Annaly Q3 2026 Earnings: Investment Losses Drive a GAAP Loss

Annaly Capital Management (NYSE: NLY) reported Q3 2026 net interest income of $543.6 million, up from $275.8 million a year earlier, while GAAP diluted EPS swung to a loss of $1.36 from earnings of $1.20. A $4.72 billion loss on investments and other items exceeded $3.07 billion of derivative gains, producing a $1.00 billion net loss attributable to Annaly. Non-GAAP earnings available for distribution were $0.80 per share, above the $0.75 dividend, but book value ended the quarter at $17.86 and economic return was negative 7.6%.

Core Financial Results

Annaly’s interest and servicing income improved year over year. Interest income increased faster than interest expense, nearly doubling net interest income, while net servicing income rose by about 24%. However, investment-related losses determined the overall GAAP result.

The following figures are for the quarter ended September 30, 2026, except book value, which is measured at quarter-end.

EAD is a non-GAAP measure and should not be treated as equivalent to GAAP EPS. Its positive result alongside a GAAP loss reflects the substantial effect that investment and derivative marks had on reported earnings.

Business and Portfolio Performance

Annaly ended the quarter with a total investment portfolio of $106.5 billion. This measure includes on- and off-balance-sheet investments in which the company has economic exposure, so it differs from GAAP total assets.

The $91.8 billion Agency portfolio represented 55% of dedicated capital and decreased modestly during the quarter. Activity focused on rotating into higher-coupon specified pools. Annaly also added Treasury futures to address market-driven duration extension, ending the quarter with a 100% hedge ratio.

The Residential Credit portfolio was effectively unchanged at $10.4 billion and represented 23% of dedicated capital. Production remained active, with record whole-loan fundings of $5.8 billion. The business issued 12 securitizations totaling a record $7.4 billion during the quarter.

The mortgage servicing rights portfolio increased to a market value of $4.3 billion and accounted for the remaining 22% of dedicated capital. Net servicing income increased to $156.0 million from $126.3 million a year earlier.

Profitability, Liquidity, and the Balance Sheet

GAAP net interest margin rose to 1.54% from 1.47% in the preceding quarter and 0.97% a year earlier. The non-GAAP margin excluding prior-period premium amortization adjustment, or PAA, was less favorable: it declined to 1.69% from 1.76% sequentially and was close to the 1.70% reported a year earlier. The corresponding net interest spread excluding PAA fell to 1.42% from 1.50% in both comparison periods.

Quarter-over-quarter funding costs also moved higher. The average GAAP cost of interest-bearing liabilities increased six basis points to 4.34%, while the average economic cost increased seven basis points to 4.03%. The GAAP funding cost nevertheless remained below the 4.73% recorded in Q3 2025.

Total assets increased to $146.1 billion from $143.7 billion at June 30, while total equity declined to $15.9 billion from $17.0 billion. Cash and cash equivalents fell to $2.18 billion from $2.91 billion. Annaly reported $8.5 billion of assets available for financing, including $4.2 billion of cash and unencumbered Agency mortgage-backed securities.

Leverage increased as equity declined. GAAP leverage rose to 8.0 times from 7.4 times in the preceding quarter, and economic leverage increased to 5.9 times from 5.6 times. Annaly also raised $757 million through its at-the-market program, with common shares outstanding rising to 784.7 million from 750.6 million at the end of Q2.

Higher Net Interest Income Could Not Offset Investment Marks

The central issue in Q3 was the divergence between recurring income and fair-value performance. Annaly recorded $4.72 billion of losses on investments and other items, which derivative gains of $3.07 billion only partly offset. That resulted in a total other loss of $1.63 billion, overwhelming the improved net interest and servicing income.

Other comprehensive loss added another $238.8 million, and comprehensive loss attributable to Annaly reached $1.24 billion. Against this backdrop, book value per common share fell approximately 11.4% from $20.15 at the end of Q2 to $17.86, while the quarter’s economic return was negative 7.6%.

EAD remained positive at $0.80 per share and covered the declared $0.75 dividend by approximately 1.07 times. The $0.05 per-share difference nevertheless represents a relatively limited coverage cushion if distributable earnings weaken.

Management’s Perspective

CEO and Co-Chief Investment Officer David Finkelstein described Q3 as a challenging period for fixed-income markets. He said Annaly entered the quarter with cycle-low leverage and minimal duration exposure, providing flexibility to manage the portfolio during the volatility.

Management emphasized continued discipline in capital allocation, leverage, liquidity, and hedging. It also cited investment opportunities across the Agency, Residential Credit, and MSR strategies, but did not provide new quantitative earnings guidance.

Recent Insider Transactions

The supplied insider data showed 7,628 shares purchased in one transaction and 116,537 shares sold in three transactions over the previous six months, for net sales of 108,909 shares. The following three sales were individually identified; approximate share counts are calculated from the reported price and transaction value.

These disclosures establish the transaction activity but do not, by themselves, indicate management’s outlook for the business.

Risks Investors Need to Monitor

• Book-value sensitivity: Fixed-income volatility produced large investment losses, a negative economic return, and a double-digit sequential decline in book value per share.
• Higher leverage and funding costs: Both GAAP and economic leverage increased during the quarter, while average funding costs also rose sequentially. That combination could increase sensitivity to further market or financing pressure.
• Incomplete hedge offsets: Derivative gains absorbed part of the investment losses but did not prevent a substantial GAAP and comprehensive loss, despite the 100% quarter-end hedge ratio.
• Limited dividend cushion: EAD exceeded the dividend by only $0.05 per share, making future distributable earnings and funding spreads important for dividend coverage.
• Expansion of the common share base: Shares outstanding increased during the quarter following $757 million of at-the-market issuance. Future per-share results will depend in part on how effectively that capital is deployed.

Summary

Annaly’s Q3 2026 results combined higher net interest and servicing income with severe investment-related losses. EAD continued to cover the dividend, and residential credit production and securitization activity remained elevated, but book value declined, leverage increased, and ex-PAA spreads narrowed. The key issues ahead are whether portfolio marks stabilize, financing costs remain manageable, and distributable earnings preserve sufficient dividend coverage.