Annaly Capital Management delivered third quarter results that met Wall Street’s non-GAAP profit expectations and exceeded revenue estimates, yet the market reaction was muted. Management attributed the solid quarter to lower interest rate volatility and effective capital deployment, particularly within its Agency mortgage-backed securities (MBS) portfolio. CEO David Finkelstein highlighted that the company’s diversified approach, including increased activity in Agency MBS, residential credit, and mortgage servicing rights (MSR), supported stable returns. Finkelstein emphasized, “We generated an economic return of 8.1% for the third quarter and 11.5% year-to-date, notably recording a positive economic return for 8 consecutive quarters.”
Is now the time to buy NLY? Find out in our full research report (it’s free for active Edge members).
Annaly Capital Management (NLY) Q3 CY2025 Highlights:
- Revenue: $885.6 million vs analyst estimates of $826.3 million (637% year-on-year growth, 7.2% beat)
- Adjusted EPS: $0.73 vs analyst estimates of $0.72 (in line)
- Adjusted Operating Income: $835.2 million (94.3% margin, 996% year-on-year growth)
- Market Capitalization: $14.34 billion
While we enjoy listening to the management's commentary, our favorite part of earnings calls are the analyst questions. Those are unscripted and can often highlight topics that management teams would rather avoid or topics where the answer is complicated. Here is what has caught our attention.
Our Top 5 Analyst Questions From Annaly Capital Management’s Q3 Earnings Call
- Bose George (KBW): Asked if the recent tightening of Agency spreads would shift Annaly’s capital allocation strategy. CEO David Finkelstein indicated the company remains overweight Agency MBS but is seeking to gradually increase exposure to residential credit and MSRs.
- Douglas Harter (UBS): Inquired about the risk and return profile of Agency MBS hedging strategies. V.S. Srinivasan, Head of Agency, explained that lower realized volatility has reduced hedging costs and enabled stable returns, emphasizing a balanced approach to swaps and treasuries.
- Harsh Hemnani (Green Street): Questioned the rationale behind purchasing higher coupon specified pools versus lower coupons. Srinivasan noted that specified pools offer longer-term prepayment protection, and management has opportunistically shifted allocations based on rate movements and convexity risk.
- Jason Weaver (Jones Trading): Asked about the sustainability of high securitization volumes and the outlook for non-QM market share. Mike Fania, Head of Residential Credit, stated that non-QM market penetration is rising, with Annaly’s volumes expected to remain strong despite typical seasonal slowdowns.
- Richard Shane (JPMorgan): Queried about the stability of net interest income (NII) and dividend coverage in an uncertain macro environment. Finkelstein and CFO Serena Wolfe both expressed confidence in maintaining earnings and dividend coverage, supported by stable swap portfolios and disciplined asset deployment.
Catalysts in Upcoming Quarters
In the coming quarters, our analyst team will monitor (1) Annaly’s pace of capital deployment in Agency MBS and whether spread tightening persists, (2) continued expansion and performance of the Onslow Bay residential credit platform, and (3) MSR acquisition activity and its impact on cash flow predictability. Additionally, we will track management’s ability to maintain operational efficiency as the company scales its diversified housing finance platform.
Annaly Capital Management currently trades at $21.05, down from $21.28 just before the earnings. Is the company at an inflection point that warrants a buy or sell? See for yourself in our full research report (it’s free for active Edge members).
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