NLY Q4 Deep Dive: Multi-Segment Growth and Portfolio Diversification Support Results

Mortgage finance REIT Annaly Capital Management (NYSE:NLY) announced better-than-expected revenue in Q4 CY2025, with sales up 101% year on year to $1.06 billion. Its non-GAAP profit of $0.74 per share was 1.4% above analysts’ consensus estimates.

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StockStory’s Take

Annaly Capital Management’s fourth quarter was marked by robust multi-segment growth, as the company outperformed Wall Street’s revenue and earnings expectations. Management identified lower market volatility, a supportive bond environment, and disciplined capital allocation as core contributors to the quarter’s economic return. CEO David Finkelstein emphasized, “All three businesses contributed solid returns,” with particular strength in agency mortgage-backed securities (MBS) and residential credit. Annaly’s ability to grow its portfolio by 30% during the year, while maintaining conservative leverage, underscored its diversified housing finance approach.

Looking ahead, Annaly’s forward strategy centers on capitalizing on evolving market dynamics across its agency, residential credit, and mortgage servicing rights (MSR) platforms. Management anticipates continued opportunities in non-agency credit and expanding MSR activities, noting that “the optionality to invest in the most accretive assets is an important lever” for future returns. Finkelstein highlighted that while agency assets will remain the portfolio anchor, increased capital allocation to residential credit and MSR is planned, with patience and selectivity guiding investment decisions in a tightening spread environment.

Key Insights from Management’s Remarks

Management attributed the quarter’s performance to a combination of favorable market conditions, execution across all investment strategies, and active capital management.

• Agency MBS performance: Annaly’s agency mortgage-backed securities portfolio expanded significantly, benefiting from lower volatility, a steeper yield curve, and strong technical support from bond fund inflows and GSE (government-sponsored enterprise) activity. The firm’s targeted purchases in higher coupon securities reflected a strategy to enhance returns amid reduced hedging costs.
• Residential credit channel growth: The Onslow Bay correspondent channel experienced record activity, with high funding volumes and securitization issuance. Management emphasized disciplined credit standards—highlighting a weighted average FICO of 762 and 68% original loan-to-value (LTV)—and noted that Annaly remains the largest nonbank issuer in this space.
• MSR portfolio expansion: The mortgage servicing rights portfolio grew by 15% year-over-year, with Annaly becoming the second-largest buyer of conventional MSRs in 2025. Management cited ample supply and the company’s expanded presence across all GSE platforms, focusing on bulk and flow acquisitions to diversify cash flows.
• Conservative leverage and liquidity: Economic leverage decreased modestly to 5.6x, and Annaly maintained significant liquidity, with $7.8 billion in unencumbered assets. CFO Serena Wolfe highlighted improved efficiency ratios and strong net interest margins, supporting the company’s ability to deliver returns while managing risk.
• Disciplined capital raising: Annaly raised $2.9 billion in equity during the year, including ATM issuances and preferred stock, allowing for portfolio growth and capitalizing on market opportunities while sustaining dividend coverage.

Drivers of Future Performance

Annaly’s outlook is shaped by shifting capital allocation, evolving market spreads, and a focus on risk-adjusted returns across its three major platforms.

• Increased focus on non-agency assets: Management plans to gradually allocate more capital to residential credit and MSR businesses, aiming for a diversified mix that balances agency exposure with higher-yielding, less correlated assets. The objective is to achieve a long-term target of 50% agency, 30% residential credit, and 20% MSR allocation.
• Monetary policy and market volatility: The company anticipates that ongoing rate cuts and changing Federal Reserve policy will influence spread levels and hedging costs. Declining volatility and increased GSE participation could support prospective returns in agency MBS, but management remains watchful for macro risks such as fiscal imbalances and potential asset price corrections.
• Housing policy and regulatory changes: Annaly identified policy uncertainties—including possible guarantee fee (G-fee) cuts and administrative actions to lower mortgage rates—as key external risks. Management believes targeted measures could boost origination volumes, but broad changes may impact MBS valuations and prepayment environments.

Catalysts in Upcoming Quarters

In the coming quarters, our analysts will closely monitor (1) capital allocation trends, especially shifts toward residential credit and MSR investments; (2) the impact of GSE policy changes and market technicals on agency MBS spread dynamics; and (3) origination volume and securitization activity across the Onslow Bay channel. Ongoing efficiency improvements and liquidity management will also be critical to track.

Annaly Capital Management currently trades at $23.91, down from $24.25 just before the earnings. Is the company at an inflection point that warrants a buy or sell? The answer lies in our full research report (it’s free).

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