Business Context and Reporting Period
Company: Annaly Capital Management, Inc. (NLY)
Filing Type: Form 10-Q (Quarterly Report)
Reporting Period: Quarter ended September 30, 2025 (Q3 2025)
Business Overview: Annaly is a leading diversified capital manager and Real Estate Investment Trust (REIT) investing in mortgage finance. Its portfolio includes Agency mortgage-backed securities (MBS), residential credit securities, residential mortgage loans, and mortgage servicing rights (MSR). The company operates three primary segments: Agency, Residential Credit, and MSR.
Key Financial Metrics
| Metric (in thousands, except per share) | Q3 2025 | Q3 2024 | 9M 2025 | 9M 2024 |
|---|---|---|---|---|
| Net Interest Income | $275,750 | $13,401 | $768,921 | $60,508 |
| Net Servicing Income | $126,252 | $109,595 | $379,673 | $320,361 |
| Net Income (GAAP) | $843,063 | $82,351 | $1,033,739 | $538,692 |
| Net Income Attributable to Common | $791,318 | $24,817 | $898,224 | $404,007 |
| Diluted EPS (Common) | $1.20 | $0.05 | $1.44 | $0.80 |
| Total Assets | $125,861,572 | $103,556,384 | $125,861,572 | $103,556,384 |
| Total Equity | $14,996,579 | $12,696,952 | $14,996,579 | $12,696,952 |
| Book Value Per Share | $19.25 | $19.54 | $19.25 | $19.54 |
| GAAP Leverage Ratio | 7.1:1 | 6.9:1 | 7.1:1 | 6.9:1 |
| Economic Leverage Ratio | 5.7:1 | 5.7:1 | 5.7:1 | 5.7:1 |
Material Changes vs. Prior Period
- Profitability Surge: Net income attributable to common stockholders increased significantly to $791.3 million in Q3 2025 from $24.8 million in Q3 2024. This was driven by a substantial improvement in Net Interest Income ($275.8M vs $13.4M) and favorable changes in derivative valuations.
- Portfolio Expansion: Total assets grew by approximately $22.3 billion year-over-year. The Agency MBS portfolio increased to $83.3 billion (fair value), up 10% quarter-over-quarter, while the Residential Credit portfolio grew to $6.9 billion in economic market value.
- Derivative Performance: Net gains (losses) on derivatives improved to a loss of $92.3 million in Q3 2025 compared to a loss of $1.75 billion in Q3 2024. Conversely, net gains on investments and other decreased to $561.9 million from $1.72 billion in the prior year.
- Capital Raising: The company raised approximately $1.1 billion in equity during Q3 2025, including $823 million via its at-the-market sales program and $275 million from a new Series J Preferred Stock issuance.
Guidance, Outlook, and Risks
Management Commentary & Outlook: Management remains optimistic about the Agency MBS sector, citing a constructive macro backdrop with declining interest rate volatility and a steepening yield curve. The company expects to benefit from the Federal Reserve's anticipated rate cuts. The Residential Credit business continues to expand its securitization platform, with Onslow Bay closing a record eight securitizations in Q3 2025. The MSR portfolio is viewed as insulated against refinancing spikes due to high borrower note rates.
Risks and Contingencies:
- Interest Rate Risk: Changes in interest rates affect net interest income and asset values. The company utilizes interest rate swaps and other derivatives to hedge this risk.
- Liquidity and Funding: Reliance on repurchase agreements creates liquidity risk if counterparties demand additional collateral or liquidate assets during market stress. The company maintains significant unencumbered assets ($7.4 billion) to mitigate this.
- Credit Risk: Exposure exists in non-Agency MBS, CRT securities, and residential mortgage loans. Non-accrual loans represented approximately 1% of the total loan portfolio.
- Regulatory Risk: The company must maintain its REIT status and exemption from the Investment Company Act of 1940.
Investor Verification Checklist
- Derivative Valuations: Verify the impact of unrealized gains/losses on derivatives and investments, which significantly influenced GAAP net income volatility.
- Prepayment Speeds (CPR): Monitor the weighted average experienced CPR (8.6% in Q3 2025) versus projected long-term CPR (10.4%), as changes affect premium amortization and net interest income.
- Capital Structure: Confirm the status of the new Series J Preferred Stock issuance and the utilization of the $1.5 billion common stock repurchase program (no shares repurchased in Q3).
- Liquidity Position: Review the ratio of unencumbered assets to total liabilities to assess resilience against potential margin calls.
- Non-GAAP Measures: Compare GAAP results with Earnings Available for Distribution (EAD) of $0.73 per share to understand core operating performance excluding fair value volatility.