Annaly Capital Management NYSE: NLY reported a stronger second quarter of 2026, citing book value growth, improved earnings available for distribution and continued expansion across parts of its diversified housing finance platform.
Chief Executive Officer and Co-Chief Investment Officer David Finkelstein said the company generated a 5.5% economic return during the quarter, helped by lower rate volatility despite rising interest rates. He said earnings available for distribution, or EAD, totaled $0.79 per share, marking the ninth consecutive quarter in which EAD exceeded the company’s dividend.
Annaly recently increased its quarterly common dividend to $0.75 per share. Finkelstein said the company’s board was “very methodical” in evaluating the dividend and wanted to ensure it was “earnable.” He said Annaly expects to cover the payout over time, while acknowledging that individual quarters could fluctuate.
Book Value Rises as Earnings Top Dividend
Chief Financial Officer Serena Wolfe said Annaly’s book value per share increased 1.7% from the prior quarter to $20.15 as of June 30, 2026. Including the $0.75 quarterly dividend, the company’s economic return for the first half of the year was 6.9%.
Wolfe said EAD per share rose $0.03 from the prior quarter to $0.79. The increase was primarily driven by higher average yields on the Agency portfolio, higher securitization volumes in Residential Credit and favorable funding costs. Average repo rates declined 6 basis points to 3.84% during the quarter, while the weighted average coupon on the Agency portfolio increased 11 basis points to 5.11%.
Net interest margin increased 5 basis points to 1.76%, and net interest spread improved 8 basis points to 1.50%. Wolfe said both metrics benefited from higher asset yields, partly offset by modest increases in economic funding costs and lower swap income as SOFR declined during the period.
Annaly ended the quarter with economic leverage of 5.6 times, down slightly from 5.7 times in the prior quarter. The company also raised about $450 million of equity through its at-the-market program during the quarter.
Agency Portfolio Grows Amid Strong Demand
Finkelstein said Annaly increased its Agency portfolio by roughly $3 billion during the quarter, ending at $95 billion in market value. The capital allocation to Agency assets rose to 57%.
He said Agency mortgage-backed securities spreads tightened during the quarter as de-escalation in the Middle East contributed to lower realized and implied rate volatility. Demand remained strong, supported by fixed-income inflows, overseas investors and a robust collateralized mortgage obligation market, which Finkelstein said is absorbing about 30% of gross issuance.
Annaly modestly moved up in coupon during the quarter, reducing exposure to 4.5% coupons in favor of 5.5% and 6% coupons. Finkelstein said new capital was primarily invested into production coupon mortgage-backed securities and Agency commercial mortgage-backed securities.
V.S. Srinivasan, Head of Agency, said in the Q&A session that the company’s strategy for managing prepayment risk has been to move up in coupon through “quality specified pools” with call protection. He said Annaly has been deliberate in constructing that portfolio over the last several years.
Finkelstein also said Annaly added swap hedges during the quarter to protect against rising rates. He said the hedge portfolio remains diversified across Treasuries, futures and swaps, with a preference for swaps given their carry profile and balance sheet availability.
Residential Credit Platform Posts Record Loan Purchases
Annaly’s Residential Credit portfolio ended the second quarter at $10.4 billion in market value, roughly unchanged from the prior quarter and representing 22% of firm capital.
Finkelstein said Annaly purchased $7.1 billion of loans during the quarter, including activity through the Onslow Bay correspondent channel, whole loan bulk purchases and partnerships. He called it a new quarterly record for the business. Onslow Bay produced $6.7 billion of locks and $5.1 billion of fundings.
The company closed 13 securitization deals during the quarter totaling $6.8 billion in principal balance, creating about $780 million of proprietary investments. Year to date, the OBX platform priced 25 transactions totaling $14.2 billion. Finkelstein said Annaly remains the largest issuer of Expanded Credit mortgages and the second-largest issuer overall.
Mike Fania, Co-Chief Investment Officer and Head of Residential Credit, said Annaly’s advantages in sourcing loans include longstanding originator relationships, a broad correspondent network and consistent pricing through market cycles. He said the company faces more than 350 correspondents and recently expanded into non-delegated correspondent lending.
Fania said Non-QM and DSCR loans remain Annaly’s core Residential Credit collateral types. He said those categories accounted for 70% of the company’s 2026 securitization volume to date and remain the highest-returning and most scalable areas for Annaly.
MSR Portfolio Remains Stable
Annaly’s mortgage servicing rights portfolio ended the quarter at about $4.1 billion in market value, representing 21% of firm capital. Finkelstein said the company modestly rotated the portfolio toward higher average loan balances, committing to purchase approximately $200 million in market value of MSR while also committing to sell two lower-loan-balance bulk pools for $220 million in proceeds.
Ken Adler, Head of Mortgage Servicing Rights, said Annaly’s variable-cost model using sub-servicers gives it flexibility in the MSR market. He said moving into higher average loan balance MSR enhances returns because the company pays a fixed servicing cost per loan, making higher-balance loans more efficient for Annaly’s model.
Finkelstein said MSR portfolio fundamentals remained favorable. Prepayment speeds rose seasonally to 5.2 CPR but remained below initial model projections. Serious delinquencies were range-bound around 50 basis points. The portfolio had a weighted average note rate of 3.3%, which Finkelstein said was the lowest among the 20 largest MSR holders.
Management Highlights Liquidity and Capital Flexibility
Wolfe said Annaly ended the quarter with $8 billion in unencumbered assets, including $5.5 billion in cash and unencumbered Agency mortgage-backed securities. Including pledged but undrawn MSR value, she said Annaly had $9.6 billion of total assets available for financing at quarter-end, up about $580 million from the prior quarter.
Finkelstein said Annaly continues to see compelling opportunities across Agency, Residential Credit and MSR. He characterized Agency spreads as attractive, with mid-teens levered returns, and said Residential Credit continues to offer strong growth potential supported by Annaly’s sourcing and securitization capabilities.
In response to an analyst question about capital deployment, Finkelstein said the marginal dollar would likely go into Agency, with Residential Credit added as opportunities arise. He also said MSR remains attractive and noted that Annaly had purchased an MSR package after quarter-end with a sub-3% note rate.
Finkelstein said Annaly’s operating-light structure remains a key advantage, allowing the company to allocate capital across housing finance opportunities without depending on loan origination volume or servicing operations.
About Annaly Capital Management (NYSE:NLY)
Annaly Capital Management, Inc is a publicly traded real estate investment trust (REIT) that specializes in generating income through investment in mortgage-related assets. The company's core business activities include the acquisition, financing, and management of a diversified portfolio of agency and non-agency residential mortgage-backed securities (RMBS), commercial mortgage-backed securities (CMBS), and other real estate debt instruments. Annaly seeks to profit from the spread between the interest earned on its mortgage investments and its cost of funds, as well as from capital gains realized through active portfolio management.
Founded in 1997 and headquartered in New York City, Annaly has grown to become one of the largest mortgage REITs in the United States.
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