Annaly Capital Management (NLY -0.24%), a large mortgage real estate investment trust (REIT) focused on Agency mortgage-backed securities, reported its second-quarter results on July 23, 2025. The headline result was earnings available for distribution (EAD), a non-GAAP measure, of $0.73 per share. This was slightly above the analyst consensus of $0.71. Earnings available for distribution attributable to common shareholders was $452.6 million. Book value per share slipped further to $18.45 versus $19.25 a year earlier, a trend the company has not reversed.
The quarter showed continued stable performance, with moderate earnings growth and portfolio expansion offset by ongoing book value attrition and still-compressed profit margins.
| Metric | Q2 2025 | Q2 2025 Estimate | Q2 2024 | Y/Y Change |
|---|---|---|---|---|
| EAD per share | $0.73 | $0.71 | $0.68 | 7.4% |
| EAD | $452.6 million | $502.99 million | $339.98 million | 33.1% |
| Book value per share | $18.45 | $19.25 | (4.2%) | |
| Dividend per share | $0.70 | $0.65 | 7.7% |
Source: Annaly Capital Management. Note: Analysts’ consensus estimates for the quarter provided by FactSet. EAD = Earnings available for distribution.
About Annaly Capital Management and Its Business Model
Annaly Capital Management is a mortgage REIT (real estate investment trust) based in the United States. It invests mainly in Agency mortgage-backed securities (MBS), which are bonds backed by pools of loans guaranteed by Fannie Mae, Freddie Mac, or Ginnie Mae. In addition to Agency MBS, Annaly operates in two other asset categories: non-Agency residential loans (Residential Credit) and mortgage servicing rights (MSR), which are rights to administer mortgage payments on behalf of investors.
The company’s business model relies on earning the spread between the income it receives from these investments and the cost to borrow funds, a measure called net interest margin. Annaly uses a combination of equity and debt, employing financial leverage to magnify returns. Key factors influencing its success include effective asset allocation across its three business lines, risk management to control exposure to interest rate changes, and maintaining access to stable funding sources. Compliance with REIT rules — such as distributing at least 90% of taxable income as dividends — is also a core consideration.
Quarter in Review: Portfolio Expansion, Margins, and Book Value Trends
During Q2 2025, Annaly expanded its overall investment portfolio to $89.5 billion, with Agency MBS accounting for 89% of the total. The Agency MBS segment saw sequential growth of 6%. This was driven by increased capital allocation to these securities amid attractive returns and stable prepayment activity. Annaly’s Agency portfolio remained focused on securities with coupons in the 4.5% to 6.0% range. The weighted average coupon on Agency holdings was 4.96%. This remained relatively unchanged from the prior quarter.
Residential Credit, which includes non-Agency residential mortgage loans and related securitizations, held steady at $6.6 billion in assets. Annaly’s Residential Credit Group completed a record 15 securitizations year to date, totaling $7.6 billion in proceeds for the first half of 2025, underscoring its position as the largest non-bank issuer in this category. The mortgage servicing rights portfolio stayed at $3.3 billion in market value. The company serviced 680,000 loans with a total unpaid principal balance of $218.6 billion as of June 30, 2025, and continued to benefit from low delinquencies and stable fundamentals.
From a profitability perspective, net interest margin (excluding premium amortization adjustment, or PAA—a technical accounting adjustment) edged up to 1.71% from 1.69% last quarter. This figure reflects the difference between Annaly’s average yield on investments, which reached 5.41% (non-GAAP), and its average economic funding cost, which rose slightly to 3.94%, a reflection of continued market pressure on the spread between asset yields and borrowing costs.
Book value per share, a measure of net assets divided by shares outstanding and a critical metric for REIT investors, declined for three consecutive quarters. Book value per share slipped 4.2% from $19.25 to $18.45 over the past year, the third consecutive quarterly decline. Annaly’s economic return—a non-GAAP measure that includes changes in book value plus the dividend, divided by the prior period’s book value—was 0.7%.
Risk Management, Capital Structure, and Dividends
Annaly’s leverage, meaning its use of borrowed funds to enhance returns, held steady at an economic leverage ratio of 5.8x.
The company’s liquidity position was robust, with $7.4 billion in assets available to finance the portfolio, including $4.7 billion in cash and unencumbered Agency MBS. Annaly also progressed with hedging strategies designed to mitigate interest rate risk, maintaining a hedge ratio of 92% on its $72 billion hedge portfolio. According to company data, as of June 30, 2025, a 25 basis point tightening in MBS spreads would boost net asset value by 10.2%, while a 75 basis point rate increase would lower value by 3.1% as of June 30, 2025.
Annaly continued its strategic approach to capital raising, adding $761 million of common equity through its at-the-market issuance program. The company’s cost of funds remained nearly unchanged, with average GAAP cost of interest-bearing liabilities recorded at 4.76% and the economic cost at 3.94%.
The quarterly dividend was increased 7.7% from $0.65 to $0.70 per share over the past year and was fully covered by distributable earnings. The company ended the quarter with $13.4 billion in total stockholders’ equity. Dividend coverage is a particularly important factor for REIT investors, as regulations require Annaly to pay out at least 90% of taxable income to keep its REIT status.
Current Challenges and Look Ahead
Management did not provide formal financial guidance for the next quarter or full year. In recent statements, leadership highlighted plans to keep its current dividend “all else equal” and emphasized a continued focus on liquidity and conservative leverage until volatility fades. The stated intent is to allocate additional capital mainly toward Agency MBS investments and to remain disciplined in credit quality and funding decisions.
For the coming periods, investors should track book value per share, net interest margin, and developments in the housing and mortgage markets. Market commentary from Annaly indicated that housing inventory has increased and price appreciation has slowed, but borrower credit quality remains high and delinquencies are low. The company expects to continue managing risk conservatively while maintaining its diversified asset approach. Absent clearer guidance, monitoring any shifts in dividend policy, book value trends, and leverage ratios will be important for observers assessing Annaly’s performance in the months ahead.
Revenue and net income presented using U.S. generally accepted accounting principles (GAAP) unless otherwise noted.
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