What changed in this filing

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Item 9A. Controls and Procedures

2021-02-19 compared with 2020-02-14 · 934 added, 810 removed, 1456 unchanged (55% of the section changed)

7 unchanged sentences

Our internal control over financial reporting is a process designed by, or under the supervision of, Annaly’s CEO and CFO and effected by the Annaly’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

• pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Annaly;

provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Annaly are being made only in

accordance with authorizations of management and directors of Annaly;

• provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and

expenditures of Annaly are being made only in accordance with authorizations of management and directors of Annaly;

• provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Annaly’s assets that could have a material effect on the consolidated financial statements.

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Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Annaly Capital Management, Inc.

To the Stockholders and the Board of Directors of Annaly Capital Management, Inc.

and Subsidiaries

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and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2019, the related notes and financial statement schedules III and IV, and our report dated February 13, 2020 expressed an unqualified opinion thereon.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition of the Company as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2020, the related notes and financial statement schedules III and IV as of December 31, 2020, and our report dated February 18, 2021 expressed an unqualified opinion thereon.

Basis for Opinion

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On May 20, 2020, at our 2020 Annual Meeting of Stockholders, our stockholders approved the 2020 Equity Incentive Plan.

The 2010 Equity Incentive Plan authorizes the Compensation Committee of the Board to grant options, stock appreciation rights, dividend equivalent rights, or other share-based awards, including restricted shares up to an aggregate of 25,000,000 shares, subject to adjustments as provided in the 2010 Equity Incentive Plan.

We had previously adopted a long-term stock incentive plan for executive officers, key employees and nonemployee directors (the “Prior Incentive Plan”).

The 2020 Equity Incentive Plan authorizes us to grant options, stock appreciation rights, dividend equivalent rights, or other share-based awards, including restricted shares up to an aggregate of 125,000,000 shares, subject to adjustments for any awards that were outstanding under our 2010 Equity Incentive Plan (the “Prior Incentive Plan,” together with the 2020 Equity Incentive Plan, the “Incentive Plans”) on the effective date of the 2020 Equity Incentive Plan and subsequently expire, terminate, or are surrendered or forfeited.

Since the adoption of the 2020 Equity Incentive Plan, no further awards will be made under the Prior Incentive Plan, although existing awards will remain effective.

All stock options issued under the 2010 Equity Incentive Plan and the Prior Incentive Plan (collectively the “Incentive Plans”) were issued at the current market price on the date of grant, subject to an immediate or four year vesting in four equal installments with a contractual term of 5 or 10 years.

The grant date fair value is calculated using the Black-Scholes option valuation model.

The following table provides information as of December 31, 2020 concerning shares of our common stock authorized for issuance under the Incentive Plans.

Plan Category

Number of securities to be issued upon exercise of outstanding options, warrants and rights

Weighted-average exercise price of outstanding options, warrants and rights

Number of securities remaining available for future issuance under the Incentive Plans (excluding securities in column ‘a’)

Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under the Incentive Plans (excluding securities in column ‘a’)

Equity compensation plans approved by security holders — $ — 124,798,986

Equity compensation plans not approved by security holders — — —

Total — $ — 124,798,986

Information with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2020.

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EXHIBIT INDEX

Exhibit Number

Exhibit Description

Exhibit Number Exhibit Description

Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11 (Registration No.

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Articles Supplementary reclassifying the Registrant’s 6% Series B Cumulative Convertible Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.13 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017).

Articles Supplementary designating the Registrant’s 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.14 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017).

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Articles Supplementary reclassifying and designating (1) 7,412,500 authorized but unissued shares of the Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares of undesignated Common Stock;

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Articles Supplementary reclassifying and designating 7,000,000 authorized but unissued shares of Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of Registrant’s undesignated common stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed July 22, 2019).

Amended and Restated Bylaws of the Registrant, adopted December 13, 2018 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed December 13, 2018).

Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland effective on January 4, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed January 5, 2021).

A mended and Restate d Bylaws of the Registrant, Dec ember 1 3, 20 18 (incorporate d by ref erence to Exhibit 3.1 to the Registrant ’ s Current Re port on Form 8-K filed December 13, 2018).

Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No.

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333-74618) filed on December 5, 2001).

Specimen Series C Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed May 16, 2012).

Specimen Series D Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed September 13, 2012).

Specimen Series E Preferred Stock Certificate (incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement (Registration No.

13 unchanged sentences

333-32913) filed August 5, 1997).

Amended and Restated Management Agreement, by and between the Registrant and Annaly Capital Management LLC, dated as of August 1, 2018 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 10-Q filed August 3, 2018).*

Amendment No.

1 to Amended and Restated Management Agreement, by and between the Registrant and Annaly Capital Management LLC, dated as of March 27, 2019 (incorporated by reference to Exhibit 10.1 to the Registrant’s Form 8-K filed March 28, 2019).*

Registrant’s 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 1, 2010).*

1 unchanged sentence

Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 20, 2017).

Internalization Agreement, dated February 12, 2020, by and among the Registrant, Annaly Management Company LLL, AMCO Acquisition LLC, AMCO Holding Management Company LLC, the Persons named on Schedule 1 thereto, AMCO OpCo Holding Company LLC, AMCO LP Holding Company LP and AMCO Manager Holdings LLC (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed February 12, 2020).

Severance Rights Agreement between Timothy P.

Coffey and the Registrant, dated as of February 12, 2020 (incorporated by reference to Exhibit 10.5 to the Registrant’s Current Report on Form 8-K filed February 12, 2020).*

Severance Rights Agreement between Anthony C.

Green and the Registrant, dated as of February 12, 2020 (incorporated by reference to Exhibit 10.7 to the Registrant’s Current Report on Form 8-K filed February 12, 2020).*

Restricted Stock Unit Award Agreement between Glenn A.

Votek and the Registrant, dated February 11, 2020 (incorporated by reference to Exhibit 10.9 to the Registrant’s Current Report on Form 8-K filed February 12, 2020).*

2020 Equity Incentive Plan (incorporated herein by reference to Annex A to the Registrant’s proxy statement dated April 8, 2020).

Form of Deferred Stock Unit Award for Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed May 21, 2020).*

Annaly Capital Management, Inc.

Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed July 1, 2020).*

Form of Performance Stock Unit Award (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed July 1, 2020).*

Form of Restricted Stock Unit Award (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed July 1, 2020).*

Employment Agreement between David L.

Finkelstein and the Company, dated as of November 9, 2020 (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed November 10, 2020).*

Employment Agreement between Serena Wolfe and the Company, dated as of November 9, 2020 (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed November 10, 2020).*

Employment Agreement between Timothy P.

Coffey and the Company, dated as of November 9, 2020 (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed November 10, 2020).*

Employment Agreement between Anthony C.

Green and the Company, dated as of November 9, 2020 (incorporated by reference to Exhibit 10.4 to the Registrant’s Current Report on Form 8-K filed November 10, 2020).*

Subsidiaries of Registrant.

Consent of Ernst & Young LLP.

Certification of Glenn A.

Votek, Interim Chief Executive Officer and President (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C.

Certification of David L.

Finkelstein, Chief Executive Officer and Chief Investment Officer (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C.

Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

1 unchanged sentence

Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

Certification of Glenn A.

Votek, Interim Chief Executive Officer and President (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Certification of David L.

Finkelstein, Chief Executive Officer and Chief Investment Officer (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C.

Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

1 unchanged sentence

Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

The instance document does not appear in the interactive data file because its Extensible Business Reporting Language (XBRL) tags are embedded within the Inline XBRL document.

101.INS XBRL The instance document does not appear in the interactive data file because its Extensible Business Reporting Language (XBRL) tags are embedded within the Inline XBRL document.

The following documents are formatted in Inline XBRL:

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and (v) Notes to Consolidated Financial Statements.

Taxonomy Extension Schema Document †

Taxonomy Extension Calculation Linkbase Document †

Additional Taxonomy Extension Definition Linkbase Document Created†

Taxonomy Extension Label Linkbase Document †

Taxonomy Extension Presentation Linkbase Document †

101.SCH XBRL Taxonomy Extension Schema Document †

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document †

101.DEF XBRL Additional Taxonomy Extension Definition Linkbase Document Created†

101.LAB XBRL Taxonomy Extension Label Linkbase Document †

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document †

104 The cover page for the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2020 (formatted in Inline XBRL and contained in Exhibit 101).

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AND SUBSIDIARIES

FInancial Statements

Financial Statements Page

Report of Independent Registered Public Accounting Firm

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Capital Stock

Long-Term Stock Incentive Plan

Interest Income and Interest Expense

4 unchanged sentences

Arcola Regulatory Requirements

Acquisition of MTGE Investment Corp .

Summarized Quarterly Results (Unaudited)

Subsequent Events

ANNALY CAPITAL MANAGEMENT, INC.

2 unchanged sentences

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors of Annaly Capital Management, Inc.

To the Stockholders and the Board of Directors of Annaly Capital Management, Inc.

and Subsidiaries

1 unchanged sentence

We have audited the accompanying consolidated statements of financial condition of Annaly Capital Management, Inc.

and Subsidiaries (the Company) as of December 31, 2019 and 2018, the related consolidated statements of comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2019, the related notes, and financial statement schedules III and IV, (collectively referred to as the “consolidated financial statements”).

and Subsidiaries (the Company) as of December 31, 2020 and 2019, the related consolidated statements of comprehensive income (loss), stockholders' equity and cash flows for each of the three years in the period ended December 31, 2020, the related notes, and financial statement schedules III and IV as of December 31, 2020, (collectively referred to as the "consolidated financial statements").

In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with U.S.

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The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Allowance for loan losses

Description of

the Matter Allowance for loan losses on commercial real estate loans totaled $129.9 million and allowance for loan losses on corporate debt totaled $39.6 million as of December 31, 2020.

As disclosed in Note 6 to the consolidated financial statements, the Company establishes an allowance at origination or acquisition that reflects management's estimate of the total expected credit loss over the expected life of the loan .

In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology, which considers projected economic conditions over the reasonable and supportable forecast period .

For loans experiencing credit deterioration, management may use a different methodology such as discounted cash flow model analysis or fair value of the collateral to determine the expected credit losses.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

Valuation of mortgage servicing rights

Description of

Fair value of mortgage servicing rights (“MSRs”) totaled $378 million at December 31, 2019.

As disclosed in Note 11 to the consolidated financial statements, the Company classifies its investments in MSRs as Level 3 in the fair value measurements hierarchy.

These fair value estimates for MSRs primarily utilize discounted cash flow models that incorporate unobservable market data inputs including prepayment rates, delinquency rates, costs to service and discount rates.

Auditing the valuation of MSRs is complex and required the use of a specialist due to the high degree of judgment in management’s assumptions used in the measurement process which are unobservable in nature including prepayment rates, delinquency rates, costs to service and discount rates.

These assumptions have a significant effect on the valuation of the MSRs.

Auditing the allowance for loan losses on commercial real estate loans and corporate debt is complex due to the high degree of judgment in management’s assumptions used in the estimation process including borrower risk ratings, unemployment rate, certain indexes, and fair value of collateral for collateral-dependent loans, where foreclosure is probable.

These factors could have a significant effect on the allowance for loan losses.

Addressed the

Matter in Our

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s processes to estimate the fair value of its MSRs, including management’s review of the completeness and accuracy of key inputs used in the discounted cash flow model, management’s independent review of assumptions through evaluating historical results and available market information, and management’s comparison of internally developed fair values to fair values obtained from third-party pricing providers.

To test the valuation of the MSRs, our audit procedures included, among others, evaluating the Company’s use of the discounted cash flow valuation technique, utilizing the support of a valuation specialist to independently assess whether the Company’s assumptions (e.g., prepayment rates, delinquency rates, costs to service and discount rates) were supportable based on market data, and independently developing a range of fair values for the MSRs.

We compared management’s assumptions and fair value estimates to the assumptions and fair value ranges developed by the valuation specialist to assess management’s estimate of fair value.

Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s processes to estimate the allowance for loan losses on its commercial real estate loans and corporate debt, including controls over management’s review of the loan losses methodology, the completeness and accuracy of key inputs used in the estimation process, management’s review of the reasonableness of the assumptions used in the estimation process (i.e., borrower risk ratings, unemployment rate, certain indexes, and fair value of collateral) based on current industry and market data, and management’s review of the expected credit losses.

To test the allowance for loan losses, our audit procedures included, among others, utilizing the support of an internal specialist to independently evaluate the reasonableness of the Company’s expected loan loss methodology, which considered the results of various sensitivity analyses and analytical procedures.

We compared management’s inputs and assumptions related to borrower risk ratings, unemployment rate estimates and certain indexes to the inputs and assumptions developed by our specialists using internal and external data.

In cases for loans for which an allowance has been developed based on fair value of the collateral, we engaged internal specialists to independently value the underlying collateral and compared that valuation to management’s valuation.

Amortization of net premiums on residential securities

Description of

Amortization of net premiums on residential securities totaled $1.114 billion for the year ended December 31, 2019.

the Matter Amortization of net premiums on residential securities totaled $1.4 billion for the year ended December 31, 2020.

As disclosed in Note 3 to the consolidated financial statements, the Company amortizes or accretes premiums or discounts into interest income for its residential mortgage - backed securities .

Amortization or accretion is derived taking into account estimates of future principal prepayments, which are derived using third-party model and market information, in the calculation of the effective yield.

Auditing the amortization of net premiums on Agency mortgage-backed securities is complex due to the high degree of judgment in management’s assumptions used in the measurement process including prepayment rates which are uncertain in nature.

Auditing the amortization of net premiums on Agency residential mortgage - backed securities is complex due to the high degree of judgment in management's assumptions used in the measurement process including prepayment rates which are uncertain in nature.

These assumptions have a significant effect on the amortization of net premiums on securities .

1 unchanged sentence

Matter in Our

We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s processes to calculate amortization of net premiums on its Agency and Agency interest-only mortgage-backed securities, including management’s review of the completeness and accuracy of data (e.g.

prepayment rates) used in the cash flow models and the calculation of projected cash flows.

To test the amortization of net premiums our audit procedures included, among others, evaluating the Company's methodology and utilizing the support of a valuation specialist to independently develop ranges of prepayment rates for a sample of securities based on current industry, market and economic data.

We compared management’s prepayment rates to the ranges developed by the valuation specialist to assess management’s estimate.

Audit We obtained an understanding, evaluated the design and tested the operating effectiveness of controls over the Company’s processes to calculate amortization of net premiums on its Agency mortgage-backed securities, including management’s review of third party models and assumptions (i.e., prepayment rates) and the completeness and accuracy of data used in the cash flow models and the calculation of projected cash flows.

To test the amortization of net premiums, our audit procedures included, among others, evaluating the Company's methodology and utilizing the support of internal specialists to independently develop ranges of prepayment rates for a sample of securities based on current industry, market and economic data.

We compared management’s prepayment rates to the ranges developed by the internal specialist to assess management’s estimate.

We also recalculated management’s projected cash flows and the amortization of premiums or accretion of discounts for a sample of securities.

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(dollars in thousands, except per share data)

December 31, December 31,

Cash and cash equivalents (includes pledged assets of $ 1,137,809 and $ 1,648,545 , respectively) (1)

$ 1,243,703 $ 1,850,729

Securities (includes pledged assets of $ 67,471,074 and $ 108,809,569 , respectively) (2)

75,652,396 114,833,580

Loans, net (includes pledged assets of $ 2,231,035 and $ 3,240,583 , respectively) (3)

3,083,821 4,462,350

Mortgage servicing rights (includes pledged assets of $ 5,541 and $ 3,336 , respectively)

100,895 378,078

Assets transferred or pledged to securitization vehicles 6,910,020 7,002,460

1 unchanged sentence

Derivative assets 171,134 113,556

Reverse repurchase agreements

Receivable for unsettled trades 15,912 4,792

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Goodwill and intangible assets, net 127,341 92,772

Other assets 225,494 381,220

Total assets $ 88,455,103 $ 130,295,081

Liabilities and stockholders’ equity

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Debt issued by securitization vehicles 5,652,982 5,622,801

Participations issued 39,198 —

Mortgages payable 426,256 485,005

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Stockholders’ equity

Preferred stock, par value $0.01 per share, 85,150,000 and 75,950,000 authorized, 81,900,000 and 73,400,000 issued and outstanding, respectively

Common stock, par value $0.01 per share, 2,914,850,000 and 1,924,050,000 authorized, 1,430,106,199 and 1,313,763,450 issued and outstanding, respectively

Preferred stock, par value $ 0.01 per share, 85,150,000 authorized, 63,500,000 and 81,900,000 issued and outstanding, respectively

1,536,569 1,982,026

Common stock, par value $ 0.01 per share, 2,914,850,000 authorized, 1,398,240,618 and 1,430,106,199 issued and outstanding, respectively

13,982 14,301

Additional paid-in capital 19,750,818 19,966,923

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Noncontrolling interests 13,480 4,327

Total equity 14,021,796 15,796,344

Total liabilities and equity $ 88,455,103 $ 130,295,081

(1) Includes cash of consolidated Variable Interest Entities (“VIEs”) of $ 22.2 million and $ 67.5 million at December 31, 2020 and 2019, respectively.

Excludes $ 102.5 million and $ 0 at December 31, 2019 and 2018 , respectively, of agency mortgage-backed securities, $ 468.0 million and $ 83.6 million at December 31, 2019 and 2018 , respectively, of non-Agency mortgage-backed securities and $ 500.3 million and $ 224.3 million at December 31, 2019 and December 31, 2018, respectively, of commercial mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition.

Includes $ 66.7 million and $ 97.5 million of residential mortgage loans held for sale and $ 0 and $ 42.2 million of commercial mortgage loans held for sale at December 31, 2019 and 2018 , respectively.

(2) Excludes $ 81.5 million and $ 102.5 million at December 31, 2020 and 2019, respectively, of agency mortgage-backed securities, $ 576.6 million and $ 468.0 million at December 31, 2020 and 2019, respectively, of non-Agency mortgage-backed securities and $ 391.0 million and $ 500.3 million at December 31, 2020 and December 31, 2019, respectively, of commercial mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition.

(3) Includes $ 47.0 million and $ 66.7 million of residential mortgage loans held for sale.

See notes to consolidated financial statements.

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For The Years Ended December 31,

2020 2019 2018

Net interest income

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Unrealized gains (losses) on interest rate swaps ( 904,532 ) ( 1,210,276 ) 424,081

Subtotal ( 3,030,037 ) ( 2,301,865 ) 526,043

Net gains (losses) on disposal of investments 661,513 ( 47,944 ) ( 1,124,448 )

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Loan loss provision ( 147,581 ) ( 16,569 ) ( 3,496 )

Subtotal 967,213 ( 709,262 ) ( 1,689,027 )

Total realized and unrealized gains (losses) ( 2,062,824 ) ( 3,011,127 ) ( 1,162,984 )

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Income (loss) before income taxes ( 918,195 ) ( 2,173,926 ) 51,773

Income taxes ( 28,423 ) ( 10,835 ) ( 2,375 )

Net income (loss) ( 889,772 ) ( 2,163,091 ) 54,148

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

Basic $ ( 0.73 ) $ ( 1.60 ) $ ( 0.06 )

Diluted $ ( 0.73 ) $ ( 1.60 ) $ ( 0.06 )

Weighted average number of common shares outstanding

1,434,912,682

1,209,601,809

1,065,923,652

1,434,912,682

1,209,601,809

1,066,351,616

Basic 1,414,659,439 1,434,912,682 1,209,601,809

Diluted 1,414,659,439 1,434,912,682 1,209,601,809

Other comprehensive income (loss)

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For The Years Ended December 31,

2020 2019 2018

Preferred stock

Beginning of period

$ 1,982,026 $ 1,778,168 $ 1,720,381

— 428,324 411,335

Acquisition of subsidiary

( 445,457 ) ( 224,466 ) ( 408,548 )

End of period $ 1,536,569 $ 1,982,026 $ 1,778,168

Beginning of period

$ 14,301 $ 13,138 $ 11,596

— 1,422 1,103

Buyback of common stock

( 324 ) ( 261 ) —

Acquisition of subsidiary

Stock-based award activity 3 — —

Direct purchase and dividend reinvestment

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Beginning of period

Stock compensation expense

$ 19,966,923 $ 18,794,331 $ 17,221,265

( 93 ) 1,397,484 1,116,409

Buyback of common stock

( 209,094 ) ( 223,313 ) —

Acquisition of subsidiary

Stock-based award activity 6,452 2,162 1,961

Redemption of preferred stock

( 14,543 ) ( 5,534 ) ( 3,952 )

Direct purchase and dividend reinvestment

1,173 1,793 3,141

End of period $ 19,750,818 $ 19,966,923 $ 18,794,331

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Beginning of period

$ 2,138,191 $ ( 1,979,865 ) $ ( 1,126,020 )

Unrealized gains (losses) on available-for-sale securities

2,012,878 4,135,862 ( 2,004,166 )

Reclassification adjustment for net gains (losses) included in net income (loss)

( 776,734 ) ( 17,806 ) 1,150,321

End of period $ 3,374,335 $ 2,138,191 $ ( 1,979,865 )

Accumulated deficit

Beginning of period

Beginning of period - unadjusted $ ( 8,309,424 ) $ ( 4,493,660 ) $ ( 2,961,749 )

Cumulative effect of change in accounting principle for credit losses ( 39,641 ) — —

Beginning of period - adjusted ( 8,349,065 ) ( 4,493,660 ) ( 2,961,749 )

Net income (loss) attributable to Annaly

( 891,163 ) ( 2,162,865 ) 54,408

Dividends declared on preferred stock (1)

( 142,036 ) ( 136,576 ) ( 129,312 )

Dividends and dividend equivalents declared on common stock and share-based awards (1)

( 1,285,124 ) ( 1,516,323 ) ( 1,457,007 )

End of period $ ( 10,667,388 ) $ ( 8,309,424 ) $ ( 4,493,660 )

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Beginning of period

$ 4,327 $ 5,689 $ 6,100

Net income (loss) attributable to noncontrolling interests

1,391 ( 226 ) ( 260 )

Equity contributions from (distributions to) noncontrolling interests

7,762 ( 1,136 ) ( 151 )

End of period $ 13,480 $ 4,327 $ 5,689

(1) See Note titled “Capital Stock” for dividends per share for each class of shares.

Total equity $ 14,021,796 $ 15,796,344 $ 14,117,801

(1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.

See notes to consolidated financial statements.

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For The Years Ended December 31,

2020 2019 2018

Cash flows from operating activities

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Depreciation, amortization and other noncash expenses 41,357 31,559 72,364

Net (gains) losses on disposals of investments

Net (gains) losses on disposals of investments and other ( 661,513 ) 47,944 1,123,969

Net (gains) losses on investments and derivatives 2,368,879 1,855,025 136,673

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Net change in

Due to / from brokers

Other assets 249,778 ( 39,880 ) 98,104

Interest receivable 159,320 ( 85,951 ) ( 19,563 )

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Cash flows from investing activities

Payments on purchases of Residential Securities

Proceeds from sales of Residential Securities

Principal payments on Residential Securities

Payments on purchases of securities ( 32,676,856 ) ( 63,465,822 ) ( 44,795,176 )

Proceeds from sales of securities 52,639,778 25,606,504 33,256,888

Principal payments on securities 19,571,476 17,199,893 11,488,342

Payments on purchases and origination of loans ( 2,257,314 ) ( 4,126,123 ) ( 3,149,224 )

Proceeds from sales of loans 624,026 365,787 150,059

Principal payments on loans 2,222,500 3,139,084 2,107,689

Payments on purchases of MSRs — — ( 381 )

Proceeds from sales of MSRs 72,160 — —

Payments on purchases of corporate debt

Proceeds from sales of corporate debt

Principal payments on corporate debt

Originations and purchases of commercial real estate investments

Proceeds from sales of commercial real estate investments

Principal repayments on commercial real estate investments

Investments in real estate ( 7,450 ) ( 39,144 ) ( 22,722 )

Proceeds from sales of real estate 149,600 24,955 —

2 unchanged sentences

Distributions in excess of cumulative earnings from unconsolidated joint ventures 7,590 3,155 26,228

Payments on purchases of residential mortgage loans held for investment

Proceeds from repayments of residential mortgage loans held for investment

Payments on purchases of equity securities

Cash paid related to asset acquisition, net of cash acquired

Net payment from disposal of subsidiary

Cash acquired (paid) in asset acquisition, net 6,264 — ( 258,334 )

Net cash provided by (used in) investing activities 40,351,774 ( 20,641,671 ) ( 908,420 )

1 unchanged sentence

Proceeds from repurchase agreements and other secured financing 2,776,331,362 5,470,733,256 5,117,155,986

5,470,733,256

5,117,155,986

3,606,915,741

Principal payments on repurchase agreements and other secured financing ( 2,816,805,618 ) ( 5,449,836,013 ) ( 5,116,952,444 )

( 5,449,836,013

( 5,116,952,444

( 3,594,482,419

Proceeds from issuances of securitized debt 2,385,374 3,444,055 920,142

1 unchanged sentence

Payment of deferred financing cost ( 553 ) ( 12,228 ) ( 1,072 )

Principal payments on participation sold

Principal payments on mortgages payable

Net contributions (distributions) from (to) noncontrolling interests

Net proceeds from stock offerings, direct purchases and dividend reinvestments 1,175 1,829,025 1,532,356

Redemptions of preferred stock ( 460,000 ) ( 230,000 ) ( 412,500 )

Proceeds from participations issued 38,741 — —

Net principal receipts (payments) on mortgages payable ( 60,980 ) ( 26,202 ) ( 716 )

Net contributions (distributions) from (to) noncontrolling interests 7,762 ( 1,136 ) ( 971 )

Net payments on share repurchases ( 209,418 ) ( 223,574 ) —

10 unchanged sentences

Taxes received (paid) $ 1,515 $ 2,284 $ ( 295 )

Noncash investing activities

Noncash investing and financing activities

Receivable for unsettled trades $ 15,912 $ 4,792 $ 68,779

1 unchanged sentence

Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment $ 1,236,144 $ 4,118,056 $ ( 853,845 )

Noncash financing activities

Dividends declared, not yet paid $ 307,613 $ 357,527 $ 394,129

Securitized debt assumed through consolidation of VIEs

Derecognition of assets of consolidated VIEs $ 1,222,221 $ — $ —

Derecognition of securitized debt of consolidated VIEs $ 1,141,311 $ — $ —

See notes to consolidated financial statements.

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The Company’s principal business objective is to generate net income for distribution to its stockholders and optimize its returns through prudent management of its diversified investment strategies.

The Company is externally managed by Annaly Management Company LLC (the “Manager”).

The Company’s four investment groups are primarily comprised of the following:

Investment Groups

Annaly Agency Group

Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

Annaly Residential Credit Group

Invests primarily in non-Agency residential mortgage assets within securitized products and residential mortgage loan markets.

Annaly Commercial Real Estate Group

Originates and invests in commercial mortgage loans, securities, and other commercial real estate debt and equity investments.

Annaly Middle Market Lending Group

Provides debt financing to private equity-backed middle market businesses across the capital structure.

The Company has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).

Investment Groups Description

Annaly Agency Group Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.

Annaly Residential Credit Group Invests primarily in non-Agency residential mortgage assets within securitized product and whole loan markets.

Annaly Commercial Real Estate Group Originates and invests in commercial mortgage loans, securities, and other commercial real estate debt and equity investments.

Annaly Middle Market Lending Group Provides financing to private equity-backed middle market businesses, focusing primarily on senior debt within select industries.

The Company is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).

Prior to the closing of the Internalization (as defined in Note 19) on June 30, 2020, the Company was externally managed by Annaly Management Company LLC (the “Former Manager”).

BASIS OF PRESENTATION

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Actual results could differ materially from those estimates.

Certain line items in the Company’s Consolidated Statements of Cash Flows were aggregated to simplify presentation.

Prior periods have been adjusted to conform to the current presentation.

SIGNIFICANT ACCOUNTING POLICIES

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Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.

A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.

The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE causes the Company’s consolidation conclusion to change.

6 unchanged sentences

Cash deposited with clearing organizations is carried at cost, which approximates fair value.

Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $ 1.6 billion at December 31, 2019 and December 31, 2018 .

Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $ 1.1 billion and $ 1.6 billion at December 31, 2020 and December 31, 2019, respectively.

Equity Securities – The Company may invest in equity securities that are not accounted for under the equity method or do not result in consolidation.

15 unchanged sentences

Refer to the “Derivative Instruments” Note for further discussion.

Stock Based Compensation – The Company is required to measure and recognize in the consolidated financial statements the compensation cost relating to share-based payment transactions.

The Company recognizes compensation expense ratably over the requisite service period for the entire award.

Interest Income - The Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms.

In addition, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation of the effective yield.

The Company recalculates the effective yield as differences between anticipated and actual prepayments occur.

Using third-party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition.

The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which

Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock.

Compensation expense is recognized ratably over the vesting or requisite service period of the award.

Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date.

Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately.

Forfeitures are recorded when they occur.

The Company generally issues new shares of common stock upon delivery of stock-based awards.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

results in a cumulative premium amortization adjustment in each period.

Interest Income - The Company recognizes interest income primarily on Residential Securities, residential mortgage loans, commercial investments and reverse repurchase agreements.

Interest accrued but not paid is recognized as Interest receivable on the Consolidated Statements of Financial Condition.

Interest income is presented as a separate line item on the Consolidated Statements of Comprehensive Income (Loss).

Refer to the “Interest Income and Interest Expense” Note for further discussion.

For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms.

The Company recalculates the effective yield as differences between anticipated and actual prepayments occur.

The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period.

The adjustment to amortized cost is offset with a charge or credit to interest income.

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Amortization of premiums and accretion of discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).

If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued.

For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis.

For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt, interest income is recognized on a cash basis.

If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt;

at that point, any interest income is recognized on a cash basis.

Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time and there is a sustained period of repayment performance by the borrower.

Refer to the “Interest Income and Interest Expense” Note for further discussion on interest.

The Company has made an accounting policy election not to measure an allowance for loans losses for accrued interest receivable.

If interest receivable is deemed to be uncollectible or not collected within 90 days of its contractual due date for commercial loans or 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income.

Any interest written off that is recovered is recognized as interest income.

Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income.

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ASUs not listed below were not applicable, not expected to have a significant impact on the Company’s consolidated financial statements when adopted or did not have a significant impact on the Company’s consolidated financial statements upon adoption.

Effective Date

Effect on the Financial Statements or Other Significant Matters

Standards that are not yet adopted

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Standard Description Effective Date Effect on the Financial Statements or Other Significant Matters

Standards that have been adopted

ASU 2016-13 Financial instruments - Credit losses (Topic 326):

Measurement of credit losses on financial instruments

Measurement of credit losses on financial instruments (“ASU 2016-13”)

This ASU updates the existing incurred loss model to a current expected credit loss (“CECL”) model for financial assets and net investments in leases that are not accounted for at fair value through earnings.

The amendments affect certain loans, held-to-maturity debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures and any other financial assets not excluded from the scope.

The amendments affect cash and cash equivalents, reverse repurchase agreements, certain loans, held-to-maturity debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures and any other financial assets not excluded from the scope.

There are also limited amendments to the impairment model for available-for-sale debt securities.

January 1, 2020 (early adoption permitted)

The Company adopted the new standard on January 1, 2020.The ASU requires the measurement of expected credit losses under the CECL model based on relevant information about past events, including historical experience, current conditions, and reasonable and supportable forecasts that affect the collectability of the reported amounts of the financial assets in scope of the model.

The Company has decided to apply a probability of default methodology to loans and loan commitments impacted by the adoption and established appropriate internal controls and is drafting financial statement disclosures.

Key implementation efforts have included model testing and validation and development of internal controls.

The Company recorded an increase in the allowance as a result of adoption of the new guidance, but the increase was not significant.

Further, the amended guidance for available-for-sale debt securities did not have a significant impact to the Company’s securities portfolio.

Effective Date

Effect on the Financial Statements or Other Significant Matters

Standards that were adopted

ASU 2017-01 Business combinations (Topic 805):

Clarifying the definition of a business

This update provides a screen to determine and a framework to evaluate when a set of assets and activities is a business.

January 1, 2018

The amendments are expected to result in fewer transactions being accounted for as business combinations.

ASU 2016-15 Statement of cash flows (Topic 230):

Classification of certain cash receipts and cash payments

This update provides specific guidance on certain cash flow classification issues, including classification of cash receipts and payments that have aspects of more than one class of cash flows.

If cash flows cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows.

January 1, 2018

As a result of adopting this standard, the Company reclassified its cash flows on reverse repurchase and repurchase agreements entered into by Arcola Securities, Inc.

(“Arcola”) from operating activities to investing and financing activities, respectively, in the Consolidated Statements of Cash Flows.

The Company applied the retrospective transition method, which resulted in reclassification of comparative periods.

January 1, 2020 The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets and off-balance-sheet credit exposures in scope.

The modified retrospective approach requires an adjustment to beginning retained earnings for the cumulative effect of adopting the standard.

Results for reporting periods beginning after January 1, 2020 are presented in accordance with ASU 2016-13, while prior periods continue to be reported in accordance with previously applicable GAAP.

As a result of the adoption, the Company recorded an increase to the loan loss allowance of $ 37.4 million and a liability of $ 2.2 million for unfunded loan commitments, which reduced beginning retained earnings by $ 39.6 million as of January 1, 2020.

Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting

This ASU provides optional, temporary relief to accounting for contract modifications resulting from reference rate reform.

January 1, 2020 The Company has elected to retrospectively apply the practical expedients to modifications of qualifying contracts as continuation of the existing contract rather than as a new contract.

The adoption had no immediate impact and is not expected to have a material impact on the Company’s consolidated financial statements as the guidance continues to be applied to contract modifications until the ASU’s termination date.

ANNALY CAPITAL MANAGEMENT, INC.

4 unchanged sentences

Financial Instruments (1)

Balance Sheet Line Item

Measurement Basis

December 31, 2019

December 31, 2018

(dollars in thousands)

Agency mortgage-backed securities (2)

Balance Sheet Line Item Type / Form Measurement Basis December 31, 2020 December 31, 2019

Assets (dollars in thousands)

Securities Agency mortgage-backed securities (2)

Fair value, with unrealized gains (losses) through other comprehensive income $ 73,562,972 $ 112,124,958

Agency mortgage-backed securities (3)

Fair value, with unrealized gains (losses) through earnings

Credit risk transfer securities

Fair value, with unrealized gains (losses) through earnings

Non-agency mortgage-backed securities

Securities Agency mortgage-backed securities (3)

Fair value, with unrealized gains (losses) through earnings 504,087 768,409

Commercial real estate debt investments - CMBS

Fair value, with unrealized gains (losses) through other comprehensive income

Commercial real estate debt investments - CMBS (4)

Securities Residential credit risk transfer securities Fair value, with unrealized gains (losses) through earnings 532,403 531,322

Securities Non-agency mortgage-backed securities Fair value, with unrealized gains (losses) through earnings 972,192 1,135,868

Securities Commercial real estate debt investments - CMBS Fair value, with unrealized gains (losses) through other comprehensive income 31,603 64,655

Securities Commercial real estate debt investments - CMBS (4)

Fair value, with unrealized gains (losses) through earnings 45,254 208,368

Securities Commercial real estate debt investments - credit risk transfer securities Fair value, with unrealized gains (losses) through earnings 3,885 —

Total securities 75,652,396 114,833,580

Residential mortgage loans

Fair value, with unrealized gains (losses) through earnings

Commercial real estate debt and preferred equity, held for investment

Amortized cost

Commercial loans held for sale, net

Lower of amortized cost or fair value

Corporate debt held for investment, net

Amortized cost

Loans, net Residential mortgage loans Fair value, with unrealized gains (losses) through earnings 345,810 1,647,787

Loans, net Commercial real estate debt and preferred equity, held for investment Amortized cost 498,081 669,713

Loans, net Corporate debt held for investment, net Amortized cost 2,239,930 2,144,850

Total loans, net 3,083,821 4,462,350

Assets transferred or pledged to securitization vehicles

Agency mortgage-backed securities

Fair value, with unrealized gains (losses) through other comprehensive income

Assets transferred or pledged to securitization vehicles

Residential mortgage loans

Fair value, with unrealized gains (losses) through earnings

Assets transferred or pledged to securitization vehicles

Commercial mortgage loans

Fair value, with unrealized gains (losses) through earnings

Assets transferred or pledged to securitization vehicles

Commercial mortgage loans

Amortized cost

Assets transferred or pledged to securitization vehicles Agency mortgage-backed securities Fair value, with unrealized gains (losses) through other comprehensive income 620,347 1,122,588

Assets transferred or pledged to securitization vehicles Residential mortgage loans Fair value, with unrealized gains (losses) through earnings 3,249,251 2,598,374

Assets transferred or pledged to securitization vehicles Commercial mortgage loans Fair value, with unrealized gains (losses) through earnings 2,166,073 2,345,120

Assets transferred or pledged to securitization vehicles Commercial mortgage loans Amortized cost 874,349 936,378

Total assets transferred or pledged to securitization vehicles 6,910,020 7,002,460

Reverse repurchase agreements

Amortized cost

Repurchase agreements

Amortized cost

Other secured financing

Amortized cost

Debt issued by securitization vehicles

Fair value, with unrealized gains (losses) through earnings

Mortgages payable

Amortized cost

Repurchase agreements Repurchase agreements Amortized cost 64,825,239 101,740,728

Other secured financing Loans Amortized cost 917,876 4,455,700

Debt issued by securitization vehicles Securities Fair value, with unrealized gains (losses) through earnings 5,652,982 5,622,801

Participations issued Participations issued Fair value, with unrealized gains (losses) through earnings 39,198 —

Mortgages payable Loans Amortized cost 426,256 485,005

(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at cost.

1 unchanged sentence

(3) Includes interest-only securities and reverse mortgages.

(4) Includes conduit CMBS.

(4) Includes single-asset / single borrower CMBS.

The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed securities.

1 unchanged sentence

Available-for-sale securities are carried at fair value, with changes in fair value recognized in other comprehensive income, unless the fair value option is elected in which case changes in fair value are recognized in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss).

Transactions for securities are recorded on trade date, including TBA securities that meet the regular-way securities scope exception from derivative accounting.

Gains and losses on disposals of securities are recorded on trade date based on the specific identification method.

Transactions for securities are recorded on trade date, including

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

Other-Than-Temporary Impairment – Management evaluates available-for-sale securities and held-to-maturity debt securities for other-than-temporary impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation.

TBA securities that meet the regular-way securities scope exception from derivative accounting.

Gains and losses on disposals of securities are recorded on trade date based on the specific identification method.

Impairment – Management evaluates available-for-sale securities and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation.

When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired.

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Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis).

The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss), while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss).

The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss) as a Securities Loss Provision and reflected as an Allowance for Credit Losses on Securities on the Consolidated Statements of Financial Condition, while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss).

When the fair value of a held-to-maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire cost basis of the security.

There was no other-than-temporary impairment recognized for the years ended December 31, 2019 , 2018 and 2017 .

There was no impairment recognized for the years ended December 31, 2020, 2019 and 2018.

Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans and certificates.

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Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those issued in prime loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations.

Agency mortgage-backed securities, non-Agency mortgage-backed securities and CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.

Agency mortgage-backed securities, non-Agency mortgage-backed securities and residential CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.

Commercial Mortgage-Backed Securities (“Commercial Securities”) - Certain commercial mortgage-backed securities are classified as available-for-sale and reported at fair value with unrealized gains and losses reported as a component of Other comprehensive income (loss).

Management evaluates such Commercial Securities for other-than-temporary impairment at least quarterly.

Management evaluates such Commercial Securities for impairment at least quarterly.

The Company elected the fair value option on certain Commercial Securities, including conduit commercial mortgage-backed securities, to simplify the accounting where the unrealized gains and losses on these financial instruments are recorded through earnings.

The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the year ended December 31, 2020:

Residential Securities

Commercial Securities

Residential Securities Commercial Securities Total

(dollars in thousands)

Beginning balance January 1, 2020 $ 114,560,557 $ 273,023 $ 114,833,580

Purchases 33,082,119 25,285 33,107,404

Sales and transfers (1)

( 52,367,095 ) ( 204,061 ) ( 52,571,156 )

Principal paydowns ( 19,531,705 ) ( 4,933 ) ( 19,536,638 )

2 unchanged sentences

Ending balance December 31, 2020 $ 75,571,654 $ 80,742 $ 75,652,396

(1) Includes transfers to securitization vehicles.

(1) Includes transfers to securitization vehicles with a carrying value of $533.3 million during the year ended December 31, 2020.

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

December 31, 2020

Remaining Premium

Remaining Discount

Estimated Fair Value

(dollars in thousands)

Notional Remaining Premium Remaining Discount Amortized

Cost Unrealized

Gains Unrealized

Losses Estimated Fair Value

Agency (dollars in thousands)

Fixed-rate pass-through $ 64,800,235 $ 3,325,020 $ ( 22,143 ) $ 68,103,112 $ 3,200,542 $ ( 1,076 ) $ 71,302,578

Adjustable-rate pass-through 455,675 2,869 ( 3,369 ) 455,175 22,341 — 477,516

CMO 139,664 2,177 — 141,841 7,926 — 149,767

Interest-only 2,790,537 564,297 — 564,297 3,513 ( 145,901 ) 421,909

Multifamily (1)

1,910,384 50,148 ( 1,057 ) 1,604,913 59,548 ( 954 ) 1,663,507

Reverse mortgages 47,585 4,183 — 51,768 252 ( 238 ) 51,782

1 unchanged sentence

Residential credit

$ 544,780 $ 7,324 $ ( 2,430 ) $ 538,941 $ 3,062 $ ( 9,600 ) $ 532,403

Alt-A 93,001 51 ( 17,368 ) 75,684 4,644 — 80,328

Prime 177,852 5,126 ( 15,999 ) 166,979 14,607 ( 77 ) 181,509

Prime interest-only 194,687 1,882 — 1,882 — ( 642 ) 1,240

Subprime 197,779 584 ( 18,181 ) 180,182 8,312 ( 61 ) 188,433

NPL/RPL 475,108 821 ( 2,416 ) 473,513 3,782 ( 1,448 ) 475,847

Prime jumbo (>=2010 vintage) 44,696 207 ( 5,300 ) 39,603 3,680 — 43,283

5 unchanged sentences

December 31, 2019

Remaining Premium

Remaining Discount

Estimated Fair Value

(dollars in thousands)

Notional Remaining Premium Remaining Discount Amortized

Cost Unrealized

Gains Unrealized

Losses Estimated Fair Value

Agency (dollars in thousands)

Fixed-rate pass-through $ 102,448,565 $ 4,345,053 $ ( 46,614 ) $ 106,747,004 $ 2,071,583 $ ( 95,173 ) $ 108,723,414

Adjustable-rate pass-through 1,474,818 72,245 ( 1,400 ) 1,545,663 10,184 ( 31,516 ) 1,524,331

CMO 156,937 2,534 — 159,471 545 — 160,016

Interest-only 4,486,845 862,905 — 862,905 2,787 ( 157,130 ) 708,562

Multifamily 1,619,900 19,981 ( 2,280 ) 1,637,601 82,292 ( 2,696 ) 1,717,197

Reverse mortgages 54,553 5,053 — 59,606 550 ( 309 ) 59,847

1 unchanged sentence

Residential credit

$ 517,110 $ 15,850 $ ( 2,085 ) $ 515,950 $ 16,605 $ ( 1,233 ) $ 531,322

Alt-A 160,957 250 ( 22,306 ) 138,901 12,482 — 151,383

Prime 277,076 3,362 ( 17,794 ) 262,644 14,142 ( 529 ) 276,257

Prime interest-only 391,234 3,757 — 3,757 — ( 590 ) 3,167

Subprime 370,263 1,356 ( 59,727 ) 311,892 37,205 ( 118 ) 348,979

NPL/RPL 164,180 351 ( 440 ) 164,091 191 ( 14 ) 164,268

Prime jumbo (>=2010 vintage) 182,709 1,026 ( 4,281 ) 179,454 5,360 ( 150 ) 184,664

4 unchanged sentences

Total securities $ 113,123,301 $ 5,353,597 $ ( 166,320 ) $ 112,863,385 $ 2,261,636 $ ( 291,441 ) $ 114,833,580

Principal/Notional amount includes $ 14.9 million of a CRT interest-only security as of December 31, 2019 .

(1) Principal/Notional amount includes $ 354.6 million and $ 0 million of an Agency CMBS interest-only security as of December 31, 2020 and December 31, 2019, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

(2) Principal/Notional amount includes $ 10.7 million and $ 14.9 million of a CRT interest-only security as of December 31, 2020 and December 31, 2019, respectively.

The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

Investment Type

(dollars in thousands)

December 31, 2020 December 31, 2019

Investment Type (dollars in thousands)

Fannie Mae $ 56,218,033 $ 76,656,831

Freddie Mac 17,735,041 36,087,100

Ginnie Mae 113,985 149,436

Total $ 74,067,059 $ 112,893,367

Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.

The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at December 31, 2020 and 2019, according to their estimated weighted average life classifications:

December 31, 2019

December 31, 2018

Estimated Fair Value

Estimated weighted average life

(dollars in thousands)

December 31, 2020 December 31, 2019

Estimated Fair Value Amortized

Cost Estimated Fair Value Amortized

Estimated weighted average life (dollars in thousands)

Less than one year $ 110,203 $ 109,540 $ 3,997 $ 4,543

2 unchanged sentences

Greater than ten years 1,309,255 1,279,353 533,550 506,719

Total $ 75,571,654 $ 72,404,693 $ 114,560,557 $ 112,597,940

The estimated weighted average lives of the Residential Securities at December 31, 2020 and 2019 in the table above are based upon projected principal prepayment rates.

1 unchanged sentence

The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at December 31, 2020 and 2019.

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Estimated Fair Value (1)

7 unchanged sentences

12 Months or more — — — 11,619,280 ( 105,329 ) 352

Total $ 777,586 $ ( 2,030 ) 30 $ 19,007,519 $ ( 129,385 ) 491

(1) Excludes interest-only mortgage-backed securities and reverse mortgages.

1 unchanged sentence

Substantially all of the Agency mortgage-backed securities are “AAA” rated or carry an implied “AAA” rating.

The investments are not considered to be other-than-temporarily impaired because the Company currently has the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost bases, which may be maturity.

During the year ended December 31, 2019 , the Company disposed of $ 25.5 billion of Residential Securities, resulting in a net realized loss of ($ 37.8 ) million .

During the year ended December 31, 2018 , the Company disposed of $ 45.6 billion of Residential Securities, resulting in a net realized loss of ($ 1.1 ) billion .

During the year ended December 31, 2017 , the Company disposed of $ 12.9 billion of Residential Securities, resulting in a net realized loss of ($ 6.4 ) million .

The investments are not considered to be impaired because the Company currently has the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost bases, which may be maturity.

During the years ended December 31, 2020 and 2019, the Company disposed of $ 51.8 billion and $ 25.5 billion, respectively, of Residential Securities.

The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the years ended December 31, 2020 and 2019.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

Gross Realized Gains Gross Realized Losses Net Realized Gains (Losses)

For the year ended (dollars in thousands)

December 31, 2020 $ 942,450 $ ( 305,449 ) $ 637,001

December 31, 2019 $ 172,518 $ ( 210,317 ) $ ( 37,799 )

The Company invests in residential, commercial and corporate loans.

7 unchanged sentences

The Company determines the fair value of loans held for sale on an individual loan basis.

Nonaccrual Status – If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued.

For nonaccrual status loans carried at fair value or held for sale, interest is not accrued, but is recognized on a cash basis.

For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt, but collection of interest is in doubt, interest income is recognized on a cash basis.

If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt;

at that point, any interest income is recognized on a cash basis.

Allowance for Losses – The Company evaluates the need for a loss reserve on its loans.

A provision for loan losses may be established when it is probable the Company will not collect amounts contractually due or all amounts previously estimated to be collectible.

Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment where the fair value option is not elected.

Allowance for loan losses are written off in the period the loans are deemed uncollectible.

Given the unique nature of each underlying borrower and any collateral, the Company assesses an allowance for each individual loan held-for-investment.

A provision is established at origination or acquisition that reflects management’s estimate of the total expected credit loss over the expected life of the loan.

In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss Given Default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period.

The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors.

For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis.

Management uses third-party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio.

Changes in the lifetime expected credit loss are reflected in Loan loss provision in the Consolidated Statements of Comprehensive Income (Loss).

For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis.

For collateral-dependent loans, if foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any selling costs, if applicable.

Additionally, the Company may elect the practical expedient for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty by measuring the allowance as the difference between the fair value of the collateral, less costs to sell, if applicable, and the amortized cost basis of the financial asset at the reporting date.

The Company’s commercial loans are collateralized by commercial real estate including, but not limited to, multifamily real estate, office and retail space, hotels and industrial space.

At origination, the fair value of the collateral generally exceeds the principal loan balance.

Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary.

7 unchanged sentences

Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.

Management generally reviews the most recent financial information produced by the borrower, which may include, but is not limited to, net operating income (“NOI”), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s commercial real estate loans and preferred equity interests (“CRE Debt and Preferred Equity Investments”), and may consider other factors management deems important.

Management also reviews market pricing to determine each borrower’s ability to refinance their respective assets at the maturity of each loan, economic trends (both macro and those affecting the property specifically), and the supply and demand of competing projects in the sub-market in which each subject property is located.

Management monitors the financial condition and operating results of its borrowers and continually assesses the future outlook of the borrower’s financial performance in light of industry developments, management changes and company-specific considerations.

The Company’s internal loan risk ratings are based on the guidance provided by the Office of the Comptroller of the Currency for commercial real estate lending.

The Company’s internal risk rating categories include “Performing”, “Performing - Closely Monitored”, “Performing - Special Mention”, “Substandard”, “Doubtful” or “Loss”.

Performing loans meet all present contractual obligations.

Performing - Closely Monitored loans meet all present contractual obligations, but are transitional or could be exhibiting some weakness in both leverage and liquidity.

Performing - Special Mention loans meet all present contractual obligations, but exhibit potential weakness that deserves management’s close attention and if uncorrected, may result in deterioration of repayment prospects.

Substandard loans are inadequately protected by sound worth and paying capacity of the obligor or of the collateral pledged with a distinct possibility that loss will be sustained if some of the deficiencies are not corrected.

Doubtful loans are Substandard loans whereby collection of all contractual principal and interest is highly questionable or improbable.

Loss loans are considered uncollectible.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The Company recorded loan loss provisions of $ 16.6 million and $ 3.5 million for the years ended December 31, 2019 and 2018 , respectively, on loans with aggregate principal balances of $ 63.2 million and $ 7.0 million as of December 31, 2019 and 2018 , respectively and carrying values of $ 43.1 million and $ 3.5 million as of December 31, 2019 and 2018 , respectively.

There was no provision for loan loss recorded for the year ended December 31, 2017.

As of December 31, 2019 and 2018 , the Company’s loan loss provision was $ 20.1 million and $ 3.5 million , respectively.

The Company recorded loan loss provisions of $ 147.6 million, $ 16.6 million and $ 3.5 million for the years ended December 31, 2020, 2019 and 2018, respectively.

As of December 31, 2020 and 2019, the Company’s loan loss allowance was $ 169.5 million and $ 20.1 million, respectively.

The following table presents the activity of the Company’s loan investments, including loans held for sale and excluding loans transferred or pledged to securitization vehicles, for the year ended December 31, 2020:

Residential Commercial Corporate Total

(dollars in thousands)

Beginning balance January 1, 2020 $ 1,647,787 $ 669,713 $ 2,144,850 $ 4,462,350

Impact of adopting CECL — ( 3,599 ) ( 29,653 ) ( 33,252 )

Purchases / originations 1,168,830 217,329 1,061,644 2,447,803

Sales and transfers (1)

( 2,298,391 ) ( 235,533 ) ( 357,930 ) ( 2,891,854 )

Principal payments ( 154,864 ) ( 77,422 ) ( 576,759 ) ( 809,045 )

Gains / (losses) (2)

( 11,854 ) ( 74,965 ) ( 14,429 ) ( 101,248 )

(Amortization) / accretion ( 5,698 ) 2,558 12,207 9,067

Ending balance December 31, 2020 $ 345,810 $ 498,081 $ 2,239,930 $ 3,083,821

(1) Includes securitizations, syndications and transfers to securitization vehicles.

(1) Includes securitizations, syndications and transfers to securitization vehicles or REO.

Includes transfer of residential loans to securitization vehicles with a carrying value of $ 1.9 billion during the year ended December 31, 2020.

(2) Includes loan loss allowances.

The carrying value of the Company’s residential loans held for sale was $ 47.0 million and $ 66.7 million at December 31, 2020 and 2019, respectively.

The carrying value of the Company’s commercial loans held for sale was $ 0 and $ 42.2 million at December 31, 2019 and 2018 , respectively.

The Company also has off-balance-sheet credit exposures related to unfunded loan commitments, including revolvers, delayed draw term loans and future funding commitments that are not unconditionally cancelable by the Company.

The Company utilizes the same methodology in calculating the liability related to the expected credit losses on these exposures as it does for the calculation of the allowance for loan losses.

In determining the estimate of credit losses for off-balance-sheet credit exposures, the Company will consider the contractual period in which the entity is exposed to credit risk and the likelihood that funding will occur, if material.

Estimated credit losses for off-balance-sheet credit exposures are included in Other liabilities on the Company’s Consolidated Statements of Financial Condition.

The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans.

The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Statements of Comprehensive Income.

Additionally, the Company consolidates a collateralized financing entity that securitized prime adjustable-rate jumbo residential mortgage loans.

2 unchanged sentences

The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles, at December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(dollars in thousands)

Fair value $ 3,595,061 $ 4,246,161

Unpaid principal balance $ 3,482,865 $ 4,133,149

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for December 31, 2020 and 2019 for these investments:

For the Years Ended

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(dollars in thousands)

3 unchanged sentences

Total included in net income (loss) $ 169,580 $ 182,737

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table provides the geographic concentrations based on the unpaid principal balances at December 31, 2020 and 2019 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

Geographic Concentrations of Residential Mortgage Loans

December 31, 2019

December 31, 2018

Property location

All other (none individually greater than 5%)

December 31, 2020 December 31, 2019

Property location % of Balance Property location % of Balance

California 48.9 % California 52.1 %

New York 14.0 % New York 10.5 %

Florida 6.0 % Florida 5.3 %

All other (none individually greater than 5%) 31.1 % All other (none individually greater than 5%) 32.1 %

Total 100.0 % 100.0 %

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

Portfolio Weighted

Average Portfolio

Portfolio Weighted Average

1 unchanged sentence

Unpaid principal balance $ 1 - $ 3,448

Interest rate

$ 473 $ 1 - $ 3,448

2.00% - 7.75%

1/1/2028 - 12/1/2059

Interest rate 0.50 % - 9.24 %

4.89 % 2.00 % - 8.38 %

Maturity 7/1/2029 - 1/1/2061 4/17/2046 1/1/2028 - 12/1/2059 12/29/2047

FICO score at loan origination 505 - 829

755 505 - 829

Loan-to-value ratio at loan origination 8 % - 104 %

67 % 8 % - 105 %

At December 31, 2020 and 2019, approximately 37 % and 36 %, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

3 unchanged sentences

Origination fees and costs, premiums or discounts are amortized into interest income over the life of the loan.

At December 31, 2019 , the Company had unfunded commercial real estate loan commitments of $ 181.4 million .

Management generally reviews the most recent financial information and metrics derived therefrom produced by the borrower, which may include, but is not limited to, net operating income (“NOI”), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s commercial real estate loans and preferred equity interests (“CRE Debt and Preferred Equity Investments”), and may consider other factors management deems important.

Management also reviews market pricing to assess each borrower’s ability to refinance their respective assets at the maturity of each loan, in addition to economic trends (both macro and those affecting the property specifically), and the supply and demand of competing projects in the sub-market in which each subject

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

property is located.

The Company’s internal loan risk ratings are based on the guidance provided by the Office of the Comptroller of the Currency for commercial real estate lending.

The Company’s internal risk rating rubric for commercial loans has nine categories as depicted below:

Risk Rating - Commercial Loans Description

1-4 / Performing Meets all present contractual obligations.

5 / Performing - Closely Monitored Meets all present contractual obligations, but are transitional or could be exhibiting some weaknesses in both leverage and liquidity.

6 / Performing - Special Mention Meets all present contractual obligations, but exhibit potential weakness that deserves management’s close attention and, if uncorrected, may result in deterioration of repayment prospects.

7 / Substandard Inadequately protected by sound worth and paying capacity of the obligor or of the collateral pledged with a distinct possibility that loss will be sustained if some of the deficiencies are not corrected.

8 / Doubtful Substandard loans whereby collection of all contractual principal and interest is highly questionable or improbable.

9 / Loss Considered uncollectible.

Management assesses each loan at least quarterly and assigns an internal risk rating based on its evaluation of the most recent financial information produced by the borrower and consideration of economic conditions.

See below for a tabular disclosure of the amortized cost basis of the Company’s commercial loans by year of origination and internal risk rating.

The Company’s commercial loans are collateral-dependent and, as such, for loans experiencing credit deterioration, the Company is required to record an allowance based upon the fair value of the underlying collateral if foreclosure is probable or if the practical expedient is elected.

For the year ended December 31, 2020, the Company recorded a loan loss provision on impaired commercial loans of $ 78.4 million with a principal balance and carrying value, net of allowances of $ 181.2 million and $ 113.6 million, respectively, based upon the fair value of the underlying collateral.

The Company uses a discounted cash flow or market based valuation technique based upon the underlying property to project property cash flows.

In projecting these cash flows, the Company reviewed the borrower financial statements, rent rolls, economic trends and other factors management deems important.

These nonrecurring fair value measurements are considered to be in level three of the fair value measurement hierarchy as there are unobservable inputs, which are significant to the overall fair value.

For the year ended December 31, 2019, the Company recorded a loan loss provision of $ 9.2 million on commercial loans with a principal balance and carrying value, net of allowances of $ 43.6 million and $ 30.9 million, respectively.

As a result of the implementation of the Loss Given Default methodology under the modified retrospective method, a cumulative effect loan loss allowance of $ 7.8 million was recorded on January 1, 2020.

For the year ended December 31, 2020, the Company recorded a net loan loss provision of $ 54.8 million based upon its Loss Given Default methodology recorded in Loan loss provision in the Consolidated Statements of Comprehensive Income (Loss).

During the year ended December 31, 2020, the Company modified five commercial loans with a carrying value of $ 243.8 million at December 31, 2020.

The maturity dates on four commercial loans were extended and one commercial loan was granted a 120 day forbearance.

Additionally, as part of the restructuring two loans had partial paydowns totaling $ 4.5 million.

The loan loss allowance recorded for these commercial loans was $ 23.6 million at December 31, 2020.

Future funding commitments on the restructured loans total $ 4.1 million.

At December 31, 2020 and December 31, 2019, the amortized cost basis of commercial loans on nonaccrual status was $ 46.8 million and $ 175.2 million, respectively.

For the years ended December 31, 2020 and 2019, the Company recognized interest income on commercial loans on nonaccrual status of $ 2.1 million and ($ 0.1 ) million, respectively.

At December 31, 2020 and December 31, 2019, the Company had unfunded commercial real estate loan commitments of $ 99.3 million and $ 181.4 million respectively.

At December 31, 2020, the liability related to the expected credit losses on the unfunded commercial loan commitments was $ 5.1 million.

At December 31, 2020 and 2019, approximately 94 % and 92 % , respectively, of the carrying value of the Company’s CRE Debt and Preferred Equity Investments, including loans transferred or pledged to securitization vehicles and excluding commercial loans held for sale, were adjustable-rate.

At December 31, 2019 and 2018 , commercial real estate investments held for investment were comprised of the following:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The sector attributes of the Company’s commercial real estate investments held for investment, including loans transferred or pledged to securitization vehicles, at December 31, 2020 and December 31, 2019 were as follows:

Sector Dispersion

December 31, 2020

December 31, 2019

Outstanding Principal

Carrying Value % of Loan Portfolio Carrying Value % of Loan Portfolio

(dollars in thousands)

Office $ 650,034 47.4 % $ 681,129 42.4 %

Retail 256,493 18.7 % 389,076 24.2 %

Multifamily 250,095 18.2 % 262,302 16.3 %

Hotel 115,536 8.4 % 135,681 8.4 %

Industrial 60,097 4.4 % 82,441 5.1 %

Other 20,302 1.5 % 36,589 2.3 %

Healthcare 19,873 1.4 % 18,873 1.3 %

Total $ 1,372,430 100.0 % $ 1,606,091 100.0 %

At December 31, 2020 and 2019, commercial real estate investments held for investment were comprised of the following:

December 31, 2020 December 31, 2019

Outstanding Principal Carrying

Portfolio (2)

Outstanding Principal

Outstanding Principal Carrying

Portfolio (2)

2 unchanged sentences

Senior securitized mortgages (3)

938,859 874,349 62.3 % 940,546 936,378 57.8 %

Mezzanine loans 181,261 124,156 12.0 % 183,064 170,023 11.3 %

Total $ 1,507,244 $ 1,372,430 100.0 % $ 1,627,109 $ 1,606,091 100.0 %

(1) Carrying value includes unamortized origination fees of $ 4.9 million and $ 8.3 million at December 31, 2020 and 2019, respectively.

1 unchanged sentence

(3) Assets of consolidated VIEs.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following tables represent a rollforward of the activity for the Company’s commercial real estate investments held for investment at December 31, 2020 and 2019:

December 31, 2020

Mortgages Senior

Mortgages (1)

(dollars in thousands)

Net carrying value (January 1, 2019)

Beginning balance (January 1, 2020) (2)

$ 499,690 $ 936,378 $ 182,726 $ 1,618,794

Originations & advances (principal) 206,090 — 12,374 218,464

Principal payments ( 77,344 ) ( 144,308 ) ( 78 ) ( 221,730 )

Principal write off — — ( 7,000 ) ( 7,000 )

Transfers (3)

( 245,120 ) 142,621 ( 7,100 ) ( 109,599 )

Net (increase) decrease in origination fees ( 1,055 ) ( 653 ) ( 80 ) ( 1,788 )

Realized gain 204 — — 204

Amortization of net origination fees 2,371 2,460 187 5,018

Allowance for loan losses

Beginning allowance, prior to CECL adoption — — ( 12,703 ) ( 12,703 )

Impact of adopting CECL ( 2,263 ) ( 4,166 ) ( 1,336 ) ( 7,765 )

Current period allowance ( 8,648 ) ( 57,983 ) ( 66,521 ) ( 133,152 )

Write offs — — 23,687 23,687

Ending allowance ( 10,911 ) ( 62,149 ) ( 56,873 ) ( 129,933 )

Net carrying value (December 31, 2020) $ 373,925 $ 874,349 $ 124,156 $ 1,372,430

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2019

Mortgages Senior

Securitized Mortgages (1)

(dollars in thousands)

2 unchanged sentences

Principal payments ( 16,785 ) ( 150,245 ) ( 149,633 ) ( 316,663 )

Transfers (3)

( 1,034,754 ) 1,083,487 ( 8,675 ) 40,058

Net (increase) decrease in origination fees ( 4,200 ) — ( 184 ) ( 4,384 )

Amortization of net origination fees 2,023 3,136 412 5,571

Allowance for loan losses

Net (increase) decrease in allowance — — $ ( 9,207 ) ( 9,207 )

Net carrying value (December 31, 2019) $ 499,690 $ 936,378 $ 170,023 $ 1,606,091

(1) Assets of consolidated VIEs.

The following table provides the internal loan risk ratings of commercial real estate investments held for investment as of December 31, 2019 and 2018 .

December 31, 2019

Internal Ratings

Investment Type

Outstanding Principal

Percentage of CRE Debt and Preferred Equity Portfolio

Performing - Closely Monitored

Performing - Special Mention

Substandard (1)

(1) Represents assets of consolidated VIEs.

(2) Excludes loan loss allowances.

(3) Includes transfers to securitization vehicles or REO.

The following table provides the internal loan risk ratings of commercial real estate investments held for investment as of December 31, 2020.

Amortized Cost Basis by Risk Rating and Vintage (1)

Risk Rating Vintage

Total 2020 2019 2018 2017 2016 Prior

(dollars in thousands)

Senior mortgages

Senior securitized mortgages (4)

Mezzanine loans

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2018

Internal Ratings

Investment Type

Outstanding Principal

Percentage of CRE Debt and Preferred Equity Portfolio

1-4 / Performing $ 300,623 $ 111,177 $ 134,923 $ — $ 12,972 $ — $ 41,551

5 / Performing - Closely Monitored 145,231 — 145,231 — — — —

1 unchanged sentence

7 / Substandard 205,026 9,368 78,407 66,294 — — 50,957

(dollars in thousands)

Senior mortgages

Mezzanine loans

The Company rated three loans as of December 31, 2019 and two loans as of December 31, 2018 as Substandard.

The Company evaluated whether an impairment exists and determined in each case that, based on quantitative and qualitative factors, the Company expects repayment of contractual amounts due.

The Company rated one loan as Doubtful and evaluated for impairment for which a loan loss allowance of $ 5.7 million was recognized for the year ended December 31, 2019 .

The Company rated one loan as Doubtful and evaluated for impairment for which a loan loss allowance of $ 3.5 million was recognized for the year ended December 31, 2018 .

The Company transferred a loan from Doubtful to Loss during the year ended December 31, 2019.

Assets of consolidated VIEs.

8 / Doubtful 93,326 — — 39,704 53,622 — —

— — — — — — —

Total $ 1,372,430 $ 179,193 $ 494,429 $ 373,553 $ 163,576 $ 69,171 $ 92,508

(1) The amortized cost basis excludes accrued interest.

As of December 31, 2020, the Company had $ 3.8 million of accrued interest receivable on

commercial loans which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition.

(2) Includes two commercial mezzanine loans for which the Company recorded a full loan loss allowance of $ 46.6 million.

Corporate Debt

5 unchanged sentences

Premiums and discounts are amortized or accreted into interest income using the effective interest method.

As of and for the year ended December 31, 2019 , the Company recorded a loan loss provision of $ 7.4 million on a corporate loan with a principal balance and carrying value of $ 19.6 million and $ 12.2 million , respectively.

There was no provision for loan loss recorded for the years ended December 31, 2018 and 2017.

As of December 31, 2019 , the Company had unfunded corporate loan commitments of $ 81.2 million .

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The Company’s internal risk rating rubric for corporate debt has nine categories as depicted below:

Risk Rating - Corporate Debt Description

1-5 / Performing Meets all present contractual obligations.

6 / Performing - Closely Monitored Meets all present contractual obligations but exhibits a defined weakness in either leverage or liquidity, but not both.

Loans at this rating will require closer monitoring, but where we expect no loss of interest or principal.

7 / Substandard A loan that has a defined weakness in either leverage and/or liquidity, and which may require substantial changes to strengthen the asset.

Loans at this rating level have a higher probability of loss, although no determination of the amount or timing of a loss is yet possible.

8 / Doubtful A loan that has missed a scheduled principal or interest payment or is otherwise deemed a non-earning account.

The probability of loss is increasingly certain due to significant performance issues.

9 / Loss Considered uncollectible.

See below for a tabular disclosure of the amortized cost basis of the Company’s corporate debt held for investment by year of origination and internal risk rating.

For the year ended December 31, 2020, the Company recorded a loan loss provision of $ 4.5 million on impaired corporate loans using a discounted cash flow methodology.

During the year ended December 31, 2020, the loan was restructured and the Company received $ 2.8 million of second lien debt and $ 4.8 million of equity.

As a result of the restructuring, $ 19.6 million of first lien debt was written off and the related allowance of $ 11.9 million was charged off.

For the year ended December 31, 2019, the Company recorded a loan loss provision of $ 7.4 million on a corporate loan with a principal balance and carrying value of $ 19.6 million and $ 12.2 million, respectively.

There was no provision for loan loss recorded for the year ended December 31, 2018.

As a result of the implementation of the Loss Given Default methodology under the modified retrospective method, a cumulative effect loan loss allowance on corporate loans of $ 29.7 million was recorded on January 1, 2020.

For the year ended December 31, 2020, the Company recorded a net loan loss provision on corporate loans of $ 9.9 million, based upon its Loss Given Default methodology.

As of December 31, 2020 and December 31, 2019, the amortized cost basis of corporate loans on nonaccrual status was $ 0.0 and $ 12.2 million, respectively.

For the years ended December 31, 2020 and 2019, the Company recognized interest income on corporate loans on nonaccrual status of $ 0.0 million and $ 1.5 million, respectively.

At December 31, 2020 and December 31, 2019, the Company had unfunded corporate loan commitments of $ 87.3 million and $ 81.2 million, respectively.

At December 31, 2020, the liability related to the expected credit losses on the unfunded corporate loan commitments was $ 0.7 million.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The Company invests in corporate loans through its Annaly Middle Market Lending Group.

1 unchanged sentence

Industry Dispersion

December 31, 2019

December 31, 2018

Floating Rate

December 31, 2020 December 31, 2019

(dollars in thousands)

Aircraft and parts

Arrangement of transportation of freight & cargo

Chemicals & Allied Products

Coating, engraving and allied services

Computer programming, data processing & other computer

related services 483,142 394,193

Electrical work

Management and public relations services 300,869 339,179

Industrial Inorganic Chemical 156,391 —

Public warehousing and storage 132,397 107,029

Metal cans & shipping containers 115,670 118,456

Offices and clinics of doctors of medicine 104,781 106,993

Surgical, medical, and dental instruments and supplies 83,161 102,182

Electronic components & accessories 78,129 24,000

Engineering, architectural & surveying 77,308 124,201

Grocery stores

Home health care services

Miscellaneous Industrial & Commercial 77,163 78,908

Insurance agents, brokers and services 67,193 75,410

Mailing, reproduction, commercial art and photography, and stenographic

Management and public relations services

Medical and dental laboratories

Metal cans & shipping containers

Miscellaneous business services

Research, development and testing services 62,008 45,610

Miscellaneous Food Preparations 58,857 —

Telephone communications 58,450 61,210

Miscellaneous equipment rental and leasing 49,587 49,776

Miscellaneous health and allied services, not elsewhere classified

Miscellaneous plastic products

Motor vehicles and motor vehicle equipment

Motor vehicles and motor vehicle parts and supplies

Nonferrous foundries (castings)

Offices and clinics of doctors of medicine

Offices of clinics and other health practitioners

Electrical work 41,128 43,175

Petroleum and petroleum products 33,890 24,923

Public warehousing and storage

Research, development and testing services

Medical and dental laboratories 30,711 41,344

Schools and educational services, not elsewhere classified 29,040 19,586

Services allied with the exchange of securities

Surgical, medical, and dental instruments and supplies

Telephone communications

Home health care services 28,587 29,361

Metal Forgings and Stampings 27,523 —

Legal Services 26,399 —

Grocery stores 22,895 23,248

Coating, engraving and allied services 19,484 47,249

Chemicals & Allied Products 14,686 15,002

Miscellaneous business services 12,980 164,033

Drugs 12,942 15,923

Mailing, reproduction, commercial art and photography, and stenographic 12,733 14,755

Machinery, Equipment & Supplies 12,096 —

Offices of clinics and other health practitioners 9,730 10,098

Nonferrous foundries (castings) — 30,191

Motor vehicles and motor vehicle parts and supplies — 28,815

Miscellaneous plastic products — 10,000

Total $ 2,239,930 $ 2,144,850

(1) All middle market lending positions are floating rate.

The table below reflects the Company’s aggregate positions by their respective place in the capital structure of the borrowers at December 31, 2020 and 2019.

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(dollars in thousands)

1 unchanged sentence

Second lien loans 750,805 748,710

Total $ 2,239,930 $ 2,144,850

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The following tables represent a rollforward of the activity for the Company’s corporate debt investments held for investment at December 31, 2020 and December 31, 2019:

December 31, 2020

First Lien Second Lien Total

(dollars in thousands)

Beginning balance (January 1, 2020) (1)

$ 1,403,503 $ 748,710 $ 2,152,213

Originations & advances 834,211 227,433 1,061,644

Principal payments ( 444,759 ) ( 132,000 ) ( 576,759 )

Amortization & accretion of (premium) discounts 8,374 3,832 12,206

Loan restructuring ( 19,550 ) 2,818 ( 16,732 )

( 273,887 ) ( 79,203 ) ( 353,090 )

Allowance for loan losses

Beginning allowance, prior to CECL adoption ( 7,363 ) — ( 7,363 )

Impact of adopting CECL ( 10,787 ) ( 18,866 ) ( 29,653 )

Current period allowance ( 12,510 ) ( 1,919 ) ( 14,429 )

Write offs 11,893 — 11,893

Ending allowance ( 18,767 ) ( 20,785 ) ( 39,552 )

Net carrying value (December 31, 2020)

$ 1,489,125 $ 750,805 $ 2,239,930

(1) Excludes loan loss allowances.

(2) Includes syndications.

December 31, 2019

First Lien Second Lien Total

(dollars in thousands)

Net carrying value (January 1, 2019) $ 1,346,356 $ 540,826 $ 1,887,182

Originations & advances 542,463 345,573 888,036

Principal payments ( 228,302 ) ( 140,625 ) ( 368,927 )

Amortization & accretion of (premium) discounts 5,960 2,936 8,896

Sales ( 262,974 ) — ( 262,974 )

Net (increase) decrease in allowance ( 7,363 ) — ( 7,363 )

Net carrying value (December 31, 2019)

1,396,140 748,710 2,144,850

The following table provides the amortized cost basis of corporate debt held for investment as of December 31, 2020 by vintage year and internal risk rating.

Amortized Cost Basis by Risk Rating and Vintage (1)

Risk Rating Vintage

Total 2020 2019 2018 2017 2016 2015

(dollars in thousands)

1-5 / Performing $ 1,760,669 $ 499,186 $ 400,873 $ 402,712 $ 355,369 $ 68,191 $ 34,338

6 / Performing - Closely Monitored $ 337,386 38,495 — 283,464 15,427 — —

7 / Substandard $ 141,875 — 47,742 43,206 50,927 — —

8 / Doubtful $ — — — — — — —

9 / Loss $ — — — — — — —

Total $ 2,239,930 $ 537,681 $ 448,615 $ 729,382 $ 421,723 $ 68,191 $ 34,338

(1) The amortized cost basis excludes accrued interest and includes deferred loan fees on unfunded loans.

As of December 31, 2020, the Company had $ 11.0 million of accrued interest receivable on corporate loans, which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition, and $ 1.4 million of deferred loan fees on unfunded loans, which is reported in Loans, net in the Consolidated Statements of Financial Condition.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

MORTGAGE SERVICING RIGHTS

8 unchanged sentences

The following table presents activity related to MSRs for the years ended December 31, 2020 and 2019:

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(dollars in thousands)

Fair value, beginning of period $ 378,078 $ 557,813

Sales ( 72,160 ) —

Change in fair value due to

Changes in valuation inputs or assumptions (1)

( 107,517 ) ( 102,016 )

Other changes, including realization of expected cash flows ( 97,506 ) ( 77,719 )

Fair value, end of period $ 100,895 $ 378,078

(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to be not acceptable.

(1) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.

4 unchanged sentences

Information regarding these securitization trusts are summarized in the table below.

Type of Underlying Collateral

Settlement Date

Cut-off Date Principal Balance

Face Value of Company’s Variable Interest at Settlement Date

Type of Underlying Collateral Settlement Date Cut-off Date Principal Balance Face Value of Company’s Variable Interest at Settlement Date

(dollars in thousands)

Office Building

December 2019

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Multifamily April 2015 $ 1,192,607 $ 89,446

Hotels June 2018 $ 982,000 $ 93,500

Multifamily August 2019 $ 271,700 $ 20,270

Office Building October 2019 $ 60,000 $ 60,000

Multifamily October 2019 $ 415,000 $ 75,359

Multifamily December 2019 $ 394,000 $ 110,350

Upon consolidation, the Company elected the fair value option for the financial assets and liabilities of the Commercial Trusts in order to avoid an accounting mismatch, and to represent more faithfully the economics of its interest in the entities.

1 unchanged sentence

The Company applied the practical expedient under ASU 2014-07, whereby the Company determines whether the fair value of the financial assets or financial liabilities is more observable as a basis for measuring the less observable financial instruments.

The Company has determined that the fair value of the financial liabilities of the Commercial Trusts are more observable, since the prices for these liabilities are primarily available from third-party pricing services utilized for multifamily and commercial mortgage-backed securities, while the individual assets of the trusts are inherently less capable of precise measurement given their illiquid nature and the limitations on available information related to these assets.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

multifamily and commercial mortgage-backed securities, while the individual assets of the trusts are inherently less capable of precise measurement given their illiquid nature and the limitations on available information related to these assets.

Given that the Company’s methodology for valuing the financial assets of the Commercial Trusts are an aggregate fair value derived from the fair value of the financial liabilities, the Company has determined that the fair value of each of the financial assets in their entirety should be classified in Level 2 of the fair value measurement hierarchy.

1 unchanged sentence

At December 31, 2020 and 2019, there were no loans 90 days or more past due or on nonaccrual status.

There is no gain or loss attributable to instrument-specific credit risk of the underlying loans or securitized debt securities at December 31, 2019 and 2018 based upon the Company’s process of monitoring events of default on the underlying mortgage loans.

There is no gain or loss attributable to instrument-specific credit risk of the underlying loans or debt issued by securitization vehicles at December 31, 2020 and 2019 based upon the Company’s process of monitoring events of default on the underlying mortgage loans.

Commercial Securitizations

14 unchanged sentences

Multifamily Securitization

In November 2019, the Company repackaged multifamily mortgage-backed securities with a principal cut-off balance of $ 1.0 billion and retained interest only securities with a notional balance of $ 1.0 billion and senior securities with a principal balance of $ 28.5 million .

The Company determined that it was the primary beneficiary based upon its involvement in the design of the variable interest entity.

The Company incurred $ 1.9 million of costs in connection with this multifamily securitization that were expensed as incurred during the year ended December 31, 2019 .

In November 2019, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-off balance of $ 1.0 billion and retained interest only securities with a notional balance of $ 1.0 billion and senior securities with a principal balance of $ 28.5 million.

In March 2020, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-off balance of $ 0.5 billion and retained interest only securities with a notional balance of $ 0.5 billion.

At the inception of the arrangements, the Company determined that it was the primary beneficiary based upon its involvement in the design of these VIEs and through the retention of a significant variable interest in the VIEs.

The Company elected the fair value option for the financial liabilities of these VIEs in order to simplify the accounting;

however, the financial assets were not eligible for the fair value option as it was not elected at purchase.

During the year ended December 31, 2020, the Company deconsolidated the 2019 multifamily VIE since it sold all of its interest only securities and no longer retains a significant variable interest in the entity.

As a result of the deconsolidation of this VIE, the Company derecognized approximately $ 1.2 billion of securities and approximately $ 1.1 billion of debt issued by securitization vehicles and recognized a realized gain of $ 104.8 million, which is included in Net gains (losses) on disposal of investments and other in the Consolidated Statements of Comprehensive Income (Loss).

The Company incurred $ 1.1 million of costs in connection with the 2020 multifamily securitization that were expensed as incurred during the year ended December 31, 2020.

Residential Trusts

2 unchanged sentences

As such, the Company is deemed to be the primary beneficiary of the residential mortgage trust and consolidates the entity.

The Company has elected the fair value option for the financial assets and liabilities of this VIE, but has not elected to apply the practical expedient under ASU 2014-13 as prices of both the financial assets and financial liabilities of the residential

The Company has elected the fair value option for the financial assets and liabilities of this

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

mortgage trust are available from third-party pricing services.

VIE, but has not elected to apply the practical expedient under ASU 2014-13 as prices of both the financial assets and financial liabilities of the residential mortgage trust are available from third-party pricing services.

The contractual principal amount of the residential mortgage trust’s debt held by third parties was $ 23.0 million and $ 57.3 million at December 31, 2020 and 2019, respectively.

4 unchanged sentences

The entities in the table below are referred to collectively as the “OBX Trusts.” These securitizations represent financing transactions which provide non-recourse financing to the Company that are collateralized by residential mortgage loans purchased by the Company.

Securitization

Date of Closing

Face Value at Closing

Securitization Date of Closing Face Value at Closing

(dollars in thousands)

OBX 2018-EXP1

OBX 2018-EXP2

OBX 2019-INV1

OBX 2019-EXP1

OBX 2019-INV2

OBX 2019-EXP2

OBX 2019-EXP3

As of December 31, 2019 and 2018 , a total of $ 2.0 billion and $ 766.5 million , respectively, of bonds were held by third parties and the Company retained $ 565.7 million and $ 221.3 million , respectively, of mortgage-backed securities, which were eliminated in consolidation.

OBX 2018-1 March 2018 $ 327,162

OBX 2018-EXP1 August 2018 $ 383,451

OBX 2018-EXP2 October 2018 $ 384,027

OBX 2019-INV1 January 2019 $ 393,961

OBX 2019-EXP1 April 2019 $ 388,156

OBX 2019-INV2 June 2019 $ 383,760

OBX 2019-EXP2 July 2019 $ 463,405

OBX 2019-EXP3 October 2019 $ 465,492

OBX 2020-INV1 January 2020 $ 374,609

OBX 2020-EXP1 February 2020 $ 467,511

OBX 2020-EXP2 July 2020 $ 489,352

OBX 2020-EXP3 September 2020 $ 514,609

As of December 31, 2020 and 2019, a total of $ 2.6 billion and $ 2.0 billion, respectively, of bonds were held by third parties and the Company retained $ 653.0 million and $ 565.7 million, respectively, of mortgage-backed securities, which were eliminated in consolidation.

The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be potentially significant to these VIEs.

1 unchanged sentence

During the years ended December 31, 2020 and 2019, the Company incurred $ 7.2 million and $ 9.0 million, respectively, of costs in connection with these securitizations that were expensed as incurred.

The contractual principal amount of the OBX Trusts’ debt held by third parties was $ 1.9 billion and $ 769.0 million at December 31, 2019 and 2018 , respectively.

The contractual principal amount of the OBX Trusts’ debt held by third parties was $ 2.5 billion and $ 1.9 billion at December 31, 2020 and 2019, respectively.

Although the residential mortgage loans have been sold for bankruptcy and state law purposes, the transfers of the residential mortgage loans to the OBX Trusts did not qualify for sale accounting and are reflected as intercompany secured borrowings that are eliminated upon consolidation.

1 unchanged sentence

In June 2016, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution.

As of December 31, 2019 and 2018 , the borrowing limit on this facility was $ 625.0 million and $ 400.0 million , respectively.

As of December 31, 2020 and 2019, the borrowing limit on this facility was $ 625.0 million.

The subsidiary was deemed to be a VIE and the Company was determined to be the primary beneficiary due to its role as collateral manager and because it holds a variable interest in the entity that could potentially be significant to the entity.

2 unchanged sentences

At December 31, 2020 and 2019, the subsidiary had an intercompany receivable of $ 441.1 million and $ 426.6 million, respectively, which eliminates upon consolidation and an Other secured financing of $ 441.1 million and $ 426.6 million, respectively, to the third party financial institution.

In July 2017, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution.

As of December 31, 2019 and 2018 , the borrowing limit on this facility was $ 320.0 million and $ 150.0 million , respectively.

The subsidiary was deemed to be a VIE and the Company was determined to be the primary beneficiary due to its role as servicer and because it holds a variable interest in the entity that could potentially be significant to the entity.

The Company has transferred

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

corporate loans to the subsidiary with a carrying amount of $ 413.7 million and $ 234.8 million at December 31, 2019 and 2018 , respectively, which continue to be reflected in the Company’s Consolidated Statements of Financial Condition under Loans, net.

In July 2017, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution.

As of December 31, 2020 and 2019, the borrowing limit on this facility was $ 320.0 million.

The Company has transferred corporate loans to the subsidiary with a carrying amount of $ 400.4 million and $ 413.7 million at December 31, 2020 and 2019, respectively, which continue to be reflected in the Company’s Consolidated Statements of Financial Condition under Loans, net.

At December 31, 2020 and 2019, the subsidiary had an Other secured financing of $ 209.7 million and $ 244.2 million, respectively, to the third party financial institution.

In January 2019, a consolidated subsidiary of the Company (the “Borrower”) entered into a $ 300.0 million credit facility with a third party financial institution.

At of December 31, 2019 , the Borrower had an Other secured financing of $ 157.5 million to the third party financial institution.

At of December 31, 2020 and 2019, the Borrower had an Other secured financing of $ 236.6 million and $ 157.5 million, respectively, to the third party financial institution.

The Company also owns variable interests in an entity that invests in MSRs and has structured its operations, funding and capitalization into pools of assets and liabilities, each referred to as a “silo.” Owners of variable interests in a given silo are entitled to all of the returns and subjected to the risk of loss on the investments and operations of that silo and have no substantive recourse to the assets of any other silo.

7 unchanged sentences

Interest income and expense are recognized using the effective interest method.

The statements of financial condition of the Company’s VIEs, excluding the CLO, credit facility VIEs, multifamily securitization and OBX Trusts as the transfers of loans did not meet the criteria to be accounted for as sales, that are reflected in the Company’s Consolidated Statements of Financial Condition at December 31, 2019 and 2018 are as follows:

The statements of financial condition of the Company’s VIEs, excluding the CLO, multifamily securitizations, credit facility VIEs and OBX Trusts as the transfers of loans or securities did not meet the criteria to be accounted for as sales, that are reflected in the Company’s Consolidated Statements of Financial Condition at December 31, 2020 and 2019 are as follows:

December 31, 2020

Commercial Trusts

Residential Trusts

(dollars in thousands)

Commercial Trusts Residential Trusts MSR Silo

Assets (dollars in thousands)

Cash and cash equivalents $ — $ — $ 22,241

Loans — — 47,048

Assets transferred or pledged to securitization vehicles 2,166,073 40,035 —

1 unchanged sentence

Principal and interest receivable 5,509 226 —

Other assets — — —

Total assets $ 2,171,582 $ 40,261 $ 170,184

Debt issued by securitization vehicles (non-recourse) $ 1,836,785 $ 23,351 $ —

8 unchanged sentences

December 31, 2019

Commercial Trusts

Residential Trusts

(dollars in thousands)

Commercial Trusts Residential Trusts MSR Silo

Assets (dollars in thousands)

Cash and cash equivalents $ — $ — $ 67,455

Loans — — 66,722

Assets transferred or pledged to securitization vehicles 2,345,120 75,924 —

1 unchanged sentence

Principal and interest receivable 7,085 408 —

Other assets — — 27,021

Total assets $ 2,352,205 $ 76,332 $ 539,276

Debt issued by securitization vehicles (non-recourse) $ 1,967,523 $ 57,905 $ —

Other secured financing — — 38,981

Payable for unsettled trades — — 18,364

Interest payable 3,008 137 —

1 unchanged sentence

Total liabilities $ 1,970,531 $ 58,120 $ 59,738

The geographic concentrations of credit risk exceeding 5% of the total loan unpaid principal balances related to the Company’s VIEs, excluding the credit facility VIEs, OBX Trusts and CLO, at December 31, 2019 are as follows:

The geographic concentrations of credit risk exceeding 5% of the total loan unpaid principal balances related to the Company’s VIEs, excluding the credit facility VIEs, multifamily securitizations, OBX Trusts and CLO, at December 31, 2020 are as follows:

Securitized Loans at Fair Value Geographic Concentration of Credit Risk

Commercial Trusts

Residential Trusts

Property Location

Principal Balance

Property Location

Principal Balance

Commercial Trusts Residential Trusts

Property Location Principal Balance % of Balance Property Location Principal Balance % of Balance

(dollars in thousands)

California $ 1,051,276 32.4 % California $ 18,692 47.4 %

Texas 459,256 14.2 % Illinois 5,356 13.6 %

New York 369,691 11.4 % Texas 4,972 12.6 %

Florida 196,865 6.1 % Massachusetts 2,265 5.7 %

Washington 182,000 5.6 % Other (1)

Arizona 171,102 5.3 %

811,282 25.0 %

Total $ 3,241,472 100.0 % $ 39,459 100.0 %

(1) No individual state greater than 5%.

Corporate Debt Transfers

The Company manages parallel funds investing in senior secured first and second lien corporate loans (the “Fund Entities”).

The Fund Entities are considered VIEs because the investors do not have substantive liquidation, kick-out or participating rights.

The fees that the Company earns are not considered variable interests of the VIE.

The Company is not the primary beneficiary of the Fund Entities and therefore does not consolidate the Fund Entities.

During the year ended December 31, 2020, the Company transferred $ 159.3 million of loans for cash.

The loan transfers were accounted for as sales.

Residential Credit Fund

The Company manages a fund investing in participations in residential mortgage loans.

The residential credit fund is deemed to be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not considered equity at risk.

The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the r fund is the management and performance fees that it earns, which are not considered variable interests in the entity.

During the year ended December 31, 2020 the Company issued participating interests in residential mortgage loans of $ 39.2 million to the residential credit fund.

These transfers do not meet the criteria for sale accounting and are accounted for as secured borrowing, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations issued in the Consolidated Statements of Financial Condition at December 31, 2020.

The Company elected to fair value the participations issued through earnings to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Real estate investments are carried at historical cost less accumulated depreciation.

4 unchanged sentences

Real estate investments are depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:

Building and building improvements

Furniture and fixtures

Category Term

Building and building improvements 1 - 44 years

Furniture and fixtures 1 - 4 years

There was no real estate acquired in settlement of residential mortgage loans at December 31, 2020 or December 31, 2019 other than real estate held by securitization trusts that the Company was required to consolidate.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

estate property upon completion of a foreclosure or (ii) the borrower conveys all interest in the residential real estate property to the Company to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.

Real estate investments, including REO, that do not meet the criteria to be classified as held for sale are separately presented in the Consolidated Statements of Financial Condition as held for investment.

The Company would be considered to have received physical possession of residential real estate property collateralizing a residential mortgage loan, so that the loan is derecognized and the real estate property would be recognized, if either (i) the Company obtains legal title to the residential real estate property upon completion of a foreclosure or (ii) the borrower conveys all interest in the residential real estate property to the Company to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.

Real estate investments, including REO, that do not meet the criteria to be classified as held for sale are classified in the Consolidated Statements of Financial Condition as held for investment.

Real estate held for sale is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell.

5 unchanged sentences

To the extent impairment has occurred and is considered to be other than temporary, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.

There were no acquisitions of new real estate holdings during the year ended December 31, 2019 .

The Company acquired real estate holdings in connection with the acquisition of MTGE Investment Corp.

(“MTGE” and such acquisition, the “MTGE Acquisition”) during the year ended December 31, 2018;

refer to the “Acquisition of MTGE Investment Corp.” Note for additional information.

The company sold two of its wholly owned triple net leased properties during the year ended December 31, 2019 for $ 25.2 million and recognized a gain on sale of $ 7.5 million .

There were no dispositions of real estate holdings during the year ended December 31, 2018.

During the year ended December 31, 2020, the Company took title of two commercial real estate properties for $ 79.8 million through foreclosure or deed-in-lieu of foreclosure.

There were no new acquisitions of real estate holdings during the year ended December 31, 2019.

A portfolio of health care properties with a carrying value of $ 124.5 million, including intangible assets, was sold during the year ended December 31, 2020 and a gain on sale of $ 19.7 million was recognized.

The Company sold two of its wholly owned triple net leased properties during the year ended December 31, 2019 for $ 25.2 million and recognized a gain on sale o f $ 7.5 million.

The weighted average amortization period for intangible assets and liabilities at December 31, 2020 is 5.5 years.

Above market leases and leasehold intangible assets are included in Intangible assets, net and below market leases are included in Other liabilities in the Consolidated Statements of Financial Condition.

December 31, 2019

December 31, 2018

Real estate, net

(dollars in thousands)

December 31, 2020 December 31, 2019

Real estate, net (dollars in thousands)

Land $ 164,240 $ 121,720

Buildings and improvements 493,432 571,396

Furniture, fixtures and equipment 6,240 11,238

Subtotal 663,912 704,354

accumulated depreciation ( 100,147 ) ( 87,532 )

2 unchanged sentences

Total real estate, net $ 656,314 $ 725,638

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Depreciation expense was $ 22.7 million and $ 23.7 million for the years ended December 31, 2020 and 2019, respectively and is included in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

4 unchanged sentences

Approximate future minimum rents to be received over the next five years and thereafter for non-cancelable operating leases in effect at December 31, 2020 for consolidated investments in real estate are as follows:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2020

(dollars in thousands)

2021 $ 44,267

Later years 60,971

Total $ 236,387

DERIVATIVE INSTRUMENTS

19 unchanged sentences

In accordance with a clearing organization’s rulebook, the Company presents the fair value of centrally cleared interest rate swaps net of variation margin pledged under such transactions.

At December 31, 2019 and 2018 , $ 517.8 million and ($ 496.2 ) million , respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.

At December 31, 2020 and 2019, $ 1.5 billion and $ 517.8 million, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.

Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk.

In particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings.

In particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

agreements by economically hedging cash flows associated with these borrowings.

The Company may enter into interest rate swap agreements where the floating leg is linked to the London Interbank Offered Rate (“LIBOR”), the overnight index swap rate or another index.

4 unchanged sentences

Swaptions – Swaptions are purchased or sold to mitigate the potential impact of increases or decreases in interest rates.

Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

and pay and receive interest rates in the future.

Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future.

The Company’s swaptions are not centrally cleared.

1 unchanged sentence

If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium received or paid.

If the Company sells or exercises a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid.

If the Company sells or exercises a swaption, the realized gain (loss) on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid.

The fair value of swaptions are estimated using internal pricing models and compared to the counterparty market values.

11 unchanged sentences

The counterparties are required to deliver the committed loans on a “best efforts” basis.

Credit Derivatives – The Company may enter into credit derivatives referencing the commercial mortgage-backed securities index, such as the CMBX index, and synthetic total return swaps.

Credit Derivatives – The Company may enter into credit derivatives referencing a commercial mortgage-backed securities index, such as the CMBX index, and synthetic total return swaps.

The table below summarizes fair value information about our derivative assets and liabilities at December 31, 2020 and 2019:

Derivatives Instruments

December 31, 2019

December 31, 2018

(dollars in thousands)

Derivatives Instruments December 31, 2020 December 31, 2019

Assets (dollars in thousands)

Interest rate swaps $ — $ 1,199

4 unchanged sentences

Credit derivatives (1)

$ 171,134 $ 113,556

Interest rate swaps $ 1,006,492 $ 706,862

3 unchanged sentences

Credit derivatives (1)

The notional amount of the credit derivatives in which the Company purchased protection was $ 10.0 million and $ 30.0 million at December 31, 2019 and December 31, 2018 , respectively.

$ 1,033,345 $ 803,866

(1) The notional amount of the credit derivatives in which the Company purchased protection was $ 0.0 and $ 10.0 million at December 31, 2020 and December 31, 2019, respectively.

The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $ 504.0 million and $ 345.0 million at December 31, 2020 and December 31, 2019, respectively, plus any coupon shortfalls on the underlying tranche.

The credit derivative tranches referencing the basket of bonds had a range of ratings between AA and BBB-.

As of December 31, 2020 and 2019, the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and A, and AA and BBB-, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

December 31, 2020

Current Notional (1)(2)

Weighted Average Pay Rate

Weighted Average Receive Rate

Weighted Average Years to Maturity

Maturity Current Notional (1)(2)

Weighted Average Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity (3)

(dollars in thousands)

$ 23,680,150 0.27 % 0.11 % 1.96

3,600,000 0.18 % 0.09 % 4.21

5,565,500 1.40 % 0.62 % 7.76

Greater than 10 years

1,484,000 3.06 % 0.36 % 20.52

Total / Weighted average $ 34,329,650 0.92 % 0.37 % 3.94

December 31, 2019

Current Notional (1)(2)

Maturity Current Notional (1)(2)

Weighted Average

Weighted Average Receive Rate

Weighted Average Years to Maturity

Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity

(dollars in thousands)

$ 38,942,400 1.60 % 1.84 % 1.29

16,097,450 1.77 % 1.87 % 4.30

16,176,500 2.20 % 2.02 % 9.00

Greater than 10 years

2,930,000 3.76 % 1.86 % 17.88

Total / Weighted average $ 74,146,350 1.84 % 1.89 % 4.23

As of December 31, 2019 , 75 % and 25 % of the Company’s interest rate swaps were linked to LIBOR and the overnight index swap rate, respectively.

As of December 31, 2018 , all of the Company’s interest rate swaps were linked to LIBOR.

(1) As of December 31, 2020, 17 %, 72 % and 11 % of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate

and the Secured Overnight Financing Rate, respectively.

As of December 31, 2019, 75 % and 25 % of the Company’s interest rate

swaps were linked to LIBOR and the overnight index swap rate, respectively.

(2) There were no forward starting swaps at December 31, 2020 and December 31, 2019.

(3) As of December 31, 2020, the weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity

of receiver interest rate swaps.

As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed.

The following table presents swaptions outstanding at December 31, 2020 and 2019.

December 31, 2020

Current Underlying Notional

Weighted Average Underlying Fixed Rate

Weighted Average Underlying Floating Rate

Weighted Average Underlying Years to Maturity

Weighted Average Months to Expiration

Current Underlying Notional Weighted Average Underlying Fixed Rate Weighted Average Underlying Floating Rate Weighted Average Underlying Years to Maturity Weighted Average Months to Expiration

(dollars in thousands)

Long pay $ 8,050,000 1.27 % 3M LIBOR 10.40 5.42

Long receive $ 250,000 1.66 % 3M LIBOR 10.02 0.13

December 31, 2019

Current Underlying Notional

Weighted Average Underlying Fixed Rate

Weighted Average Underlying Floating Rate

Weighted Average Underlying Years to Maturity

Weighted Average Months to Expiration

Current Underlying Notional Weighted Average Underlying Fixed Rate Weighted Average Underlying Floating Rate Weighted Average Underlying Years to Maturity Weighted Average Months to Expiration

(dollars in thousands)

Long pay $ 4,675,000 2.53 % 3M LIBOR 9.22 4.66

Long receive $ 2,000,000 1.49 % 3M LIBOR 10.29 3.40

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

December 31, 2020

Purchase and sale contracts for derivative TBAs

Implied Cost Basis

Implied Market Value

Net Carrying Value

Purchase and sale contracts for derivative TBAs Notional Implied Cost Basis Implied Market Value Net Carrying Value

(dollars in thousands)

Purchase contracts $ 19,635,000 $ 20,277,088 $ 20,373,197 $ 96,109

Sale contracts

Net TBA derivatives

December 31, 2019

Purchase and sale contracts for derivative TBAs

Implied Cost Basis

Implied Market Value

Net Carrying Value

Purchase and sale contracts for derivative TBAs Notional Implied Cost Basis Implied Market Value Net Carrying Value

(dollars in thousands)

Purchase contracts $ 10,043,000 $ 10,182,891 $ 10,192,038 9,147

Sale contracts ( 3,144,000 ) ( 3,294,486 ) ( 3,299,768 ) ( 5,282 )

Net TBA derivatives $ 6,899,000 $ 6,888,405 $ 6,892,270 $ 3,865

The following table summarizes certain characteristics of the Company’s futures derivatives at December 31, 2020 and 2019:

1 unchanged sentence

Notional - Long

Notional - Short

Weighted Average

Positions Notional - Short

Positions Weighted Average

Years to Maturity

1 unchanged sentence

Treasury futures - 5 year

— ( 1,240,000 ) 4.40

Treasury futures - 10 year and greater

— ( 9,183,800 ) 6.90

Total $ — $ ( 10,423,800 ) 6.60

December 31, 2019

Notional - Long

Notional - Short

Weighted Average

Positions Notional - Short

Positions Weighted Average

Years to Maturity

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Treasury futures - 2 year

$ — $ ( 180,000 ) 1.96

Treasury futures - 5 year

— ( 2,953,300 ) 4.42

Treasury futures - 10 year and greater

2,600,000 ( 5,806,400 ) 9.74

Total $ 2,600,000 $ ( 8,939,700 ) 8.26

The Company presents derivative contracts on a gross basis on the Consolidated Statements of Financial Condition.

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Amounts Eligible for Offset

Gross Amounts

Financial Instruments

Cash Collateral

(dollars in thousands)

Interest rate swaps, at fair value

Gross Amounts Financial Instruments Cash Collateral Net Amounts

Assets (dollars in thousands)

Interest rate swaptions, at fair value $ 74,470 $ — $ — $ 74,470

2 unchanged sentences

Purchase commitments 49 — — 49

Credit derivatives

Interest rate swaps, at fair value $ 1,006,492 $ — $ ( 108,757 ) $ 897,735

TBA derivatives, at fair value

Futures contracts, at fair value 19,413 ( 506 ) ( 18,907 ) —

Purchase commitments

Credit derivatives 7,440 — ( 7,440 ) —

December 31, 2019

Amounts Eligible for Offset

Gross Amounts

Financial Instruments

Cash Collateral

(dollars in thousands)

Gross Amounts Financial Instruments Cash Collateral Net Amounts

Assets (dollars in thousands)

Interest rate swaps, at fair value $ 1,199 $ ( 951 ) $ — $ 248

1 unchanged sentence

TBA derivatives, at fair value 15,181 ( 5,018 ) — 10,163

Futures contracts, at fair value 77,889 ( 10,902 ) — 66,987

Purchase commitments 2,050 — — 2,050

1 unchanged sentence

Interest rate swaps, at fair value $ 706,862 $ ( 951 ) $ ( 104,205 ) $ 601,706

TBA derivatives, at fair value 11,316 ( 5,018 ) — 6,298

Futures contracts, at fair value 84,781 ( 10,902 ) ( 73,879 ) —

Purchase commitments 907 — — 907

Credit derivatives

The effect of interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss) is as follows:

Location on Consolidated Statements of Comprehensive Income (Loss)

Net Interest Component of Interest Rate Swaps

Realized Gains (Losses) on Termination of Interest Rate Swaps

Unrealized Gains (Losses) on Interest Rate Swaps

For the years ended

(dollars in thousands)

Net Interest Component of Interest Rate Swaps Realized Gains (Losses) on Termination of Interest Rate Swaps Unrealized Gains (Losses) on Interest Rate Swaps

For the years ended (dollars in thousands)

December 31, 2020 $ ( 207,877 ) $ ( 1,917,628 ) $ ( 904,532 )

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Year Ended December 31, 2020

Derivative Instruments

Realized Gain (Loss)

Unrealized Gain (Loss)

Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives

Derivative Instruments Realized Gain (Loss) Unrealized Gain (Loss) Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives

(dollars in thousands)

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Net interest rate swaptions 11,730 46,301 58,031

Futures ( 268,084 ) ( 12,015 ) ( 280,099 )

Purchase commitments — ( 1,093 ) ( 1,093 )

Credit derivatives 6,068 ( 11,966 ) ( 5,898 )

Total $ 756,305

Year Ended December 31, 2019

Derivative Instruments

Realized Gain (Loss)

Unrealized Gain (Loss)

Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives

Derivative Instruments Realized Gain (Loss) Unrealized Gain (Loss) Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives

(dollars in thousands)

1 unchanged sentence

Net interest rate swaptions ( 47,863 ) ( 15,961 ) ( 63,824 )

Futures ( 1,418,143 ) 455,417 ( 962,726 )

Purchase commitments — 333 333

Credit derivatives 8,077 10,618 18,695

Total $ ( 680,770 )

Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange.

Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the applicable agreement has a right to terminate the agreement in accordance with its provisions.

The aggregate fair value of all derivative instruments with the aforementioned features that are in a net liability position at December 31, 2019 was approximately $ 672.2 million , which represents the maximum amount the Company would be required to pay upon termination.

The aggregate fair value of all derivative instruments with the aforementioned features that are in a net liability position at December 31, 2020 was approximately $ 0.9 billion, which represents the maximum amount the Company would be required to pay upon termination.

This amount is fully collateralized.

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Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value.

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value.

The Company designates its securities as trading, available-for-sale or held-to-maturity depending upon the type of security and the Company’s intent and ability to hold such security to maturity.

27 unchanged sentences

December 31, 2020

(dollars in thousands)

Level 1 Level 2 Level 3 Total

Assets (dollars in thousands)

Agency mortgage-backed securities $ — $ 74,067,059 $ — $ 74,067,059

6 unchanged sentences

Derivative assets

Interest rate swaps

Other derivatives 506 170,628 — 171,134

Total assets $ 506 $ 82,204,505 $ 100,895 $ 82,305,906

Debt issued by securitization vehicles — 5,652,982 — 5,652,982

Participations issued — 39,198 — 39,198

Derivative liabilities

3 unchanged sentences

December 31, 2019

(dollars in thousands)

Level 1 Level 2 Level 3 Total

Assets (dollars in thousands)

Agency mortgage-backed securities $ — $ 112,893,367 $ — $ 112,893,367

8 unchanged sentences

Other derivatives 77,889 34,468 — 112,357

Total assets $ 77,889 $ 122,583,116 $ 378,078 $ 123,039,083

Debt issued by securitization vehicles $ — $ 5,622,801 $ — $ 5,622,801

7 unchanged sentences

The sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements are described below.

The effect of a change in a particular assumption in the sensitivity analysis below is considered

The effect of a change in a particular assumption in the sensitivity analysis below is considered independently from changes in any other assumptions.

In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below.

Interrelationships may also exist between observable and

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

independently from changes in any other assumptions.

In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below.

Interrelationships may also exist between observable and unobservable inputs.

unobservable inputs.

Such relationships have not been included in the discussion below.

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The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments.

December 31, 2019

December 31, 2018

Valuation Technique

Unobservable Input (1)

December 31, 2020 December 31, 2019

Valuation Technique Unobservable Input (1)

(Weighted Average ) (2)

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(Weighted Average ) (2)

Discounted cash flow

Discount rate

9.0% - 12.0% (9.3%)

Discounted cash flow Discount rate 9.0 % - 12.0 % ( 9.4 %)

Discount rate 9.0 % - 12.0 % ( 9.3 %)

9.0% -12.0% (9.4%)

Prepayment rate 19.3 % - 55.5 % ( 42.0 %)

6.3% - 26.6% (13.7%)

Prepayment rate 6.3 % - 26.6 % ( 13.7 %)

4.7% - 13.9% (8.0%)

Delinquency rate 0.0 % - 6.0 % ( 2.5 %)

0.0% - 4.0% (2.2%)

Delinquency rate 0.0 % - 4.0 % ( 2.2 %)

0.0% - 5.0% (2.3%)

Cost to service $ 83 - $ 108 ($ 98 )

$81 - $135 ($107)

Cost to service $ 81 - $ 135 ($ 107 )

$82 - $138 ($110)

(1) Represents rates, estimates and assumptions that the Company believes would be used by market participants when valuing these assets.

(2) Weighted average discount rate computed based on the fair value of MSRs, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSRs.

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at December 31, 2020 and 2019.

December 31, 2019

December 31, 2018

Fair Value Hierarchy

Financial assets

(dollars in thousands)

December 31, 2020 December 31, 2019

Value Carrying

Financial assets (dollars in thousands)

Commercial real estate debt and preferred equity, held for investment (1)

Commercial loans held for sale, net

$ 1,372,430 $ 1,442,071 $ 1,606,091 $ 1,619,018

Corporate debt held for investment 2,239,930 2,226,045 2,144,850 2,081,327

Assets transferred or pledged to securitization vehicles 874,349 928,732 936,378 944,618

Financial liabilities

3 unchanged sentences

(1) Includes assets of consolidated VIEs.

Commercial real estate debt and preferred equity, held for investment, corporate debt, held for investment and mortgages payable are valued using Level 3 inputs.

The carrying values of repurchase agreements and short term other secured financing approximates fair value and are considered Level 2 fair value measurements.

Long term other secured financing are valued using Level 2 inputs.

GOODWILL AND INTANGIBLE ASSETS

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Conversely, any excess of the fair value of the net assets acquired over the purchase price is recognized as a bargain purchase gain.

The Company tests goodwill for impairment on an annual basis or more frequently when events or circumstances may make it more likely than not that an impairment has occurred.

If a qualitative analysis indicates that there may be an impairment, a quantitative analysis is performed.

The quantitative impairment test for goodwill utilizes a two-step approach, whereby the Company compares the carrying value of each identified reporting unit to its fair value.

If the carrying value of the reporting unit is greater than its fair value, the second step is performed, where the implied fair value of goodwill is compared to its carrying

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

The Company recognizes an impairment charge for the amount by which the carrying amount of goodwill exceeds its fair value.

The Company tests goodwill for impairment on an annual basis or more frequently when events or circumstances may make it more likely than not that an impairment has occurred.

If a qualitative analysis indicates that there may be an impairment, a quantitative analysis is performed.

The quantitative impairment test for goodwill compares the fair value of a reporting unit with its carrying value, including goodwill.

If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

At December 31, 2020 and 2019, goodwill totaled $ 71.8 million.

5 unchanged sentences

Balance at December 31, 2019 $ 20,957

Intangible assets acquired 50,360

Intangible assets divested

9 unchanged sentences

The Company had outstanding $ 64.8 billion and $ 101.7 billion of repurchase agreements with weighted average borrowing rates of 0.82 % and 1.99 %, after giving effect to the Company’s interest rate swaps used to hedge cost of funds, and weighted average remaining maturities of 64 days and 65 days at December 31, 2020 and 2019, respectively.

The Company has select arrangements with counterparties to enter into repurchase agreements for $ 1.1 billion with remaining capacity of $ 796.9 million at December 31, 2019 .

The Company has select arrangements with counterparties to enter into repurchase agreements for $ 2.4 billion with remaining capacity of $ 1.9 billion at December 31, 2020.

At December 31, 2020 and 2019, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates:

December 31, 2020

Agency Mortgage-Backed Securities

Non-Agency Mortgage-Backed Securities

Commercial Mortgage-Backed Securities

Treasury Securities

Total Repurchase Agreements

Weighted Average Rate

Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Residential Mortgage Loans Commercial

Loans Commercial Mortgage-Backed Securities Total Repurchase Agreements Weighted Average Rate

(dollars in thousands)

1 day $ — $ — $ — $ — $ — $ — $ — — %

2 to 29 days 30,151,875 129,993 354,904 76,799 — 128,267 30,841,838 0.29 %

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60 to 89 days 8,181,410 99,620 259,401 — — 28,406 8,568,837 0.30 %

90 to 119 days 2,154,733 — — — — — 2,154,733 0.23 %

Over 119 days (1)

12,008,920 — 274,860 107,924 271,801 28,671 12,692,176 0.36 %

Total $ 62,744,910 $ 245,686 $ 1,050,439 $ 184,723 $ 271,801 $ 327,680 $ 64,825,239 0.32 %

ANNALY CAPITAL MANAGEMENT, INC.

2 unchanged sentences

December 31, 2019

Agency Mortgage-Backed Securities

Non-Agency Mortgage-Backed Securities

Commercial Mortgage-Backed Securities

Treasury Securities

Total Repurchase Agreements

Weighted Average Rate

Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Commercial

Loans Commercial Mortgage-Backed Securities U.S.

Treasury Securities Total Repurchase Agreements Weighted Average Rate

(dollars in thousands)

1 day $ — $ — $ — $ — $ — $ — $ — — %

2 to 29 days 36,030,104 237,897 698,091 — 416,439 — 37,382,531 2.15 %

1 unchanged sentence

60 to 89 days 21,931,335 30,841 151,920 — 3,639 — 22,117,735 1.97 %

90 to 119 days 9,992,914 — — — — — 9,992,914 1.97 %

Over 119 days (1)

No repurchase agreements had a remaining maturity over 1 year at December 31, 2019 .

Approximately 1 % of the total repurchase agreements had a remaining maturity over 1 year at December 31, 2018 .

16,557,123 — 58,712 303,078 28,478 — 16,947,391 1.90 %

Total $ 99,591,465 $ 268,738 $ 1,024,528 $ 303,078 $ 552,919 $ — $ 101,740,728 2.03 %

(1) Less than 1 % of the total repurchase agreements had a remaining maturity over 1 year at December 31, 2020.

No repurchase agreements had a remaining maturity over one year at December 31, 2019.

The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition at December 31, 2020 and 2019.

Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.

December 31, 2019

December 31, 2018

Reverse Repurchase Agreements

Repurchase Agreements

Reverse Repurchase Agreements

Repurchase Agreements

December 31, 2020 December 31, 2019

Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements

(dollars in thousands)

2 unchanged sentences

Netted amounts $ — $ 64,825,239 $ — $ 101,740,728

The fair value of collateral received in connection with reverse repurchase agreements was $ 0 and $ 650.0 million , which the Company fully repledged, as of December 31, 2019 and 2018 , respectively.

Other Secured Financing - The Company also finances a portion of its financial assets with advances from the Federal Home Loan Bank of Des Moines (“FHLB Des Moines”).

Other Secured Financing - The Company previously financed a portion of its financial assets with advances from the Federal Home Loan Bank of Des Moines (“FHLB Des Moines”).

Borrowings from FHLB Des Moines are reported in Other secured financing in the Company’s Consolidated Statements of Financial Condition.

At December 31, 2019 , $ 1.4 billion of advances from the FHLB Des Moines matures in less than one year and $ 2.1 billion matures between one to three years .

At December 31, 2018 , $ 3.6 billion of advances from the FHLB Des Moines matured between one to three years .

The weighted average rate of the advances from the FHLB Des Moines was 2.16 % and 2.78 % at December 31, 2019 and 2018 , respectively.

The Company held $ 147.9 million of capital stock in the FHLB Des Moines at December 31, 2019 and 2018 , which is reported at cost and included in Other assets on the Company’s Consolidated Statements of Financial Condition.

Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential and senior securitized commercial mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $ 112.8 billion and $ 357.9 million , respectively, at December 31, 2019 and $ 90.2 billion and $ 303.1 million , respectively, at December 31, 2018 .

At December 31, 2020, the Company did not hold advances from the FHLB Des Moines.

At December 31, 2019, $ 1.4 billion of advances from the FHLB Des Moines matured in less than one year and $ 2.1 billion matured between one to three years .

The weighted average rate of the advances from the FHLB Des Moines was 2.16 % at December 31, 2019.

The Company held $ 4.4 million and $ 147.9 million of stock in the FHLB Des Moines at December 31, 2020 and December 31, 2019, respectively, which is reported at cost and included in Other assets on the Company’s Consolidated Statements of Financial Condition.

Refer to the Note titled “Variable Interest Entities” for additional information on the Company’s other secured financing arrangements.

Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential and senior securitized commercial mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $ 70.6 billion and $ 0.2 billion, respectively, at December 31, 2020 and $ 112.8 billion and $ 357.9 million, respectively, at December 31, 2019.

ANNALY CAPITAL MANAGEMENT, INC.

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December 31, 2020

Carrying Value

Interest Rate

Fixed/Floating

Maturity Date

Property Mortgage

Carrying Value Mortgage

Principal Interest Rate Fixed/Floating

Rate Maturity Date Priority

(dollars in thousands)

Joint Ventures $ 316,686 $ 318,302 4.03 % - 4.96 %

4.03% - 4.96%

Joint Ventures

2.34% - 4.55%

1/1/2048 and 1/1/2053

Fixed 2024 - 2029 First liens

Joint Ventures 16,607 16,325 L+ 2.15 %

Floating 2/27/2022 First liens

Virginia 24,464 25,000 L+ 2.85 %

Floating 5/1/2023 First liens

Texas 31,127 32,582 3.28 % Fixed 2048 - 2053 First liens

Utah 9,706 9,706 L+ 2.75 %

Floating 1/31/2021 First liens

Utah 6,969 6,986 3.69 % Fixed 6/1/2053 First liens

Minnesota 13,039 13,072 3.69 % Fixed 6/1/2053 First liens

Wisconsin 7,658 7,677 3.69 % Fixed 6/1/2053 First liens

Total $ 426,256 $ 429,650

December 31, 2019

Carrying Value

Interest Rate

Fixed/Floating

Maturity Date

Property Mortgage

Carrying Value Mortgage

Principal Interest Rate Fixed/Floating

Rate Maturity Date Priority

(dollars in thousands)

Joint Ventures $ 316,566 $ 318,562 4.03 % - 4.96 %

4.03% - 4.96%

Joint Ventures

2.75% - 4.96%

Fixed 2024 - 2029 First liens

Joint Ventures 16,029 16,325 L+ 2.15 %

Floating 2/27/2022 First liens

Virginia 82,940 84,702 2.34 % - 4.55 %

Fixed 2036 - 2053 First liens

Texas 31,667 33,167 3.28 % Fixed 2048 - 2053 First liens

Utah 9,706 9,706 L+ 3.50 %

Floating 1/31/2020 First liens

Utah 7,077 7,096 3.69 % Fixed 6/1/2053 First liens

Minnesota 13,243 13,276 3.69 % Fixed 6/1/2053 First liens

Wisconsin 7,777 7,797 3.69 % Fixed 6/1/2053 First liens

Total $ 485,005 $ 490,631

The following table details future mortgage loan principal payments at December 31, 2020:

1 unchanged sentence

(dollars in thousands)

2021 $ 11,123

Later years 81,447

Total $ 429,650

ANNALY CAPITAL MANAGEMENT, INC.

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CAPITAL STOCK

(A) Common Stock

The following table provides a summary of the Company’s common shares authorized and issued and outstanding at December 31, 2020 and 2019.

Shares authorized

Shares issued and outstanding

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

2,914,850,000

1,924,050,000

1,430,106,199

Shares authorized Shares issued and outstanding

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019 Par Value

2,914,850,000 2,914,850,000 1,398,240,618 1,430,106,199 $ 0.01

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In connection with the offering, the Company granted the underwriters a thirty -day option to purchase up to an additional 11.3 million shares of common stock, which the underwriters exercised in full resulting in an additional $ 109.6 million in proceeds before deducting offering expenses.

During the year ended December 31, 2018 , the Company closed the public offering of an original issuance of 75.0 million shares of common stock for proceeds of $ 762.8 million before deducting offering expenses.

In connection with the offering, the Company granted the underwriters a thirty -day option to purchase up to an additional 11.3 million shares of common stock, which the underwriters exercised in full resulting in an additional $ 114.4 million in proceeds before deducting offering expenses.

During the year ended December 31, 2018 , the Company issued 43.6 million shares of common stock as part of the consideration for the MTGE Acquisition.

In June 2019, the Company announced that its board of directors (“Board”) had authorized the repurchase of up to $ 1.5 billion of its outstanding shares of common stock through December 31, 2020.

In June 2019, the Company announced that its board of directors (“Board”) had authorized the repurchase of up to $ 1.5 billion of its outstanding shares of common stock, which expired on December 31, 2020 (the “Prior Share Repurchase Program”).

In December 2020, the Company announced that its Board authorized the repurchase of up to $ 1.5 billion of its outstanding common shares through December 31, 2021 (the “New Share Repurchase Program”).

The New Share Repurchase Program replaced the Prior Share Repurchase Program.

During the year ended December 31, 2020, the Company repurchased 32.4 million shares of its common stock for an aggregate amount of $ 208.9 million, excluding commission costs.

During the year ended December 31, 2019, the Company repurchased 26.2 million shares of its common stock for an aggregate amount of $ 223.2 million, excluding commission costs.

All common shares purchased were part of a publicly announced plan in open-market transactions.

The following table provides a summary of activity related to the Company’s Direct Purchase and Dividend Reinvestment Program.

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(dollars in thousands)

Shares issued through direct purchase and dividend reinvestment program

166,000 180,000

Amount raised from direct purchase and dividend reinvestment program

$ 1,175 $ 1,795

In January 2018, the Company entered into separate Distribution Agency Agreements (collectively, the “Sales Agreements”) with each of Wells Fargo Securities, LLC, Merrill Lynch, Pierce, Fenner & Smith, Incorporated, Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co.

1 unchanged sentence

The Company may offer and sell shares of its common stock, having an aggregate offering price of up to $ 1.5 billion from time to time through any of the Sales Agents.

During the years ended December 31, 2019 and 2018 , the Company issued 56.0 million shares of common stock for proceeds of $ 569.1 million , net of commissions and fees, and 24.0 million shares for proceeds of $ 251.1 million , net of commissions and fees, respectively, under the at-the-market sales program.

Preferred Stock

No shares were issued under the at-the-market sales program during the year ended December 31, 2020.

During the year ended December 31, 2019, the Company issued 56.0 million shares of common stock for proceeds of $ 569.1 million, net of commissions and fees, under the at-the-market sales program.

(B) Preferred Stock

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at December 31, 2020 and 2019.

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Financial Statements

Shares Authorized

Shares Issued And Outstanding

Carrying Value

Contractual Rate

Earliest Redemption Date (1)

Date At Which Dividend Rate Becomes Floating

Floating Annual Rate

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

(dollars in thousands)

Shares Authorized Shares Issued And Outstanding Carrying Value Contractual Rate Earliest Redemption Date (1)

Date At Which Dividend Rate Becomes Floating Floating Annual Rate

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Fixed-rate (dollars in thousands)

Series D 18,400,000 18,400,000 — 18,400,000 — 445,457 7.50 % 9/13/2017 NA NA

Fixed-to-floating rate

3M LIBOR + 4.993%

3M LIBOR + 4.172%

3M LIBOR + 4.989%

Series F 28,800,000 28,800,000 28,800,000 28,800,000 696,910 696,910 6.95 % 9/30/2022 9/30/2022 3M LIBOR + 4.993 %

Series G 19,550,000 19,550,000 17,000,000 17,000,000 411,335 411,335 6.50 % 3/31/2023 3/31/2023 3M LIBOR + 4.172 %

Series I 18,400,000 18,400,000 17,700,000 17,700,000 428,324 428,324 6.75 % 6/30/2024 6/30/2024 3M LIBOR + 4.989 %

Total 85,150,000 85,150,000 63,500,000 81,900,000 $ 1,536,569 $ 1,982,026

(1) Subject to the Company’s right under limited circumstances to redeem preferred stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change in control of the Company.

1 unchanged sentence

Through December 31, 2020, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

During the year ended December 31, 2020, the Company redeemed all 18.4 million of its issued and outstanding shares of 7.50 % Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) for $ 460.0 million.

The cash redemption amount for each share of Series D Preferred Stock was $ 25.00 .

During the year ended December 31, 2019, the Company redeemed all 7.0 million of its issued and outstanding shares of 7.625 % Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”) for $ 175.0 million.

3 unchanged sentences

During the year ended December 31, 2019, the Company issued 17.7 million shares of its 6.750 % Seri es I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series I Preferred Stock”) for gross proceeds o f $ 442.5 million befo re deducting the underwriting discount and other estimated offering expenses.

During the year ended December 31, 2018 , the Company issued 17.0 million shares of its 6.50 % Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series G Preferred Stock”) for gross proceeds of $ 425.0 million before deducting the underwriting discount and other estimated offering expenses and 2.2 million shares of its Series H Preferred Stock in connection with the acquisition of MTGE.

Refer to the “Acquisition of MTGE Investment Corp.” Note for additional information related to the Company’s Series H Preferred Stock.

During the year ended December 31, 2018 , the Company redeemed 5.0 million shares of its Series C Preferred Stock for $ 125.0 million and all 11.5 million of its issued and outstanding shares of 7.625 % Series E Cumulative Redeemable Preferred Stock for $ 287.5 million .

The Series D Cumulative Redeemable Preferred Stock, Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Preferred Stock and Series I Preferred Stock rank senior to the common stock of the Company.

2 unchanged sentences

Financial Statements

Distributions to Stockholders

The following table provides a summary of the Company’s dividend distribution activity for the periods presented:

For the Years Ended

December 31, 2019

December 31, 2018

December 31, 2020 December 31, 2019

(dollars in thousands, except per share data)

3 unchanged sentences

Distributions paid per common share after period end $ 0.22 $ 0.25

Date of distributions paid to common stockholders after period end

January 31, 2020

January 31, 2019

Date of distributions paid to common stockholders after period end January 29, 2021 January 31, 2020

Dividends declared to series C preferred stockholders $ — $ 7,414

2 unchanged sentences

Dividends declared per share of series D preferred stock $ 1.875 $ 1.875

Dividends declared to series E preferred stockholders

Dividends declared per share of series E preferred stock

Dividends declared to series F preferred stockholders $ 50,040 $ 50,040

6 unchanged sentences

Dividends declared per share of series I preferred stock $ 1.688 $ 0.86

LONG-TERM STOCK INCENTIVE PLAN

Employees, Directors and other service providers of the Company are eligible to participate in the Company’s 2020 Equity Incentive Plan (the “Plan”), which provides for equity-based compensation in the form of stock options, share appreciation rights, dividend equivalent rights, restricted shares, restricted stock units (“RSUs”), and other share-based awards.

The Company has the ability to award up to an aggregate of 125,000,000 shares under the terms of the Plan, subject to adjustment for any awards that were outstanding under the Company’s 2010 Equity Incentive Plan (the “Prior Plan”, collectively the “Plans") on the effective date of the Plan and subsequently expire, terminate, or are surrendered or forfeited.

No new awards are permitted to be made under the Prior Plan, although existing awards remain effective.

Restricted Stock Units

The Company grants RSUs (including RSUs subject to performance conditions (“PSUs”)) to employees, which are generally valued based on the closing price of the underlying shares on the date of grant.

For RSUs that vest, the underlying shares of common stock are delivered (net of required withholding tax) as outlined in the applicable award agreements.

PSUs are subject to the Company’s achievement of specified performance criteria and the number of awards that vest can range from zero to 150 % of the grant amount.

Award agreements generally provide that vesting is accelerated in certain circumstances, such as death and disability.

Delivery of the underlying shares of common stock, which generally occurs over a three -year period, is conditioned on the grantees satisfying certain vesting and other requirements outlined in the award agreements.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table sets forth activity related to the Company’s RSUs and PSUs awarded under the Plans:

For the year ended

December 31, 2020

Number of Shares Weighted Average Grant Date Fair Value

(dollars in thousands)

Beginning balance — $ —

1,790,759 $ 7.24

Vested ( 100,100 ) $ 9.99

Forfeited (1)

( 19,921 ) $ 9.59

Ending balance (2)

1,670,738 $ 7.05

(1) Includes dividend equivalent rights.

(2) The ending balance includes 404,589 PSUs and related dividend equivalent rights subject to performance conditions and future service requirements, and represents the target amount of such PSUs that may be earned.

The Company recognized stock based compensation expense of $ 3.7 million for the year ended December 31, 2020.

As of December 31, 2020, there was $ 9.0 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements.

This cost is expected to be recognized over a weighted average period of 2.24 years.

INTEREST INCOME AND INTEREST EXPENSE

22 unchanged sentences

For the Years Ended December 31,

Interest income

(dollars in thousands)

2020 2019 2018

Interest income (dollars in thousands)

Residential Securities (1)

$ 1,718,960 $ 3,195,546 $ 2,830,521

Residential mortgage loans (1)

170,259 150,066 83,260

Commercial investment portfolio (1) (2)

338,763 378,395 356,981

Treasury securities — — 160

4 unchanged sentences

Debt issued by securitization vehicles 142,602 141,981 98,013

Participation sold

Participations issued 78 — —

Other 51,214 129,612 100,917

Total interest expense 899,112 2,784,875 1,897,860

5 unchanged sentences

For the Years Ended

December 31, 2019

December 31, 2018

December 31, 2017

December 31, 2020 December 31, 2019 December 31, 2018

(dollars in thousands, except per share data)

5 unchanged sentences

Weighted average shares of common stock outstanding-basic 1,414,659,439 1,434,912,682 1,209,601,809

1,434,912,682

1,209,601,809

1,065,923,652

Effect of stock awards, if dilutive — — —

Weighted average shares of common stock outstanding-diluted 1,414,659,439 1,434,912,682 1,209,601,809

1,434,912,682

1,209,601,809

1,066,351,616

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

No options to purchase shares of common stock were outstanding for the year ended December 31, 2019 .

Options to purchase 0.2 million shares and 0.8 million shares of common stock were outstanding and considered anti-dilutive as their exercise price and option expense exceeded the average stock price for the years ended December 31, 2018 and 2017 , respectively.

Basic $ ( 0.73 ) $ ( 1.60 ) $ ( 0.06 )

Diluted $ ( 0.73 ) $ ( 1.60 ) $ ( 0.06 )

The computations of diluted net income (loss) per share available (related) to common share for the year ended December 31, 2020 excludes 1.0 million of potentially dilutive restricted stock units and performance stock units because their effect would have been anti-dilutive.

For the year ended December 31, 2020 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860.

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The Company’s TRSs are subject to federal, state and local taxes.

During the years ended December 31, 2019 , 2018 and 2017 the Company recorded ($ 10.8 ) million , ($ 2.4 ) million and $ 7.0 million , respectively, of income tax expense (benefit) attributable to its TRSs.

During the years ended December 31, 2020, 2019 and 2018 the Company recorded ($ 28.4 ) million, ($ 10.8 ) million and ($ 2.4 ) million, respectively, of income tax benefit attributable to its TRSs.

The Company’s federal, state and local tax returns from 2017 and forward remain open for examination.

21 unchanged sentences

RELATED PARTY TRANSACTIONS

Management Agreement

Until the closing of the Internalization (as defined in Note 24), management of the Company will continue to be conducted by the Manager through the authority delegated to it in the Management Agreement and pursuant to the policies established by the Board.

The management agreement was amended and restated on August 1, 2018, and further amended on March 27, 2019 (the management agreement, as amended and restated, is referred to as “Management Agreement”).

On February 12, 2020, the Company entered an internalization agreement (the “Internalization Agreement”) with the Manager pursuant to which, upon closing, the Management Agreement will be terminated.

If the closing does not occur, the Management Agreement will remain in place on the terms and conditions described herein.

Under the Management Agreement, the Manager, subject to the supervision and direction of the Board, is responsible for (i) the selection, purchase and sale of assets for the Company’s investment portfolio;

Closing of the Internalization and Termination of Management Agreement

On February 12, 2020, the Company entered into an internalization agreement (the “Internalization Agreement”) with the Former Manager and certain affiliates of the Former Manager.

Pursuant to the Internalization Agreement, the Company agreed to acquire all of the outstanding equity interests of the Former Manager and the Former Manager’s direct and indirect parent companies from their respective owners (the “Internalization”) for nominal cash consideration ($ 1.00 ).

In connection with the closing of the Internalization, on June 30, 2020, the Company acquired all of the assets and liabilities of the Former Manager (the net effect of which was immaterial in amount), and the Company transitioned from an externally-managed real estate investment trust (“REIT”) to an internally-managed REIT.

At the closing, all employees of the Former Manager became employees of the Company.

The parties also terminated the Amended and Restated Management Agreement by and between the Company and the Former Manager (the “Management Agreement”) and therefore the Company no longer pays a management fee to, or reimburses expenses of, the Former Manager.

Pursuant to the Internalization Agreement, the Former Manager waived any Acceleration Fee (as defined in the Management Agreement).

Prior to the closing of the Internalization, the Former Manager, under the Management Agreement and subject to the supervision and direction of the Board, was responsible for (i) the selection, purchase and sale of assets for the Company’s investment portfolio;

(ii) recommending alternative forms of capital raising;

1 unchanged sentence

and (iv) day to day management functions.

The Manager also performs such other supervisory and management services and activities relating to the Company’s assets and operations as may be appropriate.

In exchange for the management services, the Company pays the Manager a monthly management fee, and the Manager is responsible for providing personnel to manage the Company.

Prior to the most recent amendment to the Management Agreement, which was executed on March 27, 2019, the Company had paid the Manager a flat monthly management fee equal to 1/12th of 1.05% of Stockholders' Equity (as defined in the Management Agreement) for its management services.

Pursuant to the March 27, 2019 amendment to the Management Agreement, the Company now pays the Manager a monthly management fee for its management services in an amount equal to 1/12th of the sum of (i) 1.05% of Stockholders' Equity (as defined in the Management Agreement) up to $ 17.28 billion , and (ii) 0.75 % of Stockholders' Equity (as defined in the Management Agreement) in excess of $ 17.28 billion .

The Company does not pay the Manager any incentive fees.

For the years ended December 31, 2019 , 2018 and 2017 , the compensation and management fee was $ 170.6 million (includes $ 5.9 million related to compensation expense for the employees of the Company’s subsidiaries), $ 179.8 million (includes $ 5.2 million related to compensation expense for the employees of the Company’s subsidiaries), and $ 164.3 million (includes $ 7.2 million related to compensation expense for the employees of the Company’s subsidiaries), respectively.

Following the unanimous approval of the Company’s independent directors (the “Independent Directors”), in August 2018, the Company began reimbursing the Manager for certain services in connection with the management and operations of the Company and its subsidiaries as permitted under the terms of the Management Agreement.

Such reimbursable expenses include the cost for certain legal, tax, accounting and other support and advisory services provided by employees of the Manager to the Company.

Pursuant to the Management Agreement, the Company may reimburse the Manager for the cost of such services, provided such costs are no greater than those that would be payable to comparable third party providers.

As part of an expense management initiative undertaken by the Manager, expense reimbursement payments were voluntarily waived for the three months ended September 30, 2019 .

Expense reimbursements and related waivers are routinely reviewed with the Audit Committee of the Board in conformance with established policies.

For the years ended December 31, 2019 , and 2018 reimbursement payments to the Manager were $ 21.4 million and $ 9.2 million , respectively.

There were no reimbursement payments to the Manager during the years ended 2017 .

None of the reimbursement payments are attributable to compensation of the Company’s executive officers.

At December 31, 2019 and 2018 , the Company had amounts payable to the Manager of $ 15.8 million and $ 16.0 million , respectively.

The Management Agreement’s current term ends on December 31, 2021 and will automatically renew for successive two -year terms unless at least two-thirds of the Independent Directors or the holders of a majority of the outstanding shares of the Company’s common stock in their sole discretion elect to terminate the agreement for any or no reason upon 365 days prior written notice (such notice, a “Termination Notice”).

If the Company makes an election to terminate the Management Agreement, the Company may elect to accelerate the termination date (the “Termination Date”) to a date that is between seven and 90 days after the date of the Company’s delivery of a Termination Notice (the “Notice Delivery Date”).

If the Company does not make an election to accelerate the Termination Date, then the Manager may elect to accelerate the Termination Date to the date that is 90 days after the Notice Delivery Date.

If the Termination Date is accelerated (such date, the “Accelerated Termination Date”) by either the Company or the Manager, in addition to any amounts accrued for the period prior to the Accelerated Termination Date, the Company shall pay the Manager an acceleration fee (the “Acceleration Fee”) in an amount equal to the average annual management fee earned by the Manager during the 24-month period immediately preceding such Accelerated Termination Date multiplied by a fraction with a numerator of 365 minus the number of days from the Notice Delivery Date to the Accelerated Termination Date, and a denominator of 365.

The Management Agreement may also be terminated by the Manager for any reason or no reason upon 365 days prior written notice, or with shorter notice periods by either the Company or the Manager for cause or by the Company in the event of a sale of the Manager that was not pre-approved by the Independent Directors.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The Management Agreement may be amended or modified by agreement between the Company and the Manager.

The Former Manager also performed such other supervisory and management services and activities relating to the Company’s assets and operations as appropriate.

In exchange for the management services, the Company paid the Former Manager a monthly management fee, and the Former Manager was responsible for providing personnel to manage the Company.

Prior to the closing of the Internalization, the Company had paid the Former Manager a monthly management fee for its management services in an amount equal to 1/12th of the sum of (i) 1.05% of Stockholders' Equity (as defined in the Management Agreement) up to $ 17.28 billion, and (ii) 0.75 % of Stockholders' Equity (as defined in the Management Agreement) in excess of $ 17.28 billion.

The Company did not pay the Former Manager any incentive fees.

For the six months ended June 30, 2020 prior to the closing of the Internalization, the compensation and management fee computed in accordance with the Management Agreement was $ 77.9 million.

For the year ended December 31, 2019, the compensation and management fee was $ 170.6 million.

Prior to the closing of the Internalization, the Company reimbursed the Former Manager for certain services in connection with the management and operations of the Company and its subsidiaries as permitted under the terms of the Management Agreement.

Such reimbursable expenses included the cost for certain legal, tax, accounting and other support and advisory services provided by employees of the Former Manager to the Company.

Pursuant to the Management Agreement, until the closing of the Internalization, the Company reimbursed the Former Manager for the cost of such services, provided such costs were no greater than those that would be payable to comparable third party providers.

Expense reimbursements and related waivers were routinely reviewed with the Audit Committee of the Board in conformance with established policies.

For the years ended December 31, 2020 and December 31, 2019, reimbursement payments to the Former Manager were $ 14.2 million and $ 21.4 million, respectively.

None of the reimbursement payments were attributable to compensation of the Company’s executive officers.

At December 31, 2020 and December 31, 2019 the Company had amounts payable to the Former Manager of $ 0 and $ 15.8 million, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

The Company adopted ASU 2016-02, Leases (Topic 842) on January 1, 2019 with no impact to retained earnings or other components of equity.

The Company’s operating leases are primarily comprised of a corporate office lease with a remaining lease term of six years .

The Company’s operating leases are primarily comprised of a corporate office lease with a remaining lease term of five years .

The corporate office lease includes an option to extend for up to five years , however the extension term was not included in the operating lease liability calculation.

3 unchanged sentences

Supplemental information related to leases as of and for the year ended December 31, 2020 was as follows:

Operating Leases

Classification

December 31, 2019

(dollars in thousands)

Operating lease right-of-use assets

Operating Leases Classification December 31, 2020

Assets (dollars in thousands)

Operating lease right-of-use assets Other assets $ 13,167

Operating lease liabilities (1)

1 unchanged sentence

Lease term and discount rate

Weighted average remaining lease term

Weighted average remaining lease term 4.7 years

Weighted average discount rate (1)

4 unchanged sentences

Maturity of Lease Liabilities

Years ended December 31,

(dollars in thousands)

Years ended December 31, (dollars in thousands)

Later years —

Total lease payments $ 18,399

22 unchanged sentences

Arcola’s regulatory net capital as defined by SEC Rule 15c3-1 at December 31, 2020 was $ 422.3 million with excess net capital of $ 422.0 million.

ACQUISITION OF MTGE INVESTMENT CORP.

On September 7, 2018, Mountain Merger Sub Corporation, a wholly-owned subsidiary of the Company, completed its acquisition of MTGE, an externally managed hybrid mortgage REIT, for aggregate consideration to MTGE common shareholders of $ 906.2 million , consisting of $ 455.9 million in equity consideration and $ 450.3 million in cash consideration (the “MTGE Acquisition”).

The Company issued 43.6 million common stock as part of the consideration for the MTGE Acquisition.

In addition, as part of the MTGE Acquisition, each share of MTGE 8.125 % Series A Cumulative Redeemable Preferred Stock, par value $ 0.01 per share (each, a “MTGE Preferred Share”), that was outstanding as of immediately prior to the completion of the MTGE Acquisition was converted into one share of a newly-designated series of the Company’s preferred stock, par value $ 0.01 per share, which the Company classified and designated as Series H Preferred Stock, and which have rights, preferences, privileges and voting powers substantially the same as a MTGE Preferred Share.

The MTGE Acquisition was accounted for as an asset acquisition in accordance with Accounting Standards Codification 805 Business Combinations (“ASC 805”).

Under ASC 805, an acquisition does not qualify as a business combination if the acquisition does not meet the definition of a business.

GAAP defines a business as an integrated set of activities and assets that is capable of being conducted and managed for the purpose of providing a return in the form of dividends, lower costs, or other economic benefits directly to investors or other owners, members, or participants.

Since the Company did not acquire the external management agreement with the MTGE’s third party manager, there were no substantive processes acquired as part of the acquisition.

Therefore, the MTGE Acquisition was not considered a business combination.

Under ASC 805, an asset acquisition is accounted for under the cost accumulation model which allocates the cost of the acquisition which generally includes direct transaction costs to the individual assets acquired and liabilities assumed on the basis of relative fair value with certain exceptions including financial assets and current assets.

These exceptions are excluded from the cost accumulation method since recognizing these assets at amounts other than their fair value would result in a subsequent gain or loss upon re-measurement.

The allocation of the consideration paid as part of the transaction and its assignment to the initial carrying value of the MTGE portfolio is noted in the below table.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

September 2018

Consideration transferred

(dollars in thousands)

Common equity

Preferred shares

Exchange of MTGE preferred stock for Annaly preferred stock

Total consideration

Cash and cash equivalents

Real estate, net

Derivative assets

Reverse repurchase agreements

Receivable for unsettled trades

Principal receivable

Interest receivable

Intangible assets, net

Total assets acquired

Repurchase agreements

Mortgages payable

Treasury securities sold, not yet purchased

Derivative liabilities

Interest payable

Dividends payable

Other liabilities

Total liabilities assumed

Net assets acquired

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

SUMMARIZED QUARTERLY RESULTS (UNAUDITED)

The following is a presentation of summarized quarterly results of operations for the years ended December 31, 2019 and 2018 .

These quarterly results were prepared in accordance with GAAP and reflect all adjustments that are, in the opinion of management, necessary for a fair statement of the results.

These adjustments are of a normal, recurring nature.

For the Quarters Ended

December 31, 2019

September 30,

(dollars in thousands, expect per share data)

Interest income

Interest expense

Net interest income

Total realized and unrealized gains (losses)

Total other income (loss)

Total general and administrative expenses

Income (loss) before income taxes

Net income (loss)

Net income attributable to noncontrolling interests

Dividends on preferred stock (1)

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

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

For the Quarters Ended

December 31, 2018

September 30,

(dollars in thousands, expect per share data)

Interest income

Interest expense

Net interest income

Total realized and unrealized gains (losses)

Total other income (loss)

Total general and administrative expenses

Income (loss) before income taxes

Net income (loss)

Net income attributable to noncontrolling interests

Dividends on preferred stock

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

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

The quarter ended September 30, 2019 excludes, and the quarter ended June 30, 2019 includes, cumulative and undeclared dividends of $ 0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.

SUBSEQUENT EVENTS

In January 2020, the Company completed and closed its securitization of residential mortgage loans, OBX 2020-INV1 Trust, with a face value of $ 374.6 million .

The securitization represented a financing transaction which provided non-recourse financing to the Company collateralized by residential mortgage loans purchased by the Company.

On February 12, 2020, the Company entered into an Internalization Agreement with the Manager and certain affiliates of the Manager.

Pursuant to the Internalization Agreement, the Company agreed to acquire all of the outstanding equity interests of the Manager and the Manager’s direct and indirect parent companies from their respective owners (the “Internalization”) for nominal

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

cash consideration ($1.00).

As a result of the Internalization, the Manager will cease to perform any outside management services for the Company and the Company will become an internally-managed REIT.

While Glenn A.

Votek, the Company’s interim Chief Executive Officer and President, intends to transition to a temporary advisory role with the Company and to continue serving as an active member of the Board following the appointment of a permanent chief executive officer and president, the Company’s other executive officers have entered into employment agreements that will become effective upon the closing of the Internalization.

In addition, the Management Agreement will be terminated at the closing of the Internalization, and the Manager has agreed to waive any Acceleration Fee (as defined in the Management Agreement) solely as related to the closing of the Internalization.

If the closing does not occur, the Management Agreement will revert to the form it was in immediately prior to the execution of the Internalization Agreement in all respects, including with respect to the Acceleration Fee.

The Company anticipates that the closing will occur in the second quarter of 2020.

Schedule III - Real Estate and Accumulated Depreciation

1 unchanged sentence

December 31, 2020

Initial Cost to Company

Cost Capitalized Subsequent to

Gross Amounts Carried at

Initial Cost to Company Cost Capitalized Subsequent to

Acquisition Gross Amounts Carried at

Close of Period 12/31/20

Number of Properties

Buildings and Improvements

Accumulated Depreciation

Year of Construction

Date Acquired

Weighted-Average Depreciable Life (in years)

Location Number of Properties Encumbrances Land Buildings and Improvements Improvements Land Buildings and Improvements Total (1)

Accumulated Depreciation Year of Construction Date Acquired Weighted-Average Depreciable Life (in years)

Retail - Carrollton, TX 1 $ 12,875 $ 3,961 $ 14,672 $ 9 $ 3,970 $ 14,672 $ 18,642 $ ( 3,546 ) 1996 11/25/2015 38

22 unchanged sentences

Retail - Knoxville, TN 1 — 3,503 13,309 400 3,503 13,709 17,212 ( 2,980 ) 2002 4/9/2014 34

Healthcare - Abingdon, VA

Office - Falls Church, VA 1 25,000 13,500 21,895 374 13,500 22,269 35,769 ( 1,571 ) 1990 3/23/2020 27

Retail - Washington DC 1 — 38,000 6,499 — 38,000 6,499 44,499 ( 81 ) 1977 8/28/2020 38

Healthcare - Abingdon, VA 1 — 370 15,061 ( 15,431 ) — — — — 2012 9/7/2018 44

Healthcare - Chase City, VA 1 — 160 11,894 ( 12,054 ) — — — — 2004 9/7/2018 36

Healthcare - Fredericksburg, VA 1 — 3,110 18,830 ( 21,940 ) — — — — 1983 9/7/2018 18

14 unchanged sentences

Healthcare - St.

George, UT 1 9,706 1,050 13,422 — 1,050 13,422 14,472 ( 1,031 ) 2014 9/7/2018 36

Healthcare - St.

George, UT 1 6,986 690 7,670 — 690 7,670 8,360 ( 665 ) 2011 9/7/2018 33

Healthcare - Covington, LA 1 16,290 410 19,216 402 410 19,618 20,028 ( 1,744 ) 2009 9/7/2018 31

1 unchanged sentence

Healthcare - Mission, KS 1 16,327 600 21,501 173 598 21,676 22,274 ( 1,934 ) 7/7/1905 9/7/2018 32

48 $ 429,652 $ 173,280 $ 600,851 $ ( 110,219 ) $ 164,240 $ 499,672 $ 663,912 $ ( 100,147 )

(1) The aggregate cost of land, buildings and improvements, before depreciation, for Federal income tax purposes at December 31, 2020 was $ 681.5 million (unaudited).

The following table presents our real estate activity during the periods presented:

(dollars in thousands)

2020 2019 2018

Real Estate (dollars in thousands)

Beginning balance $ 704,354 $ 721,664 $ 441,971

5 unchanged sentences

Property sold ( 10,098 ) ( 3,166 ) —

Depreciation 22,713 23,672 18,106

Ending balance $ 100,147 $ 87,532 $ 67,026

1 unchanged sentence

Schedule IV - Mortgage Loans on Commercial Real Estate

Prior Liens (1)

Carrying Amount

Interest Rate (2)

Payment Terms

Maturity Date (3)

Mezzanine debt investments

(dollars in thousands)

Interest Only

Description Location Prior Liens (1)

Face Amount Carrying Amount Interest Rate (2)

LIBOR Floor Payment Terms Maturity Date (3)

Mezzanine debt investments (dollars in thousands)

Retail MA $ 61,329 $ 10,000 $ — 10.14 % N/A Interest Only 9/6/2023

Office LA 60,212 8,700 8,258 10.75 % N/A Interest Only 10/1/2023

Retail OH 124,750 36,603 — 9.50 % N/A Interest Only 12/1/2023

Office NJ — 9,922 9,369 LIBOR+ 10.48 %

0.25 % Interest Only 9/15/2020

Office CA — 23,013 23,012 LIBOR+ 4.84 %

0.16 % Interest Only 1/3/2022

Office CA 104,682 10,281 10,281 LIBOR+ 6.79 %

0.16 % Interest Only 1/3/2022

Hotel LA 81,200 14,800 6,796 LIBOR+ 9.75 %

0.16 % Interest Only 9/9/2022

Retail CO — 3,436 3,405 LIBOR+ 5.00 %

1.20 % Interest Only 11/8/2022

Office FL — 18,363 18,052 LIBOR+ 3.30 %

1.90 % Interest Only 5/9/2023

Office TX — 19,436 19,064 LIBOR+ 3.75 %

1.25 % Interest Only 8/9/2023

Office TX — 15,000 14,884 LIBOR+ 3.45 %

2.25 % Interest Only 3/5/2024

Retail NC — 3,292 2,684 LIBOR+ 3.40 %

2.25 % Interest Only 3/9/2024

Office CA — 8,415 8,351 LIBOR+ 3.00 %

1.5 % Interest Only 1/9/2026

First mortgages

Interest Only

Office NJ $ — $ 53,968 $ 50,956 LIBOR+ 3.40 %

0.25 % Interest Only 9/15/2020

Office TX — 67,281 66,169 LIBOR+ 3.75 %

1.25 % Interest Only 8/9/2023

Hotel TX — 8,038 7,827 LIBOR+ 3.75 %

2.00 % Interest Only 10/9/2023

Office TX — 12,000 11,907 LIBOR+ 3.45 %

2.25 % Interest Only 3/5/2024

Retail NC — 393 330 LIBOR+ 3.40 %

2.25 % Interest Only 3/9/2024

Retail CA — 40,029 35,356 LIBOR+ 3.40 %

2.06 % Interest Only 3/5/2024

Healthcare WA — 20,152 19,873 LIBOR+ 3.40 %

1.75 % Interest Only 10/1/2023

Multifamily DE — 31,469 31,257 LIBOR+ 2.90 %

1.75 % Interest Only 11/8/2023

Industrial AZ — 15,212 14,872 LIBOR+ 3.50 %

1.60 % Interest Only 12/9/2024

Industrial NC — 15,874 14,641 LIBOR+ 2.85 %

1.85 % Interest Only 12/9/2024

Multifamily NY — 37,403 36,062 LIBOR+ 3.25 %

1.75 % Interest Only 1/9/2025

Multifamily NY — 238 232 LIBOR+ 3.25 %

1.75 % Interest Only 1/9/2025

Office FL — 85,067 84,443 LIBOR+ 3.00 %

1.50 % Interest Only 1/9/2026

$ 568,385 $ 498,081

(1) Represents third-party priority liens.

3 unchanged sentences

ANNALY CAPITAL MANAGEMENT, INC.

February 13, 2020

Interim Chief Executive Officer and President (Principal Executive Officer)

February 18, 2021 By:

Chief Executive Officer and Chief Investment Officer (Principal Executive Officer)

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated.

Interim Chief Executive Officer, President and Director (Principal Executive Officer)

Signature Title Date

Chief Executive Officer and Chief Investment Officer (Principal Executive Officer)

February 18, 2021

1 unchanged sentence

Chief Financial Officer

(Principal Financial Officer and Principal Accounting Officer)

February 13, 2020

(Principal Financial Officer and Principal Accounting Officer) February 18, 2021

/s/ Francine J.

February 13, 2020

Director February 18, 2021

/s/ Wellington J.

Wellington J.

Director, Vice Chair of the Board

February 13, 2020

Director, Vice Chair of the Board February 18, 2021

/s/ Katherine Beirne Fallon

Katherine Beirne Fallon

February 13, 2020

/s/ Jonathan D.

Director, Vice Chair of the Board

February 13, 2020

Director February 18, 2021

/s/ Thomas Edward Hamilton

Thomas Edward Hamilton

Director, Chair of the Board

February 13, 2020

Director February 18, 2021

/s/ Kathy Hopinkah Hannan

Kathy Hopinkah Hannan

February 13, 2020

Director February 18, 2021

/ s/ Michael E.

February 13, 2020

Director, Chair of the Board February 18, 2021

Director February 18, 2021

/s/ Donnell A.

February 13, 2020

Director February 18, 2021

/s/ Vicki Williams

Vicki Williams

February 13, 2020

Director February 18, 2021

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-K

Item 9A. Controls and Procedures