Annaly Capital Management, Inc. (NLY) Q4 2025 Earnings Call Transcript
Access earnings results, analyst expectations, report, slides, earnings call, and transcript.
Overview
The earnings call reveals strong financial performance with increased book value and net interest margins, alongside strategic growth in residential credit and MSR portfolios. Management's confidence in maintaining dividends and the potential for mid-teens returns further supports a positive outlook. However, some uncertainties in the macro environment and the unclear response on GSE portfolio caps suggest caution. Overall, the positive financial metrics and strategic positioning outweigh these concerns, indicating a likely positive stock price movement.
Key Financial Performance
Economic Return (Q4 2025) 8.6%, with all three businesses contributing solid returns. This was supported by a constructive macro environment, including lower volatility and a steeper yield curve.
Economic Return (Full Year 2025) 20%, underscoring the strength and resilience of diversified housing finance strategies.
Total Shareholder Return (Full Year 2025) 40%, reflecting strong performance across diversified housing finance strategies.
Earnings Available for Distribution (Q4 2025) $0.74 per share, a marginal increase, exceeding the dividend. This was driven by a 30 basis point improvement in average repo rate and higher average investment balances.
Capital Raised (2025) $2.9 billion, including $560 million of common equity in Q4 and Series J preferred stock issuance. This enabled a 30% portfolio growth for the year.
Agency Portfolio (End of 2025) $93 billion in market value, an increase of $6 billion in Q4 and $22 billion for the year. Growth was driven by lower volatility, a steeper yield curve, and supportive supply-demand dynamics.
Residential Credit Portfolio (End of Q4 2025) $8 billion in market value, up $1.1 billion quarter-over-quarter. Growth was supported by record lock volume, fundings, and securitization issuance.
MSR Portfolio (End of Q4 2025) $3.8 billion in market value, a $280 million increase quarter-over-quarter and a 15% increase year-over-year. Growth was driven by bulk purchases and flow channels.
Book Value Per Share (End of Q4 2025) $20.21, a 5% increase from the prior quarter's $19.25. This was driven by strong investment gains and spread tightening.
Net Interest Spread (Full Year 2025) 1.4%, an 18 basis point improvement year-over-year, reflecting disciplined investing and funding strategies.
Net Interest Margin (Full Year 2025) 1.7%, a 13 basis point improvement year-over-year, demonstrating effective investment and funding strategies.
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Operating Highlights
Economic Return: Generated an economic return of 8.6% for Q4 2025 and over 20% for the full year 2025.
Portfolio Growth: Grew portfolio by 30% in 2025, with each of the three strategies demonstrating double-digit growth.
Agency Portfolio: Increased to $93 billion in market value, representing 62% of the firm's capital. Benefited from lower volatility and a steeper yield curve.
Residential Credit Portfolio: Ended Q4 at $8 billion in market value, up $1.1 billion quarter-over-quarter. Achieved record lock volume, fundings, and securitization issuance in Q4.
MSR Portfolio: Ended Q4 at $3.8 billion in market value, a 15% increase year-over-year. Committed to purchase $22 billion in principal balance during Q4.
Capital Raising: Raised $560 million of common equity in Q4 2025, totaling $2.9 billion for the year.
Leverage Profile: Maintained a conservative leverage profile with economic leverage decreasing to 5.6x in Q4.
Liquidity: Ended Q4 with $7.8 billion in unencumbered assets, including $6.1 billion in cash and unencumbered agency MBS.
Diversified Housing Finance Strategies: Focused on diversified housing finance strategies, with plans to allocate additional capital to non-Agency strategies.
Market Leadership: Positioned as the largest nonbank issuer in the residential credit sector and the second-largest buyer of conventional MSR in 2025.
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Risk or Challenges
Labor Market Conditions: The labor market remains soft with slowed hiring and limited layoffs, which could impact economic stability and consumer spending.
Interest Rate Volatility: The company's performance is tied to interest rate movements, and while volatility has decreased, future rate cuts and their pace remain uncertain, posing a risk to financial planning.
Economic Leverage: Although economic leverage decreased modestly to 5.6x, maintaining a conservative leverage profile is critical to managing financial risks.
Supply and Demand in MBS Market: The MBS market is influenced by supply and demand dynamics, and while currently favorable, any shifts could impact returns.
Credit Spread Tightening: Tightening credit spreads in the non-agency market could affect profitability and investment returns.
MSR Portfolio Risks: The MSR portfolio's performance depends on stable cash flows and low delinquencies, which could be impacted by economic downturns or changes in borrower behavior.
Liquidity and Financing: The company relies on significant liquidity and financing capacity, and any disruptions in these areas could affect operations and growth.
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Guidance & Outlook
Outlook for 2026: The company anticipates continued strong performance across its diversified housing finance strategies. Agency spread tightening is expected to support low to mid-teen prospective returns. Non-Agency market growth is projected, with Onslow Bay positioned to maintain a healthy pace of loan acquisitions and securitization issuance. The MSR portfolio is expected to grow, leveraging its stable cash flow and exceptional credit profile. The company plans to allocate additional capital to non-Agency strategies while maintaining Agency as the portfolio anchor. The diversified model is expected to perform well across different rate cycles and market environments.
Market Trends and Monetary Policy: The market outlook includes nearly two additional rate cuts in 2026, contingent on labor market developments, inflation stability, and FOMC composition. A steeper yield curve and reduced volatility are expected to lower MBS hedging costs, supporting returns.
Non-Agency Market Growth: The non-Agency market is expected to experience the highest growth in securitization issuance since 2007. Annaly's Onslow Bay channel is positioned to benefit from this growth, with expectations of elevated volumes due to declining cost of funds and stable capital markets.
MSR Portfolio Expansion: The MSR portfolio is projected to grow in 2026, with continued purchases across GSE platforms and a focus on expanding the flow business. The company expects durable cash flows and stable performance from the MSR portfolio, supported by its credit profile and subservicing relationships.
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Shareholder Return Plan
Dividend Performance: Earnings available for distribution rose marginally to $0.74, exceeding the dividend of $0.70 per share for the quarter. This marks a continuation of the company's ability to outearn its dividend.
Economic Return: The company achieved an economic return of 8.6% in Q4 2025 and 20.2% for the full year, which includes the impact of dividends.
Share Repurchase or Issuance: The company raised $560 million of common equity through its ATM program in Q4 2025, bringing the total equity raised in 2025 to $2.9 billion, including a Series J preferred stock issuance.
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Key Q&A
Q:Could you give us an update on mark-to-market book values?
A:As of Tuesday, the book was up 4%, inclusive of the dividend accrual, and 3% netting that out. After yesterday, it was a fraction of 1% higher.
Q:Can you talk about the portfolio returns or the blended ROEs on the portfolio given the spread tightening since quarter end? Also, can you translate that into a comfort level with your dividend in 2026?
A:The company can still achieve upwards of mid-teens returns. The Agency market has seen tightening, but returns are achievable versus swaps. The swaps market is durable as a hedge. The resi market and whole loan channel to securitization are providing returns, while MSR is lighter but offers hedging and diversification benefits. The balance sheet supports the dividend yield, and the dividend is considered safe.
Q:Could you expand on your comment about being opportunistic for coupon MSR and how you're expecting that market to trade as prepays increase?
A:The company has set up infrastructure to be active in the MSR space through Fannie and Freddie MSR exchange platforms, with close to 100 counterparties. New production pricing doesn't move much with interest rates. The company is comfortable with recapture partners and expects origination to pick up with a 6% mortgage rate, leading to more production coupon MSR hitting the market.
Q:How much would you need to see valuations change for it to hit return hurdles in terms of current coupon production?
A:Originators prefer to sell lower note rate MSRs, which are more valuable to the company. The flow of these MSRs is expected to dry up, shifting relative value to current coupon MSRs. The company is well set up to buy and manage these assets.
Q:Can you weigh in on the potential impact of a big G-fee cut on the prepayment environment?
A:A G-fee cut on purchased loans is appropriate, but a broad G-fee cut impacting existing loans could damage the MBS market and widen spreads. A targeted approach, such as a year-long holiday on purchased loans, could help first-time homeowners without negatively impacting GSE ROEs.
Q:What metric would you use to compare the cost of hedging over time, and how would you compare the attractiveness of raising capital in different spread environments?
A:Spread volatility has been stable, reducing hedging costs. Wider spreads are more attractive for raising capital due to higher upside, but tighter spreads offer stability. The Agency market is currently safe, supported by strong technicals and Fed actions.
Q:How do you handicap the risks that could change the current low-risk environment with more volatility?
A:Macro risks include global fiscal debt and asset market euphoria. Agency market risks include tight valuations and housing policy uncertainty. These factors could increase volatility and impact the market.
Q:Does it make sense to buy lower coupon MBS as a hedge to MSR and runoff?
A:Valuation on low coupon MBS is tight, making it less attractive. The company hedges MSR uncertainty through duration but finds better value in other assets like Agency CMBS.
Q:Can you help us put some bands around the long-term target for equity allocation across Agency MBS, resi credit, and MSR?
A:The company aims for a long-term allocation of 50% Agency, 30% resi, and 20% MSR. Current focus is on growing resi and MSR, with episodic opportunities in the pipeline.
Q:What are your views on the likelihood or feasibility of GSE portfolio cap increases, and have you seen any impact from their portfolio buying on swap or funding markets?
A:The likelihood of GSE portfolio cap increases is uncertain. GSE buying has not significantly impacted swap markets or funding markets due to the current size of their book and market conditions.
Q:Review of Unclear Management Responses
A:Management avoided giving a direct answer on the likelihood of GSE portfolio cap increases, stating they don't have a good answer and will have to wait and see how the year evolves.
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Earnings Word Cloud
The most frequently occurring keywords in this quarter's earning call
ATM equity
Agency anchor
Agency firm
Agency market
Annaly liquidity
Bay channel
Bay franchise
Bay pace
CMBS portfolio
Capital Instructions
FOMC yield
Fed decline
Fed tightening
GSE
Serena financials
activity
advantage
asset class
bond fund
capital market
cash flow
coupon pool
decline volatility
expansion
housing finance
inflow
investment strategy
labor market
loan acquisition
market environment
nonbank
portfolio cash
portfolio strategy
rate environment
sector
securitization issuance
servicer
strategy result
term yield
volatility level
NLY Transcript
Annaly Capital Management, Inc. (NLY) Q4 2025 Earnings Call Transcript
Positive1-29
The earnings call reveals strong financial performance with increased book value and net interest margins, alongside strategic growth in residential credit and MSR portfolios. Management's confidence in maintaining dividends and the potential for mid-teens returns further supports a positive outlook. However, some uncertainties in the macro environment and the unclear response on GSE portfolio caps suggest caution. Overall, the positive financial metrics and strategic positioning outweigh these concerns, indicating a likely positive stock price movement.
Annaly Capital Management, Inc. (NLY) Q3 2025 Earnings Call Transcript
Positive10-23
The earnings call reveals strong financial performance, with increased book value, improved efficiency ratio, and stable MSR growth. The Q&A section supports this positive sentiment, highlighting attractive agency returns, strategic portfolio adjustments, and stable pricing. Despite some uncertainties, such as Fed policy shifts, the company's strategic focus on agency investments and MSR opportunities suggests a favorable outlook. Overall, the company's financial health and strategic positioning indicate a positive stock price movement over the next two weeks.
Annaly Capital Management, Inc. (NLY) Q2 2025 Earnings Call Transcript
Positive7-24
The earnings call summary and Q&A indicate positive sentiment with strong financial metrics, increased dividends, and a modest economic return. Despite an uncertain market outlook, the company has a diversified portfolio, proactive risk management, and expects to maintain or exceed its dividend. The Q&A reveals confidence in dividend sustainability and economic returns, with no significant negative trends or concerns. The company's strategic decisions and strong liquidity position suggest a positive stock price movement over the next two weeks, likely in the 2% to 8% range.
Annaly Capital Management, Inc. (NLY) Q1 2025 Earnings Call Transcript
Unknown5-1
The earnings call summary shows mixed results: increased dividends and economic return are positive, but regulatory risks and housing market challenges pose concerns. The Q&A session reveals cautious management responses, especially regarding housing prices and regulatory impacts. The dividend increase and maintained earnings support a stable outlook, but uncertainties in spreads and leverage limit positive sentiment. With no market cap data, a neutral rating is prudent, balancing positive dividend news against regulatory and housing challenges.
NLY Slides
NLY Report
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