10-Q: Annaly Capital Management Reports Strong Q2 2026 Results

Annaly Capital Management Inc. reported a significant increase in net income and earnings available for distribution in Q2 2026, driven by improved net interest income and derivative performance.

Summary

• Annaly Capital Management, Inc. reported strong financial results for the second quarter ended June 30, 2026.
• Net income attributable to Annaly was $822.7 million, a substantial increase from $57.1 million in the prior year period.
• Earnings available for distribution (EAD) per common share were $0.79, up from $0.73 in Q2 2025, exceeding the quarterly common stock dividend.
• Total assets grew to $143.7 billion, with key drivers being increases in securitized residential whole loans, residential mortgage loans, and cash.
• The company's economic leverage ratio remained stable at 5.6:1, indicating a prudent approach to capital management.

Sentiment

Score: 8

Explanation: StockSavvy.ai views this filing positively due to strong earnings growth, improved net interest income, and a significant turnaround in derivative performance, indicating effective risk management and operational execution.

Positives

• Net income attributable to Annaly increased significantly to $822.7 million for the quarter, up from $57.1 million in Q2 2025.
• Earnings available for distribution (EAD) per common share rose to $0.79 from $0.73 in the prior year quarter.
• Net interest income saw a substantial increase to $488.2 million from $273.2 million in Q2 2025.
• Net servicing income improved to $157.2 million from $127.1 million in the prior year quarter.
• Net gains on derivatives were $552.4 million, a significant improvement from a loss of $388.8 million in Q2 2025.
• The company raised approximately $447 million in common equity through its at-the-market sales program.
• Agency MBS spreads tightened, and fixed income fund inflows remained strong.
• The company's economic leverage ratio was a stable 5.6:1, and the economic capital ratio was 14.9%.

Negatives

• Net gains (losses) on investments and other were a loss of $318.5 million, compared to a gain of $83.5 million in the prior year quarter.
• The company's total liabilities increased to $126.8 billion from $119.4 billion in the prior year.
• Unrealized losses on available-for-sale securities increased to $560.9 million from $494.3 million.

Risks

• Changes in interest rates, the yield curve, and prepayment rates can affect net interest income and the value of assets.
• Credit risks are present in investments not guaranteed by agencies, such as commercial mortgage-backed securities, CRT securities, and non-Agency MBS.
• MSR values can be adversely impacted by rising borrower delinquencies, reducing servicing income and increasing servicing costs.
• The company is exposed to counterparty risk if counterparties fail to meet their obligations.
• Operational risks include human error, fraud, systems issues, and vendor management failures.
• Cybersecurity threats and breaches, whether affecting the company or its third-party service providers, pose a significant risk.
• Changes in government regulations or policy could adversely affect the company's business.
• The company's ability to maintain its qualification as a REIT is subject to various requirements.

Future Outlook

The company's outlook is influenced by continued robust U.S. economic growth, but also by elevated inflation and potential interest rate hikes by the Federal Reserve. Annaly expects future Agency investments to be balanced between TBA securities and specified pools. Bulk supply of MSR is expected to remain healthy through year-end.

Management Comments

• The second quarter of 2026 was characterized by continued robust U.S. economic growth, supported by consumer spending and technology-related investment, with labor market momentum improving relative to the softer trends experienced in the second half of 2025.
• In this environment, Annaly generated a portfolio economic return of 5.5% in Q2 2026, with earnings available for distribution (EAD) of $0.79 per share, once again exceeding the quarterly common stock dividend, which was increased to $0.75 per share.
• Our Agency portfolio grew by $2.8 billion during the quarter to $95.0 billion (including TBA exposure), representing 57% of the firms capital.
• Our Residential Credit portfolio ended the quarter at $10.4 billion in market value (on an economic basis), an increase of $35 million quarter-over-quarter, and represented approximately 22% of firm capital.
• In our mortgage servicing rights (MSR) business, the portfolio decreased modestly to $4.1 billion in market value during the quarter (including unsettled commitments), with capital allocation remaining at 21% of firm capital.

Industry Context

StockSavvy.ai notes that Annaly's performance reflects a broader trend in the mortgage REIT sector where improved net interest margins and favorable derivative performance are driving profitability, despite ongoing concerns about inflation and interest rate volatility.

Comparison to Industry Standards

• Annaly's net interest margin (excluding PAA) of 1.76% for Q2 2026 is competitive within the mortgage REIT industry, which typically aims for margins in the 1.5%-2.0% range.
• The company's economic leverage ratio of 5.6:1 is within the typical range for mortgage REITs, which often leverage their portfolios to enhance returns.
• The increase in EAD per share to $0.79 demonstrates Annaly's ability to generate distributable earnings that cover its dividend, a key performance indicator for REITs.
• The company's significant investment in Agency MBS aligns with industry peers, though Annaly's substantial Residential Credit and MSR segments offer diversification.

Stakeholder Impact

• Shareholders benefit from increased earnings available for distribution and a strong dividend coverage.
• Creditors and lenders are supported by the company's stable economic leverage and capital ratios.
• Employees are likely to benefit from the company's strong performance, potentially through bonuses or stock-based compensation, though specific details are not provided.

Next Steps

• Continue to manage portfolio composition and leverage within established risk appetite parameters.
• Monitor economic and interest rate environments for potential impacts on portfolio performance.
• Pursue opportunities in Agency MBS, Residential Credit, and MSR businesses.
• Utilize the at-the-market sales program to manage capital and potentially fund growth.

Key Dates

Recommendation

While Annaly demonstrated strong operational performance and improved profitability in Q2 2026, the outlook remains subject to interest rate volatility and broader economic uncertainties. The company's ability to consistently cover its dividend and manage its leverage effectively warrants a 'hold' rating, pending further clarity on the macroeconomic environment and sustained performance.

Keywords

Annaly Capital Management, Mortgage REIT, Agency MBS, Residential Credit, Mortgage Servicing Rights, Interest Rate Swaps, Form 10-Q, Financial Results