Executive Summary

Q3 2025 delivered an 8.1% economic return with book value per share rising 4.3% to $19.25; EAD of $0.73 again covered the $0.70 dividend, sustained now for three consecutive quarters .
Results modestly beat Wall Street: normalized EPS of $0.73 vs $0.721 consensus and a large revenue beat versus consensus; strength was driven by agency MBS spread tightening, lower rate volatility, and gains on investments, partially offset by hedge losses as rates fell .
Capital deployment prioritized Agency MBS (portfolio up 10% to ~$87.3B), while Residential Credit reached ~$6.9B and MSR grew 6% to ~$3.5B; hedge ratio remained 92% and economic leverage ticked down to 5.7x .
Strategic catalyst: a new subservicing/MSR purchase agreement with PennyMac enhances servicing/recapture economics on ~$12B UPB of low-note-rate MSR, supporting durable cash flows and execution scale .

What Went Well and What Went Wrong

What Went Well

Agency MBS outperformance as spreads tightened 8–12 bps vs Treasuries and realized volatility stayed subdued, boosting returns; management added specified pools in 5.5%/6.0% coupons to enhance prepay protection and carry .
Residential Credit momentum: record locks ($6.2B) and fundings ($4.0B) with eight securitizations totaling $3.9B; Annaly remains the largest non-bank issuer year-to-date, supporting higher yields and EAD stability .
MSR portfolio growth and quality: increased to $3.5B market value, low-note-rate profile provides stable cash flows (sub-5% CPR), and new PennyMac partnership strengthens subservicing/recapture capabilities .
- “We were pleased to generate an 8.1% economic return… as each of our investment strategies drove strong performance and contributed to earnings that again exceeded our dividend.” — CEO David Finkelstein .

What Went Wrong

Hedge-related losses offset part of asset gains as rates fell; CFO noted gains across investments were “partially offset by losses on our hedge positions,” tempering GAAP NIM to 0.97% (down from 1.04% in Q2) .
Margins ex-PAA were essentially flat QoQ (NIM ex-PAA 1.70% vs 1.71%), highlighting competitive funding costs and swap carry dynamics despite asset yield improvements .
Elevated macro uncertainty persists: management remains duration-neutral given two-sided rate risks; agency spreads tighter reduce spread duration, limiting capacity to add risk aggressively near-term .

Financial Results

Core Results vs Prior Periods

Metric	Q3 2024	Q2 2025	Q3 2025
Book Value per Share ($)	19.54	18.45	19.25
GAAP EPS ($)	0.05	0.03	1.21
EAD per Share ($)	0.66	0.73	0.73
Annualized GAAP ROAE (%)	2.77	1.82	23.69
Annualized EAD ROAE (%)	12.95	14.86	14.70
Net Interest Margin (%)	0.06	1.04	0.97
Net Interest Margin ex-PAA (%)	1.52	1.71	1.70
Avg Yield on Interest Earning Assets (%)	5.16	5.42	5.40
Avg GAAP Cost of Interest-Bearing Liabilities (%)	5.42	4.76	4.73
Net Interest Spread (%)	-0.26	0.66	0.67
GAAP Leverage (x)	6.9	7.1	7.1
Economic Leverage (x)	5.7	5.8	5.7
Dividend per Common Share ($)	0.65	0.70	0.70

Segment and Portfolio Breakdown

Portfolio Metric ($USD Millions)	Q3 2024	Q2 2025	Q3 2025
Agency MBS (Securities)	69,150	71,757	83,318
Residential Mortgage Loans (net)	2,306	3,722	4,008
MSR (Market Value)	2,693	3,281	3,476
Assets Transferred/Pledged to Securitizations	21,044	27,022	29,512
Total Investment Portfolio	97,743	107,526	122,095

KPIs and Capital/Funding

KPI	Q2 2025	Q3 2025
Total Portfolio ($B)	89.5	97.8
Agency Portfolio ($B)	79.5	87.3
Residential Credit ($B, economic MV)	6.6	6.9
MSR (Market Value, $B)	3.3	3.5
Hedge Ratio (%)	92	92
Economic Leverage (x)	5.8	5.7
Unencumbered Assets ($B)	5.9	7.4
Total Assets Available for Financing ($B)	7.4	8.8
Accretive Capital Raised ($B)	0.761 (ATM common)	1.1 total (incl. $0.823 ATM, $0.275 Pref J)

Guidance Changes

Metric	Period	Previous Guidance	Current Guidance	Change
Dividend per Common Share ($)	Q3 2025	$0.70 (Q2 declared)	$0.70 declared	Maintained
Capital Allocation Mix (Residential Credit + MSR)	Near-term	N/A	Management aims to increase combined weighting toward ~40% over time	Strategic target articulated
Dividend Coverage (EAD vs Dividend)	Near-term	N/A	Management “feels very good” about dividend; expects to out-earn dividend barring adverse macro surprises	Affirmed coverage outlook

Note: Annaly does not provide formal quantitative revenue/EPS guidance ranges; management commentary provided directional/strategic guidance .

Earnings Call Themes & Trends

Topic	Previous Mentions (Q1 2025)	Previous Mentions (Q2 2025)	Current Period (Q3 2025)	Trend
Macro: tariffs/volatility	Tariff announcements increased rate vol; entered year with lowest leverage in a decade	Defensive hedge posture at 92%, navigating intra-quarter volatility	Volatility declined; Fed cut in Sept; outlook for additional cuts	Improving backdrop; supportive technicals
Agency MBS strategy	Added intermediate coupons and higher coupon specified pools; duration/hedge defensive	Portfolio grew ~$5B; mix swaps/Treasuries; 92% hedge ratio	Overweight agency; shifted to specified 5.5/6.0 pools; spreads tighter 8–12bps	Constructive; continued overweight
Hedging and swaps	95% hedge ratio; duration-neutral stance	Balanced long-end swaps/Treasuries	Overweight front-end swaps for carry; losses as rates fell; duration near zero	Stable hedge discipline; carry-focused
Residential Credit execution	Programmatic securitizations, robust correspondent locks/fundings	Record securitizations, capacity expanded	Record locks ($6.2B), fundings ($4.0B), 8 deals ($3.9B); market penetration rising	Scaling; favorable credit spreads
MSR strategy & supply	MSR steady, expanded partners; SHARP award	MSR unchanged at $3.3B MV	MSR +6% to $3.5B; bulk supply up; PennyMac subservicing/MSR purchase	Growing; enhanced servicing economics
Regulatory/market structure	N/A	N/A	Potential GSE demand as stabilizer; tri‑party repo policy discussion (Logan)	Policy evolution monitored

Management Commentary

CEO: “Our Agency portfolio benefitted from meaningful spread tightening during the quarter driven by increased MBS demand and declining volatility… we maintain our optimistic outlook as volatility continues to decline, the Federal Reserve is positioned for additional rate cuts and fixed income flows remain robust” — David Finkelstein .
CFO: “Earnings available for distribution per share… were consistent with Q2 at $0.73 per share and again exceeded our dividend… net interest spread ex‑PAA increased again this quarter to 1.5%, and net interest margin ex‑PAA is comparable with the prior quarter at 1.7%” — Serena Wolfe .
CIO/Head of Agency: “Specified pools… are options we own for a very long time… the length of the option is what makes specified pools so much more attractive than going down in coupon or buying generic collateral” .

Q&A Highlights

Capital allocation: Still overweight Agency; target to lift Residential Credit+MSR toward ~40% of capital over time .
MSR market: Bulk supply up with stable pricing; portfolio remains low note rate with very stable cash flows; PennyMac partnership strengthens execution .
Hedging and risk: Blended hedge mix favors swaps for carry; duration near zero given two‑sided rate risks; low realized vol reduced hedging costs .
Book value trajectory: Quarter-to-date (post Q3) book value pre-dividend accrual up ~1%, implying 1.5–2% economic return with dividend accrual .
Residential Credit convexity: Slower-than-expected speeds on 2023 vintage; investor loan prepayment penalties flatten S‑curves, boosting retained IO returns .
Policy watch: Discussion on tri‑party repo as policy tool; GSEs could act as spread stabilizers if policy evolves, but not relied on .

Estimates Context

Metric	Consensus (S&P Global)	Actual	Delta
Normalized EPS ($)	0.72078*	0.73*	+0.00922 — slight beat (bold)
Revenue ($USD)	501,691,750*	903,871,000*	+402,179,250 — large beat (bold)

Values retrieved from S&P Global.*
Context: The EPS beat reflects stronger asset yields and other income amid spread tightening and lower volatility; revenue upside likely incorporates substantial net gains on investments ($561.9M) and net servicing income ($126.3M) in Q3 .

Key Takeaways for Investors

Agency MBS tailwinds: Lower volatility and tight but constructive spreads continue to support returns; Annaly remains overweight agency and is deploying into specified 5.5/6.0 pools for prepay protection and carry .
Dividend coverage: EAD of $0.73 exceeded the $0.70 dividend for the third straight quarter; management is confident in sustaining coverage with strong swap hedge protection (92% hedge ratio) .
Capital scale and liquidity: ~$8.8B assets available for financing, rising unencumbered assets, and $1.1B accretive capital raised underpin flexibility and risk management .
Residential Credit lever: Market penetration in non‑QM rising; Annaly’s OBX platform and record locks/fundings position it to monetize credit spreads and embedded call options as issuance scales .
MSR durability: Low-note-rate MSR with sub‑5% CPR and new PennyMac subservicing partnership should sustain predictable cash flows and reduce negative convexity on a portfolio basis .
Risk posture: Duration kept near zero; watch for macro inflections (Fed cuts path, labor data, bank regulation, GSE participation) that could alter spreads and hedging economics .
Trading implications: Near-term catalysts include continued spread stability/tightening, agency demand breadth, and evidence of dividend durability; pullbacks on rate/vol spikes could be opportunities given low leverage and liquidity .

Appendix: Additional Data Points

Q3 GAAP net income per average common share: $1.21; EAD per share: $0.73; Economic return: 8.1% .
Net gains (losses) on investments: $561.9M; Net gains (losses) on derivatives: $(92.3)M; Net servicing income: $126.3M .
Average economic cost of interest‑bearing liabilities: 3.96%; Net interest spread ex‑PAA: 1.50%; NIM ex‑PAA: 1.70% .
Financing profile: Weighted average repo days ~49; economic leverage 5.7x; hedge ratio 92% .

Citations: .

ANNALY CAPITAL MANAGEMENT INC (NLY)·Q3 2025 Earnings Summary