What changed in this filing

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Item 2. Management’s Discussion and Analysis

2026-07-29 compared with 2026-04-29 · 288 added, 367 removed, 1315 unchanged (33% of the section changed)

Management’s Discussion and Analysis

Portfolio activity included marginal additions to Agency commercial mortgage-backed security holdings and repositioning within the MBS portfolio by rotating down in coupon from 6.0% to 4.5% TBA securities during the late quarter sell-off in rates.

These adjustments aimed to secure more durable cashflows and enhance portfolio convexity in the event of further rate declines.

Consequently, the portfolio’s weighted average coupon decreased by six basis points to 5.06%.

Interest rate exposure remained conservative, with disciplined hedging to protect book value and manage risk.

Heightened volatility prompted more active hedge adjustments, though overall hedge levels changed only slightly by quarter-end.

The portfolio maintains exposure in swap spreads, benefiting from clearer bank capital regulation, while Treasuries remain an essential hedge during sharp volatility episodes.

The Residential Credit portfolio concluded the quarter at $10.3 billion in market value, marking a substantial 30% increase compared to the previous quarter.

This growth was primarily driven by continued expansion in the whole loan correspondent channel.

In tandem with the portfolio’s growth, capital allocation to Residential Credit rose to 23% of the firm’s capital, representing a four-percentage point increase quarter-over-quarter.

Whole loan acquisitions were a key driver of portfolio expansion, with $6.7 billion settled during the quarter, approximately 80% of which was sourced through the correspondent channel.

Loan-Lock volumes were also strong, reaching $7.4 billion in Q1 2026, which reflects a 16% increase quarter-over-quarter and a 41% increase year-over-year (“yoy”).

Residential credit spreads tightened early in the year in tandem with the spread movement in Agency MBS basis.

However, similar to Agency MBS, residential credit spreads reversed some of their tightening in late February and March, with AAA-rated Non-QM spreads ending the quarter 10 to 15 basis points wider.

Despite this volatility, capital markets remained robust, as evidenced by Q1 2026 residential credit gross issuance totaling $79 billion, nearly 50% higher than volumes seen in Q1 2025.

The OBX securitization platform demonstrated significant activity, settling eight securitizations totaling $4.7 billion in the quarter and generating $570 million of high-quality proprietary assets for both Annaly’s balance sheet and its joint venture.

Following quarter-end, an additional four securitizations were priced, bringing the year-to-date total to twelve securitizations and $6.6 billion.

Onslow Bay continues to be the largest non-bank securitizer of residential credit and is well positioned to benefit from the ongoing growth in the private label securitization market as well as private asset-backed finance.

The firm’s credit standards remain rigorous, with the quarter-end locked pipeline featuring a weighted average FICO score of 762, a combined loan-to-value ratio of 67%, and approximately 3% of the portfolio exceeding 80% combined LTV.

The MSR portfolio, including unsettled commitments as of quarter-end, ended Q1 2026 at $4.2 billion in market value, reflecting an increase of over $300 million quarter-over-quarter.

Capital allocation to MSR grew to 21%, from 19% at the start of the year.

During the quarter, commitments were made to purchase $24 billion in unpaid principal balance, or roughly $388 million in market value of MSR, with a weighted average note rate of 3.4%.

These acquisitions were spread across four bulk packages and our flow channels.

The firm remained the second largest buyer of conventional MSR in Q1 2026, as measured by transfers, and is now ranked as the fifth largest non-bank Agency MBS servicer.

Bulk supply in Q1 2026 exceeded that of Q1 2025, with expectations for healthy supply levels continuing throughout the year.

Annaly has expanded its flow MSR capabilities to acquire current coupon MSR when attractive, with active flow sellers more than tripling quarter-over-quarter.

Purchases via flow channels totaled $1.9 billion in UPB, nearly double the Q4 figure, though this remains a small portion of overall acquisitions.

Underlying portfolio fundamentals are solid, with low prepay speeds at 4.2% and a high-quality credit profile, evidenced by serious delinquencies below 50 basis points.

The portfolio’s weighted average note rate of 3.3% provides strong prepayment protection and is the lowest among the top 20 largest Agency MSR holders.

As a result, the MSR valuation multiple increased modestly to 5.94x during the quarter, primarily due to rising interest rates.

Economic Environment

economy expanded in 2025 with real GDP growth coming in at 2.1% yoy, slightly above annual trend growth.

The economic expansion continued to be predicated on strong consumer spending and private sector business investments, with the former advancing 2.6% yoy while the latter grew 1.9% yoy.

Nevertheless, 2025 represented a downshift from the growth pace achieved in the prior four years as the growth momentum decelerated to end the year with GDP rising a more muted 0.5% SAAR in Q4 2025.

Despite the Q4 2025 headline miss, the underlying details remained relatively positive.

Real final sales to private domestic purchasers expanded 1.8% SAAR – a level consistent with the growth pace seen in the post pandemic period.

Meanwhile, government spending declined meaningfully as the combination of the October/November 2025 government shutdown and a material reduction in the federal workforce resulted in a one percentage point drag on Q4 2025 GDP growth.

Lastly, net trade normalized and had a limited impact on growth, subtracting 22 bps from Q4 2025 GDP.

Looking ahead, the conflict in the Middle East has brought a significant energy price shock that may challenge the thus far solid performance of the U.S.

economy, with Q1 2026 GDP still expected to rebound from the Q4 2025 level, albeit to a lesser extent than forecasted ahead of the conflict in Iran.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

After weakening gradually throughout 2025, the labor market saw three consecutive employment reports with material surprises in either direction in Q1 2026.

Looking through the volatility, it appears that payrolls are stabilizing near, or slightly above, their breakeven level with labor supply and demand in rough balance.

According to the Bureau of Labor Statistics, employers added 178,000 jobs in March and a net 205,000 jobs in the quarter.

However, the breadth of hiring remains limited, with the healthcare sector still accounting for most job growth.

The unemployment rate ended the quarter at 4.3%, a modest decline from the 4.4% rate at the end of 2025.

The labor force participation rate declined to 61.9%, its lowest level since late 2021.

Wage growth, as measured by the year-over-year change in Average Hourly Earnings, fell from 3.7% in the fourth quarter of 2025 to 3.5% in the first quarter of 2026.

Inflation was little changed on a yoy rate in Q1 2026, and progress towards the Fed’s 2% target remained slow.

The headline Personal Consumption Expenditure Chain Price Index, the Fed’s preferred inflation gauge, measured 2.8% yoy in February 2026, in line with the December 2025 reading.

The core measure, which does not include price changes in food and energy sectors, measured 3.0 % yoy as of February, unchanged from December 2025.

In the meantime, the March core consumer price index was better-than-expected, while the headline index featured a significant acceleration driven by the ongoing energy price shock from the conflict in the Middle East.

Overall, core commodity prices remained soft while core services remained firm.

Looking ahead, we expect that inflation prints will be volatile given the higher commodity prices, with core inflation continuing to make only slow progress towards 2%.

interest rates repriced sharply in Q1 2026 as deteriorating risk sentiment tied to the conflict in Iran reignited inflation concerns and prompted a reassessment of monetary policy.

Treasury yields rose across the yield curve, led by the front end, as expectations for Fed easing were pared back, resulting in a flatter yield curve.

Market-based measures of short‑term inflation expectations increased meaningfully alongside higher energy prices, though longer‑term inflation measures declined, suggesting the inflation shock was viewed as near‑term rather than structural.

Against this backdrop, interest rate volatility rebounded from the subdued levels seen earlier in the year.

Amid higher volatility and rising yields, mortgage spreads widened over the quarter, with the spread between the 30‑year Agency MBS coupon and the 10‑year U.S.

Treasury rate widening to 106 bps.

The following table presents interest rates and spreads at each date presented:

March 31, 2026 December 31, 2025 March 31, 2025

30-Year mortgage current coupon 5.38% 5.04% 5.51%

Mortgage basis 106 bps 87 bps 130 bps

Treasury rate 4.32% 4.17% 4.21%

OIS SOFR Swaps

1-Month 3.66% 3.67% 4.32%

6-Month 3.68% 3.58% 4.18%

Income Tax Reform

On July 4, 2025, H.R.

1, also known as the One Big Beautiful Bill Act (the “OBBB”), was signed into law.

The OBBB makes material changes to U.S.

tax law, including some provisions that affect the taxation of REITs and their investors.

In particular, the OBBB (i) permanently extends the 20% deduction for “qualified REIT dividends” for individuals and other non-corporate taxpayers under Section 199A of the Code and (ii) increases the percentage limit under the REIT asset test applicable to taxable REIT subsidiaries from 20% to 25% for taxable years beginning after December 31, 2025.

The results of the OBBB changes are not expected to have a material effect on the Company’s financial operations or related disclosures.

Results of Operations

The results of our operations are affected by various factors, many of which are beyond our control.

Certain of such risks and uncertainties are described herein (see “Special Note Regarding Forward-Looking Statements” above) and in Part I, Item 1A.

“Risk Factors” of our most recent Annual Report on Form 10-K and in Part II, Item 1A.

“Risk Factors” in this Quarterly Report on Form 10-Q.

This Management Discussion and Analysis section contains analysis and discussion of financial results computed in accordance with U.S.

generally accepted accounting principles (“GAAP”) and non-GAAP measurements.

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide non-GAAP financial measures to enhance investor understanding of our period-over-period operating performance and business trends, as well as for assessing our performance versus that of industry peers.

Refer to the “Non-GAAP Financial Measures” section for additional information.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Net Income (Loss) Summary

The following table presents financial information related to our results of operations as of and for the three months ended March 31, 2026 and 2025.

As of and for the Three Months Ended March 31,

(dollars in thousands, except per share data)

Interest income $ 1,724,930 $ 1,317,108

Interest expense 1,272,239 1,097,137

Net interest income 452,691 219,971

Servicing and related income 159,133 140,435

Servicing and related expense 16,580 14,113

Net servicing income 142,553 126,322

Other income (loss) (253,684) (159,657)

Total general and administrative expenses 52,564 48,064

Income (loss) before income taxes 288,996 138,572

Income taxes (1,519) 8,267

Net income (loss) 290,515 130,305

Net income (loss) attributable to noncontrolling interests 7,863 6,081

Net income (loss) attributable to Annaly 282,652 124,224

Dividends on preferred stock 40,652 37,157

Net income (loss) available (related) to common stockholders $ 242,000 $ 87,067

Net income (loss) per share available (related) to common stockholders

Basic $ 0.33 $ 0.15

Diluted $ 0.33 $ 0.15

Weighted average number of common shares outstanding

Basic 722,707,153 587,149,704

Diluted 724,364,897 588,420,998

Other information

Investment portfolio at period-end $ 134,055,506 $ 101,959,102

Average total assets $ 137,073,715 $ 104,335,865

Average equity $ 16,242,861 $ 12,890,730

GAAP leverage at period-end (1)

GAAP capital ratio at period-end (2)

11.8 % 12.4 %

Annualized return (loss) on average total assets 0.85 % 0.50 %

Annualized return (loss) on average equity (3)

7.15 % 4.04 %

Net interest margin (4)

1.41 % 0.87 %

Average yield on interest earning assets (5)

5.36 % 5.18 %

Average GAAP cost of interest bearing liabilities (6)

4.29 % 4.77 %

Net interest spread 1.07 % 0.41 %

Weighted average experienced CPR for the period 10.2 % 7.1 %

Weighted average projected long-term CPR at period-end 10.4 % 9.5 %

Common stock book value per share $ 19.82 $ 19.02

Non-GAAP metrics *

Interest income (excluding PAA) $ 1,721,236 $ 1,329,404

Economic interest expense (6)

$ 1,164,874 $ 892,748

Economic net interest income (excluding PAA) $ 556,362 $ 436,656

Premium amortization adjustment cost (benefit) $ (3,694) $ 12,296

Earnings available for distribution (7)

$ 589,888 $ 461,857

Earnings available for distribution per average common share $ 0.76 $ 0.72

Annualized EAD return on average equity (excluding PAA) 14.58 % 14.43 %

Economic leverage at period-end (1)

Economic capital ratio at period-end (2)

14.7 % 14.8 %

Net interest margin (excluding PAA) (4)

1.71 % 1.69 %

Average yield on interest earning assets (excluding PAA) (5)

5.35 % 5.23 %

Average economic cost of interest bearing liabilities (6)

3.93 % 3.88 %

Net interest spread (excluding PAA) 1.42 % 1.35 %

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

* R epresents a non-GAAP financial measure.

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Total economic assets include the implied market value of TBA derivatives and net of debt issued by securitization vehicles (excluding structured repurchase transactions) and participations issued.

(3) Annualized GAAP return (loss) on average equity annualizes realized and unrealized gains and (losses) which may not be indicative of full year performance, unannualized GAAP return (loss) on average equity is 1.79% and 1.01% for the three months ended March 31, 2026 and 2025, respectively.

(3) Annualized GAAP return (loss) on average equity annualizes realized and unrealized gains and (losses) which may not be indicative of full year performance, unannualized GAAP return (loss) on average equity is 4.97% and 0.45% for the three months ended June 30, 2026 and 2025, respectively, and 6.78% and 1.46% for the the six months ended June 30, 2026 and 2025, respectively.

(4) Net interest margin represents our interest income less interest expense divided by the average interest earning assets.

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(7) Excludes dividends on preferred stock.

Net income (loss) was $290.5 million, which includes $7.9 million attributable to noncontrolling interests, or $0.33 per average basic common share, for the three months ended March 31, 2026, compared to $130.3 million, which includes $6.1 million attributable to noncontrolling interests, or $0.15 per average basic common share, for the same period in 2025.

Net income (loss) was $827.8 million, which includes $5.1 million attributable to noncontrolling interests, or $1.06 per average basic common share, for the three months ended June 30, 2026, compared to $60.4 million, which includes $3.3 million attributable to noncontrolling interests, or $0.03 per average basic common share, for the same period in 2025.

We attribute the majority of the change in net income (loss) to favorable changes in net gains (losses) on derivatives, net interest income, and net servicing income, partially offset by an unfavorable change in net gains (losses) on investments and other.

Net gains (losses) on derivatives was $409.1 million for the three months ended March 31, 2026 compared to ($977.9) million for the same period in 2025.

Net interest income for the three months ended March 31, 2026 was $452.7 million, compared to $220.0 million for the same period in 2025.

Net servicing income for the three months ended March 31, 2026 was $142.6 million, compared to $126.3 million for the same period in 2025.

Net gains (losses) on investments and other was ($672.1) million for the three months ended March 31, 2026, compared to $810.8 million for the same period in 2025.

Earnings available for distribution were $589.9 million, or $0.76 per average common share, for the three months ended March 31, 2026, compared to $461.9 million, or $0.72 per average common share, for the same period in 2025.

The change in earnings available for distribution during the three months ended March 31, 2026, compared to the same period in 2025, was primarily due to higher coupon income resulting from higher residential mortgage loan and securities balances and purchasing securities higher up in the coupon stack since Q1 2025.

This change was partially offset by higher interest expense, resulting from higher securitized debt and repurchase agreement balances despite lower average rates, and an unfavorable change in the net interest component of interest rate swaps.

Net gains (losses) on derivatives was $552.4 million for the three months ended June 30, 2026 compared to ($388.8) million for the same period in 2025.

Net interest income for the three months ended June 30, 2026 was $488.2 million, compared to $273.2 million for the same period in 2025.

Net servicing income for the three months ended June 30, 2026 was $157.2 million, compared to $127.1 million for the same period in 2025.

Net gains (losses) on investments and other was ($318.5) million for the three months ended June 30, 2026, compared to $83.5 million for the same period in 2025.

Net income (loss) was $1.1 billion, which includes $13.0 million attributable to noncontrolling interests, or $1.40 per average basic common share, for the six months ended June 30, 2026, compared to $190.7 million, which includes $9.4 million attributable to noncontrolling interests, or $0.18 per average basic common share, for the same period in 2025.

Net gains on derivatives for the six months ended June 30, 2026 was $961.5 million, compared to ($1.4) billion for the same period in 2025.

Net interest income for the six months ended June 30, 2026 was $940.9 million, compared to $493.2 million for the same period in 2025.

Net servicing income for the six months ended June 30, 2026 was $299.8 million, compared to $253.4 million for the same period in 2025.

Net gains (losses) on investments and other was ($990.6) million for the six months ended June 30, 2026, compared to $894.3 million for the same period in 2025.

Refer to the section titled “Other income (loss)” located within this Item 2 for additional information related to these changes.

Earnings available for distribution were $627.7 million, or $0.79 per average common share, for the three months ended June 30, 2026, compared to $489.9 million, or $0.73 per average common share, for the same period in 2025.

The change in earnings available for distribution during the three months ended June 30, 2026, compared to the same period in 2025, was primarily due to higher coupon income, resulting from higher average Agency securities and residential mortgage loan balances, and higher net servicing income on higher average balances.

This change was partially offset by higher interest expense, resulting from higher average securitized debt and repurchase agreement balances despite lower average rates, and a decrease in the net interest component of interest rate swaps, primarily due to lower average receive rates resulting from declines in SOFR.

Earnings available for distribution were $1.2 billion, or $1.55 per average common share, for the six months ended June 30, 2026, compared to $951.8 million, or $1.45 per average common share, for the same period in 2025.

The change in earnings available for distribution during the six months ended June 30, 2026, compared to the same period in 2025, was primarily due

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

to higher coupon income, resulting from higher average Agency securities and residential mortgage loan balances, and higher net servicing income on higher average balances.

Non-GAAP Financial Measures

9 unchanged sentences

• economic net interest income (excluding PAA);

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

• average yield on interest earning assets (excluding PAA);

15 unchanged sentences

We believe these non-GAAP measures provide management and investors with additional details regarding our underlying operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive income (loss), and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to provide additional transparency into the operating performance of our portfolio.

In addition, EAD serves as a useful indicator for investors in evaluating our performance and ability to pay dividends.

Annualized EAD return on average equity, which is calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional detail on the earnings available for distribution generated by our invested equity capital.

In addition, EAD serves as a useful indicator

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

for investors in evaluating our performance and ability to pay dividends.

The following table presents a reconciliation of GAAP financial results to non-GAAP earnings available for distribution for the periods presented:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2026 2025 2026 2025

(dollars in thousands, except per share data)

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Non-EAD (income) loss allocated to equity method investments (3)

— (403) — (256)

Transaction expenses and non-recurring items (4)

10,246 5,706 18,197 12,488

Income tax effect of non-EAD income (loss) items 5,044 1,003 232 8,358

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(2) The adjustment to add back Net (gains) losses on derivatives does not include the net interest component of interest rate swaps which is reflected in earnings available for distribution.

The net interest component of interest rate swaps totaled $96.8 million and $191.5 million for the three months ended March 31, 2026 and March 31, 2025, respectively.

The net interest component of interest rate swaps totaled $87.5 million and $185.7 million for the three months ended June 30, 2026 and 2025, respectively, and $184.3 million and $377.2 million for the six months ended June 30, 2026 and 2025, respectively.

(3) Represents unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is a component of Other, net in the Consolidated Statements of Comprehensive Income (Loss).

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(6) MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected MSR yield income and net servicing income for the period.

(7) Annualized GAAP return (loss) on average equity annualizes realized and unrealized gains and (losses) which may not be indicative of full year performance, unannualized GAAP return (loss) on average equity is 1.79%, and 1.01% for the three months ended March 31, 2026 and March 31, 2025, respectively.

(7) Annualized GAAP return (loss) on average equity annualizes realized and unrealized gains and (losses) which may not be indicative of full year performance, unannualized GAAP return (loss) on average equity is 4.97% and 0.45% for the three months ended June 30, 2026 and 2025, respectively, and 6.78% and 1.46% for the the six months ended June 30, 2026 and 2025, respectively.

From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency MBS.

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The fair value of TBA derivatives is based on methods similar to those used to value Agency MBS.

We record TBA derivatives at fair value in our Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on derivatives in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives.

We record TBA derivatives at fair value in our

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on derivatives in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives.

TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different settlement dates multiplied by the notional amount of the TBA contract.

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The following table illustrates the impact of the PAA on premium amortization expense for our Residential Securities portfolio for the periods presented:

For the Three Months Ended March 31,

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2026 2025 2026 2025

(dollars in thousands)

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Management’s Discussion and Analysis

March 31, 2026 March 31, 2025

June 30, 2026 June 30, 2025

Economic leverage ratio reconciliation

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The following table presents a reconciliation of GAAP total assets to economic total assets for purposes of calculating our economic capital ratio for the periods presented:

March 31, 2026 March 31, 2025

June 30, 2026 June 30, 2025

Economic capital ratio reconciliation

37 unchanged sentences

For the three months ended (dollars in thousands)

March 31, 2026 $ 1,724,930 $ (3,694) $ 1,721,236

March 31, 2025 $ 1,317,108 $ 12,296 $ 1,329,404

June 30, 2026 $ 1,812,198 $ 7,081 $ 1,819,279

June 30, 2025 $ 1,418,893 $ (3,862) $ 1,415,031

For the six months ended

June 30, 2026 $ 3,537,128 $ 3,387 $ 3,540,515

June 30, 2025 $ 2,736,001 $ 8,434 $ 2,744,435

* Represents a non-GAAP financial measure.

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For the three months ended (dollars in thousands)

March 31, 2026 $ 1,272,239 $ (107,365) $ 1,164,874 $ 452,691 $ (107,365) $ 560,056 $ (3,694) $ 556,362

March 31, 2025 $ 1,097,137 $ (204,389) $ 892,748 $ 219,971 $ (204,389) $ 424,360 $ 12,296 $ 436,656

June 30, 2026 $ 1,324,005 $ (98,841) $ 1,225,164 $ 488,193 $ (98,841) $ 587,034 $ 7,081 $ 594,115

June 30, 2025 $ 1,145,693 $ (197,865) $ 947,828 $ 273,200 $ (197,865) $ 471,065 $ (3,862) $ 467,203

For the six months ended

June 30, 2026 $ 2,596,244 $ (206,206) $ 2,390,038 $ 940,884 $ (206,206) $ 1,147,090 $ 3,387 $ 1,150,477

June 30, 2025 $ 2,242,830 $ (402,254) $ 1,840,576 $ 493,171 $ (402,254) $ 895,425 $ 8,434 $ 903,859

* Represents a non-GAAP financial measure.

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The following table presents the weighted average experienced CPR and weighted average projected long-term CPR on our Agency MBS portfolio as of and for the periods presented.

Experienced CPR (1)

Projected Long-term CPR (2)

For the three months ended

March 31, 2026 10.2 % 10.4 %

March 31, 2025 7.1 % 9.5 %

(1) For the three months ended March 31, 2026 and 2025, respectively.

(2) At March 31, 2026 and 2025, respectively.

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Management’s Discussion and Analysis

Experienced CPR (1)

Projected Long-term CPR (2)

For the three months ended

June 30, 2026 11.6 % 11.0 %

June 30, 2025 8.7 % 9.1 %

For the six months ended

June 30, 2026 10.9 % 11.0 %

June 30, 2025 7.9 % 9.1 %

(1) For the three and six months ended June 30, 2026 and 2025, respectively.

(2) At June 30, 2026 and 2025, respectively.

Average Yield on Interest Earning Assets (excluding PAA), Net Interest Spread (excluding PAA), Net Interest Margin (excluding PAA) and Average Economic Cost of Interest Bearing Liabilities

Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of interest income (excluding PAA) plus TBA dollar roll income less economic interest expense divided by the sum of average interest earning assets plus average TBA contract balances, provide management with additional measures of our profitability that management relies upon in monitoring the performance of the business.

Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA), which represents annualized economic interest income divided by average interest earning assets, and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of interest income (excluding PAA) plus TBA dollar roll income less economic interest expense divided by the sum of average interest earning assets plus average TBA contract balances, provide management with additional measures of our profitability that management relies upon in monitoring the performance of the business.

Disclosure of these measures, which are presented below, provides investors with additional detail regarding how management evaluates our performance.

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For the three months ended (dollars in thousands)

March 31, 2026 $ 128,783,013 $ 1,721,236 5.35 % $ 118,603,594 $ 1,164,874 3.93 % $ 556,362 1.42 %

March 31, 2025 $ 101,631,610 $ 1,329,404 5.23 % $ 92,001,700 $ 892,748 3.88 % $ 436,656 1.35 %

June 30, 2026 $ 133,263,735 $ 1,819,279 5.46 % $ 122,802,541 $ 1,225,164 3.96 % $ 594,115 1.50 %

June 30, 2025 $ 104,623,036 $ 1,415,031 5.41 % $ 95,274,277 $ 947,828 3.94 % $ 467,203 1.47 %

For the six months ended

June 30, 2026 $ 131,023,374 $ 3,540,515 5.40 % $ 120,703,068 $ 2,390,038 3.95 % $ 1,150,477 1.45 %

June 30, 2025 $ 103,127,323 $ 2,744,435 5.32 % $ 93,637,989 $ 1,840,576 3.91 % $ 903,859 1.41 %

* Represents a non-GAAP financial measure.

5 unchanged sentences

Net interest on variation margin related to interest rate swaps is included in the Net interest component of interest rate swaps in the Company’s Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Net Interest Margin (excluding PAA)

2 unchanged sentences

Economic Interest Expense * (2)

Subtotal Average Interest Earnings Assets Average TBA Contract Balances Subtotal Net Interest Margin (excluding PAA) *

Subtotal Average Interest Earnings Assets (3)

Average TBA Contract Balances (3)

Subtotal Net Interest Margin (excluding PAA) *

For the three months ended (dollars in thousands)

March 31, 2026 $ 1,721,236 18,993 (1,164,874) $ 575,355 $ 128,783,013 5,443,741 $ 134,226,754 1.71 %

March 31, 2025 $ 1,329,404 11,275 (892,748) $ 447,931 $ 101,631,610 4,625,212 $ 106,256,822 1.69 %

June 30, 2026 $ 1,819,279 17,904 (1,225,164) $ 612,019 $ 133,263,735 6,088,214 $ 139,351,949 1.76 %

June 30, 2025 $ 1,415,031 7,252 (947,828) $ 474,455 $ 104,623,036 6,218,305 $ 110,841,341 1.71 %

For the six months ended

June 30, 2026 $ 3,540,515 36,897 (2,390,038) $ 1,187,374 $ 131,023,374 5,765,978 $ 136,789,352 1.74 %

June 30, 2025 $ 2,744,435 18,527 (1,840,576) $ 922,386 $ 103,127,323 5,421,759 $ 108,549,082 1.70 %

* Represents a non-GAAP financial measure.

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ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

(3) Based on amortized cost.

Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities

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Interest Bearing

Liabilities Interest Bearing Liabilities at

Liabilities (1)

Interest Bearing Liabilities at

Period End Economic

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Average Six-Month Term SOFR

For the three months ended

March 31, 2026 $ 118,603,594 $ 118,271,537 $ 1,164,874 3.93 % 3.67 % 3.63 % 0.04 % 0.26 % 0.30 %

March 31, 2025 $ 92,001,700 $ 87,729,051 $ 892,748 3.88 % 4.32 % 4.24 % 0.08 % (0.44 %) (0.36 %)

For the three months ended (dollars in thousands)

June 30, 2026 $ 122,802,541 $ 123,815,681 $ 1,225,164 3.96 % 3.64 % 3.72 % (0.08 %) 0.32 % 0.24 %

June 30, 2025 $ 95,274,277 $ 94,733,694 $ 947,828 3.94 % 4.32 % 4.19 % 0.13 % (0.38 %) (0.25 %)

For the six months ended

(dollars in thousands)

June 30, 2026 $ 120,703,068 $ 123,815,681 $ 2,390,038 3.95 % 3.65 % 3.67 % (0.02 %) 0.30 % 0.28 %

June 30, 2025 $ 93,637,989 $ 94,733,694 $ 1,840,576 3.91 % 4.32 % 4.22 % 0.10 % (0.41 %) (0.31 %)

* Represents a non-GAAP financial measure.

Refer to the “Non-GAAP Financial Measures” section for additional information.

(1) Average interest bearing liabilities reflects the average balances during the period.

Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities.

(2) Economic interest expense is comprised of GAAP interest expense, the net interest component of interest rate swaps, and net interest on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss).

Economic interest expense increased by $272.1 million for the three months ended March 31, 2026, compared to the same period in 2025, primarily due to the reduction in the net interest component of interest rate swaps, which was $96.8 million for the three months ended March 31, 2026, compared to $191.5 million for the same period in 2025.

Adding to this increase was higher interest expense on increased securitized debt and repurchase agreement balances despite lower average rates.

Economic interest expense increased by $277.3 million for the three months ended June 30, 2026, compared to the same period in 2025, primarily due to higher repurchase agreement and securitized debt balances despite lower average rates, in addition to an unfavorable change in the net interest component of interest rate swaps, which was $87.5 million for the three months ended June 30, 2026, compared to $185.7 million for the same period in 2025.

Economic interest expense increased by $549.5 million for the six months ended June 30, 2026 compared to the same period in 2025, primarily due to higher repurchase agreement and securitized debt balances despite lower average rates, in addition to an unfavorable change in the net interest component of interest rate swaps, which was $184.3 million for the six months ended June 30, 2026, compared to $377.2 million for the same period in 2025.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

We do not manage our portfolio to have a pre-designated amount of borrowings at quarter or year end.

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Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings during a period provide a more accurate representation of our exposure to the risks associated with leverage than our period end borrowings.

At March 31, 2026 and December 31, 2025, the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, and MSR.

At June 30, 2026 and December 31, 2025, the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, and MSR.

All of our Residential Securities are currently accepted as collateral for these borrowings.

However, we limit our borrowings, and thus our potential asset growth, in order to maintain unused borrowing capacity and maintain the liquidity and strength of our balance sheet.

Other Income (Loss)

For the Three Months Ended June 30, 2026 and 2025

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments was ($91.2) million for the three months ended June 30, 2026, compared to ($83.5) million for the same period in 2025.

For the three months ended June 30, 2026, we disposed of Residential Securities with a carrying value of $3.1 billion for an aggregate net gain (loss) of ($17.5) million.

For the same period in 2025, we disposed of Residential Securities with a carrying value of $3.3 billion for an aggregate net gain (loss) of ($25.8) million.

Realized gains (losses) on residential mortgage loans, including loans transferred or pledged to securitization vehicles, was ($38.2) million for the three months ended June 30, 2026, compared to ($14.3) million for the same period in 2025.

Realized gains (losses) on participations issued were $2.2 million for the three months ended June 30, 2026, compared to ($12.3) million for the same period in 2025.

Realized gains (losses) on MSR were ($38.5) million for the three months ended June 30, 2026, compared to ($30.7) million for the same period in 2025.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($227.3) million for the three months ended June 30, 2026, compared to $167.0 million for the same period in 2025, primarily due to unfavorable changes in unrealized gains (losses) on Agency MBS of ($344.0) million, securitized residential whole loans of consolidated VIEs of ($247.3) million, and MSR (including interests in MSR) of ($18.7) million, partially offset by favorable changes in residential securitized debt of consolidated VIEs of $208.5 million, and residential whole loans of $10.9 million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the three months ended June 30, 2026 was $536.3 million, compared to ($338.3) million for the same period in 2025, primarily attributable to favorable changes in unrealized gains (losses) on interest rate swaps and realized gains (losses) on termination or maturity of interest rate swaps, partially offset by an unfavorable change in net interest component of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $448.9 million for the three months ended June 30, 2026, compared to ($492.2) million for the same period in 2025.

Realized gains (losses) on termination or maturity of interest rate swaps was $0 for the three months ended June 30, 2026, compared to ($31.8) million for the same period in 2025, which reflected no terminations or maturities of interest rate swaps, compared to our termination or maturity of fixed-rate payer interest rate swaps with notional amounts of $3.8 billion, for the same period in 2025.

Net interest component on interest rate swaps was $87.5 million for the three months ended June 30, 2026, compared to $185.7 million for the same period in 2025.

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Management’s Discussion and Analysis

Other Income (Loss)

For the Three Months Ended March 31, 2026 and 2025

Net gains (losses) on other derivatives was $16.1 million for the three months ended June 30, 2026, compared to ($50.5) million for the same period in 2025.

The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures, which was $19.4 million for the three months ended June 30, 2026, compared to ($69.4) million for the same period in 2025, net gains (losses) on purchase commitments, which was $10.5 million for the three months ended June 30, 2026, compared to $2.6 million for the same period in 2025, and net gains (losses) on interest rate swaptions, which was $1.0 million for the three months ended June 30, 2026, compared to ($0.6) million for the same period in 2025, partially offset by unfavorable changes in net gains (losses) on TBA derivatives, which was ($14.9) million for the three months ended June 30, 2026, compared to $17.0 million for the same period in 2025.

Other, net includes brokerage and commission fees, due diligence costs, securitization expenses, interest on custodial balances, and items whose amounts, either individually or in the aggregate, would not, in the opinion of management, be meaningful to readers of the financial statements.

Given the nature of certain components of this line item, balances may fluctuate from period to period.

Other, net for the three months ended June 30, 2026 was $13.5 million, compared to $15.8 million for the same period in 2025, primarily attributable to a decrease in earnings from unconsolidated joint ventures, an increase in securitization-related costs, an increase in trading activity related expenses, and an increase in MSR financing expenses, partially offset by an increase in interest on custodial balances, advisory income, conduit transaction fees, and other interest.

For the Six Months Ended June 30, 2026 and 2025

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments was ($26.7) million for the three months ended March 31, 2026, compared to ($49.4) million for the same period in 2025.

For the three months ended March 31, 2026, we disposed of Residential Securities with a carrying value of $5.0 billion for an aggregate net gain (loss) of $35.9 million.

Net gains (losses) on disposal of investments and other was ($117.9) million for the six months ended June 30, 2026, compared to ($132.8) million for the same period in 2025.

For the six months ended June 30, 2026, we disposed of Residential Securities with a carrying value of $8.1 billion for an aggregate net gain (loss) of $18.4 million.

For the same period in 2025, we disposed of Residential Securities with a carrying value of $8.5 billion for an aggregate net gain (loss) of ($80.4) million.

Realized gains (losses) on residential mortgage loans, including loans transferred or pledged to securitization vehicles, was ($68.2) million for the six months ended June 30, 2026, compared to ($24.3) million for the same period in 2025.

Realized gains (losses) on U.S.

Treasury securities sold, not yet purchased was $16.4 million for the three months ended March 31, 2026, compared to $43.8 million for the same period in 2025.

Realized gains (losses) on Residential Loans was ($29.9) million for the three months ended March 31, 2026, compared to ($10.0) million for the same period in 2025.

Realized gains (losses) on MSR were ($31.9) million for the three months ended March 31, 2026, compared to ($18.5) million for the same period in 2025 as prepayments increased slightly on a larger overall MSR portfolio.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($645.5) million for the three months ended March 31, 2026, compared to $860.2 million for the same period in 2025, primarily due to unfavorable changes in unrealized gains (losses) on Agency MBS of ($1.7) billion, securitized residential whole loans of consolidated VIEs of ($169.5) million, and residential whole loans of ($56.8) million, partially offset by favorable changes in residential securitized debt of consolidated VIEs of $294.9 million, U.S.

Treasury securities sold, not yet purchased was $16.4 million for the six months ended June 30, 2026, compared to $43.8 million for the same period in 2025.

Realized gains (losses) on MSR were ($70.3) million for the six months ended June 30, 2026, compared to ($49.2) million for the same period in 2025.

Realized gains (losses) on participations issued were ($16.3) million for the six months ended June 30, 2026, compared to ($20.3) million for the same period in 2025.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($872.8) million for the six months ended June 30, 2026, compared to $1.0 billion for the same period in 2025, primarily due to unfavorable changes on Agency MBS of ($2.0) billion, securitized residential whole loans of consolidated VIEs of ($416.8) million, residential whole loans of ($46.0) million, MSR (including interests in MSR) of ($27.9) million, and non-Agency MBS of ($17.7) million, partially offset by favorable changes in securitized debt of consolidated VIEs of $503.4 million, U.S.

Treasury securities sold, not yet purchased of $105.0 million, participations issued of $18.9 million, and CRT securities of $15.3 million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the three months ended March 31, 2026 was $322.9 million, compared to ($605.8) million for the same period in 2025, primarily attributable to favorable changes in unrealized gains (losses) on interest rate swaps and realized gains (losses) on termination or maturity of interest rate swaps, partially offset by an unfavorable change in net interest component of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $231.8 million for the three months ended March 31, 2026, compared to ($753.6) million for the same period in 2025.

Realized gains (losses) on termination or maturity of interest rate swaps was ($5.8) million for the three months ended March 31, 2026, compared to ($43.8) million for the same period in 2025, which reflected our termination or maturity of fixed-rate payer interest rate swaps with a notional amount of $5.1 billion, compared to fixed-rate payer and receiver interest rate swaps with notional amounts of $11.7 billion and $3.2 billion, respectively, for the same period in 2025.

Net interest component on interest rate swaps was $96.8 million for the three months ended March 31, 2026, compared to $191.5 million for the same period in 2025.

Net gains (losses) on other derivatives was $86.2 million for the three months ended March 31, 2026, compared to ($372.0) million for the same period in 2025.

The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures, which was $161.9 million for the three months ended March 31, 2026, compared to ($403.5) million for the same period in 2025, and net gains (losses) on interest rate swaptions, which was $21.1 million for the three months ended March 31, 2026, compared to ($8.6) million for the same period in 2025, partially offset by unfavorable changes in net gains (losses) on TBA derivatives, which was ($93.5) million for the three months ended March 31, 2026, compared to $30.2 million for the same period in 2025, and net gains (losses) on purchase commitments, which was ($3.3) million for the three months ended March 31, 2026, compared to $9.9 million for the same period in 2025.

Given the nature of certain components of this line item, balances may fluctuate from period to period.

Other, net for the three months ended March 31, 2026 was $9.3 million, compared to $7.4 million for the same period in 2025, primarily attributable to an increase in interest on custodial balances, advisory income, conduit transaction fees, and an increase in earnings from unconsolidated joint ventures, partially offset by an increase in trading activity related expenses, MSR financing expenses, a decrease in net interest income on initial margin related to interest rate swaps, and an increase in securitization related costs.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist of compensation and other expenses.

The following table shows our total G&A expenses as compared to average total assets and average equity for the periods presented.

Net gains (losses) on interest rate swaps for the six months ended June 30, 2026 was $859.2 million, compared to $(944.2) million for the same period in 2025, primarily attributable to favorable changes in unrealized gains (losses) on interest rate swaps and realized gains (losses) on termination or maturity of interest rate swaps, partially offset by an unfavorable change in net interest component of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $680.7 million for the six months ended June 30, 2026, compared to ($1.2) billion for the same period in 2025.

Realized gains (losses) on termination of interest rate swaps was ($5.8) million for the six months ended June 30, 2026, compared to ($75.6) million for the same period in 2025, which reflected our termination or maturity of fixed-rate payer interest rate swaps with a notional amount of $5.1 billion, compared to fixed-rate payer and receiver interest rate swaps with notional amounts of $15.5 billion and $3.2 billion, respectively, for the same period in 2025.

Net interest component on interest rate swaps was $184.3 million for the six months ended June 30, 2026, compared to $377.2 million for the same period in 2025.

Net gains (losses) on other derivatives was $102.3 million for the six months ended June 30, 2026, compared to ($422.5) million for the same period in 2025.

The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures, which was $181.3 million for the six months ended June 30, 2026, compared to ($472.9) million for the same period in 2025, and net gains (losses) on interest rate swaptions, which was $22.2 million for the

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

six months ended June 30, 2026, compared to ($9.2) million for the same period in 2025, partially offset by unfavorable changes in net gains (losses) on TBA derivatives, which was ($108.4) million for the six months ended June 30, 2026, compared to $47.2 million for the same period in 2025, and net gains (losses) on purchase commitments, which was $7.2 million for the six months ended June 30, 2026, compared to $12.4 million for the same period in 2025.

Other, net for the six months ended June 30, 2026 was $22.8 million, compared to $23.2 million for the same period in 2025, primarily attributable to an increase in trading activity related expenses, securitization-related costs, and MSR financing expenses, a decrease in earnings from unconsolidated joint ventures and net interest income on initial margin related to interest rate swaps, partially offset by an increase in interest on custodial balances, advisory income, conduit transaction fees, and other interest.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist of compensation and other expenses.

The following table shows our total G&A expenses as compared to average total assets and average equity for the periods presented.

G&A Expenses and Operating Expense Ratios

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For the three months ended (dollars in thousands)

March 31, 2026 $ 52,564 0.15 % 1.29 %

March 31, 2025 $ 48,064 0.18 % 1.49 %

G&A expenses were $52.6 million for the three months ended March 31, 2026, an increase of $4.5 million compared to the same period in 2025.

The change in the period was primarily due to an increase in compensation expenses.

June 30, 2026 $ 58,189 0.16 % 1.40 %

June 30, 2025 $ 50,018 0.18 % 1.51 %

For the six months ended

June 30, 2026 $ 110,753 0.16 % 1.34 %

June 30, 2025 $ 98,082 0.18 % 1.50 %

G&A expenses were $58.2 million for the three months ended June 30, 2026, an increase of $8.2 million compared to the same period in 2025, and $110.8 million for the six months ended June 30, 2026, an increase of $12.7 million compared to the same period in 2025.

The changes in both comparative periods were primarily due to increases in compensation expenses.

Return on Average Equity

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For the three months ended

March 31, 2026 13.53 % 3.51 % (8.64 %) (1.29 %) 0.04 % 7.15 %

March 31, 2025 12.77 % 3.92 % (10.90 %) (1.49 %) (0.26 %) 4.04 %

June 30, 2026 13.83 % 3.78 % 3.84 % (1.40 %) (0.17 %) 19.88 %

June 30, 2025 13.82 % 3.83 % (14.31 %) (1.51 %) (0.01 %) 1.82 %

For the six months ended

June 30, 2026 13.65 % 3.64 % (2.32 %) (1.34 %) (0.07 %) 13.56 %

June 30, 2025 13.30 % 3.87 % (12.63 %) (1.50 %) (0.13 %) 2.91 %

(1) Economic net interest income includes the net interest component of interest rate swaps and net interest on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated Statements of Comprehensive Income (Loss).

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The unrealized fluctuations in market values of our available-for-sale Agency MBS, for which the fair value option is not elected, do not impact our GAAP net income (loss) but rather are reflected on our balance sheet by changing the carrying value of the asset and stockholders’ equity under accumulated other comprehensive income (loss).

As a result of this fair value accounting treatment, our book value and book value per share are likely to fluctuate far more than if we used amortized cost accounting.

As a result of this fair value

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

accounting treatment, our book value and book value per share are likely to fluctuate far more than if we used amortized cost accounting.

As a result, comparisons with companies that use amortized cost accounting for some or all of their balance sheet may not be meaningful.

The following table shows cumulative unrealized gains and losses on our available-for-sale investments reflected in the Consolidated Statements of Financial Condition.

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

(dollars in thousands)

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A very large negative change in the net fair value of our available-for-sale Residential Securities might impair our liquidity position, requiring us to sell assets with the potential result of realized losses upon sale.

The fair value of these securities being less than amortized cost at March 31, 2026 is solely due to market conditions and not the quality of the assets.

The fair value of these securities being less than amortized cost at June 30, 2026 is solely due to market conditions and not the quality of the assets.

Substantially all of the Agency MBS have an actual or implied credit rating that is the same as that of the U.S.

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Also, we are guaranteed payment of the principal and interest amounts of the securities by the respective issuing Agency.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Financial Condition

Total assets were $138.5 billion and $135.6 billion at March 31, 2026 and December 31, 2025, respectively.

The change was primarily due to increases in residential mortgage loans of $2.2 billion, securitized residential whole loans of consolidated VIEs of $2.1 billion, receivables for unsettled trades of $890.3 million, mortgage servicing rights of $470.1 million, and derivative assets of $279.6 million, partially offset by decreases in securities of $2.8 billion, cash and cash equivalents of $125.4 million, and principal and interest receivable of $120.2 million.

Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at March 31, 2026.

Total assets were $143.7 billion and $135.6 billion at June 30, 2026 and December 31, 2025, respectively.

The change was primarily due to increases in securitized residential whole loans of consolidated VIEs of $6.2 billion, residential mortgage loans of $2.3 billion, cash and cash equivalents of $874.2 million, MSR and interests in MSR of $521.8 million, and receivables for unsettled trades of $103.7 million, partially offset by decreases in securities of $1.8 billion, principal and interest receivable of $80.1 million, and derivative assets of $33.7 million.

Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at June 30, 2026.

Agency MBS Residential Credit (1)

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Residential Securities

Substantially all of our Agency MBS at March 31, 2026 and December 31, 2025 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties.

Our mortgage-backed securities were largely Fannie Mae, Freddie Mac or Ginnie Mae pass through certificates or CMOs, which have an actual or implied credit rating that is the same as that of the U.S.

Substantially all of our Agency MBS at June 30, 2026 and December 31, 2025 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties.

Our mortgage-backed

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

securities were largely Fannie Mae, Freddie Mac or Ginnie Mae pass through certificates or CMOs, which have an actual or implied credit rating that is the same as that of the U.S.

We carry all of our Agency MBS at fair value in the Consolidated Statements of Financial Condition.

We accrete discount balances as an increase to interest income over the expected life of the related interest earning assets and we amortize premium balances as a decrease to interest income over the expected life of the related interest earning assets.

At March 31, 2026 and December 31, 2025 we had in our Consolidated Statements of Financial Condition a total of $1.2 billion and $1.2 billion, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities acquired at a price below principal value) and a total of $2.9 billion and $2.9 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities acquired at a price above principal value).

The weighted average experienced prepayment speed on our Agency MBS portfolio for the three months ended March 31, 2026 and 2025 was 10.2% and 7.1%, respectively.

The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of March 31, 2026 and 2025 was 10.4% and 9.5%, respectively.

At June 30, 2026 and December 31, 2025 we had in our Consolidated Statements of Financial Condition a total of $1.3 billion and $1.2 billion, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities acquired at a price below principal value) and a total of $2.9 billion and $2.9 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities acquired at a price above principal value).

The weighted average experienced prepayment speed on our Agency MBS portfolio for the three months ended June 30, 2026 and 2025 was 11.6% and 8.7%, respectively, and for the six months ended June 30, 2026 and 2025 was 10.9% and 7.9%, respectively.

The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of June 30, 2026 and 2025 was 11.0% and 9.1%, respectively.

Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period.

Similarly, if mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net premium balance over a longer time period.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

The following table presents our Residential Securities that were carried at fair value at March 31, 2026 and December 31, 2025.

March 31, 2026 December 31, 2025

The following table presents our Residential Securities that were carried at fair value at June 30, 2026 and December 31, 2025.

June 30, 2026 December 31, 2025

Estimated Fair Value

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Total Residential Securities $ 89,380,466 $ 91,287,630

The following table summarizes certain characteristics of our Residential Securities (excluding interest-only mortgage-backed securities) and interest-only mortgage-backed securities at March 31, 2026 and December 31, 2025.

March 31, 2026 December 31, 2025

June 30, 2026 December 31, 2025

Residential Securities (1)

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Weighted average yield 5.01 % 5.02 %

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Management’s Discussion and Analysis

Adjustable-rate Residential Securities (1)

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(3) Excludes non-Agency MBS and CRT securities as this attribute is not applicable to these asset classes.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

The following tables summarize certain characteristics of our Residential Credit portfolio at March 31, 2026.

The following tables summarize certain characteristics of our Residential Credit portfolio at June 30, 2026.

Payment Structure Investment Characteristics (1)

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Contractual Obligations

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at March 31, 2026.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at June 30, 2026.

The table does not include the effect of net interest rate payments on our interest rate swap agreements.

The net swap payments will fluctuate based on monthly changes in the receive rate.

At March 31, 2026, the interest rate swaps had a net fair value of ($4.8) million.

At June 30, 2026, the interest rate swaps had a net fair value of $6.9 million.

Year One to Three

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Total $ 89,741,277 $ 5,045,212 $ 4,235,150 $ 101,655,704 $ 200,677,343

(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at March 31, 2026.

(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at June 30, 2026.

In the coming periods, we expect to continue to finance our Residential Securities in a manner that is largely consistent with our current operations via repurchase agreements.

We may use securitization structures, credit facilities, or other term financing structures to finance certain of our assets.

During the three months ended March 31, 2026, we received $2.6 billion from

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Management’s Discussion and Analysis

principal repayments and $4.1 billion in cash from disposal of Securities.

During the three months ended March 31, 2025, we received $1.7 billion from principal repayments and $7.3 billion in cash from disposal of Securities.

During the six months ended June 30, 2026, we received $5.5 billion from principal repayments and $8.3 billion in cash from disposal of Securities.

During the six months ended June 30, 2025, we received $3.8 billion from principal repayments and $9.5 billion in cash from disposal of Securities.

Commitments and Contractual Obligations with Unconsolidated Entities

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Capital Management

Maintaining a strong balance sheet that can support the business even in times of economic stress and market volatility is of critical importance to our business strategy.

A strong and robust capital position is essential to executing our investment strategy.

Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy regardless of the market environment.

Our capital policy defines the parameters and principles supporting a comprehensive capital management practice.

Maintaining a strong and resilient balance sheet is fundamental to our business strategy and our ability to perform through periods of economic stress and market volatility.

Our capital management framework is designed to preserve capital adequacy, support a prudent and diversified capital structure, and provide the financial flexibility necessary to pursue our investment objectives across market cycles.

The major risks impacting capital are liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk and compliance, regulatory and legal risk.

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Stockholders’ Equity

The following table provides a summary of total stockholders’ equity at March 31, 2026 and December 31, 2025:

March 31, 2026 December 31, 2025

The following table provides a summary of total stockholders’ equity at June 30, 2026 and December 31, 2025:

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Management’s Discussion and Analysis

June 30, 2026 December 31, 2025

Stockholders’ equity (dollars in thousands)

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In January 2025, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock through December 31, 2029 (the “Common Stock Repurchase Program”).

During the three months ended March 31, 2026 and 2025, no shares were repurchased under the Common Stock Repurchase Program.

During the three and six months ended June 30, 2026 and 2025, no shares were repurchased under the Common Stock Repurchase Program.

Purchases made pursuant to the Common Stock Repurchase Program will be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.

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The authorization does not obligate us to acquire any particular amount of common stock and the program may be suspended or discontinued at our discretion without prior notice.

On September 20, 2024, we entered into separate Distribution Agency Agreements (collectively, the “2024 Sales Agreements”)

with each of Barclays Capital Inc., BNP Paribas Securities Corp., BofA Securities, Inc., Citizens JMP Securities, LLC, Goldman Sachs & Co.

Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., Morgan Stanley & Co., LLC, RBC

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Management’s Discussion and Analysis

Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “2024 Sales Agents”).

On September 20, 2024, we entered into separate Distribution Agency Agreements (collectively, the “2024 Sales Agreements”) with each of Barclays Capital Inc., BNP Paribas Securities Corp., BofA Securities, Inc., Citizens JMP Securities, LLC, Goldman Sachs & Co.

Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., Morgan Stanley & Co., LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “2024 Sales Agents”).

Under the terms of the 2024 Sales Agreements, we offered and sold shares of our common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the 2024 Sales Agents (the “2024 At-The-Market Sales Program”).

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Under the terms of the Prior Sales Agreements, we offered and sold shares of our common stock, having an aggregate offering price of up to $2.0 billion, from time to time through any of the Sales Agents (the "Prior At-The-Market Sales Program").

On December 22, 2025, the Company entered into separate Distribution Agency Agreements (collectively, the “Sales Agreements”) with each of the Sales Agents, which terminated and replaced the Prior Sales Agreements.

Under the terms of the Sales Agreements, the Company may offer and sell shares of its common stock, having an aggregate offering price of up to $2.5 billion, from time to time through any of the Sales Agents (the "Current At-The-Market Sales Program" and, together with the 2024 At-The-Market Sales Program and the Prior At-The-Market Sales Program, the "at-the-market sales program").

During the three months ended March 31, 2026, under the at-the-market sales program, we issued 22.3 million shares for proceeds of $508.5 million, net of commissions and fees.

During the three months ended March 31, 2025, under the at-the-market sales program, we issued 23.3 million shares for proceeds of $495.7 million, net of commissions and fees.

On December 22, 2025, we entered into separate Distribution Agency Agreements (collectively, the “Sales Agreements”) with each of the Sales Agents, which terminated and replaced the Prior Sales Agreements.

Under the terms of the Sales Agreements, we may offer and sell shares of its common stock, having an aggregate offering price of up to $2.5 billion, from time to time through any of the Sales Agents (the "Current At-The-Market Sales Program" and, together with the 2024 At-The-Market Sales Program and the Prior At-The-Market Sales Program, the "at-the-market sales program").

During the three and six months ended June 30, 2026, under the at-the-market sales program, we issued 20.3 million and 42.6 million shares for proceeds of $447.2 million and $955.7 million, respectively, each net of commissions and fees.

During the three and six months ended June 30, 2025, under the at-the-market sales program, we issued 39.7 million and 63.0 million shares for proceeds of $761.2 million and $1.3 billion, respectively, each net of commissions and fees.

Refer to the “Capital Stock” Note located within Item 1 for additional information related to the at-the-market sales program.

Preferred Stock

On December 31, 2024, the Board approved a repurchase plan for all of our existing outstanding Preferred Stock (as defined below) (the “Preferred Stock Repurchase Program”).

Under the terms of the Preferred Stock Repurchase Program, we are authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of our 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”), (ii) 17,000,000 shares of our 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of our 6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and together with Series F Preferred Stock and Series G Preferred Stock, the “Preferred Stock”).

The aggregate liquidation value of the Preferred Stock that may be repurchased by us pursuant to the Preferred Stock Repurchase Program, as of March 31, 2026, was approximately $1.6 billion.

On December 31, 2024, the Board approved a repurchase plan for all of our existing outstanding Fixed-to-Floating Rate Preferred Stock (as defined below) (the “Preferred Stock Repurchase Program”).

Under the terms of the Preferred Stock Repurchase Program, we are authorized to repurchase up to an aggregate of 63,500,000 shares of Fixed-to-Floating Rate Preferred Stock, comprised of up to (i) 28,800,000 shares of our 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”), (ii) 17,000,000 shares of our 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series G Preferred

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Management’s Discussion and Analysis

Stock”), and (iii) 17,700,000 shares of our 6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and together with Series F Preferred Stock and Series G Preferred Stock, the “Fixed-to-Floating Rate Preferred Stock”).

The aggregate liquidation value of the Fixed-to-Floating Rate Preferred Stock that may be repurchased by us pursuant to the Preferred Stock Repurchase Program, as of June 30, 2026, was approximately $1.6 billion.

The Preferred Stock Repurchase Program became effective on January 1, 2025 and will expire on December 31, 2029.

During the three months ended March 31, 2026 and 2025, 0 shares were repurchased under the Preferred Stock Repurchase Program.

During the three and six months ended June 30, 2026 and 2025, 0 shares were repurchased under the Preferred Stock Repurchase Program.

Purchases made pursuant to the Preferred Stock Repurchase Program will be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.

The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors.

The authorization does not obligate us to acquire any particular amount of Preferred Stock and the program may be suspended or discontinued at our discretion without prior notice.

During the three months ended September 30, 2025, we issued 11,000,000 shares of our Series J Preferred Stock, which included the exercise by the underwriters of their option to purchase an additional 1,000,000 shares of Series J Preferred Stock solely to cover over-allotments, for gross proceeds of $275.0 million before deducting the underwriting discount and other estimated offering expenses.

The authorization does not obligate us to acquire any particular amount of Fixed-to-Floating Rate Preferred Stock and the program may be suspended or discontinued at our discretion without prior notice.

Leverage and Capital

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Our actual economic leverage ratio varies from time to time based upon various factors, including our management’s opinion of the level of risk of our assets and liabilities, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-collateralization levels required by lenders when we pledge assets to secure borrowings and our assessment of domestic and international market conditions.

Our GAAP leverage ratio at March 31, 2026 and December 31, 2025 was 7.3:1 and 7.2:1, respectively.

Our economic leverage ratio, which is computed as the sum of Recourse Debt, cost basis of TBA derivatives outstanding, and net forward purchases (sales) of investments divided by total equity was 5.7:1 and 5.6:1, at March 31, 2026 and December 31, 2025, respectively.

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Management’s Discussion and Analysis

GAAP capital ratio at March 31, 2026 and December 31, 2025 was 11.8% and 11.9%, respectively.

Our economic capital ratio, which represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives and net of debt issued by securitization vehicles (excluding structured repurchase transactions) and participations issued), was 14.7% and 14.9% at March 31, 2026 and December 31, 2025, respectively.

Our GAAP leverage ratio at June 30, 2026 and December 31, 2025 was 7.4:1 and 7.2:1, respectively.

Our economic leverage ratio, which is computed as the sum of Recourse Debt, cost basis of TBA derivatives outstanding, and net forward purchases (sales) of investments divided by total equity was 5.6:1 and 5.6:1, at June 30, 2026 and December 31, 2025, respectively.

Our GAAP capital ratio at June 30, 2026 and December 31, 2025 was 11.8% and 11.9%, respectively.

Our economic capital ratio, which represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives and net of debt issued by securitization vehicles (excluding structured repurchase transactions) and participations issued), was 14.9% and 14.9% at June 30, 2026 and December 31, 2025, respectively.

Economic leverage ratio and economic capital ratio are non-GAAP financial measures.

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The risk appetite statement asserts the following key risk parameters to guide our investment management activities:

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Management’s Discussion and Analysis

Risk Parameter Description

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The Management Development and Compensation Committee is responsible for oversight of risk related to our compensation policies and practices and other human capital matters such as succession and culture.

The Nominating/Corporate Governance Committee assists the Board in its oversight of our corporate governance framework and the annual self-evaluation of the Board, and the

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Management’s Discussion and Analysis

Corporate Responsibility Committee assists the Board in its oversight of any matters that may present reputational or environmental sustainability risk to us.

The Nominating/Corporate Governance Committee assists the Board in its oversight of our corporate governance framework and the annual self-evaluation of the Board, and the Corporate Responsibility Committee assists the Board in its oversight of any matters that may present reputational or environmental sustainability risk to us.

The full Board has overall responsibility for this oversight, and the Corporate Responsibility Committee meets jointly with other Committees from time to time in order to review areas of shared responsibility.

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We have identified the following primary categories that we utilize to identify, assess, measure and monitor risk.

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Management’s Discussion and Analysis

Risk Description

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Liquidity Management Policies Comprehensive policies including monitoring, risk limits and an escalation protocol.

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Management’s Discussion and Analysis

Our primary financing sources are repurchase agreements provided through counterparty arrangements and through our wholly-owned subsidiary, Arcola Securities, Inc.

(“Arcola”), other secured financing, debt issued by securitization vehicles, mortgages, credit facilities, note sales and various forms of equity.

(“Arcola”), other secured financing, debt issued by securitization vehicles, credit facilities, note sales and various forms of equity.

We maintain excess liquidity by holding unencumbered liquid assets that could be either used to collateralize additional borrowings or sold.

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To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements.

At March 31, 2026 and December 31, 2025, the weighted average days to maturity was 36 days and 35 days, respectively.

At June 30, 2026 and December 31, 2025, the weighted average days to maturity was 33 days and 35 days, respectively.

Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on the same business day that a margin call is made.

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We have continued to diversify our financing profile adding new non-mark-to-market facilities and financing options under existing facilities for our Residential Credit operating segment.

At March 31, 2026, we had total financial assets and cash pledged against existing liabilities of $88.1 billion.

At June 30, 2026, we had total financial assets and cash pledged against existing liabilities of $90.2 billion.

The weighted average haircut was approximately 3% on repurchase agreements.

The quality and character of the Residential Securities that we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at March 31, 2026, compared to the same period in 2025, and our counterparties did not materially alter any requirements, including required haircuts, related to the col lateral we pledge under repurchase agreements and interest rate swaps during the three months ended March 31, 2026.

The quality and character of the Residential Securities that we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at June 30, 2026,

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Management’s Discussion and Analysis

compared to the same period in 2025, and our counterparties did not materially alter any requirements, including required haircuts, related to the col lateral we pledge under repurchase agreements and interest rate swaps during the three months ended June 30, 2026.

The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement balances outstanding for the periods presented:

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For the three months ended (dollars in thousands)

June 30, 2026 $ 87,168,880 $ 86,895,874 $ 809,749 $ 33,047

March 31, 2026 85,534,029 85,068,102 1,089,100 33,524

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June 30, 2024 63,043,218 60,787,994 2,322,479 —

March 31, 2024 64,027,388 58,975,232 2,323,485 —

Our committed facility warehouse lines provide financing for our MSR portfolio for liquidity purposes.

We maintain a conservative approach to these facilities, generally over-collateralizing the lines against margin calls.

The following table provides information on our repurchase agreements and other secured financing by maturity date at March 31, 2026.

The weighted average remaining maturity on our repurchase agreements and other secured financing was 42 days at March 31, 2026:

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Management’s Discussion and Analysis

March 31, 2026

The following table provides information on our repurchase agreements and other secured financing by maturity date at June 30, 2026.

The weighted average remaining maturity on our repurchase agreements and other secured financing was 37 days at June 30, 2026:

June 30, 2026

Principal Balance Weighted Average Rate % of Total

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Total $ 88,020,874 3.89 % 100.0 %

(1) Approximately 1% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.

(1) Less than 1% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.

We also finance our investments in residential mortgage loans through the issuance of securitization transactions sponsored by our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) under the Onslow Bay private-label securitization program.

In order to increase financing optionality for our Onslow Bay platform, during the quarter we renewed or extended existing facilities and upsized three facilities by $550 million in aggregate.

The following table presents our outstanding debt balances and associated weighted average rates and days to maturity at March 31, 2026:

Securitization serves as term, non-mark to market financing on our GAAP portfolio.

As of June 30, 2026, Onslow Bay has $34 billion of securitized debt outstanding at an average financing rate of 5.31%.

During the second quarter, Onslow Bay securitized $6.8 billion with an average cost of funds of 5.65%.

Onslow Bay is active in calling and re-levering securitizations, which allows us to increase our advance rates and reset our cost of funds for seasoned collateral to current market rates, exemplified by OBX 2026-R2, which was issued during the quarter.

During the quarter, we increased financing optionality for our Onslow Bay loan platform as we renewed or extended existing facilities and increased financing capacity by $740 million in aggregate.

The following table presents our outstanding debt balances and associated weighted average rates and days to maturity at June 30, 2026:

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Management’s Discussion and Analysis

Weighted Average Rate (1)

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An asset is considered unencumbered if it has not been pledged or securitized.

The following table also provides the carrying amount of our encumbered and unencumbered financial assets at March 31, 2026:

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Management’s Discussion and Analysis

The following table also provides the carrying amount of our encumbered and unencumbered financial assets at June 30, 2026:

Encumbered Assets Unencumbered Assets Total

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Total financial assets $ 134,079,063 $ 8,042,041 $ 142,121,104

(1) The collateral received in connection with reverse repurchase agreements was repledged as of March 31, 2026.

(1) The collateral received in connection with reverse repurchase agreements was repledged as of June 30, 2026.

(2) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported in the Consolidated Statements of Financial Condition.

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Our balance sheet also generates liquidity on an on-going basis through mortgage principal and interest repayments and net earnings held prior to payment of dividends.

The following table presents our liquid assets as a percentage of total assets at March 31, 2026:

The following table presents our liquid assets as a percentage of total assets at June 30, 2026:

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Management’s Discussion and Analysis

Carrying Value (1)

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(1) Carrying value approximates the market value of assets.

The assets listed in this table include $88.1 billion of assets that have been pledged as collateral against existing liabilities at March 31, 2026.

The assets listed in this table include $90.2 billion of assets that have been pledged as collateral against existing liabilities at June 30, 2026.

Please refer to the Encumbered and Unencumbered Assets table for related information.

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Our interest rate sensitivity gap is the difference between interest earning assets and interest bearing liabilities maturing or re-pricing within a given time period.

Unlike the calculation of maturity gap, interest rate sensitivity gap includes the effect of our

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Management’s Discussion and Analysis

interest rate swaps.

Unlike the calculation of maturity gap, interest rate sensitivity gap includes the effect of our interest rate swaps.

A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities.

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The effects of interest rate swaps, whereby we generally pay a fixed rate and receive a floating rate and effectively lock in our financing costs for a longer term, are also reflected in our interest rate sensitivity gap.

The interest rate sensitivity of our assets and liabilities in the following table at March 31, 2026 could vary substantially based on actual prepayment experience.

The interest rate sensitivity of our assets and liabilities in the following table at June 30, 2026 could vary substantially based on actual prepayment experience.

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Management’s Discussion and Analysis

Months More than 1 Year to 3 Years 3 Years and Over Total

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The stresses applied include market-wide and firm-specific stresses.

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Management’s Discussion and Analysis

Liquidity Management Policies

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Changes in the level of interest rates can affect our net interest income, which is the difference between the income we earn on our interest earning assets and the interest expense incurred from interest bearing liabilities and derivatives.

Changes in the level of interest rates and spreads can also affect the value of our assets and potential realization of gains or losses from the sale of these assets.

Changes in the level of interest rates and spreads can also affect the

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Management’s Discussion and Analysis

value of our assets and potential realization of gains or losses from the sale of these assets.

We may utilize a variety of financial instruments, including interest rate swaps, swaptions, options, futures and other hedges, in order to limit the adverse effects of interest rates on our results.

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The results assume no management actions in response to the rate or spread changes.

The following table presents estimates at March 31, 2026.

The following table presents estimates at June 30, 2026.

Actual results could differ materially from these estimates.

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Management’s Discussion and Analysis

Change in Interest Rate (1)

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Once an investment is made, our ongoing surveillance process includes regular reviews, analysis and oversight of investments by our investment personnel and appropriate committee.

We review credit and other risks of loss associated with each investment.

We review credit and other risks

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Management’s Discussion and Analysis

of loss associated with each investment.

Our management monitors the overall portfolio risk and determines estimates of provision for loss.

Additionally, ALCO has oversight of our credit risk exposure.

Our portfolio composition, based on balance sheet values, at March 31, 2026 and December 31, 2025 was as follows:

March 31, 2026 December 31, 2025

Our portfolio composition, based on balance sheet values, at June 30, 2026 and December 31, 2025 was as follows:

June 30, 2026 December 31, 2025

Agency mortgage-backed securities 63.0 % 67.8 %

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In the event of default by a counterparty, we could have difficulty obtaining our assets pledged as collateral.

A significant portion of our investments are financed with repurchase agreements by pledging our Residential Securities as collateral to the

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Management’s Discussion and Analysis

applicable lender.

A significant portion of our investments are financed with repurchase agreements by pledging our Residential Securities as collateral to the applicable lender.

The collateral we pledge generally exceeds the amount of the borrowings under each agreement.

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Additionally, ALCO has oversight of our counterparty exposure.

The following table summarizes our exposure to counterparties by geography at March 31, 2026:

The following table summarizes our exposure to counterparties by geography at June 30, 2026:

Number of Counterparties Secured Financing (1)

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Europe 10 13,178,194 1,765 1,280,512

Asia (non-Japan) 1 481,871 — 17,645

Japan 4 3,686,865 — 784,340

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Operational risk may arise from internal or external sources including human error, fraud, systems issues, process change, vendors, business interruptions and other external events.

We manage operational risk through a variety of tools including processes, policies and procedures that cover topics such as business continuity, personal conduct, cybersecurity and vendor management.

We manage operational risk through a variety of tools including processes, policies and procedures that cover topics such as business continuity, personal conduct, information technology, cybersecurity and vendor management.

Other tools include Risk and Control Self Assessment (“RCSA”) testing, including disaster recovery/testing;

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and monitoring, which includes the use of key risk indicators.

Our Operational Risk Management team conducts a disaster recovery exercise on an annual basis and periodically conducts other operational risk tabletop exercises.

Our Operational Risk Management team conducts a disaster recovery exercise on an

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Management’s Discussion and Analysis

annual basis and periodically conducts other operational risk tabletop exercises.

Employee-level lines of defense against operational risk include proper segregation of incompatible duties, activity-level internal controls over financial reporting, the empowerment of business units to identify and mitigate operational risk sources, testing by our internal audit staff, and our overall governance framework.

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The ERC is responsible for supporting the Operating Committee in the implementation, ongoing monitoring, and evaluation of the effectiveness of the enterprise-wide risk management framework.

This oversight authority includes review of the strategies, processes, policies, and practices established by management to identify, assess, measure, and manage enterprise-wide risk.

This oversight authority includes review of the strategies, processes, policies, and practices established by management to identify, assess, measure, and manage enterprise-wide risk, including risks relating to information technology.

We have established an AI Usage Governance Council to consider opportunities, risks, and organizational controls relating to artificial intelligence.

Two members of our Board have completed the Carnegie Mellon / NACD Effective AI Oversight for Directors Certificate Program.

Cybersecurity is part of our enterprise-wide risk management framework.

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We conduct regular tabletop exercises to test our Response Plan and our reaction to various business disruption events, and the results of these tabletops are reported to the Cybersecurity Committee, the ERC, the Audit and Risk Committees of the Board and the entire Board as appropriate.

In addition, our senior

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Management’s Discussion and Analysis

management and the Board participate in periodic cyber tabletop exercises to further enhance our preparedness in the event of an actual incident.

In addition, our senior management and the Board participate in periodic cyber tabletop exercises to further enhance our preparedness in the event of an actual incident.

We also have processes in place to oversee and identify material risks from cybersecurity threats associated with our use of third party service providers upon which we depend to perform various business processes related to our operations, including mortgage loan servicers and sub-servicers.

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Therefore, while we are not aware of any cybersecurity threats or incidents that are reasonably likely to have a material effect on our business strategy, results of operations, the likelihood and severity of such risks are difficult to predict.

For further discussion, please see the risk factors titled “We are highly dependent on information systems and networks, many of which are operated by third parties” and “Cyberattacks or other information security breaches of our Company’s, service providers’ or counterparties’ systems or network affect our business, reputation and financial condition” in Part I, Item 1A.

For further discussion, please see the risk factors titled “We are highly dependent

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Management’s Discussion and Analysis

on information systems and networks, many of which are operated by third parties” and “Cyberattacks or other information security breaches of our Company’s, service providers’ or counterparties’ systems or network affect our business, reputation and financial condition” in Part I, Item 1A.

“Risk Factors” of our most recent Annual Report on Form 10-K and in Part II, Item 1A.

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Compliance with Section 3(c)(5)(C) of the Investment Company Act is monitored by the FRDC.

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Management’s Discussion and Analysis

Critical Accounting Estimates

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For example, an increase in CPR would decrease the carrying value and yield of our Agency mortgage-backed securities.

Our valuations are most sensitive to changes in interest rate, which also impacts prepayment speeds.

Our valuations are most sensitive to changes in interest rate, which also impacts

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Management’s Discussion and Analysis

prepayment speeds.

Refer to the Experienced and Projected Long-Term CPR, Financial Condition – Residential Securities and the interest rate sensitivity and interest rate and MBS spread shock analysis and discussions within this Item 2 for further information.

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Refer to the interest rate sensitivity and interest rate shock analysis and discussions within this Item 2 for further information.

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Management’s Discussion and Analysis

We elected to account for MSR at fair value.

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Revenue Recognition

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Management’s Discussion and Analysis

Interest income from coupon payments is accrued based on the outstanding principal amounts of the Residential Securities and their contractual terms.

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To determine whether consolidation of the VIE is required, we must apply judgment to assess whether we have the power to direct the most significant activities of the VIE and whether we have either the rights to receive benefits or the obligation to absorb losses that could be potentially significant to the VIE.

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Management’s Discussion and Analysis

Use of Estimates

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis