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Introduction & Market Context
Annaly Capital Management (NYSE:NLY) released its first quarter 2025 investor presentation on April 30, highlighting a dividend increase despite a challenging macroeconomic environment characterized by rising policy uncertainty and slowing economic growth.
The mortgage REIT operates in a market where business and consumer confidence have been dampened, as illustrated by the company’s macroeconomic overview showing declining consumption growth and fluctuating Treasury yields.
As shown in the following chart depicting key economic indicators:
The presentation comes after Annaly’s Q4 2024 performance exceeded EPS forecasts, with the stock trading at $19.57 in after-hours trading following the Q1 results announcement, representing a slight decline of 0.15% from the regular session close.
Quarterly Performance Highlights
Annaly reported Earnings Available for Distribution (EAD) of $0.72 per share for Q1 2025, maintaining the same level as the previous quarter but falling short of Q4’s GAAP earnings of $0.78 per share. The company increased its quarterly dividend to $0.70 per share, representing a dividend yield of 13.8%.
Book value per common share stood at $19.02, down slightly from $19.15 in Q4 2024, while the company achieved an economic return of 3.0% for the quarter.
The following slide summarizes Annaly’s key financial metrics for Q1 2025:
Net interest margin (excluding PAA) decreased marginally from 1.71% to 1.69% quarter-over-quarter, while the average yield on interest-earning assets declined slightly from 5.26% to 5.23%. The company maintained economic leverage at 5.7x, slightly higher than the 5.5x reported in Q4 2024.
Portfolio Strategy and Positioning
Annaly’s total investment portfolio reached $84.9 billion, with $75.0 billion (88% of total assets) allocated to Agency MBS, which increased by 6% compared to Q4 2024. The company’s strategic allocation across three investment platforms is illustrated below:
The Residential Credit portfolio decreased by 5% to $6.6 billion, while the Mortgage Servicing Rights (MSR) portfolio remained relatively stable at $3.3 billion. This shift reflects Annaly’s strategic reallocation toward highly liquid Agency MBS amid market uncertainty.
Despite the reduction in Residential Credit exposure, Annaly’s credit group maintained robust securitization activity, pricing eight residential whole loan securitizations totaling $4.2 billion during the quarter. The company remains the largest non-bank issuer in this space.
The following slide details the composition and performance of Annaly’s Agency portfolio:
Financial Analysis
Annaly’s financial positioning demonstrates a focus on maintaining liquidity and managing risk in an uncertain market environment. The company reported $4.7 billion in cash and $7.5 billion in total assets available for financing, providing significant flexibility.
The company’s investment strategies continue to generate attractive returns, with current illustrative market levered returns ranging from 16-19% for Agency MBS, 13-16% for Residential Credit, and 12-14% for MSR, as shown in the following slide:
Annaly’s hedging strategy remains comprehensive, with a hedge ratio of 95% and a total hedge portfolio of $71 billion, helping to mitigate interest rate risk. The average economic cost of funds stood at 3.88%, while the average GAAP cost of interest-bearing liabilities was 4.77%.
The company’s quarter-over-quarter interest rate and MBS spread sensitivity analysis provides insight into its risk management approach:
Forward Outlook
Annaly appears well-positioned to navigate the current market environment, maintaining a prudent leverage profile and enhanced liquidity position. The increase in dividend signals management confidence in sustaining returns to shareholders despite market volatility.
The company’s strategic approach across its three investment platforms emphasizes high-quality, liquid securities in the Agency business, an agile platform with programmatic securitization in Residential Credit, and a complementary MSR strategy that benefits from slow prepayment speeds.
Looking ahead, Annaly’s performance will likely be influenced by the evolving macroeconomic landscape, particularly policy uncertainty and its impact on economic growth. The company’s diversified investment approach and strong liquidity position should provide resilience against potential market disruptions.
While the presentation highlights Annaly’s strengths and opportunities, investors should note the slight decreases in book value, net interest margin, and yield on interest-earning assets as potential areas to monitor in future quarters. The increase in economic leverage, though still at a prudent level, also warrants attention in the context of market volatility.
Full presentation:
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