Annaly Capital Management. Inc. (NLY)

Annaly reported a GAAP loss of $1.36 per average common share for the third quarter of 2026, and book value per common share was $17.86 at September's end, against $20.15 in June 1. Earnings available for distribution, a non-GAAP measure the company reports beside the GAAP result, were $0.80 per average common share 1.

The quarterly report says the 10-year Treasury yield rose 82 basis points during the quarter to multi-decade highs as the Federal Reserve delivered its first rate hike since 2023 2. The net loss attributable to Annaly was about $1.0 billion for the quarter 2.

Chief Executive Officer David Finkelstein said the company entered the quarter with "cycle-low leverage and minimal duration exposure" 1. Economic leverage, which adds forward purchase contracts to borrowings, rose to 5.9 times from 5.6 times, and GAAP leverage to 8.0 times from 7.4 times 1. The company declared a quarterly common dividend of $0.75 per share 1.

On October 1, 2026 the company redeemed all 17,700,000 shares of its 6.750% Series I preferred stock 4. The next test is the fourth quarter, with the quarterly report saying markets were pricing in another 80 basis points of Fed hikes over the next year 2.

Annaly was founded in 1996 by a handful of entrepreneurs, including Michael A J Farrell and Wellington J Denahan 5. In October 1997 it completed an initial public offering of $102 million and began trading on the NYSE 5. In 2006 it changed its name from Annaly Mortgage Management Inc. to Annaly Capital Management, Inc. 5.

The company began as a pure play on Agency mortgage bonds, which are bonds backed by home loans guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae 35. The company says its history is marked by market-leading actions that grew it into a large-cap diversified capital manager 5.

Growth came by deals 5. In 2013 Annaly closed its acquisition of CreXus, which took it into commercial assets, and in 2015 it separated from Chimera Investment Corp. and began holding non-agency mortgage bonds itself 5. It closed a $1.5 billion acquisition of Hatteras Financial Corp. in 2016 and a $906 million acquisition of MTGE Investment Corp. in 2018 5.

A new chapter began in 2020, when Annaly completed management internalization and David Finkelstein was named chief executive and elected to the board 5. Internalization means the company is run by its own employees, and the 10-K describes it as an internally-managed Maryland corporation 3.

Annaly then sold some older businesses and built new ones 5. It closed a $2.3 billion sale of its Commercial Real Estate business in 2021, and in 2022 a $2.4 billion sale of its Middle Market Lending portfolio 5. In 2021 it also started buying home loans directly through its Onslow Bay correspondent channel and brought mortgage servicing rights onto its balance sheet 5.

The results swung with interest rates 3. Net income attributable to Annaly was a loss of $1.64 billion in 2023, a profit of $1.0 billion in 2024 and a profit of $2.03 billion in 2025 3. Interest income, the money earned on its assets, rose from $3.73 billion in 2023 to $4.84 billion in 2024 and $5.96 billion in 2025 3.

The 10-K explains the 2025 improvement in the investments 3. Net unrealized gains on instruments measured at fair value were $2.1 billion in 2025 against a loss of $764.5 million in 2024, helped by gains of $3.2 billion on Agency bonds 3. Interest rate swaps, the contracts used to hedge, lost $716.8 million in 2025 after a $2.1 billion gain in 2024 3.

Net interest income, interest earned minus interest paid, was $1.14 billion in 2025, up from $248 million in 2024 and a loss of $111 million in 2023 3. The average yield on its assets rose to 5.36 percent from 5.15 percent while the average cost of its borrowings fell to 4.75 percent from 5.38 percent 3.

The company also grew its capital 3. Through its at-the-market program, in which it sells new shares gradually, it issued 127.9 million shares for $2.6 billion in 2025 and 77.9 million shares for $1.6 billion in 2024 3. Its balance-sheet investment portfolio reached $132.05 billion at the end of 2025 from $98.19 billion a year before 3.

The three investment groups

Annaly runs three groups that share one pool of capital, and the 10-K says this lets it rotate investments by relative value 3. The groups are Agency, Residential Credit and Mortgage Servicing Rights 3.

Agency group

The Agency group buys mortgage bonds guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae 3. At the end of September 2026 the Agency portfolio was $91.8 billion, 55 percent of dedicated capital, with activity focused on rotation into higher coupon specified pools 1.

The quarterly report says the company added about $2 billion notional of Agency bonds, focused on 5.5% and 6.0% coupon specified pools 2. It adds that its specified pools are on average over 3.5 years seasoned and carry loan balances less than half those of new production bonds 2.

Residential Credit and Onslow Bay

The Residential Credit group buys home loans not guaranteed by the Agencies and bonds backed by them 3. At the end of September 2026 it held $10.4 billion, 23 percent of dedicated capital, with record loan fundings of $5.8 billion in the quarter 1.

The group issued twelve securitizations totaling a record $7.4 billion in the quarter and remained the largest non-bank issuer of Prime Jumbo and Expanded Credit bonds, citing Inside Nonconforming Markets 1. Its locked pipeline carried a weighted average FICO score of 766 and combined loan-to-value ratio of 67 percent 2.

Securitizations run under the Onslow Bay program, called OBX, which had 101 deals comprising $46.2 billion of issuance since the beginning of 2018 as of December 31, 2025 3. The 10-K names competitors by kind only: financial institutions, institutional investors, other lenders, government entities and certain other REITs 3.

Mortgage servicing rights

A mortgage servicing right is the right to service a pool of home loans in exchange for a portion of the interest payments made on the loans 3. The MSR portfolio rose to $4.3 billion, 22 percent of dedicated capital, and Onslow Bay is the sixth-largest non-bank servicer of Agency bonds, citing eMBS 1.

The quarterly report says Annaly was the largest bulk purchaser of conventional MSR year to date, onboarding more than $40 billion in net unpaid principal balance 2. The weighted average note rate was 3.32 percent and serious delinquencies remained below 60 basis points 2.

Annaly says outside servicers handle the loans 5. In 2024 it announced a partnership with Rocket Mortgage for part of the portfolio, and in 2025 an agreement to buy a PennyMac Financial Services portfolio with PennyMac handling servicing and recapture 5.

Funding, hedging and leverage

Annaly finances Agency and credit bonds mainly with repurchase agreements, short-term loans backed by the bonds, and had $81.9 billion outstanding at the end of 2025 with a weighted average maturity of 35 days 3. The 10-K says it generally expects economic leverage of no more than 10:1 and has stayed below 8:1 since the financial crisis beginning in 2007 3.

It ended the quarter with a hedge ratio of 100 percent after adding Treasury futures to offset market-driven extension 1. It also reported $8.5 billion of total assets available for financing, including cash and unencumbered Agency bonds of $4.2 billion 1.

People and offices

David Finkelstein has been chief executive since March 2020 and co-chief investment officer since January 2025 3. Serena Wolfe has been chief financial officer since December 2019, and Steven Campbell has been president since December 2022 and chief operating officer since June 2020 3.

The company had 212 employees at the end of 2025 3. Its executive office at 1211 Avenue of the Americas in New York is leased under a lease expiring May 31, 2042 3.

Current problems

The 10-K says that as of December 31, 2025 the company was not party to any pending material legal proceedings 3. The live problem is market risk: the quarter's loss, higher leverage and rate volatility described in the quarterly report 2.

The umbrella, in words

Annaly is an internally-managed Maryland corporation taxed as a real estate investment trust 3. Its significant subsidiaries are Annaly Credit Opportunities Management LLC, Annaly TRS, Inc., Arcola Securities, Inc. and Onslow Bay Financial LLC 6.

Arcola Securities is a wholly-owned broker-dealer and FINRA member that gives access to third-party funding, and Onslow Bay is a wholly-owned subsidiary that runs the correspondent channel 3. Annaly agreed a joint venture with GIC, a sovereign wealth fund, to invest in residential credit assets, and committed to invest in Fifth Wall Ventures funds 3.

The proxy statement lists BlackRock, Inc. as the beneficial owner of 56,856,178 common shares, 7.8 percent, and The Vanguard Group, Inc. as owner of 49,300,019 shares, 6.7 percent, from their Schedule 13G filings 7. Directors and officers as a group held 1,070,909 shares, under one percent 7.

Annaly owns no land or plants; the 10-K lists only its leased office under Properties 3. It had 787,862,972 common shares outstanding on October 23, 2026 2.

The company declared a quarterly common dividend of $0.75 per share 1. The 10-K says that, to keep its REIT status, it intends to distribute at least 90 percent of its REIT taxable income each taxable year 3.

Finkelstein said in the October 20, 2026 release that the company continues "to see ample investment opportunities across each of our three strategies" 1. He added that it remains disciplined on capital allocation, leverage, liquidity and its hedge portfolio 1.

The quarterly report says bulk MSR supply increased during the quarter and is expected to remain robust through year-end 2. It also says 2026 securitization volume in the private-label market is expected to set a post-Global Financial Crisis record 2.

Four whole loan securitizations totaling $2.2 billion priced in October 2026, and the company has priced 37 securitizations totaling $21.2 billion since the start of 2026, according to its investor presentation 8.

For capital, the company entered a $2.5 billion at-the-market sales program on December 22, 2025 3. In the third quarter it raised $757 million through that program 1.

The 10-K says the board may change the capital allocation policy and targeted assets at its discretion 3. It adds that the company may seek to expand its capital base to buy new and different assets when potential returns look attractive against its targets 3.

The 10-K also says the company may in the future acquire assets or companies by offering its debt or equity securities in exchange for them 3.

The preferred stock repurchase program became effective on January 1, 2025 and will expire on December 31, 2029 2. The company says it generally expects to keep economic leverage below 10:1 2.

On rates, the quarterly report says Fed officials and market participants are questioning whether policy rates are high enough, implying tightening is likely to continue in coming months 2.