Annaly Capital Management's purchases of loans and servicing contributed to a profitable second quarter above most consensus estimates, but its executives said that's in part because it's taking a measured approach.
The real estate investment trust, whose Onslow Bay unit is a top buyer of conventional mortgage servicing rights and a significant
Correspondent purchases inched down from $5.21 billion to $5.14 billion in a challenging market for lenders where locks fell more notably from $7.42 billion to $6.7. MSR holdings' market value slipped from $4.16 billion to $4.07 billion, while the unpaid principal balance of the portfolio involved slid from $271.3 billion to $268.3 billion.
"We're 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," David Finkelstein, Annaly's CEO, co-chief investment officer and director, said during the company's call.
What Annaly's buying
Among the assets Annaly executives said they've been selectively interested in buying is flow servicing from ongoing originations.
"We're not forced to generically buy flow," said Ken Adler, head of mortgage servicing rights and portfolio analytics, said. He called Annaly's approach to purchasing in this market "opportunistic."
He touted the company's lack of direct involvement in servicing as a potential draw for some sellers in that business who may be wary of competition.
"We're operating at this scale and utilizing subservicers," Adler said.
When it comes to its goals for correspondent aggregation and securitization, company executives indicated that their focus is in the private market in line with broader market trends toward investment in loans made outside the qualified mortgage definition.
"
Annaly is favoring the niche based on its return on equity and because owner-occupied loans and home equity lines of credit have not been as scalable, he said.
Fania touted the company's history in non-QM as among the ways it differentiates itself from the competition, calling their approach to involvement in the market and pricing steady even during times of stress like the pandemic. He also said Annaly is more open to buying from smaller lenders than some other correspondent investors in the market.
Other second-quarter developments
Executives also noted that Annaly added $740 million in credit facilities during the period, increasing its total warehouse capacity for residential credit and MSR business to $8.3 billion.
In addition, Annaly issued 20 million common shares during the period and raised $447 million in capital, topping some analysts' estimates. BTIG reported that it had anticipated the offering would be roughly half that size.
Earning available for distribution, a measure many REIT investors look at, was 79 cents per share, up from 76 in the first quarter and 73 a year earlier.
Although the company reported an earning beat for several of its metrics, like one of its peers, it reported a weaker than expected book value that analysts at BTIG and Keefe, Bruyette & Woods noted. Also like fellow REIT
Annaly's book value of $20.15 for the quarter was below S&P Capital IQ's consensus for $20.44. It also was "roughly in line, although modestly below peers with more MBS," KBW analysts wrote. Book value was up from $19.82 in the previous fiscal period.
At the time of this writing Thursday afternoon, Annaly's stock was trading down 1.26% on the day at $22.40 per share but had rebounded from lower levels just above $22 per share and was stabilizing.
