NLY Q1 Deep Dive: Revenue Miss Offset by Stable Earnings and Prudent Risk Management

Mortgage finance REIT Annaly Capital Management (NYSE:NLY) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 62.9% year on year to $186.6 million. Its non-GAAP profit of $0.72 per share was 3.2% above analysts’ consensus estimates.

Is now the time to buy NLY? Find out in our full research report (it’s free).

StockStory’s Take

Annaly Capital Management’s first quarter results were marked by a substantial year-on-year decline in revenue, falling short of Wall Street’s expectations. Despite this, the company managed to deliver non-GAAP earnings above analyst consensus, a performance management attributed to a disciplined approach to portfolio construction and active risk management amid heightened market volatility. CEO David Finkelstein cited the firm’s “actively managed and well-hedged portfolio” as a key reason for achieving a positive economic return, even as shifting U.S. trade policy and interest rate volatility weighed on the broader mortgage market. The company also increased its common stock dividend, emphasizing continued earnings momentum despite the turbulent backdrop.

Looking forward, Annaly’s management underscored the importance of maintaining a conservative posture in the face of ongoing market uncertainty, particularly as volatility and regulatory changes continue to shape the mortgage landscape. CFO Serena Wolfe highlighted expectations to maintain current dividend levels, citing strong earnings driven by lower funding costs and higher investment yields. Management remains focused on balancing risk and return, with Finkelstein noting, “We continue to believe this portfolio construct has significant synergies with the potential for superior risk adjusted returns.” The company plans to sustain a diversified, liquid portfolio and is closely monitoring macroeconomic signals, including potential regulatory reforms and shifts in housing market fundamentals.

Key Insights from Management’s Remarks

Management attributed the quarter’s mixed performance to volatility in interest rates, shifting capital allocation, and strategic adjustments across its core portfolio segments.

• Interest rate volatility management: Annaly navigated a wide trading range in treasury yields by maintaining low economic leverage and enhancing portfolio hedging. Finkelstein explained that “we entered the year with our lowest economic leverage in a decade,” which helped the firm weather recent market swings without taking on excessive risk.
• Agency allocation increased: The company modestly increased its allocation to agency mortgage-backed securities (MBS), directing capital to intermediate coupon TBAs (To-Be-Announced securities, a type of forward contract for MBS). Management favored these due to their “more favorable convexity profile and attractive carry,” positioning the portfolio for resilience if the economy slows.
• Residential credit repositioning: Annaly opportunistically trimmed its residential credit portfolio, citing sales of third-party securities and increased securitizations. Despite widening credit spreads in March, management highlighted the resilience of the new issue market and noted that “borrower equity, low delinquencies, and tight underwriting standards” are supporting housing market stability.
• Mortgage servicing rights (MSR) stability: The MSR portfolio remained steady, benefiting from low borrower rates and delinquencies. Management credited “greater efficiency and technological investment” in the mortgage servicing industry for enhancing portfolio yield and borrower experience, while maintaining a defensive stance given ongoing consolidation in the sector.
• Funding and liquidity strength: The company continued to diversify its funding sources and extended the average maturity of its repo (repurchase agreement) book. Wolfe pointed out that Annaly ended the quarter with $7.5 billion in assets available for financing, reinforcing its ability to manage through market stress.

Drivers of Future Performance

Annaly’s outlook centers on navigating persistent market volatility, regulatory developments, and evolving housing trends to optimize risk-adjusted returns for the remainder of the year.

• Regulatory reform impact: Management anticipates that upcoming changes to bank capital requirements, including potential revisions to the Supplementary Leverage Ratio (SLR) and Basel Endgame proposals, could improve liquidity and support tighter MBS spreads. Finkelstein suggested these reforms may be a "tailwind" in the second half of the year, potentially benefiting asset valuations and funding conditions.
• Strategic leverage management: The company is balancing the temptation to increase leverage in response to wider spreads with caution given ongoing market volatility. Finkelstein indicated that while leverage “ticked up modestly,” Annaly will remain conservative until volatility subsides, aiming to protect portfolio stability over opportunistic risk-taking.
• Housing and credit market trends: Annaly is closely monitoring regional disparities and softening in home price appreciation (HPA), with management noting potential for “flattish or negative” HPA in some markets this year. However, the long-term view remains constructive due to low delinquencies and a structural shortage of single-family homes, underpinning the firm’s ongoing exposure to residential credit.

Catalysts in Upcoming Quarters

Looking ahead, the StockStory team will focus on (1) progress in regulatory reforms impacting bank capital and MBS market liquidity, (2) Annaly’s ability to prudently adjust leverage and portfolio allocation as volatility evolves, and (3) trends in housing market fundamentals, especially regional home price dynamics and credit performance. Execution on these fronts will be key to assessing the company’s risk-return profile.

Annaly Capital Management currently trades at $19.19, down from $19.87 just before the earnings. In the wake of this quarter, is it a buy or sell? Find out in our full research report (it’s free).

High Quality Stocks for All Market Conditions

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.