10-K: Annaly Capital Management Reports Strong 2025 Performance

Annaly Capital Management delivered a robust 20.2% economic return in 2025, driven by strategic capital allocation and favorable market conditions, while maintaining conservative leverage.

Summary

• Net income attributable to Annaly significantly increased to $2.03 billion in 2025, up from $1.00 billion in 2024.
• Basic earnings per share (EPS) rose to $2.92 in 2025, compared to $1.62 in 2024.
• The company achieved a strong 20.2% aggregate economic return for the year, which included a 5.5% book value gain.
• Total assets expanded to $135.6 billion at December 31, 2025, from $103.6 billion at December 31, 2024.
• The investment portfolio grew to $132.05 billion in 2025 from $98.18 billion in 2024.
• Economic leverage remained conservative at 5.6:1 at year-end 2025, a slight increase from 5.5:1 in 2024, and well below the target of 10:1.
• The Agency MBS portfolio increased by $22.3 billion year-over-year, reaching $92.9 billion.
• The Residential Credit portfolio grew by $1.0 billion in market value.
• The Mortgage Servicing Rights (MSR) business expanded by 15% year-over-year to $3.8 billion in market value.
• Onslow Bay Financial LLC, a wholly-owned subsidiary, priced 29 securitizations totaling $15.2 billion and settled $18 billion of whole loans, marking a 38% increase in both loan acquisitions and securitization volumes year-over-year.
• The company successfully raised $2.6 billion in common equity capital through its at-the-market sales program and issued Series J preferred stock.
• The Federal Reserve cut the Federal Funds Target Rate by 75 basis points in the second half of 2025, contributing to a 7.3% total return in the Bloomberg Aggregate U.S. Bond Market Index for the year.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this as a very positive report, reflecting strong financial performance, strategic growth across key investment segments, and effective capital management in a dynamic market environment. The significant increase in net income and economic return, coupled with successful capital raises and portfolio expansion, indicates robust operational execution.

Positives

• Achieved a strong 20.2% aggregate economic return for 2025, including a 5.5% book value gain.
• Net income attributable to Annaly increased significantly to $2.03 billion in 2025 from $1.00 billion in 2024.
• Basic EPS rose to $2.92 in 2025 from $1.62 in 2024.
• Total assets grew substantially to $135.6 billion in 2025 from $103.6 billion in 2024.
• Successfully raised $2.6 billion in common equity and issued Series J preferred stock, demonstrating strong investor demand.
• Agency MBS portfolio saw significant growth, increasing by $22.3 billion to $92.9 billion.
• Residential Credit portfolio grew by $1.0 billion in market value.
• MSR business expanded by 15% to $3.8 billion in market value, becoming the second-largest buyer of conventional MSR in 2025.
• Onslow Bay Financial LLC priced 29 securitizations for $15.2 billion and settled $18 billion of whole loans, a 38% increase year-over-year, cementing its position as the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS.
• Underlying credit quality of Onslow Bay's loan production remained strong with an aggregate borrowers original FICO score of 761 and original loan-to-value ratio of 67%.
• Fixed income markets delivered strong returns, with the Bloomberg Aggregate U.S. Bond Market Index registering a 7.3% total return in 2025.
• Benefited from declining interest rate volatility and a tightening mortgage basis (spread between 30-year Agency MBS coupon and 10-year U.S. Treasury rate, ending 39 bps tighter).
• The Fed's monetary policy easing (75 bps rate cuts) and balance sheet purchases ($40 billion per month in Treasury bills starting December 2025) supported market conditions.
• The One Big Beautiful Bill Act (OBBB) permanently extended the 20% deduction for qualified REIT dividends and increased the TRS asset limit to 25% (from 20%) for taxable years beginning after December 31, 2025.
• Maintained a conservative economic leverage ratio of 5.6:1, well below the target of 10:1.
• Strong fundamental performance within the MSR portfolio, benefiting from declining subservicing costs and durable cash flows.

Negatives

• Net gains (losses) on derivatives shifted from a gain of $2.27 billion in 2024 to a loss of ($1.21) billion in 2025.
• Unrealized gains (losses) on interest rate swaps moved from a gain of $1.00 billion in 2024 to a loss of ($1.36) billion in 2025.
• The net interest component of interest rate swaps decreased to $716.5 million in 2025 from $1.20 billion in 2024.
• Net gains (losses) on other derivatives shifted from a gain of $124.9 million in 2024 to a loss of ($490.4) million in 2025, primarily due to unfavorable changes in futures contracts.
• General and administrative expenses increased by $28.3 million to $199.6 million in 2025.
• The 30-year Treasury bond saw a modest rise in yields, contrasting with declines in shorter-term Treasury yields.
• U.S. employment growth slowed meaningfully in 2025, with the unemployment rate rising slightly to 4.4%.
• The housing market remained relatively weak, with existing home sales essentially flat compared to 2024.
• National home prices were little changed (0.10% year-over-year according to Zillow), with regional declines in some southern and western states.
• Core goods inflation increased from -0.5% year-over-year in December 2024 to 1.4% year-over-year in December 2025, driven by tariffs.

Risks

• The use of leverage increases the risk of substantial losses, margin calls, and forced asset sales under adverse market conditions.
• Failure to procure or renew funding on favorable terms, or at all, could adversely affect results and financial condition.
• Ineffective management of liquidity levels could lead to an inability to meet financial obligations.
• Volatile market conditions for assets can result in contraction in liquidity and related financing.
• An increase in interest payments on borrowings relative to interest earned on assets adversely affects profitability, as do differences in timing of interest rate adjustments.
• It may be uneconomical to roll TBA dollar roll transactions or the company may be unable to meet margin calls on TBA contracts.
• The use of derivatives exposes the company to counterparty and liquidity risks, including potential late or unrecoverable payments, difficulty accessing collateral, and loss of hedging effectiveness.
• Securitizations expose the company to additional risks, including the magnification of losses due to retained subordinate interests and the inability to profitably execute future securitization transactions.
• The company's charter prohibits ownership of over 9.8% of common or preferred stock, potentially preventing investors from receiving a control premium.
• Provisions contained in Maryland law and the company's charter/bylaws have anti-takeover effects.
• No minimum dividend payment level has been established, and the ability to pay dividends may be adversely affected.
• Reported GAAP financial results may not accurately indicate future taxable income and dividend distributions due to accounting differences.
• Accounting rules for valuations of investments, mortgage loan sales, and securitizations are highly complex and involve significant judgment and assumptions, potentially leading to financial statement fluctuations or delays.
• Any new laws, regulations, or administrative actions modifying the relationship between Fannie Mae, Freddie Mac, and the federal government could affect the business model or operations.
• The company is exposed to potential civil and administrative liability under the Truth in Lending Act and other consumer protection laws related to whole mortgage loans and MSR.
• Residential Credit and MSR businesses are subject to complex and evolving legal and regulatory requirements, including oversight and responsibility for third-party service provider actions.
• Evolving environmental, social, and governance-related disclosure requirements and climate-related risks could adversely affect the business and results of operations.
• Complex and evolving laws, regulations, rules, standards, and contractual obligations regarding data privacy and security increase the cost of doing business, compliance risks, and potential liability.
• The company is subject to risks and liabilities in connection with sponsoring, investing in, and managing new funds and other investment accounts, including potential regulatory risks.
• Loss of the Investment Company Act exemption from registration would adversely affect the company.
• Failure to maintain REIT qualification would have adverse tax consequences.
• REIT distribution requirements limit flexibility and could affect the ability to execute the business plan.
• Distributions to tax-exempt investors may be classified as unrelated business taxable income.
• Flexibility to pay dividends in stock may require stockholders to sell shares to pay taxes.
• Taxable REIT Subsidiaries (TRSs) cannot constitute more than 25% of total assets (20% for taxable years before January 1, 2026).
• TRSs are subject to tax at regular corporate rates, are not required to distribute dividends, and the amount of dividends a TRS can pay to its parent REIT may be limited by REIT gross income tests.
• If transactions between a REIT and a TRS are not on arm's-length terms, the REIT may be subject to a penalty tax.
• Even if the company remains qualified as a REIT, it may face other tax liabilities that reduce cash flow.
• Complying with REIT requirements may cause the company to forgo otherwise attractive opportunities and may force it to liquidate otherwise attractive investments.
• Liquidation of assets may jeopardize REIT qualification or create additional tax liability.
• The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect the ability to remain qualified as a REIT.
• Complying with REIT requirements may limit the ability to hedge effectively and may cause tax liabilities.
• Qualifying as a REIT involves highly technical and complex provisions of the Code.
• The tax on prohibited transactions limits the ability to engage in certain transactions.
• Certain financing activities may subject the company to U.S. federal income tax and could have negative tax consequences for stockholders.
• Uncertainty exists with respect to the treatment of TBAs for purposes of the REIT asset and income tests.
• Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations.
• New legislation or administrative or judicial action, potentially with retroactive effect, could make it more difficult or impossible to remain qualified as a REIT.
• The soundness of counterparties and other financial institutions affects the company.
• The company is subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties.
• Rights under repurchase and derivative agreements are subject to the effects of bankruptcy laws in the event of bankruptcy or insolvency.
• The company may experience declines in the market value of its assets.
• Investments in MSR expose the company to additional risks, including illiquidity, subordination of rights, sensitivity to prepayment rates, and servicer performance.
• A prolonged economic slowdown or declining real estate values could impair the assets owned.
• An increase in interest rates adversely affects the market value of interest-earning assets and, therefore, book value.
• Actions by the Federal Reserve may affect the price and returns of assets.
• Investments in securities are subject to mortgage credit risk, particularly CRT and non-Agency securities.
• Investments in real estate and other securities are subject to changes in credit spreads and available market liquidity.
• Geographic concentration exposes investors to greater risk of default and loss.
• Inadequate property insurance coverage impacts operating results.
• Assets may become non-performing or sub-performing in the future, requiring costly workouts.
• The company may be required to repurchase residential mortgage loans or indemnify investors if representations and warranties are breached.
• Due diligence of potential assets by the company and third-party service providers may not reveal all weaknesses.
• When foreclosing on an asset, the company may come to own the property securing the loan, incurring different risks.
• Proposals to acquire mortgage loans by eminent domain may adversely affect the value of assets.
• Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior securities.
• Hedging strategies may be costly and may not hedge risks as intended.
• The company is subject to risks of loss from weather conditions, man-made or natural disasters, and the direct and indirect effects of climate change.
• Reliance on inaccurate models or the data used by models exposes the company to risk.
• The company is highly dependent on information systems and networks, many of which are operated by third parties.
• Cyberattacks or other information security breaches of the company's, service providers', or counterparties' systems or networks affect business, reputation, and financial condition.
• The utilization of artificial intelligence could expose the company to liability and affect its business.
• The company depends on third-party service providers, including mortgage loan servicers and sub-servicers, for a variety of services.
• Investments in residential whole loans subject the company to servicing-related risks.
• The performance of loans underlying MSR related assets is affected by the performance of the related mortgage servicer.
• The company is subject to prepayment rate risk.
• The company is subject to reinvestment risk.
• Competition may affect the availability and pricing of target assets.
• Entering into new lines of business, acquiring other companies, or engaging in other strategic initiatives may result in additional risks and uncertainties.
• Some investments, including those related to non-prime loans, involve credit risk.
• Any inability to attract, motivate, and retain qualified talent, including key personnel, affects the company.
• The market price and trading volume of common stock may be volatile, and issuances of large amounts of shares could cause the market price to decline.
• The company may change its policies without stockholder approval.

Future Outlook

The company anticipates a more gradual approach from the Federal Reserve in lowering interest rates, contingent on additional economic data. It expects the pace of MSR activity to continue in 2026, driven by rising origination volumes and compressed gain-on-sale margins, and plans to opportunistically purchase current coupon MSR. The Trump Administration's directive for GSEs to purchase $200 billion in Agency MBS is expected to support housing affordability in early 2026. The One Big Beautiful Bill Act is projected to boost business sentiment and support investment growth and consumption, primarily through higher tax refunds in the first part of 2026.

Management Comments

• Our company is comprised of three investment groups, each of which has multiple investment options to capitalize on attractive relative returns and market opportunities. In aggregate, we maintain numerous investment options across our investment groups. Our shared capital model drives our capital allocation strategy allowing us to rotate our investments based on relative value while also managing risk.
• We believe that our business objectives are supported by our size and conservative financial posture relative to the industry, the extensive experience of our employees, the diversity of our investment strategy, a comprehensive risk management approach, the availability and diversification of financing sources and our operational efficiencies.
• We generally expect to maintain an economic leverage ratio no greater than 10:1 considerate of our overall capital allocation framework.
• Since the financial crisis beginning in 2007, we have maintained an economic leverage ratio below 8:1 and since the Coronavirus Disease 2019 (COVID-19) pandemic began, an economic leverage ratio closer to or below 7:1.
• We believe that future interest rates and mortgage prepayment rates are very difficult to predict. Therefore, we seek to acquire assets which we believe will provide attractive returns over a broad range of interest rate and prepayment scenarios.
• Our capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns for our stockholders while maintaining appropriate liquidity to support our business and meet our financial obligations under periods of market stress.
• The market and economic environment were beneficial to Annaly’s portfolio and strategy, helping the company deliver a 20.2% aggregate economic return for the year, including a 5.5% book value gain.
• The strong economic return was achieved while maintaining conservative leverage over the course of the year, with economic leverage increasing modestly to 5.6x on December 31, 2025 from 5.5x a year earlier.
• Given strong investor demand for mortgage REITs, Annaly was able to raise $2.6 billion in common equity capital through its at-the-market sales program at accretive levels and issued a Series J preferred stock in what marked the first sizeable non-rated preferred stock issuance in several years.
• Our Agency MBS investment activity focused on deploying capital raised primarily in higher coupon specified pool collateral, which offered attractive prospective returns and protection against potential higher prepayment speeds.
• Annaly’s wholly-owned subsidiary Onslow Bay priced 29 securitizations for an aggregate $15.2 billion, and settled $18 billion of whole loans, representing a 38% increase in both loan acquisitions and securitization volumes year-over-year.
• These securitizations further cemented Onslow Bay’s position as the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS.
• Bulk supply remained ample in 2025, and we expect the pace of activity to continue in 2026 due to rising origination volumes coupled with compressed gain on sale margins necessitating MSR sales from mortgage originators.
• Our MSR valuation multiple was relatively rangebound over the course of the year, increasing marginally during the fourth quarter given the steeper yield curve, modest spread tightening and lower volatility.
• Fundamental performance within the MSR portfolio continues to be strong – benefitting from declining subservicing costs driven by industry consolidation and ongoing technological innovation – and cash flows remain durable.
• With a weighted average note rate of 3.28%, our portfolio is still 250 bps out of the money to refinance.
• Our employees are the driving force behind Annaly’s success, and we are committed to promoting their well-being, engagement, and professional development. Our culture is focused on fostering an inclusive, empowering, and rewarding work environment for all employees.
• With 57% of our Operating Committee and 60% of our overall population as of December 31, 2025 identifying as either female and/or racially/ethnically diverse, we are driven by the belief that having a diverse group of employees supports our continued long-term success.

Industry Context

StockSavvy.ai notes that Annaly's strong economic return and increased asset base in 2025 align with a generally favorable fixed income market, which saw the Bloomberg Aggregate U.S. Bond Market Index register a 7.3% total return. The company's ability to raise significant capital and expand its Agency MBS, Residential Credit, and MSR portfolios demonstrates effective navigation of a market characterized by Fed rate cuts and declining interest rate volatility. The growth in securitization volumes for residential whole loans, with Onslow Bay cementing its position as a leading non-bank issuer, reflects a broader trend of increasing private market activity in mortgage finance, especially as traditional bank lending may face evolving regulatory pressures. The MSR market's ample bulk supply and expected continued activity in 2026, driven by originator sales due to compressed gain-on-sale margins, indicates a dynamic environment where specialized players like Annaly can gain market share.

Comparison to Industry Standards

• Annaly's 20.2% aggregate economic return for 2025, including a 5.5% book value gain, significantly outperforms the Bloomberg Aggregate U.S. Bond Market Index's 7.3% total return for the same period, indicating strong relative performance in the broader fixed-income space.
• The company's economic leverage ratio of 5.6:1 at December 31, 2025, remains well below its stated target of no greater than 10:1 and is consistent with its conservative posture (closer to or below 7:1 since COVID-19), suggesting a more cautious approach compared to some peers who might operate at higher leverage levels.
• Onslow Bay Financial LLC's achievement of pricing 29 securitizations for $15.2 billion and settling $18 billion of whole loans in 2025, representing a 38% year-over-year increase, solidifies its position as the largest non-bank issuer of Prime Jumbo and Expanded Credit MBS, a notable competitive advantage in the residential credit market.
• Annaly's MSR Group becoming the second-largest buyer of conventional MSR in 2025, onboarding nearly $60 billion in unpaid principal balance, and ranking as the sixth-largest non-bank Agency servicer, demonstrates significant market penetration and scale within the MSR sector, potentially outpacing many smaller, less diversified mortgage REITs in this specific asset class.

Management Changes

Corporate Governance

Legal Proceedings

• As of December 31, 2025, the company was not party to any pending material legal proceedings.
• The company is not aware of any contemplated material proceedings by governmental authorities.

Stakeholder Impact

• **Shareholders**: Experienced positive impact from strong economic return (20.2%), increased net income ($2.03 billion), higher EPS ($2.92), and increased common stock book value ($20.21). Potential for continued dividends, though no minimum level is guaranteed. Dilution risk from common stock offerings.
• **Employees**: Benefited from the company's commitment to well-being, engagement, and professional development, including a diverse and inclusive culture, competitive compensation, benefits, and learning opportunities.
• **Customers (Borrowers)**: Impacted by the company's investment in residential mortgage loans and MSR, including servicing practices (though sub-servicers are used). Potential for loan modifications and forbearance plans in adverse conditions.
• **Lenders/Counterparties**: Continued engagement through repurchase agreements and derivative transactions. The company's monitoring of counterparty soundness is critical for these relationships.
• **Communities**: Supported through corporate philanthropy, employee volunteerism, and charity match programs, focusing on housing stability and professional development for underrepresented populations.

Next Steps

• Continue to monitor economic data for further Federal Reserve rate decisions.
• Opportunistically purchase current coupon MSR through expanded flow purchase capabilities.
• Monitor the impact of the Trump Administration's directive to Government-Sponsored Enterprises (GSEs) to buy $200 billion in Agency MBS on housing affordability.
• Monitor the impact of the One Big Beautiful Bill Act (OBBB) on business sentiment, investment growth, and consumption, particularly higher tax refunds in early 2026.
• Continue to manage operational risk through processes, policies, and procedures covering business continuity, personal conduct, cybersecurity, and vendor management.
• Conduct annual disaster recovery exercises and periodic operational risk tabletop exercises.
• Continue to evolve cyber defenses to contend with changing risks and comply with cybersecurity laws and regulations.
• Continue to assess business, risk management, and compliance practices to conform to developments in the regulatory environment.
• Maintain REIT qualification and Investment Company Act exemption.
• Continue to make distributions to stockholders to comply with REIT requirements.
• Continue to attract, develop, and retain diverse talent.

Key Dates

Recommendation

Annaly Capital Management's 2025 performance, marked by a 20.2% economic return and substantial growth in net income and EPS, demonstrates robust operational execution and effective capital allocation. The successful $2.6 billion equity raise and expansion across its Agency MBS, Residential Credit, and MSR segments, coupled with a conservative leverage profile, position the company favorably. While derivative losses were a headwind, the underlying business strength and positive market tailwinds in fixed income suggest continued strong performance. The company's strategic partnerships and leadership in non-bank securitization further enhance its competitive standing.

Keywords

REIT, Mortgage REIT, Agency MBS, Residential Credit, Mortgage Servicing Rights, Fixed-to-Floating Preferred Stock, Capital Management, Securitization, Financial Services, Investment Management, NLY, Annaly Capital Management