Annaly Swings to a Loss

The Tip Desk · October 27, 2026 · 3 min read

GAAP earnings fell to a $1.36 loss a share while earnings available for distribution held at $0.80, above the $0.75 dividend.

Annaly Capital Management (NLY), the mortgage-finance firm, posted a GAAP loss of $1.36 a share for the quarter ended September 30, 2026, reversing $1.06 of earnings in the prior quarter. Annualized GAAP return on average equity was (24.35%). Economic return flipped to a (7.6%) loss from a 5.5% gain in the second quarter.

Chief Executive Officer and Co-Chief Investment Officer David Finkelstein said the third quarter was a challenging period for fixed-income markets, in which the company was not immune, and that it entered the period prepared for the volatility. He said cycle-low leverage and minimal duration exposure gave the firm flexibility to manage the portfolio while continuing to invest across its three strategies.

The swing in GAAP results tracked a $4.72 billion loss on investments and other, versus a $318.5 million loss in the June quarter. Net gains on derivatives were $3.07 billion. Book value per common share fell to $17.86 from $20.15.

Earnings available for distribution, the non-GAAP measure the company uses to cover the dividend, rose to $0.80 a share from $0.79. Annualized EAD return on average equity was 15.86%. The company declared a common cash dividend of $0.75 a share, unchanged after the second-quarter increase from $0.70. Finkelstein said EAD once again exceeded the dividend.

Net interest income rose to $543.6 million from $488.2 million, with interest income of $1.97 billion and interest expense of $1.43 billion. GAAP net interest margin expanded to 1.54% from 1.47%, and the GAAP net interest spread widened to 1.24% from 1.16%. Average yield on interest-earning assets was 5.58%. Average GAAP cost of interest-bearing liabilities rose to 4.34% from 4.28%.

On an economic basis that excludes the prior-period prepayment adjustment, the spread compressed. Net interest margin excluding PAA was 1.69%, and the spread excluding PAA was 1.42%. Average economic cost of interest-bearing liabilities rose to 4.03% from 3.96%.

The total portfolio declined to $106.5 billion from $109.4 billion, including a highly liquid Agency portfolio of $91.8 billion. Agency holdings fell to 55% of dedicated capital from 57%, with activity focused on rotation into higher-coupon specified pools. GAAP leverage rose to 8.0x from 7.4x; economic leverage rose to 5.9x from 5.6x.

The hedge ratio rose to 100% from 97%, with activity primarily adding Treasury futures to offset market-driven extension. Weighted average experienced CPR fell to 9.6% from 11.6%; projected long-term CPR fell to 8.6% from 11.0%.

The Residential Credit portfolio was effectively unchanged at $10.4 billion, or 23% of dedicated capital. The whole-loan correspondent channel produced record loan fundings of $5.8 billion. Annaly Residential Credit Group issued twelve securitizations totaling a record $7.4 billion. Warehouse capacity was maintained at $8.3 billion, including $2.8 billion of committed capacity.

The MSR portfolio increased to $4.3 billion in market value, or 22% of dedicated capital. Onslow Bay was the sixth-largest non-bank servicer of Agency MBS. Net servicing income was $156.0 million.

Assets available for financing declined to $8.5 billion from $9.6 billion, including cash and unencumbered Agency MBS of $4.2 billion. The company raised $757 million of accretive capital through its at-the-market sales program. Subsequent to quarter-end, on October 1, 2026, it completed redemption of all outstanding shares of the $442.5 million Series I preferred stock.

Finkelstein said the company remains disciplined on capital allocation, leverage, liquidity and the hedge portfolio, and that it continues to see investment opportunities across each of its three strategies.