter, with subsequent widening post-quarter end. In an encouraging sign of the residential credit sector's resilience, the new issue market remained open throughout the significant volatility experienced in April, and spreads have since tightened from the peak experienced a couple of weeks ago. Now, as it relates to the housing market, and specifically home price appreciation, momentum continues to decrease as affordability is burdening potential borrowers. In addition, increases in available-for-sale inventory have weighed on shorter-term supply and demand dynamics. The housing market is exhibiting signs of increased regional disparity, as several areas that experienced outsized HPA post-COVID are now displaying a modest reversal of those trends. Now, despite the negative momentum that a portion of the market is exhibiting, the national housing market appears to be on stable footing, given record levels of borrower equity, low delinquencies, tight underwriting standards, and the longer-term deficit of single-family homes relative to the size of the population and current demographics. Onslow Bay's correspondent channel lock and acquisition volumes remain strong in Q1 as we finish the quarter with $5.3 billion in locks and $3.8 billion of fundings. Our vigilance regarding the quality of our credit is best evidenced by our lock pipeline which exhibited a 758 weighted average FICO and a 67% CLTV. The OBX securitization platform closed six transactions in Q1, totaling $3.1 billion, including our inaugural HELOC transaction, as well as a non-QM private placement. Post-quarter end, we priced two additional securitizations, totaling $1.1 billion, reflecting the programmatic nature of the platform, And since the beginning of the year, we've manufactured $540 million of proprietary credit assets at mid-teens expected ROEs for Annalee and our third-party funds. Moving to the MSR business, the portfolio ended the first quarter relatively unchanged at $3.3 billion in market value, comprising $2.7 billion of the firm's capital. During Q1, we settled $28 billion in principal balance of previously disclosed purchases, while adding approximately $3 billion in UPB across our bulk and float acquisition channels. We were disciplined in growing the portfolio in the quarter, as we expect supply to stay elevated throughout 2025, all else equal, as the origination community should continue to monetize MSR, given historically compressed gain-on-sale margins. As the mortgage origination and servicing industry consolidates, we've strategically aligned ourselves with industry-leading subservicing and recapture partners that should create clear competitive advantages for our platform. We believe that greater efficiency and technological investment in the mortgage industry provide the potential for enhanced portfolio yield through increased recapture capabilities and a superior borrower experience. Our MSR valuation increased very modestly driven by marginally steeper SOFR curve and tighter spreads on observable MSR consisting solely of deep out-of-the-money collateral. With a 3.23% aggregate borrower rate and less than 5% of the portfolio with a mortgage rate greater than 5%, our MSR holdings are differentiated relative to the broader servicing market. And our exposure to higher note rate MSR, the segment of the market that depreciated over the quarter, is negligible, contributing to our relative outperformance. And lastly, related to MSR, fundamental performance of the portfolio continues to exceed our initial modeled expectations, as serious delinquencies are approximately 50 basis points. The portfolio exhibited a 3.4 percent CPR over the quarter. and increased escrow balances and resulting float income have provided positive tailwinds. Now, all told, while the outlook remains uncertain, our portfolio is diversified, liquid, and actively managed, which should allow us to perform across a variety of economic scenarios. We continue to believe this portfolio construct has significant synergies with the potential for superior risk-adjusted returns as evidenced by delivering a positive economic return in each of the past six quarters. And while volatility presents its challenges, we're encouraged by the underlying dynamics in this environment, including highly attractive new money returns, a steeper yield curve, and declining financing costs. Now, with that, I'll turn it over to Serena to discuss the financials.