8-K: Annaly Q4 2025: Strong Economic Return, Portfolio Growth

Annaly Capital Management reports a robust 20.2% economic return for full-year 2025, driven by significant growth in its Agency MBS, Residential Credit, and MSR portfolios.

Summary

• Annaly delivered a 20% economic return for the full year 2025, with earnings available for distribution (EAD) well covering the dividend.
• Earnings available for distribution were $0.74 per average common share for the fourth quarter of 2025.
• Book value per common share stood at $20.21 as of December 31, 2025.
• A quarterly common stock cash dividend of $0.70 per share was declared.
• The economic return for the fourth quarter was 8.6%, contributing to the full-year 20.2% return.
• Economic leverage decreased to 5.6x from 5.7x in the third quarter, indicating a conservative leverage position.
• The company maintained $9.4 billion of total assets available for financing, including $6.1 billion in cash and unencumbered Agency MBS.
• Annaly Residential Credit Group was the largest non-bank issuer and second largest overall issuer of Prime Jumbo and Expanded Credit MBS, pricing 29 securitizations totaling $15.2 billion in 2025.
• Financing capacity for the Residential Credit and MSR businesses increased by $1.2 billion and $600 million, respectively, since the beginning of 2025, reaching a total warehouse capacity of $6.9 billion.
• The average GAAP cost of interest-bearing liabilities decreased by 24 basis points quarter-over-quarter to 4.49%, while the average economic cost decreased by 1 basis point to 3.95%.
• Annaly raised $2.9 billion of accretive capital in 2025, comprising $2.6 billion in common equity through at-the-market sales and $275 million in preferred stock.
• The total portfolio reached $104.7 billion, with the Agency MBS strategy accounting for $92.9 billion (89% of total assets and 62% of dedicated capital).
• The Agency portfolio grew by 6% quarter-over-quarter and 32% year-over-year, with purchases primarily in 5.0% coupon TBA and generic collateral securities.
• The Residential Credit portfolio increased 15% year-over-year to $8.0 billion, driven by record correspondent channel activity, which achieved $23.1 billion in lock volume and $16.5 billion in funded volume in 2025.
• The MSR portfolio increased 15% year-over-year to $3.8 billion in market value.
• GAAP net income per average common share for Q4 2025 was $1.40, up from $1.21 in Q3 2025.
• The hedge portfolio increased to $81 billion from $78 billion in Q3 2025, while the hedge ratio slightly decreased to 90% from 92%.
• Onslow Bay, Annaly's residential credit platform, has priced 104 securitizations totaling $48.2 billion since 2018 and purchased $18 billion of whole loans in 2025.
• Annaly was the second largest buyer of conventional MSR in 2025, onboarding nearly $60 billion of UPB, and its MSR portfolio has the lowest note rate among top 20 Agency MBS servicers at 3.28%.

Sentiment

Score: 8

Explanation: The filing presents very strong financial results, significant portfolio growth across all segments, successful capital raising, and a positive market outlook for fixed income. While some risks like prepayment risk are noted, the overall tone and reported metrics are highly positive.

Positives

• Achieved a strong 20.2% economic return for the full year 2025, demonstrating exceptional performance.
• Earnings available for distribution (EAD) of $0.74 per share for Q4 2025 comfortably covered the $0.70 dividend.
• Book value per common share increased to $20.21, up from $19.25 in the previous quarter.
• Economic leverage was maintained at a conservative 5.6x, a slight reduction from 5.7x in Q3 2025.
• Maintained a robust liquidity position with $9.4 billion of total assets available for financing, including $6.1 billion in cash and unencumbered Agency MBS.
• Annaly Residential Credit Group is recognized as the largest non-bank issuer and the second largest issuer overall of Prime Jumbo and Expanded Credit MBS.
• Successfully executed programmatic securitization strategy, pricing 29 residential whole loan securitizations totaling $15.2 billion in 2025.
• Increased financing capacity for Residential Credit by $1.2 billion and for MSR business by $600 million since the beginning of 2025.
• Reduced average GAAP cost of interest-bearing liabilities by 24 basis points quarter-over-quarter to 4.49%.
• Raised $2.9 billion of accretive capital in 2025, including $2.6 billion of common equity through at-the-market sales.
• The diversified housing finance model achieved exceptional results across all investment strategies in 2025.
• The Agency portfolio grew significantly by 6% quarter-over-quarter and 32% year-over-year.
• The Residential Credit portfolio increased 15% year-over-year, driven by record correspondent channel activity with all-time highs in lock volume ($23.1 billion) and fundings ($16.5 billion) in 2025.
• The MSR portfolio increased 15% year-over-year to $3.8 billion in market value.
• Fixed income markets are benefiting from a resilient U.S. economy, lower rate volatility, and an improved supply/demand outlook.
• The Federal Reserve ended balance sheet runoff and began purchasing Treasury bills, improving funding conditions.
• GSEs announced plans to purchase $200 billion in MBS, which is expected to further improve technicals in the sector.
• Annaly was the second largest buyer of conventional MSR in 2025, onboarding nearly $60 billion of UPB.
• The MSR portfolio exhibits exceptional credit characteristics, including a 757 weighted average FICO and 71% LTV ratio at origination, and the lowest note rate (3.28%) among top 20 Agency MBS servicers.
• GAAP net income per average common share for Q4 2025 significantly increased to $1.40 from $1.21 in Q3 2025.

Negatives

• Prepayment risk has risen due to declining mortgage rates and increased policy risk from potential government actions aimed at affordability.
• The hedge ratio slightly decreased to 90% in Q4 2025 from 92% in Q3 2025.
• The MBS portfolio prepaid modestly faster in the fourth quarter at 9.7 CPR, up from 8.6 CPR in Q3 2025, although this increase was roughly half the pace of the broader market.

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 the company's 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 any contemplated investment opportunities.
• Changes in government regulations or policy affecting the company's 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.
• Increased prepayment risk due to declining mortgage rates.
• Elevated policy risk stemming from potential government actions to address housing affordability.

Future Outlook

The U.S. economy is expected to remain resilient, with the Federal Reserve slowing its pace of easing as policy rates approach neutral levels. Fixed income markets are anticipated to benefit from improved supply/demand dynamics, supported by Fed purchases of Treasuries and GSE purchases of MBS. Strong fixed income fund flows and mortgage REIT equity raises are expected to continue bolstering MBS demand. Non-Agency issuance is projected to reach a post-crisis record of nearly $240 billion in 2026. Bulk MSR supply is also expected to remain robust in 2026 due to ongoing industry consolidation and originator profitability constraints, with pricing remaining firm across both bulk and flow channels. Prepayment risk is noted as a rising concern due to declining mortgage rates and potential government policy actions aimed at housing affordability.

Management Comments

• Annaly delivered a 20% economic return for the year with earnings available for distribution well covering the dividend.
• Annaly maintained its conservative leverage and liquidity position and furthered its programmatic securitization strategy.
• Annaly's diversified housing finance model achieved exceptional results in 2025 across each of its investment strategies.
• Fixed income markets continue to benefit from a resilient economy, lower rate volatility and an improved supply/demand outlook.
• The market expects this to be one of several actions the Administration could take to address affordability.
• Prepayment risk has risen as mortgage rates have declined in addition to increased policy risk through potential government action.
• Continue to build out flow purchase capabilities and are now active across all available GSE exchanges.
• Focused on maintaining prudent leverage with substantial liquidity and a conservative hedge portfolio.
• Best-in-class portfolio analytics and modeling.
• Agile platform that can deploy capital across both the residential whole loan and Non-Agency securities markets.
• Programmatic securitization sponsor of new origination residential whole loans with 104 deals comprising $48.2 billion of issuance since the beginning of 2018.
• MSR portfolio complements Annaly's Agency MBS strategy by offering an attractive yield while providing a hedge to mortgage basis volatility and slower prepayment speeds on discount dollar-priced MBS.
• Annaly serves as a strategic partner to originators given certainty of capital and complementary business strategy.

Industry Context

The U.S. economy is demonstrating resilience with moderating inflation and improved productivity, creating a favorable backdrop for fixed income markets. The Federal Reserve's shift to end balance sheet runoff and begin Treasury bill purchases is enhancing funding market conditions. Government-sponsored enterprises (GSEs) are set to purchase $200 billion in MBS, providing a significant tailwind for the Agency MBS sector and aligning with broader administration efforts to improve housing affordability. The Non-Agency issuance market is experiencing robust growth, with projections for a post-crisis record in 2026, indicating strong demand for residential credit products. Industry consolidation and profitability pressures on originators are expected to sustain a healthy supply of bulk Mortgage Servicing Rights (MSRs) in 2026, with firm pricing across channels.

Comparison to Industry Standards

• Annaly Residential Credit Group is the largest non-bank issuer and the second largest issuer overall of Prime Jumbo and Expanded Credit MBS.
• Onslow Bay, Annaly's residential credit platform, is ranked as the #9 Worldwide Issuer of Asset& Mortgage-Backed Securities.
• Onslow Bay represented nearly 20% of Non-QM issuance in 2025.
• Annaly is a Top 10 Agency MBS servicer and holds the lowest note rate (3.28%) among the top 20 servicers.
• Annaly was the second largest buyer of conventional MSR in 2025, onboarding nearly $60 billion of UPB.
• Onslow Bay is recognized as the #6 Non-Bank Servicer of the Agency MBS Market.

Stakeholder Impact

• Shareholders: Positive impact due to strong economic return (20.2% for 2025), increased book value ($20.21), and a well-covered quarterly dividend ($0.70). Accretive capital raise also supports growth.
• Customers (Originators/Borrowers): Annaly serves as a strategic partner to originators, providing certainty of capital and complementary business strategy, especially in the MSR market. The correspondent channel for residential credit saw record activity.
• Creditors/Lenders: Conservative economic leverage (5.6x) and significant liquidity ($9.4 billion available for financing) indicate a strong financial position, reducing credit risk.
• Employees: Implied positive impact from strong company performance and growth across diversified platforms.

Next Steps

• Continue to build out flow purchase capabilities and be active across all available GSE exchanges.
• Maintain focus on a disciplined credit framework for the Residential Credit portfolio.
• Actively manage the Agency portfolio with a bias towards current coupon securities.
• Monitor prepayment risk and policy risk related to potential government actions on housing affordability.
• Anticipate strong bulk MSR volumes to continue in 2026 due to industry consolidation and originator profitability constraints.
• Expect 2026 Non-Agency issuance to reach a post-crisis period record at nearly $240 billion.

Key Dates

Recommendation

The filing demonstrates exceptional financial performance for Annaly Capital Management in Q4 2025 and the full year, with a 20.2% economic return and a significant increase in book value per share. The company successfully grew all its core investment strategies (Agency MBS, Residential Credit, MSR) and maintained a conservative leverage profile with substantial liquidity. Strategic initiatives, such as programmatic securitization and accretive capital raises, are yielding strong results. The positive macro-economic backdrop, including declining rate volatility, improved funding conditions, and increased demand for MBS, further supports a favorable outlook. Annaly's leadership positions in various market segments (e.g., largest non-bank issuer of Prime Jumbo/Expanded Credit MBS, second largest MSR buyer) underscore its competitive strength and ability to generate attractive returns. The well-covered dividend and strong GAAP net income per share reinforce the positive investment thesis.

Keywords

Annaly Capital Management, NLY, REIT, Mortgage REIT, Agency MBS, Residential Credit, MSR, Mortgage Servicing Rights, Securitization, Non-QM, Prime Jumbo, Economic Return, Dividend, Book Value, Leverage, Liquidity, Capital Raise, Financial Performance, Q4 2025, Investor Presentation, Fixed Income, Interest Rates, Prepayment Risk, Corporate Governance