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ANNALY CAPITAL MANAGEMENT INC (NLY)·Q2 2025 Earnings Summary

Executive Summary

  • Annaly delivered EAD per share of $0.73, modestly above consensus $0.712, and once again covered the $0.70 dividend; book value fell 3% to $18.45 and economic return was 0.7% for Q2 . Consensus EPS figures from S&P Global marked with * below.
  • Net interest margin expanded to 1.71% XPAA and net interest spread to 1.47% XPAA, reflecting higher asset yields (5.41%) and slightly higher economic funding costs (3.94%) .
  • Agency MBS portfolio grew ~6% QoQ to $71.76B with a 92% hedge ratio, while Residential Credit executed a record seven securitizations ($3.6B) and MSR value held at ~$3.28B; GAAP leverage ticked up to 7.1x; economic leverage 5.8x .
  • Management reiterated confidence in sustaining dividend coverage and highlighted potential catalysts from bank/foreign demand returning to agency MBS with policy easing and regulatory reform; Q3-to-date book value up ~0.5% pre-div accrual (“~1.5% economic return”) per Q&A .

What Went Well and What Went Wrong

What Went Well

  • Agency allocation increased at attractive spreads, supported by accretive ATM equity raises (~$761M) and tight risk management: “Agency portfolio grew by nearly $5 billion…” and leverage/hedges adapted to volatility .
  • Residential Credit achieved record quarterly securitization issuance (seven deals, $3.6B), strong correspondent channel ($5.3B locks; $3.7B fundings), and resilient investor demand; recent non-QM AAA print at 138 bps illustrated market depth .
  • MSR portfolio produced “well‑defined, durable cash flows,” aided by technology‑driven servicing cost declines and rising float balances; MSR remained conservatively priced with stable delinquencies and CPR .

What Went Wrong

  • Book value per share decreased 3% QoQ to $18.45 amid long-end rate pressure and wider agency MBS spreads early in quarter; GAAP leverage rose to 7.1x .
  • Swap income moderated due to modest swap runoff; economic funding cost rose 6 bps QoQ to 3.94%, partially offsetting stronger asset yields .
  • Housing affordability headwinds persisted (higher rates, prices, taxes/insurance), with management expecting modestly negative HPA near term; credit standards tightened further to mitigate risk .

Financial Results

Income, EPS, Book Value (GAAP and EAD)

MetricQ4 2024Q1 2025Q2 2025
GAAP Net Income per Avg Common Share ($)$0.78 $0.15 $0.03
EAD per Avg Common Share ($)$0.72 $0.72 $0.73
Book Value per Common Share ($)$19.15 $19.02 $18.45

Margins and Spread

MetricQ4 2024Q1 2025Q2 2025
Net Interest Margin (%)0.75% 0.87% 1.04%
Net Interest Margin (XPAA) (%)1.71% 1.69% 1.71%
Net Interest Spread (XPAA) (%)1.47% 1.35% 1.47%
Avg Yield on Interest-Earning Assets (XPAA) (%)5.26% 5.23% 5.41%
Avg Economic Cost of Interest-Bearing Liabilities (%)3.79% 3.88% 3.94%

Balance Sheet Leverage and Hedging

MetricQ4 2024Q1 2025Q2 2025
GAAP Leverage (x)7.1x 6.8x 7.1x
Economic Leverage (x)5.5x 5.7x 5.8x
Hedge Ratio (%)100% 95% 92%
Wtd Avg Days to Repo Maturity (days)32 50 49
Dividend Declared per Common Share ($)$0.65 $0.70 $0.70

Segment/Portfolio Composition (Period-End)

Portfolio Component ($USD Billions)Q4 2024Q1 2025Q2 2025
Agency MBS$67.43B $68.33B $71.76B
Residential Mortgage Loans (Net)$3.55B $3.86B $3.72B
Residential Credit Risk Transfer Securities$0.75B $0.52B $0.41B
Non‑Agency MBS$1.49B $1.45B $1.33B
MSR (Market Value)$2.91B $3.27B $3.28B
Assets Transferred/Pledged to Securitization Vehicles$21.97B $24.46B $27.02B

Results vs. Wall Street Consensus (S&P Global)

MetricQ4 2024Q1 2025Q2 2025
Primary EPS Consensus Mean ($)0.6674*0.6976*0.7117*
Primary EPS Actual ($, EAD per share)0.72 0.72 0.73
Revenue Consensus Mean ($USD Millions)367.6*418.5*237.0*
Revenue Actual ($USD Millions)539.1*244.5*157.2*

Values marked with * retrieved from S&P Global.

Guidance Changes

MetricPeriodPrevious GuidanceCurrent Guidance/UpdateChange
Dividend (Common)Q2 2025$0.70 declared in Q1 2025 $0.70 declared for Q2 Maintained
Dividend Coverage (EAD vs Dividend)FY 2025N/A“Expect to cover and potentially out‑earn the dividend for the remainder of the year” Confidence Raised (qualitative)
Book Value (Q3‑to‑date)Q3 2025 QTDN/A“Pre‑dividend accrual book was up about half a percent… ~1.5% economic return” Positive Update
Leverage StrategyFY 2025N/APrefer accretive capital over leverage increases; maintain low leverage flexibility Strategic Positioning

No formal quantitative guidance provided for revenue, margins, OpEx, OI&E, or tax rate in Q2 communications.

Earnings Call Themes & Trends

TopicPrevious Mentions (Q4 2024, Q1 2025)Current Period (Q2 2025)Trend
Tariffs/Macro volatilityQ1: “Increase in interest rate volatility and MBS spread widening following the tariff announcements” Macro stabilized late in quarter; expect two Fed cuts; services inflation easing, goods prices firming (tariff‑related) Improving volatility backdrop
Agency MBS demand/technicalQ4: Attractive agency returns; improving supply/demand picture Strong inflows to FI funds; CMOs absorb ~30% supply; banks/foreign still muted; spreads could tighten 3–5 bps; potential bank/Asian demand with easing/reg reform Constructive
Capital raising/deploymentQ4/Q1: Raised $1.6B (FY24) and $496M (Q1) via ATM, deployed to agency Raised ~$761M in Q2; deployed accretively to 4.5%–6.0% coupons; 92% hedge ratio Ongoing, accretive
Residential Credit execution/qualityQ4: Record production; strong correspondent Record 7 securitizations ($3.6B); lock $5.3B; funded $3.7B; tightened credit box; MTM LTV ~62%; 20% HPA shock → ~4% underwater exposure Robust issuance; prudent credit
MSR strategy/tech benefitsQ4: Expanded recapture/subservicing relationships Low-coupon MSR generates durable cash flows; servicing tech reducing costs; float balances up ~6% YoY; conservative valuation Positive carry; efficiency gains
Regulatory reform (GSE)Q4: 2025 outlook optimistic; sector tailwinds Expect GSE reform back to front burner; potential broader RESI origination opportunities Potential tailwind

Management Commentary

  • CEO: “Annaly delivered its seventh consecutive quarter with a positive economic return… Our Agency portfolio grew by nearly $5 billion… Residential Credit experienced another record quarter… Meanwhile, our MSR portfolio continued to generate substantial cash flow…” .
  • CEO prepared remarks: “We delivered an economic return of 0.7% for the second quarter, while generating EAD of $0.73, once again out‑earning our dividend… leverage increased modestly to 5.8x” .
  • CFO: “Earnings available for distribution per share increased by $0.01 to $0.73… driven by higher yields (5.41%) and lower average repo rates (4.53%)… Net interest spread XPAA increased to 1.47%… Net interest margin XPAA is 1.71%” .
  • Agency portfolio activity: “Added agency MBS… purchases split across 4.5s, 5.5s, and 6s… preferred pools over TBAs” .
  • Dividend stance: “We expect to certainly cover and potentially out‑earn the dividend for the remainder of the year” .

Q&A Highlights

  • Book value update: “As of last night, pre‑dividend accrual book was up about half a percent… ~1.5% economic return” .
  • Dividend coverage: Management expects to cover/out‑earn dividend through the year .
  • Portfolio risk/leverage: Preference to raise accretive equity and keep leverage lower for smoother returns; disciplined duration bands through volatility .
  • Credit quality: Tightened credit box since 2022; MTM LTV ~62%; a 20% HPA shock would leave ~4% of portfolio underwater; D60+ at 1.85% .
  • Agency demand: FI fund inflows strong; CMOs absorbing supply; spreads could tighten 3–5 bps even without banks/foreign; easing/reg reform could be material catalyst .
  • Non‑QM market depth: Year‑to‑date gross issuance ~$92B, tracking to best since 2021; recent AAA sold at 138 bps, margins mid‑teens on retained capital .
  • Macro scenario: Base case two Fed cuts; if cuts don’t materialize, curve flattening is hedged; more aggressive easing would benefit agency MBS .

Estimates Context

  • EPS (EAD per share) beat: Q2 2025 actual $0.73 vs consensus $0.7117*; Q1 2025 $0.72 vs $0.6976*; Q4 2024 $0.72 vs $0.6674*.
  • Revenue (SPGI “total revenue”) missed in Q2 and Q1 (Q2 actual $157.2M* vs $237.0M*; Q1 $244.5M* vs $418.5M*), but beat in Q4 ($539.1M* vs $367.6M*). For mREITs, EAD is the primary performance metric and the anchor for dividend coverage, which management emphasized . Consensus/actual values marked with * are from S&P Global.

Key Takeaways for Investors

  • EAD beat consensus and covered dividend again; management’s explicit confidence in sustaining coverage is supportive for income‑focused holders .
  • Margin expansion (XPAA NIM/spread) reflects coupon rotation and improved asset yields; incremental funding cost uptick bears watching but is manageable at current leverage .
  • Agency MBS remains the near‑term overweight with catalysts from potential Fed easing and regulatory reform; a re‑emergence of bank/foreign demand could drive spread tightening .
  • Residential Credit execution is a differentiator (record securitizations, tightened credit box, resilient investor base); downside HPA scenarios appear contained given high borrower equity .
  • MSR provides durable cash flows and negative duration ballast; technology‑driven servicing cost reductions and higher float income support valuations .
  • Near‑term trading: Positive EAD/dvd coverage and potential agency spread tightening are constructive; monitor long‑end rates and swap income run‑off for BV sensitivities .
  • Medium‑term thesis: Diversified housing finance model (Agency/RESI/MSR) with low leverage and ample liquidity positions Annaly to deliver competitive risk‑adjusted returns across cycles .