8-K: Annaly Capital Reports Strong Q3 2025 Financial Results

Annaly Capital Management, Inc. announced robust financial results for the third quarter of 2025, driven by strong performance across all investment strategies and accretive capital deployment.

Summary

• GAAP net income was $1.21 per average common share for the quarter ended September 30, 2025.
• Earnings available for distribution ("EAD") were $0.73 per average common share for the quarter.
• An economic return of 8.1% was generated for the third quarter, with an 11.5% economic return year-to-date through the third quarter.
• Book value per common share increased to $19.25 as of September 30, 2025.
• Total portfolio reached $97.8 billion, including an $87.3 billion highly liquid Agency portfolio which increased by 10%.
• The Residential Credit portfolio increased 4% to $6.9 billion, driven by record correspondent channel activity and nearly $4 billion in quarterly securitization issuance.
• The MSR portfolio increased 6% to $3.5 billion in market value.
• Raised $1.1 billion of accretive capital during the quarter, comprising $823 million from common equity sales and $275 million from the issuance of 8.875% Series J fixed-rate cumulative redeemable preferred stock.
• A common stock cash dividend of $0.70 per share was declared for the third quarter.

Sentiment

Score: 8

Explanation: The filing reports significantly improved GAAP net income, strong economic returns, increased book value, and EAD exceeding the dividend. Strategic growth in key portfolios and successful capital raises contribute to a very positive outlook, despite minor increases in economic cost of liabilities and slight dips in net interest margin.

Positives

• GAAP net income of $1.21 per average common share significantly exceeded $0.03 in Q2 2025 and $0.05 in Q3 2024.
• Generated a strong economic return of 8.1% for Q3 2025 and 11.5% year-to-date.
• Book value per common share increased to $19.25 from $18.45 in the prior quarter.
• Earnings available for distribution (EAD) of $0.73 per average common share exceeded the declared dividend of $0.70 per share.
• The Agency portfolio increased by 10% to $87.3 billion, benefiting from meaningful spread tightening and declining volatility.
• The Residential Credit portfolio grew 4% to $6.9 billion, fueled by record loan lock, funding, and securitization volumes.
• The MSR portfolio increased 6% to $3.5 billion in market value, with an expanded network of subservicing and recapture partners.
• Successfully raised $1.1 billion of accretive capital, enhancing investment capacity.
• Average GAAP cost of interest-bearing liabilities decreased 3 basis points quarter-over-quarter to 4.73%.
• Net interest spread (excluding PAA) improved to 1.50% from 1.47% in the prior quarter.
• Published the sixth Corporate Responsibility Report, highlighting efforts in supporting American homeownership and broader corporate responsibility.

Negatives

• Average economic cost of interest-bearing liabilities increased 2 basis points quarter-over-quarter to 3.96%.
• GAAP net interest margin decreased to 0.97% from 1.04% in the prior quarter.
• Net interest margin (excluding PAA) slightly decreased to 1.70% from 1.71% in the prior quarter.

Risks

• Changes in interest rates and the yield curve.
• Changes in prepayment rates on mortgage-backed securities.
• Availability of mortgage-backed securities ("MBS") and other securities for purchase.
• Availability and terms of financing.
• Changes in the market value of assets.
• Changes in business conditions and the general economy.
• Ability to grow the residential credit and mortgage servicing rights businesses.
• Credit risks related to investments in credit risk transfer securities, residential mortgage-backed securities, and related residential mortgage credit assets.
• Risks related to investments in mortgage servicing rights.
• Ability to consummate contemplated investment opportunities.
• Changes in government regulations or policy affecting the business.
• Ability to maintain qualification as a REIT for U.S. federal income tax purposes.
• Ability to maintain exemption from registration under the Investment Company Act of 1940.
• Operational risks or risk management failures by the company or critical third parties, including cybersecurity incidents.

Future Outlook

Management maintains an optimistic outlook, anticipating continued decline in volatility, potential Federal Reserve rate cuts, and robust fixed income flows. The company plans to prudently grow its portfolio and broaden investment and operational capabilities across housing finance, while remaining cognizant of risks on the horizon.

Management Comments

• "We were pleased to generate an 8.1% economic return during the third quarter and 11.5% economic return for the first nine months of the year as each of our investment strategies drove strong performance and contributed to earnings that again exceeded our dividend." David Finkelstein, Chief Executive Officer & Co-Chief Investment Officer.
• "We deployed accretive capital raised during the quarter across our three businesses, with the majority going to our Agency MBS portfolio."
• "Our Agency portfolio benefitted from meaningful spread tightening during the quarter driven by increased MBS demand and declining volatility."
• "Growth in our Residential Credit portfolio was fueled by record loan lock, funding and securitization volumes as our whole loan correspondent channel continued its momentum."
• "Meanwhile, we expanded our network of subservicing and recapture partners in our MSR business and further grew our underlying portfolio."
• "Going forward, 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, though we are cognizant of risks on the horizon."
• "With each of our investment strategies providing attractive risk-adjusted returns, we will look to prudently grow our portfolio while continuing to broaden our investment and operational capabilities across housing finance."

Industry Context

Annaly's strong performance in Q3 2025, particularly in its Agency MBS portfolio, aligns with broader market trends of declining volatility and increased MBS demand. The company's record securitization issuance in Residential Credit and expansion in MSRs demonstrate its ability to capitalize on favorable housing finance conditions, positioning it as a leading non-bank issuer in Prime Jumbo and Expanded Credit MBS. The optimistic outlook regarding potential Federal Reserve rate cuts suggests a positive environment for mortgage REITs, though the company acknowledges inherent market risks.

Comparison to Industry Standards

• Annaly remained the largest non-bank issuer and the second largest issuer overall of Prime Jumbo and Expanded Credit MBS year-to-date (2024 to Q3 2025), according to Inside Nonconforming Markets. This indicates a strong competitive position within its specific market segments.

Corporate Governance

Stakeholder Impact

• Shareholders: Positive impact due to strong economic returns, increased book value, GAAP net income, and EAD exceeding the dividend. The capital raise through common and preferred stock indicates continued growth strategy.
• Customers (homeowners): The company's focus on supporting American homeownership and growth in Residential Credit and MSR portfolios suggests continued availability of mortgage finance products.
• Creditors/Lenders: Stable GAAP leverage and a slight decrease in economic leverage, along with expanded credit facilities, indicate a healthy financial position for debt holders.

Next Steps

• Prudently grow the portfolio.
• Continue to broaden investment and operational capabilities across housing finance.
• Hold Q3 2025 earnings conference call on October 23, 2025.

Key Dates

Recommendation

The company delivered exceptionally strong Q3 2025 results, with GAAP net income per share significantly exceeding prior periods and EAD comfortably covering the dividend. The 8.1% economic return for the quarter and 11.5% year-to-date demonstrate robust operational performance across all investment strategies. The increase in book value per common share to $19.25 is a key positive indicator for long-term shareholder value. Strategic growth in the Agency, Residential Credit, and MSR portfolios, coupled with successful accretive capital raises, positions the company well for continued expansion. Management's optimistic outlook, anticipating declining volatility and potential Fed rate cuts, further supports a positive trajectory. The company's strong market position as a leading issuer in Prime Jumbo and Expanded Credit MBS reinforces its competitive advantage. Given these strong fundamentals and positive forward guidance, a 'strong buy' recommendation is warranted for investors seeking exposure to the mortgage REIT sector.

Keywords

Annaly Capital Management, NLY, Mortgage REIT, Financial Results, Q3 2025, Earnings, Agency MBS, Residential Credit, MSR, Book Value, Dividend, Economic Return, Capital Raise, Preferred Stock, REIT