NLY — 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 eight consecutive quarters of positive economic returns.
• Earnings Available for Distribution (EAD): EAD per share was $0.73, consistent with Q2, and exceeded the quarterly dividend of $0.70.
• Book Value: Book value per share increased by 4.3% from $18.45 to $19.25.
• Net Interest Margin: The net interest margin (excluding PAA) remained stable at 1.7%, with a net interest spread of 1.5%.
• Leverage: Economic leverage ratio was reported at 5.7x, slightly lower than the previous quarter.

2. Strategic Updates and Business Highlights

• Capital Raise: Annaly raised $1.1 billion in equity during the quarter, including $800 million through its ATM program.
• Agency Portfolio Growth: The Agency portfolio's market value rose to over $87 billion, a 10% increase quarter-over-quarter, driven by attractive relative returns and improved supply-demand dynamics.
• Residential Credit: The portfolio increased to $6.9 billion, with significant contributions from the Onslow Bay platform, which closed eight transactions worth $3.9 billion.
• Mortgage Servicing Rights (MSR): The MSR portfolio grew to $3.5 billion, with stable cash flows and a new partnership with PennyMac Financial Services for subservicing.

3. Forward Guidance and Outlook

• Annaly remains optimistic about the investment strategies for the remainder of the year, citing declining macro volatility and expected Fed rate cuts.
• The company anticipates continued strong demand for Agency MBS and a favorable environment for its Residential Credit business, bolstered by the growing private label market.
• The outlook for MSR remains positive, with expectations of healthy supply and stable cash flows.

4. Challenges and Points of Concern

• Labor Market Weakness: The labor market showed signs of slowing, with hiring rates declining, which could impact consumer spending and overall economic conditions.
• Interest Rate Volatility: Although interest rate volatility has decreased, the potential for future fluctuations remains a concern, particularly regarding the impact on the portfolio's convexity.
• Housing Market Pressures: The housing market is experiencing flat year-over-year home price appreciation, with potential for modest depreciation due to elevated mortgage rates affecting affordability.

5. Notable Q&A Insights

• Agency Returns: Management acknowledged that tighter spreads have impacted Agency returns but remain confident in the attractiveness of the sector due to improved fundamentals and technicals.
• MSR Supply: There has been a notable increase in bulk MSR supply, primarily from large participants, which could provide further acquisition opportunities.
• Duration Management: The company is currently maintaining a close-to-zero duration gap due to market uncertainties and is cautious about taking on additional rate risk.
• Prepayment Sensitivity: The OBX portfolio has shown slower prepayment speeds than anticipated, positively impacting returns, with a focus on maintaining a favorable convexity profile.

Overall, Annaly Capital Management demonstrated strong financial performance in Q3 2025, with strategic growth across its business segments, while navigating challenges in the broader economic landscape.