ANNALY CAPITAL MANAGEMENT (NLY)·Q4 2025 Earnings Summary

Annaly Delivers 20% Economic Return for 2025 as Book Value Hits $20.21

January 29, 2026 · by Fintool AI Agent

Annaly Capital Management (NYSE: NLY) reported Q4 2025 results that exceeded expectations, with earnings available for distribution (EAD) of $0.74 per share beating consensus of $0.72 and book value surging 5% to $20.21. The leading mortgage REIT capped off a strong year with a 20.2% economic return and 40% total shareholder return, driven by meaningful spread tightening and record activity in its residential credit platform.

Did Annaly Beat Earnings?

Yes. Annaly delivered a solid beat on the metrics that matter most for mortgage REITs:

The GAAP net income of $1.40 per share was boosted by net gains on investments and derivatives, while the more stable EAD metric showed steady progression from $0.73 in Q3 2025.

Key driver: Net interest margin expanded to 1.18% from 0.97% in Q3, a 21 basis point improvement driven by declining funding costs (average GAAP cost of interest-bearing liabilities fell 24bps to 4.49%).

What Changed From Last Quarter?

The quarter saw meaningful positive developments across Annaly's three investment strategies:

Agency Portfolio (+6% QoQ to $92.9B):

• Accretive capital deployed primarily into 5.0% coupon TBA and generic collateral securities
• Higher coupon specified pools and Agency CMBS added
• Weighted average coupon increased from 5.00% to 5.12% during 2025

Residential Credit (+16% QoQ to $8.0B):

• Record correspondent channel activity with $23.1B in lock volume for the full year
• Closed 8 securitizations totaling a record $4.6B during Q4
• Remained the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS

MSR Portfolio (+8% QoQ to $3.8B):

• Second largest purchaser of conventional MSR in 2025
• Lowest note rate portfolio among top 20 Agency servicers

How Did Key Metrics Trend?

The book value trajectory shows a strong recovery from the Q2 2025 trough of $18.45, driven by spread tightening in the Agency MBS market.

What Did Management Say?

CEO David Finkelstein highlighted the platform's diversification benefits:

"2025 was a solid year for Annaly as we delivered a 20% economic return and 40% total shareholder return underscoring the resilience and strength of our diversified housing finance model. Our portfolio grew by nearly 30% as we successfully deployed accretive capital raised across our three investment strategies, primarily into Agency MBS."

On the operating environment:

"Our Agency business benefited from meaningful spread tightening, supported by strong fund flows, improved fundamentals and a more favorable operating environment."

Looking ahead:

"We enter 2026 well-positioned to continue this momentum given the constructive environment and believe our platform will continue to provide enhanced risk-adjusted returns."

Capital Position and Liquidity

Annaly maintained a strong capital and liquidity position:

Financing improvements: Average repo rate improved 30 bps to 4.2%, with ending repo rate down 34 bps to 4.02%. Weighted average repo days ended at 35 days, down 14 days from Q3.

Capital raised in 2025: $2.9B, including $2.6B of common equity ($560M in Q4 alone via ATM) and $275M of 8.875% Series J preferred stock.

Warehouse capacity: Total capacity across residential credit and MSR reached $6.9B, with $2.7B committed. Utilization at 47% for residential credit and 50% for MSR—ample room for growth.

What Did Management Say on the Call?

The Q4 2025 earnings call (January 29, 2026) provided additional color on forward positioning:

Mark-to-Market Book Value Update: CEO David Finkelstein noted that as of Tuesday (Jan 28), book value was up 4% inclusive of dividend accrual (3% netting out), with "a fraction of a percent higher" after Wednesday's trading.

Dividend Confidence: Management expressed strong confidence in dividend sustainability: "We out-earned in Q4. We expect to out-earn certainly in Q1, and we feel like the dividend's safe here." They noted the portfolio can still achieve "upwards of mid-teens returns" even after spread tightening.

Capital Allocation Shift: Management signaled a pivot toward credit strategies. The long-term target is 50% Agency / 30% RESI / 20% MSR (vs. current 62%/19%/19%). Finkelstein stated: "We'd like to grow RESI and MSR 30% and agency less than that."

G-Fee Policy View: On potential guarantee fee cuts to lower mortgage rates, management supports cuts on purchase loans but warned that a broad cut impacting existing loans would "damage the MBS market and widen spreads." A one-year holiday on purchase loans for first-time buyers could make sense.

Current Coupon MSR Strategy: The firm is now active with ~100 counterparties on Fannie/Freddie MSR exchange platforms but currently sees better value in lower note rate MSR. As recapture capabilities improve, they plan to become more active in production coupon MSR.

How Did the Stock React?

NLY shares closed at $24.25 on the day of the 8-K release (Jan 28), then opened lower at $24.19 following the earnings call (Jan 29). The stock is down ~2.3% from pre-earnings levels, suggesting the market expected even stronger results given the significant rally.

The decline following the earnings call suggests some profit-taking after the strong rally, despite management's constructive outlook.

Full Year 2025 Summary

What Are Illustrative Levered Returns?

Management provided forward-looking return expectations across each investment strategy:

These illustrative returns reflect current market conditions, available leverage, and financing terms for prospective investments similar to those in Annaly's portfolio.

Interest Rate and Spread Sensitivity

Interest Rate Sensitivity (as of December 31, 2025):

MBS Spread Sensitivity:

The portfolio benefits from spread tightening but remains exposed to spread widening risk. Sensitivity improved slightly from Q3 2025.

What's Driving the Constructive Outlook?

Management highlighted several tailwinds for the Agency MBS market:

• Fed policy shift: The Fed ended balance sheet runoff in December and began purchasing Treasury bills to maintain bank reserve levels
• GSE support: Announcement that GSEs will purchase $200B in MBS has improved technicals
• Declining volatility: Interest rate volatility (both realized and implied) continues to decline
• Strong fund flows: Robust fixed income demand from money managers and increased CMO issuance

However, prepayment risk has risen as mortgage rates briefly dipped below 6%, and policy risk remains elevated given the Administration's push to improve housing affordability.

MSR Portfolio Deep Dive

Annaly's MSR portfolio exhibited exceptional credit quality and stability:

Onslow Bay ranked as the second largest buyer of conventional MSR in 2025, onboarding nearly $60B of UPB throughout the year.

Q&A Highlights

On Low-Coupon MBS vs MSR Hedging (Rick Shane, J.P. Morgan): When asked about buying low-coupon MBS to hedge MSR runoff risk, Finkelstein noted: "The valuation on low-coupon MBS is quite tight. There's better ways to manage that type of risk, whether it be through duration or other factors." The borrower in a 3% note rate loan "really ascribes the value to that loan, and there's a real reluctance to give it up."

On GSE Portfolio Caps (Trevor Kranston, Citizens JMP): The GSEs entered 2026 with ~$178B in capacity between them. Management doesn't have clarity on whether caps will be increased, but noted it doesn't require Congressional action—FHFA can adjust in conjunction with Treasury.

On Capital Raising Environment (Eric Hagan, BTIG): When spreads were "extraordinarily wide, it was obviously a catalyst to raise capital because there was a tremendous amount of upside." Today with tighter spreads, "the pace of capital raising may not be as high as in that environment." However, spread stability provides some comfort.

Key Risks and Watchpoints

• Interest rate volatility: While NIM has improved, rapid rate movements could impact book value and hedging costs
• Prepayment risk: Weighted average experienced CPR increased to 9.7% from 8.6% in Q3; prepayment risk is back in focus as mortgage rates briefly dipped below 6%
• Leverage: GAAP leverage ticked up to 7.2x, though economic leverage declined to 5.6x
• Policy risk: Elevated given Administration's push on affordability—potential government actions could impact prepayment speeds
• Global macro risks: Management flagged the "global fiscal picture and the amount of debt out there" and "euphoria in asset markets" as underappreciated risks. Notably, gold has doubled since early 2024 and is up 27-28% this year.
• Valuation: Agency MBS spreads are "at the very tight end of the range...close to QE-type levels." Safety is there but "abundance of yield is not quite there."

Bottom Line

Annaly delivered a strong Q4 2025 with EAD beating consensus, book value surging 5%, and net interest margin expanding meaningfully. The full year results—20% economic return and 40% total shareholder return—validate management's diversified housing finance strategy. With illustrative levered returns of 13-15% on Agency MBS, a 12.5% dividend yield, and a constructive technical backdrop (Fed reserve management purchases, GSE $200B MBS buying program), NLY enters 2026 well-positioned. Key watchpoints include prepayment risk as rates dip and policy uncertainty around housing affordability initiatives.

---

Data sourced from Annaly Capital Management Q4 2025 8-K filing, investor presentation, and earnings call transcript dated January 28-29, 2026.