Thank you for standing by and welcome everyone to the Annaly Capital Management second quarter 2026 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's 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 one on your telephone keypad. If you would like to withdraw your question, again, press star one. At this time, I would like to turn the conference over to Sean Hensel, Director of Investor Relations. Please go ahead.

Good morning, and welcome to the second quarter 2026 earnings call for Annalise 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.annalise.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. Our participants on this morning's call include David Finkelstein, Chief Executive Officer and Co-Chief Investment Officer, Serena Wolt, Chief Financial Officer, Mike Sania, Co-Chief Investment Officer and Head of Residential Credit, V.S.

Srinivasan, Head of Agency, and Ken Adler, Head of Mortgage Services and Rights. and with that i'll turn the call over to david thank you sean good morning everyone and thanks for joining us today i'll open with a brief macro update for discussing our performance for the quarter then i'll provide further detail on each of our three investment strategies and finish with our outlook serena 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, the 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 trend. Price 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, and 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 225 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 the strong performance of our diversified housing finance model. Additionally, we generated $0.79 of earnings available for distribution, marking the ninth 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 at 5.6 terms, and we raise 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 4.5s 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 in spite of relatively benign rate volatility and a subdued prepayment outlook, which typically favors more generic collateral and TVAs. Notably, pool outperformance was largely driven by strong GSE demand, and we took advantage of these valuations and reduced our payoff exposure by moving to lower payoff pools and increasing our TVA 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 TVAs 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 giving more attractive carry and 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 $6.7 billion of locks and $5.1 billion of fundings. Including whole loan bulk purchases in our partnerships, Anneli purchased $7.1 billion of loans in Q2, which is a new quarterly record for the business. Now, despite record volumes, the credit quality of our loan pipeline continues to improve, best evidenced by the lock pipeline 765 FICO with 67% CLTV. Non-agency 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 in proprietary investments. Year-to-date, the OBX platform has priced 25 transactions, totaling $14.2 billion, and notably we have securitized eight 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 Annalise'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 two weeks later. Our residential credit platform is well-positioned for continued growth of the non-agency market, given the substantial investments we've made over the last number of years, which we believe is a key differentiator and should continue to result in annually manufacturing high-yielding proprietary investments difficult to duplicate in 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 to bulk pools with lower loan balances for $220 million in proceeds. These transactions capitalized on differing buyer economics across the MSR market, highlighting our relative value approach and portfolio flexibility. Moving into higher average loan balance MSR meaningfully enhances our return profile as our cost of service is contractually a fixed amount per loan in contrast to in-house servicers with high fixed costs and a variable cost per incremental loan. Both 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. In a minor note, our flow purchase channel is picking up with $31 million in market value purchases this quarter, and it should become an increasingly important avenue to acquire current coupon MSR and allows us to offset portfolio paydowns. Our MSR portfolio fundamentals remain compelling as prepayment speeds increase in line with seasonals to 5.2 CPR in Q2. They were still below our initial model projections, providing potential upside to 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, predictable cash flows with meaningful prepayment protection. MSR valuations remain well supported in the current interest rate environment and are 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 three 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'll 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, low note rate, high credit quality that would be difficult to replicate at scale in today's market. Importantly, Annerly 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're now 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 models, the capital efficiency, scale, and flexibility of our platform meaningfully sets us apart. And now with that, I'll hand it over to Serena to discuss the financials.

Thank you, David. Today, I will briefly review the financial highlights of 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, favourable 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 75 cent 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 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 rates declining six basis points to 3.84% during the quarter. These benefits were partially offset by lower levels of swap income reflecting lower average receive rates as so far declined during the quarter. Net interest margin increased five basis points to 1.76% while net interest rate improved eight 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 5.6 times from 5.7 times in the prior quarter, a reflection of the increase in our hook value for Q2. Our reported ending repo rates decreased two basis points to 2.85%, while weighted average repo days to maturity ended the quarter at 33 days, down three days from the prior quarter. Our residential credit platform continues to demonstrate strong momentum, generating significant securitization activity during the quarter, as David discussed earlier. Additionally, to support continued growth of Procure Residential Credit and MSR businesses, total warehouse capacity increased to $8.3 billion, including $2.8 billion of committed capacity. We maintain ample available capacity in both businesses, with utilisation 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 our conservative risk profile. Finally, our OPEX to equity ratio increased 11 basis points to 1.4% this quarter, bringing and 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 questions. Thank you, operator.

Thank you. We will now begin the question-and-answer session. If you have dialed in and would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We'll take our first question from Boz George at KBW.

Hey, everyone. Good morning. Actually, first, the question is on the mark-to-market book value. Could we get an update?

Sure, Boz. Good morning. So, as of Friday, book value was off a little over a percent, so economic return off roughly half a percent.

Okay, great. And I just wanted to ask about, you know, dividend coverage. Obviously, you raised the dividend, so you're comfortable with it. But can you just discuss the, you know, the economic return of the portfolio relative to the required ROE that's needed to cover the dividend, which looks like it's, you know, a little under 15 percent?

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% to 16% and upwards of 15% in 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're very methodical, and we want to make sure that it is earnable, and we don't take these decisions lightly. So we were certainly encouraged by the fact that we feel like it's earnable over the foreseeable future, and we're 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.

Thank you, Boz.

We'll move next to Kristen Love at Piper Sandler.

Thank you. Good morning. David, kind of building on that prior question, but just give us a little bit of a view of where you're looking to add incremental capital across your three strategies, Looking at slide seven 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 credits. So, just curious on any shifts that you have, kind of where you're most interested in putting the incremental dollar across the three strategies, especially as agency technicals for nature on.

Sure, Crispin. So, both agency technicals and MSR technicals are very strong. as strong as we've 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're making a lot of progress. You know, we priced four transactions already in July, and we're in the market with another deal as we speak. So we do expect to add in resi credit, But, you know, agency is certainly very investable, particularly when you consider the technicals and how broad the demand is. And so we feel it's a safe place to invest. Vol has come down, notwithstanding the recent turbulence geopolitically. And so we feel good about it. So I'd say, you know, the marginal dollar will probably go into agency with resi credit as we can add. And MSR is still right there. As a matter of fact, we added a package just yesterday. we purchased an MSR package with a sub 3% note rate that we feel very good about with a strong OAS. And so that's it. You know, when it comes to raising capital, Crispin, and investing it, I think we would like to, you know, just take a second here and talk about what we've accomplished over the past couple of years when we started raising capital again, beginning in the third quarter of 2024. You know, we raised $5.4 billion in capital in the last two years, including our preferred last summer. And it's been very intentional. Obviously, price to book 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. You know, we added $2.6 billion in capital to both residential credit and MSR over the past two years, and that's 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's added considerable scale, enabled us to develop more partnerships and really been a game changer for us. And as a consequence, over the past two years, we've generated just over a 33 percent economic return since starting to raise capital again. And the shareholder has noticed, and we've delivered a 53 percent TSR in those eight quarters. So we feel really good about what we've accomplished, both from a capital allocation standpoint as well as a capital raising standpoint.

Great, David. I appreciate that. Just one last question for me, just on the administration, FHFA, GSDs. From your seat, how do you think they've been acting, just the impacts of the mortgage markets 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's enough for the GSDs to continue buying 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 can't 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've settled roughly $45 billion in pools, and, you know, obviously the mandate was $200 billion. What I say about the GSEs and their approach broadly is it's 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's served to help stabilize mortgage spreads, and it's made it an easier investment environment. and we welcome their participation. You know, when it's all said and done, let's say, you know, they get to the $200 billion and that's it. We expect them to be, you know, a generally responsible participant. They're very good. We know the people there. A lot of them are from, you know, prior lives that we worked with in the past, and we respect them a great deal. And so we're welcoming their participation, and we expect them to be a positive force in the agency market.

Great. great thank you David thanks Christian we'll move next to Marissa Lobo at UDS thank you and good morning I'm just looking at current coupon spreads compared to prior periods of Fed leadership transitions do you feel like today's mortgage market is pricing in a larger uncertainty premium than normal or or how much of the current coupon spread do you think reflects the uncertainty.

I think when you look at mortgages today what's really is realized and implied volatility is very low and the supply demand technicals are very strong. As David mentioned after the Iran crisis we saw after the de-escalation now we saw both realized and implied vols come down and the basis started and supply has been more muted than what we expected at the beginning of the year with most people expecting net supply around a hundred compared to what we have been still doing at around two hundred billion at the beginning of the year and fixed income flows have been really strong 30% of growth issuance 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're basically looking at where markets pricing won't live and And markets basically, frankly, what's the deal at that is not a lot of uncertainty from the Fed.

That's helpful.

And just shifting to growth and the other segments, so you've spoken about scale being a competitive advantage. And as you grow ResiCredit and MSRs, where do you still see the greatest opportunities for operating leverage here?

When it comes to operating leverage, we are an operating light company, and it's served us very well. I talked in the prepared remarks about the lack of origination and servicing. And we feel like we can scale these businesses with the current operating leverage, and it's been beneficial for us. We're not obligated to invest in any one sector because we don't have a lot of operating leverage. Relying on partnerships has been a distinct advantage, particularly in times like these. and we're here ready with capital to deploy it to the extent there's an opportunity you know to add operating leverage we'll look at it but for the time being of being a capital participant has served us very well and given where we're at the cycle we think it'll continue to for the perceivable future Marissa right thank you for the answers thank you Marissa we'll take our next question from Doug Harder at peace excuse me, BTIG.

Thanks, and good morning. Can you talk a little bit about, on the RESI credit side, you know, the ability to source the magnitude of loans, you know, and the diversity of loans, you know, 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're seeing the volume coming from the advantages you have there and, you know, kind of how that translates into the returns of the portfolio?

Sure. Thanks, Doug. This is Mike. I think that there's, you know, a number of key advantages that we have. One is that we've been in this market. We've been buying non-QM and DSCR loans for over 10 years. We've been doing it through the correspondent channel for over five years. You know, Annalee has, you know, given the capital that we've raised, we've always delivered consistent pricing. And I think that's 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're not able to deliver a rate sheet that is competitive because they are raising capital or a different, you know, component of the fund's life. So I think, you know, having that stability, having that capital, the reputation that we've earned, I think, has been, you know, has been well-earned. I think it's been hard-earned. We've been buying loans during COVID where we've honored commitments that others have not done. Originators don't always have short memories, so I think that there's a lot of goodwill that's 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're 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 non-delegated correspondence. We did that in the beginning of the year. So that's added significant volume, and it's added volume that's 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've invested a lot, as David mentioned. in terms of technology, infrastructure, the ability to face 350 originators is very challenging. And then lastly, I'll 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, you know, fixed costs and have lower fixed costs because it's a larger balance. Our variable costs, including underwriting fees, are lower than our peers because of the size of the deals that we're able to bring. And then we're 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're able to offer hiding the same ROE at a higher price given some of that secondary, you know. And the market is competitive. We actually, our lot volume actually beats $6.7 billion. It's actually down 9% to 10%. Part of that is because, you know, as David mentioned, you know, we're looking to earn mid-teams ROEs. We're not just going to, you know, be out in the market and leading with, you know, pricing and leading with the rate sheet. So we'll be diligent. But I think the infrastructure that we've built, the number of originators, the relationships that we had, the pricing advantages, that has allowed us to source at a greater cliff.

I appreciate that, Mike. And then just one clarification. In the – you talked about in the presentation how kind of like the economic assets and residential credit were relatively flat. How do I square that with, you know, the level of activity that you talked about? You know, 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. It's $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 OVX portfolio on an economic basis, obviously we report GAAP, but when you look at an economic basis, the OVX portfolio was up $400 million. That's through retained securities, but the third-party securities portfolio was down a little over $350 million. We sold $260 million of AAA 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's really why you see that, you know, the flattish portfolio quarter of a quarter.

Again, Doug, just to add, OBX and whole loans represent over 80% of the RESI credit balance sheet, and that's been the objective. You know, we've 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 question. Thank you, guys.

Thanks, Doug.

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

Given what we've seen happen with rates recently, prepayment risk in the market has certainly decreased. And we're sort of seeing 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 you added some agency CMBS, but is there anything we should be thinking about on, you know, how you may see those balls in the other directions and deal with them?

Quality specification. We disclose the quality of our pools by coupon. And so we don't have most of our sixes and six and a half coupons. Generic pools or some DBAs, and then when pricing is attractive, convert them in a specified pool. So our main strategy is to buy folio for the last three years, and it was very deliberate. That's why it took us a while to go up in coupon, because we didn't want to be exposed to a sharp rally in rates and be in TBAs days. To do that strategy, it's just that in the first half of this year, with GFD participation, spec pool valuations went up for the first half of the year, and we went down in coupon. In the first quarter, we actually went down in coupon into 4.5, because we didn't want want to add a lot of TDA 5.5s, but over the second quarter, we've kind of moved up and go far to spec pool valuation for starting to look more attractive, so we will continue to add spec pool.

And Harsh, from another big picture standpoint, if you look at the overall prepayment risk and where we take it, we're taking prepayment risk in the agency portfolio with higher note rate collateral, obviously, but we're 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 the MSR portfolio being very stable, we don't have to worry about prepayment risk nearly to that.

Gordon, that's right, please. Thank you.

Thanks, Arsh.

We'll go on next to Jason Stewart at Compass Point.

The question on the MSR market, it sounds like the activity was pretty consistent and the market remains relatively liquid throughout the second quarter, please give us more color on whether there are any opportunities to be opportunistic. I mean, to hear about originators needing or being more reliant on selling MSR for tech, has that created any, you know, idiosyncratic opportunities or any impact from that trend?

Yeah, yeah. Hi, this is Ken. Thanks for the question. You know, our model, as Dave mentioned in the comments, being, you know, operational 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 others can't. 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're left often with stranded costs. So, you know, our model, you know, is pretty unique because we're operating at this scale and utilizing subservicers. So we're generally the favorite buyer because we're not, you know, competing for those units on our platform. So that's been a real niche that we've been able to capitalize. 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're really not competing with the bulk of the buyers. I think in other niches in the flow market, Dave mentioned we kind of picked up some activity there. What's going on there is we're also an opportunistic buyer there, and we're not forced to generically buy flow. So now we've increased, and we're seeing that volume increase because, you know, we've grown our network of sellers. We're now up to over, you know, close to 200, over 175. And what we're seeing there is we're utilizing very granular pricing. So we're 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 don't really see others doing. So, you know, we're able to pick up better OAS, better convexity in that way, and we think we're very differentiated there as well.

Yeah, Jason, another way to characterize it is we don't want to compete with banks, and banks do have demand for MSR in the current environment, particularly considering, you know, the capital rule re-proposals. And the way we operate, the channel in which we operate using subservicers and buying MSR servicing retained, we're 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. And then a follow-up to Doug's question, Mike, on ResiCredit, you know, 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 is completely theoretical, a point you would find secondary security opportunities more attractive, and if it were, 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 CRE-CLO portfolio that got to be $395 million was a reallocation from agency MBS, tightening early in January, given the GSE announcement. As that has tightened five to ten basis points, we've subsequently taken that off and redeployed. In the first quarter, we also were active in buying non-QM B1s from third-party shelves. We were also active buying unrated A2s and PL RPLs, which at the time were like 13% to 14% ROEs. Now, most of the third-party securities that we see, they're closer to 11% to 12% ROEs. You know, Q2 is actually a really good environment to show how important it is to have a manufacturing entity. So when you look at actual spreads, AAA spreads, as Dave mentioned on the call, they were 10 basis points tighter, quarter over quarter on the AAA 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, 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 three businesses, but then also within the three businesses. So if that becomes an opportunity, we certainly have the acumen and the personality to be able to capitalize on that.

Okay. Thanks a lot. Thanks, Jason.

We'll go next to Hongling Zhang at J.P. Morgan.

Yeah. Hey, guys.

I guess how do you guys think about your ability to tap the equity market at your current stock price?

Well, look, the three criteria, obviously, price 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 a premium given what we've created and the franchise value and the fact that nobody can replicate what we can do. And our track record, you know, we've just completed the 11th straight quarter of a positive economic return and investors are valuing it. Our premium isn't very high. It's modest. We think it's actually low given the value creation and what we've built and the proprietary ability to acquire assets and manage those. And as we look at raising capital, you know, we want to be gentle with the market. We did raise nearly $450 million last quarter. We were very, very soft with respect to our footprint. We weren't in the market on days when the stock wasn't performing well. We were a 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 space is very low as a percentage of overall capital. So that's how we'll behave. We don't want to 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's available and we're gentle and we respect the stock, we'll continue to do so. Got it.

Thank you.

Give Rick our best, please.

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

One 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, you know, if there's 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 that you guys are focused on.

Yeah, thanks, Trevor. This is Mike. So, yeah, as Dave mentioned, we've priced 25 deals, $14.2 billion. And of that number, 70% is non-QM and DSCR. That will continue to remain the core collateral that, you know, Annalie is well-suited to purchase. We still believe that that actually is the highest ROE, but it's also the highest capital that you can commit, you know, relative to some of these other products. So owner-occupied agency loans, investor loans, HELOS, 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're able to buy that much deeper in the chain. So I think what really the point we're trying to make is that we have, you know, the ability to flex into other areas of the residential credit market. But non-QM and DSLR 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, it really was to bring larger deals. So Dave mentioned it again on the script, but, you know, we did a billion-dollar deal. It was non-QM8, and then subsequently we did another billion-dollar deal within two weeks, non-QM9. A lot of that is just a reflection of the growth in the market itself. There's already been $65 billion of non-QM issuance this year, probably being worth of $100 billion. So, it's 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 OBS 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're 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're averaging three and a half deals per month. So it doesn't benefit us to have our investors not have really strong experiences. So I think that, you know, we feel really good with where we're positioned. The average deal size within Non-QM this year, it's been over $900 million. There's 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've had over 250 investors participate in the OBX securization platform since 2018. And our average deal, I'll 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, you know, we can, you know, we can pivot to other collateral things, you know, as we've shown here this quarter.

Got it. Very helpful caller. Thanks, Trevor.

And next we'll go to Kenneth Lee at RBC Capital Markets. hey good morning thanks for taking my question just one more on the recent dividend increase here I wanted 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 final yield curve sure as I mentioned earlier Ken we take the dividend decision very seriously and our board is very thoughtful about it and we de-stress the environment to make sure that the dividend is earnable, we expect to be able to cover the

dividend over a period of time. There will be quarters where we'll out-earn it, and maybe we might 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's what informed the decision to increase it. There is a lot of uncertainty. We're 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 and we expect it to be a good one and just one follow-up if i may you mentioned the prepared remarks uh modestly rotating into higher loan balances within the msrs wondering if you could just talk a little bit more about that you know some of the motivations behind that.

Thanks.

Yeah. And as I've mentioned again, we're on a 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're paying are really the best in class of the industry's marginal costs 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 in the industry through using subservices, again, because we're priced at marginal costs plus a profit market. Now, when portfolios come out for the market, those participants that service their own loans, they model things at their marginal cost. So they're much more aggressive on low loan balance collateral. So, you know, 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 four spotters.

Does that make sense? Yep, that makes sense. Very helpful there. Thanks again. Thank you, Ken.

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

Much appreciated, Audra, and thank you, everybody, for joining us, and enjoy the rest of your summer, and we'll talk to you soon.

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