NLY-PF — Annaly Capital Management, Inc.

Summary of Annaly Capital Management Q3 2025 Earnings Call

1. Key Financial Results and Metrics

• Economic Return: Annaly reported an economic return of 8.1% for Q3 2025, bringing the year-to-date return to 11.5%. This marks the eighth consecutive quarter of positive economic returns.
• Earnings Available for Distribution (EAD): EAD was $0.73 per share, consistent with Q2 and exceeding the quarterly dividend of $0.70.
• Book Value: Increased by 4.3% from $18.45 to $19.25 per share.
• Net Interest Margin: Remained stable at 1.7%, with net interest spread ex-PAA increasing to 1.5%.
• Leverage: Economic leverage ratio stood at 5.7x, slightly lower than the previous quarter, with a healthy repo principal of approximately $8.6 billion added at attractive spreads.

2. Strategic Updates and Business Highlights

• Agency Portfolio: Grew to over $87 billion in market value, up 10% quarter-over-quarter, driven by strong capital deployment in Agency MBS and improved supply-demand dynamics.
• Residential Credit: Portfolio increased to $6.9 billion, with record-setting volumes in the correspondent channel and significant securitization activity through the Onslow Bay platform.
• Mortgage Servicing Rights (MSR): Market value rose to $3.5 billion, supported by stable cash flows and a new partnership with PennyMac Financial Services to enhance servicing capabilities.
• Capital Raise: Successfully raised $1.1 billion in equity, including $800 million through an ATM program, and re-entered the preferred market with a new issuance.

3. Forward Guidance and Outlook

• The company remains optimistic about its diversified housing finance model, expecting continued support from declining macro volatility and additional Fed rate cuts.
• Anticipates strong demand for Agency MBS and a favorable environment for Residential Credit, with plans to increase allocations in these sectors.
• The MSR portfolio is positioned for stable cash flows with limited negative convexity, and the company expects healthy supply to support growth.

4. Bad News, Challenges, or Points of Concern

• Labor Market Weakness: Hiring has slowed, with only 30,000 jobs added per month over the past three months, raising concerns about consumer spending and economic growth.
• Housing Market Pressures: The housing market is experiencing flat year-over-year home price appreciation, with potential for further depreciation due to elevated mortgage rates affecting affordability.
• Interest Rate Volatility: Although realized volatility has been low, there are uncertainties regarding future rate movements, which could impact portfolio performance.
• Competitive Pressures: The company faces challenges from a growing supply of MSR and potential shifts in market dynamics, including the GSEs' participation in the MBS market.

5. Notable Q&A Insights

• Agency Returns: Management indicated that while Agency spreads have tightened, the sector remains attractive due to improved fundamentals and technicals, with expectations of increased demand from banks and REITs.
• MSR Supply: The increase in bulk supply is driven by large participants, with stable pricing observed, suggesting potential for further MSR acquisitions.
• Duration Risk Management: The company maintains a conservative approach to duration risk, preferring to stay close to a zero duration gap amid market uncertainties.
• Lock Volume and Securitization: Despite seasonal pressures, the company expects continued activity in mortgage locks and securitization issuance, particularly in the non-QM sector, which is gaining market share.

This summary encapsulates the key takeaways from Annaly Capital Management's Q3 2025 earnings call, highlighting both the positive performance metrics and the challenges ahead.