Annaly Capital Management (NYSE:NLY) reported fourth-quarter 2025 results that management said benefited from a constructive fixed income backdrop, lower volatility, and supportive technical factors across mortgage markets. Executives highlighted solid performance across the company’s three investment strategies—Agency, residential credit, and mortgage servicing rights (MSR)—while emphasizing conservative leverage, strong liquidity, and earnings that exceeded the quarterly dividend.
Macro backdrop and market conditions
Chief Executive Officer David Finkelstein said the fourth quarter reinforced the “prevailing narrative of a solid U.S. economy,” even as some official data was disrupted by a government shutdown. He described a labor market that “remained soft,” with slower hiring but limited layoffs and muted unemployment increases.
During the quarter, the yield curve steepened as short-term yields fell and long-term yields rose modestly, while swap spreads widened. Management cited the Federal Reserve’s shift from quantitative tightening to balance sheet expansion through reserve management purchases and bills as supportive for short-term funding stability.
Quarterly performance, capital activity, and leverage
Annaly posted an economic return of 8.6% in the fourth quarter, with Finkelstein saying all three businesses contributed “solid returns.” For full-year 2025, the company delivered an economic return of 20.2%. Chief Financial Officer Serena Wolfe reported book value per share rose 5% sequentially to $20.21 at December 31, 2025, from $19.25 in the prior quarter.
Earnings Available for Distribution (EAD) per share increased to $0.74, which management said again exceeded the quarterly dividend of $0.70. Wolfe attributed the EAD improvement to a 30 basis point improvement in the average repo rate to 4.2% and higher average investment balances as the agency and residential loan portfolios grew.
Annaly remained active in capital markets, raising $560 million of common equity through its ATM program in the fourth quarter. Finkelstein said total equity raised in 2025 reached $2.9 billion, including the Series J preferred issuance during the summer. Management said the capital supported 30% portfolio growth during the year, with each strategy showing double-digit growth.
Leverage remained conservative, with economic leverage decreasing modestly to 5.6x at quarter-end, which Wolfe described as “historically low.” In response to a question about mark-to-market trends, management said that as of Tuesday following quarter-end, book value was up about 4% inclusive of dividend accrual (about 3% net of the accrual), and “after yesterday, maybe a fraction of a percent higher.”
Agency strategy: growth, positioning, and hedging
Finkelstein said the agency portfolio ended 2025 at $93 billion in market value, up nearly $6 billion quarter-over-quarter and $22 billion for the year. Agency represented 62% of the firm’s capital at year-end.
Management described a supportive supply-demand backdrop for agency MBS in the second half of 2025, citing strong bond fund inflows, REIT equity raises, and GSE portfolio growth of $50 billion through year-end, alongside net MBS supply that surprised to the downside. Portfolio purchases centered on adding 5% coupons split between pools and TBAs, reflecting comfort with current coupon exposure in a range-bound rate environment and steeper curve. Annaly also grew its agency CMBS exposure by roughly $1 billion, citing relative attractiveness versus lower coupon MBS.
Finkelstein said higher coupons lagged on the coupon stack as mortgage rates approached 6% and borrowers appeared more reactive, but emphasized that Annaly constructed specified pools with call protection. He noted the firm’s 6% and 6.5% coupon pools prepaid 40% slower than generic cheapest-to-deliver collateral.
On hedging, management said the hedge position remained broadly stable, focusing duration management on hedging new asset purchases using a combination of Treasury futures and swaps in a low-volatility environment.
Residential credit and Onslow Bay: record activity
Annaly’s residential credit portfolio ended the quarter at $8 billion in market value, up $1.1 billion sequentially, representing about 19% of firm capital. Finkelstein said non-agency residential credit was relatively range-bound, with AAA non-QM spreads ending the year marginally tighter at about 125 to the curve.
Management highlighted a “record quarter” for its Onslow Bay franchise, reporting all-time highs in lock volume, fundings, and securitization issuance. Key fourth-quarter activity included:
- $6.4 billion of correspondent locks and $5.0 billion of correspondent fundings
- $800 million of whole loans settled via bulk acquisitions
- Eight securitizations totaling $4.6 billion
- Creation of $570 million of proprietary OBX assets with “mid-teens” expected ROEs
For full-year 2025, Annaly said it locked over $23 billion and funded $16.5 billion through the correspondent channel, up 30% and 40% year-over-year, respectively. The firm closed 29 securitizations totaling $15.2 billion, generating approximately $1.9 billion of retained assets for Annaly and its joint venture. Management said it remained disciplined on credit, citing a locked pipeline with a 762 weighted average FICO and 68 original LTV, with “limited layered risk.”
MSR strategy, liquidity, and 2026 positioning
The MSR portfolio ended the quarter at $3.8 billion in market value including unsettled commitments, up nearly $280 million quarter-over-quarter and 15% year-over-year, representing about 19% of firm capital. During the quarter, Annaly committed to purchase $22 billion in UPB (about $330 million in market value) across five bulk packages, with about $150 million expected to settle in the first quarter of 2026. Management said Annaly was the second largest buyer of conventional MSR in 2025, onboarding $59 billion in UPB, and ranked as the sixth largest non-bank agency servicer.
Ken Adler, head of MSR, said the firm expanded infrastructure to be active in “new production” MSR via Fannie and Freddie exchange platforms, with pricing provided daily and activity across close to 100 counterparties. He noted new production pricing tends not to move much with rates because it is set at the current mortgage rate, and said Annaly currently prefers lower note rate MSR where relative value is more attractive, while remaining prepared to increase activity in current coupon MSR if relative value shifts.
Operationally, management said MSR fundamentals were strong: the portfolio paid 4.6 CPR in Q4, unchanged sequentially, and serious delinquencies were 55 basis points. With a weighted average note rate of 3.28%, management said the portfolio remained about 250 basis points “out of the money.”
Wolfe outlined liquidity and funding metrics, including $7.8 billion in unencumbered assets (including $6.1 billion in cash and unencumbered agency MBS) and about $1.5 billion in undrawn MSR pledged warehouse capacity, for total assets available for financing of roughly $9.4 billion, or about 58% of the total capital base. She added that total warehouse capacity across residential credit and MSR reached $6.9 billion, with utilization of 47% and 50%, respectively.
Looking ahead, Finkelstein said agency spread tightening after a recent GSE MBS purchase announcement was “pronounced,” but argued that lower volatility should reduce hedging costs and support low- to mid-teen prospective returns. He also said management expects to allocate incremental capital more toward residential credit and MSR given uneven spread tightening, reiterating a longer-term mix objective of roughly 50% agency, 30% residential credit, and 20% MSR (while emphasizing it does not need to happen immediately). In response to dividend questions, management said the balance sheet positioning was supportive, noting the company out-earned the dividend in Q4 and expects to out-earn in Q1, adding that it “feel[s] like the dividend’s safe here.”
About Annaly Capital Management (NYSE:NLY)
Annaly Capital Management, Inc is a publicly traded real estate investment trust (REIT) that specializes in generating income through investment in mortgage-related assets. The company’s core business activities include the acquisition, financing, and management of a diversified portfolio of agency and non-agency residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and other real estate debt instruments. Annaly seeks to profit from the spread between the interest earned on its mortgage investments and its cost of funds, as well as from capital gains realized through active portfolio management.
Founded in 1997 and headquartered in New York City, Annaly has grown to become one of the largest mortgage REITs in the United States.
Featured Stories
- Five stocks we like better than Annaly Capital Management
- Do not delete, read immediately
- NEW LAW: Congress Approves Setup For Digital Dollar?
- “Fed Proof” Your Bank Account with THESE 4 Simple Steps
- A U.S. “birthright” claim worth trillions – activated quietly
- The Crash Has Already Started (Most Just Don’t See It Yet)
