What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2022-02-18 compared with 2021-02-19 · 308 added, 849 removed, 276 unchanged (81% of the section changed)

In response to COVID-19, our employees have largely worked remotely since March 2020.

We supported our employees’ remote working through stipends to upgrade home office equipment.

Since September 2020, there are a limited number of employees who voluntarily work in the office on occasion.

We implemented a regular Coronavirus testing protocol to optimize our ability to provide a safe work environment.

environment for all our employees, with ongoing opportunities for career development and wellness support that seeks to facilitate the achievement of their professional goals.

Our culture is built on six core values:

ownership, accountability, communication, collaboration, diversity and inclusion and humility.

These values are embedded in our professional and personal conduct and are crucial to how we operate our business.

All employees are responsible for upholding these values, which form the bedrock of our culture and are vital to the continued success of our company.

Guided by these values, we are committed to attracting, developing and retaining the best talent, with diverse experiences, perspectives and backgrounds.

We utilize employee surveys, including an employee engagement survey, to create an open and honest feedback forum, actively involve our employees in the design and evolution of our culture, enhance our overall productivity and mitigate risk.

Our leaders review survey feedback to increase employee engagement and drive positive changes throughout the firm.

We remain committed to maintaining an open and honest feedback forum for our employees as we strive for high employment satisfaction levels.

In response to COVID-19, our employees largely worked remotely in the first half of 2021 and transitioned to a hybrid model in the second half of 2021 with employees returning to the office on a periodic basis following federal, state and local guidance.

We have implemented a COVID-19 Policy on Vaccination, Testing, and Face Coverings, which complies with applicable federal, state and local legal requirements, to safeguard the health of our employees, their families, our clients, our business partners, and the community from the hazard of COVID-19.

In addition to addressing physical health and safety concerns, we recognize that the pandemic has affected people’s daily emotional lives and mental health.

As a result, we have increased our mental health offerings and hosted a multitude of virtual seminars to help keep our employees connected with one another and to equip them with tools to help alleviate some of the increased stress and burdens.

Diversity & Inclusion

Diversity, Equity & Inclusion

The diversity of our employees brings a critical range of thought and experience throughout our company, cultivating innovation, fresh perspectives and vital new ideas.

Diversity and inclusion are essential tenets of our corporate culture.

Our human capital management group, in coordination with our recently named Head of Inclusion and Inclusion Support Committee of Executive Sponsors, is responsible for overseeing and continuing to improve our diversity and inclusion initiatives.

Diversity, equity and inclusion are essential tenets of our corporate culture.

Our human capital management group, in coordination with our Head of Inclusion and Inclusion Support Committee of Executive Sponsors, is responsible for overseeing and continuing to improve our diversity, equity and inclusion initiatives.

We are committed to achieving diversity, including gender and racial/ethnic diversity, across all levels of our company.

With 53% of total employees in 2021 identifying as either female or racially/ethnically diverse, we are driven by the belief that having a diverse group of employees supports our continued long-term growth.

In 2017, we launched the Women’s Interactive Network, which provides targeted development and networking opportunities, knowledge exchanges, mentorship, coaching and volunteer efforts.

Our diversity and inclusion efforts also include firm-wide initiatives like an unconscious bias training program offered in 2020 to establish foundational knowledge, language and understanding to support the strategic diversity and inclusion efforts of the firm, organizing forums to discuss employees’ views and actively seeking out feedback from employee surveys.

In 2017, we launched the Women’s Interactive Network (“WIN”), which provides targeted development and networking opportunities, knowledge exchanges, mentorship, coaching and volunteer efforts.

In 2021, we expanded our employee affinity group network to include seven distinct affinity groups.

In addition to WIN, these affinity groups include the Asian American and Pacific Islander Employee Network, the Black Employee Network, the Latin American Employee Network, Disabilities Within a Family, the Veteran’s Employee Network and Annaly Pride.

Our diversity, equity and inclusion efforts also include firm-wide initiatives, like unconscious bias training and an allyship learning program, to establish foundational knowledge, language and understanding to support the strategic diversity, equity and inclusion efforts of the firm, organizing forums to discuss employees’ views and actively seeking out feedback from employee surveys.

Employee Development, Benefits and Wellness

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In addition, we offer employees benefits including health and insurance coverage, health savings and flexible spending accounts, telemedicine benefits, 401(k) plans, paid time off and family care resources.

In 2021, we enhanced our parental and family care benefits to provide extended leave and fertility assistance.

We also have a tuition reimbursement plan to cover all or part of the cost of education that furthers employee education in a field directly related to their specific job.

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For example, we offer targeted professional development training for employees at various stages in their career.

In 2020, we began offering firm-wide culture sessions where we facilitate discussions to gain insights on our company’s culture enhancement priorities.

In 2021, we continued offering firm-wide culture sessions where we facilitate discussions to gain insights on our company’s culture enhancement priorities.

Corporate and Employee Philanthropy and Volunteerism

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Our corporate giving has been focused on high-impact programs that seek to advance social issues we are committed to, including combating homelessness and advancing the professional development of women and underrepresented groups.

In 2020, we also provided support to COVID-19 relief efforts in our New York City community.

In 2021, we continued to provide support to COVID-19 relief efforts in our New York City community.

Annaly and our employees endeavor to meaningfully contribute to the communities where we live, work, and invest through Annaly’s corporate giving, employee volunteerism and our employee charity match program.

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Arcola consistently operates with capital in excess of its regulatory capital requirements as defined by SEC Rule 15c3-1.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

We have a subsidiary that is registered with the SEC as an investment adviser under the Investment Advisers Act.

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These additional requirements relate to, among other things, maintaining an effective and comprehensive compliance program, recordkeeping and reporting requirements and disclosure requirements.

We also have a subsidiary that operates as a licensed mortgage aggregator and master servicer, which compels it to follow individual state licensing laws and subjects it to supervision and examination by federal authorities, including the CFPB, the U.S.

Department of Housing and Urban Development (“HUD”), the SEC as well as various state licensing, supervisory and administrative agencies.

We and our subsidiaries must also comply with a large number of federal, state and local consumer protection laws including, among others, the Gramm-Leach-Bliley Act, the Fair Debt Collection Practices Act, Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Fair Credit Reporting Act, as well as state foreclosure laws and federal and local bankruptcy rules.

These laws and regulations, which are frequently amended and adjusted, have, in recent years, led to an increase in both the scope of the requirements and the intensity of the supervision to which we are subject.

The financial services industry is subject to extensive regulation and supervision in the U.S.

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Our notable governance practices and policies include:

• We closed our management internalization transaction on June 30, 2020 and transitioned from an externally-managed REIT to an internally-managed REIT.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

• Our Board is composed of a majority of independent directors, and our Audit, Management Development and Compensation, and Nominating/Corporate Governance Committees are composed exclusively of independent directors.

• We have separated the roles of Chair of the Board and Chief Executive Officer, and appointed an independent Chair of the Board.

• In December 2018, we amended our bylaws to declassify our Board over a three-year period with all directors standing for annual election by our company’s annual meeting of stockholders in 2021.

• All directors are elected on an annual basis.

• We have adopted an enhanced director refreshment policy, which provides that an independent director may not stand for re-election at the next annual meeting of stockholders taking place at the end of his or her term following the earlier of his or her:

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• We have adopted Corporate Governance Guidelines which, in conjunction with the charters of our Board committees, provide the framework for the governance of our company.

• We have procedures by which any of our employees, officers or directors may raise concerns confidentially about our company’s conduct, accounting, internal controls or auditing matters with the Chair of the Board, the independent directors, or the Chair of the Audit Committee or through our whistleblower phone hotline or e-mail inbox.

• We have procedures by which any of our employees, officers or directors may raise concerns

confidentially about our company’s conduct, accounting, internal controls or auditing matters with the Chair of the Board, the independent directors, or the Chair of the Audit Committee or through our whistleblower phone hotline or e-mail inbox.

• We have an Insider Trading Policy that prohibits our directors, officers and employees, as well as those of our subsidiaries from buying or selling our securities on the basis of material nonpublic information and prohibits communicating material nonpublic information about our company to others.

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• Our executive officers are subject to stock ownership guidelines and holding restrictions.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

• In February 2022, we amended our bylaws to allow stockholders holding 25% of our common stock to call a special meeting, reducing the previous majority threshold.

Distributions

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ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Annaly Capital Management, Inc.

1211 Avenue of the Americas

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INDEX TO ITEM 1A.

Summary Risk Factors

Risks Related to the Coronavirus Disease 2019 (“COVID-19”)

Risks Related to Our Investing, Portfolio Management and Financing Activities

Risks Related to Our Credit Assets

Risks Related To Commercial Real Estate Debt, Preferred Equity Investments, Net Lease Real Estate Assets and Other Equity Ownership of Real Estate Assets

Risks Related to Our Residential Credit Business

Risks Related to Our Business Structure

Risks Related to Our Taxation as a REIT

Summary of Risk Factors

Risks Related to COVID-19

Risks Related to Our Liquidity and Funding

Risks of Ownership of Our Common Stock

Regulatory Risks

Compliance, Regulatory & Legal Risks

Risks Related to Our Taxation as a REIT

Counterparty Risks

Investment and Market Related Risks

Operational Risks

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Summary Risk Factors

Summary of Risk Factors

Risks Related to COVID-19

• COVID-19 has affected, and will likely continue to affect, the U.S.

economy, the mortgage REIT industry and our business.

• We cannot predict the effect that government policies, laws and plans in response to the COVID-19 pandemic will have on us.

Risks Related to Our Investing, Portfolio Management and Financing Activities

• We may change our policies without stockholder approval.

• COVID-19 has affected the U.S.

economy and our business.

• We cannot predict the effect of the government response to COVID-19 on us.

Risks Related to Our Liquidity and Funding

• Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses.

• Our leverage may cause margin calls and defaults and force us to sell assets under adverse market conditions.

• We may exceed our target leverage ratios, or we may not be able to achieve our optimal leverage.

• Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions.

• We may exceed our target leverage ratios.

• We may not be able to achieve our optimal leverage.

• Failure to procure or renew funding on favorable terms, or at all, would adversely affect our results and financial condition.

• Failure to effectively manage our liquidity would adversely affect our results and financial condition.

• Risk management policies and procedures may not adequately identify all risks to our businesses.

• An increase or decrease in prepayment rates may adversely affect our profitability.

• We are subject to reinvestment risk.

• Volatile market conditions for mortgages and mortgage-related assets can result in a significant contraction in liquidity.

• Competition may limit our ability to acquire desirable investments in our target assets and also affect the pricing of these assets.

• Increases in interest payments on our borrowings relative to interest earned on our assets may adversely affect profitability.

• Differences in timing of interest rate adjustments on our interest earning assets and borrowings may adversely affect profitability.

• Changes in the method pursuant to which LIBOR is determined and potential discontinuation of LIBOR may affect our results.

• An increase in interest rates may adversely affect the market value of our interest earning assets and, therefore, also our book value.

• We may experience declines in market value of our assets resulting in us recording impairments, which may effect on our results.

• The soundness of other financial institutions could adversely affect us.

• Our hedging strategies may be costly or ineffective and our use of derivatives may expose us to counterparty and liquidity risks.

• Volatile market conditions for our assets can result in contraction in liquidity for those assets and the related financing.

• An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets may adversely affect our profitability.

• Differences in timing of interest rate adjustments on our interest earning assets and our borrowings may adversely affect our profitability.

• The discontinuation of LIBOR may affect our results.

• It may be uneconomical to "roll" our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contracts.

• Any incorrect, misleading or incomplete information used in connection with analytical models would subject us to potential risks.

• Our use of derivatives may expose us to counterparty and liquidity risks.

• Securitizations expose us to additional risks.

• Our use of non-recourse securitizations may expose us to risks which could result in losses to us.

• Counterparties may require us to enter into covenants that restrict our investment strategy.

• We may be unable to profitably execute or participate in future securitization transactions.

Risks of Ownership of Our Common Stock

• Our charter does not permit ownership of over 9.8% of our common stock or preferred stock.

• Provisions contained in Maryland law may have anti-takeover effects, potentially preventing investors from receiving a “control premium” for their shares.

• We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends in the future.

• Our GAAP results may not be an accurate indicator of future taxable income and dividend distributions.

Compliance, Regulatory & Legal Risks

• Accounting rules related to certain of our transactions are highly complex and involve significant judgment and assumptions.

• We are dependent on information systems and third parties;

system failures or cybersecurity incidents could disrupt our business.

• Securitizations, including non-recourse securitizations, may expose us to additional risks.

• Counterparties may require us to enter into restrictive covenants relating to our operations that may inhibit our ability to grow.

• We may enter into new lines of business, acquire other companies or engage in other strategic initiatives.

• We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other accounts.

• Investments in MSRs may expose us to additional risks.

• We depend on third-party service providers, including mortgage loan servicers, for a variety of services related to our business.

• Purchases and sales of Agency MBS by Federal Reserve may adversely affect the price and return associated with Agency MBS.

• New laws may be passed affecting the relationship between Fannie Mae and Freddie Mac and the federal government.

Risks Related To Our Credit Assets

• We invest in securities in the credit risk transfer sector that are subject to mortgage credit risk.

• Prolonged economic slowdown or declining real estate values could impair the assets we may own and adversely affect our results.

• Geographic concentration exposes investors to greater risk of default and loss.

• Inadequate property insurance coverage could have an adverse impact on our operating results.

• We may incur losses when a borrower defaults on a loan and the underlying collateral value is less than the amount due.

• Our assets may become non-performing or sub-performing assets, which are subject to increased risks relative to performing loans.

• We may be required to repurchase commercial or residential mortgage loans or indemnify investors.

• Our due diligence of potential assets may not reveal all liabilities and other weaknesses.

• When we foreclose on an asset, we may come to own and operate the property securing the loan.

• Financial covenants could adversely affect our ability to conduct our business.

• Proposals to acquire mortgage loans by eminent domain may adversely affect the value of our assets.

• Our investments in corporate loans and debt securities for middle market companies carry risks.

Risks Related To Commercial Real Estate Debt, Preferred Equity Investments, Net Lease Real Estate Assets and Other Equity

• The real estate assets we acquire are subject to risks particular to real property, which may adversely affect our returns

• Commercial loan assets we originate and/or acquire depend on the ability of property owner to generate net income from operating.

• Commercial and non-Agency mortgage-backed securities we acquire may be subject to losses.

• Borrowers may be unable to repay the Remaining Principal Balance on the Maturity Date.

• The B-Notes that we originate and acquire may be subject to risks related to their privately negotiated structure and terms.

• The mezzanine loan assets and other subordinate debt positions that we originate and acquire involve greater risks of loss.

• We are subject to additional risks associated with loan participations and co-lending arrangements.

• Construction loans involve an increased risk of loss.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

• We may experience losses if the creditworthiness of our tenants deteriorates and they are unable to meet their lease obligations.

• Lease expirations, lease defaults and lease terminations may adversely affect our revenue.

• Our real estate investments are illiquid.

• We may not control the special servicing of the mortgage loans included in the commercial MBS in which we invest.

• Joint venture investments could be adversely affected by our lack of sole decision-making authority.

Risks Related To Our Residential Credit Business

• Our investments in non-Agency MBS or other investment assets of lower credit quality involve credit risk.

• Our investments in non-Agency MBS are collateralized by non-prime loans and may also include subprime mortgage loans.

• Our investments may include subordinated tranches of non-Agency MBS, which are subordinate in payment to senior securities.

• We are subject to counterparty risk and may be unable to seek indemnity or demand repurchase of residential whole loans.

• Our investments in residential whole loans subject us to servicing-related risks, including those associated with foreclosure.

• Challenges to the MERS® System could materially and adversely affect our business, results of operations and financial condition.

Our application of GAAP may produce financial results that fluctuate from one period to another.

• New laws may be passed affecting the relationship between Fannie Mae, Freddie Mac and the federal government.

• We may be subject to liability for potential violations of truth-in-lending or other similar consumer protection laws and regulations.

• We may not be able to obtain or maintain the governmental licenses required to operate our Residential Credit business.

• Our ability to profitably execute or participate in future securitizations transactions, including, in particular, securitizations of residential mortgage loans, is dependent on numerous factors and if we are not able to achieve our desired level of profitability or if we are unable to execute or participate in future securitizations, or incur losses in connection therewith, it could have a material adverse impact on our business and financial results.

Risks Related to Our Business Structure

• We may be exposed to risks to which we have not historically been exposed as a result of the Internalization.

• The departure of any of our key personnel could materially and adversely affect us.

• We may not be able to maintain compliance with laws and regulations applicable to our Residential Credit and MSR businesses.

• Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may adversely affect our business.

• We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other investment accounts, including potential regulatory risks.

• Loss of our Investment Company Act exemption from registration would adversely affect us.

Risks Related to Our Taxation as a REIT

• Our failure to maintain our qualification as a REIT would have adverse tax consequences.

• We have certain distribution requirements, which could adversely affect our ability to execute our business plan.

• Our distribution requirements could adversely affect our ability to execute our business plan.

• Distributions to tax-exempt investors may be classified as unrelated business taxable income.

• We may choose to pay dividends in our own stock, which may require stockholders to pay taxes in excess of cash dividends.

• Our inability to deduct certain compensation paid to our executives could require us to increase our distributions to stockholders.

• Limits on ownership of our stock could have adverse consequences to you and limit your opportunity to receive a premium.

• We may choose to pay dividends in our own stock.

• Our TRSs cannot constitute more than 20% of our total assets.

• TRSs are subject to regular corporate tax and REIT gross income tests limit the amount of dividends they can pay to REIT parents.

• Certain circumstances relating to a TRS may subject the REIT to a penalty tax.

• TRSs are subject to tax at the regular corporate rates, are not required to distribute dividends, and the amount of dividends a TRS can pay to its parent REIT may be limited by REIT gross income tests.

• If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a penalty tax.

• Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.

• Complying with REIT requirements may cause us to forgo or liquidate otherwise attractive opportunities.

• Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate otherwise attractive investments.

• Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.

• Failure of certain investments to qualify as real estate assets could adversely affect our status as a REIT.

• The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to remain qualified as a REIT.

• Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.

• Qualifying as a REIT involves highly technical and complex provisions of the Code.

• The tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of structuring CMOs.

• Some financing activities may subject us to U.S.

• The tax on prohibited transactions limits our ability to engage in certain transactions.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

• Certain financing activities may subject us to U.S.

federal income tax and could have negative tax consequences for our stockholders.

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• Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations.

• New legislation or administrative or judicial action could make it more difficult or impossible for us to remain qualified as a REIT.

Risks of Ownership of Our Common Stock

• The market price and trading volume of our common stock may be volatile and negatively impacted by broad market fluctuations.

• Our charter does not permit ownership of over 9.8% of our common or preferred stock without prior approval from our Board.

• Provisions contained in Maryland law that are reflected in our charter and bylaws may have anti-takeover effects.

• We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends.

• Our reported GAAP financial results differ from the taxable income results that impact our dividend distribution requirements.

Regulatory Risks

• Loss of Investment Company Act exemption from registration would adversely affect us.

• Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may affect us.

• New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more difficult or impossible for us to remain qualified as a REIT.

Counterparty Risks

• The soundness of our counterparties and other financial institutions could adversely affect us.

Investment and Market Related Risks

• We may experience declines in the market value of our assets.

• Investments in MSR may expose us to additional risks.

• Actions by the Federal Reserve may affect the price and returns of our assets.

• We invest in securities that are subject to mortgage credit risk.

• A prolonged economic slowdown or declining real estate values could impair the assets we may own.

• Geographic concentration exposes investors to greater risk of default and loss.

• Our assets may become non-performing or sub-performing assets in the future.

• We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and warranties.

• Our and our third party service providers’ and servicers’ due diligence of potential assets may not reveal all of the weaknesses in such assets.

• When we foreclose on an asset, we may come to own the property securing the loan.

• Our investments in corporate loans and debt securities for middle market companies carry risks.

• Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior securities.

• An increase in interest rates may adversely affect the market value of our interest earning assets and, therefore, also our book value.

• Our hedging strategies may be costly, and may not hedge our risks as intended.

• We are subject to risks of loss from weather conditions, man-made or natural disasters and climate change.

Operational Risks

• Inaccurate models or the data used by models may expose us to risk.

• We are highly dependent on information systems.

• We depend on third-party service providers, including mortgage loan servicers and sub-servicers, for a variety of services related to our business.

• Our investments in residential whole loans subject us to servicing-related risks.

• An increase or decrease in prepayment rates may adversely affect our profitability.

• We are subject to reinvestment risk.

• Competition may affect ability and pricing of our target assets.

• We may enter into new lines of business, acquire other companies or engage in other strategic initiatives.

• Some of our investments, including those related to non-prime loans, involve credit risk.

• We face possible increased instances of business interruption associated with the effects of climate change and severe weather.

• If we are unable to attract, motivate and retain qualified talent, including our key personnel, it could materially and adversely affect us.

• The market price and trading volume of our shares of common stock may be volatile.

• We may change our policies without stockholder approval.

ANNALY CAPITAL MANAGEMENT, INC.

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Risks Related to COVID-19

COVID-19 has adversely affected, and will likely continue to adversely affect, the U.S.

economy, the mortgage REIT industry and our business.

COVID-19 is causing significant disruptions to the U.S.

COVID-19 has affected the U.S.

economy and our business.

COVID-19 has caused and is causing significant disruptions to the U.S.

and global economies and has contributed to volatility and negative pressure in financial markets.

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and global economies as many businesses, particularly smaller ones within the service sector, have been forced to close, furlough and/or lay off employees.

As a result, U.S.

unemployment claims have dramatically risen at unprecedented rates.

Other economic activity, including retail sales and industrial production, have slowed as well.

The pace, timing and strength of any recovery are still unknown and difficult to predict.

federal government, as well as many state and local governments, have adopted a number of emergency measures and recommendations in response to the COVID-19 pandemic, including imposing travel bans, “shelter in place” restrictions, curfews, cancelling events, banning large gatherings, closing non-essential businesses, and generally promoting social distancing (including in the workplace, which has resulted in a significant increase in employees working remotely).

Across the country, moratoriums are in place in certain states to stop evictions and foreclosures in an effort to lessen the financial burden created by the COVID-19 outbreak and various states have even promulgated guidance to regulated servicers requiring them to formulate policies to assist mortgagors in need as a result of the COVID-19 pandemic.

The pace, timing and strength of any recovery are still unknown and difficult to predict and, in general, COVID-19 continues to cause a great deal of uncertainty in the U.S.

Throughout the course of the COVID-19 pandemic, the U.S.

federal government, as well as many state and local governments, have adopted a number of emergency measures and recommendations, including imposing travel bans, “shelter in place” restrictions, curfews, vaccine mandates, cancelling events, banning large gatherings, closing non-essential businesses, and generally promoting social distancing (including in the workplace, which has resulted in a significant increase in employees working remotely).

Across the country, moratoriums were in place in certain states to stop evictions and foreclosures in an effort to lessen the financial burden created by the COVID-19 outbreak and various states have promulgated guidance to regulated servicers requiring them to formulate policies to assist mortgagors in need as a result of the COVID-19 pandemic.

A number of states have enacted laws which impose significant limits on the default remedies of lenders secured by real property.

While some states have begun a phased relaxation of certain of these measures, substantial restrictions on economic activity remain in place.

Although it cannot be predicted, additional policy action at the federal, state and local level is possible in the near future.

The COVID-19 pandemic (and any future COVID-19 outbreaks) and resulting emergency measures has led (and may continue to lead) to significant disruptions in the global supply chain, global capital markets, the economy of the United States and the economies of other nations.

Concern about the potential effects of the COVID-19 pandemic and the effectiveness of measures being put in place by governmental bodies and reserve banks at various levels as well as by private enterprises to contain or mitigate its spread has adversely affected economic conditions and capital markets globally, and has led to significant volatility in global financial markets.

There can be no assurance that the containment measures or other measures implemented from time to time will be successful in limiting the spread of the virus and what effect those measures will have on the economy.

While non-essential economic activity is to some extent returning in certain jurisdictions, the timing of such return remains uncertain, and may vary substantially depending on the location and the type of activity.

The disruption and volatility in the credit markets and the reduction of economic activity in severely affected sectors may continue for an extended period or indefinitely, and may worsen the recession in the United States and/or globally.

While some states have relaxed certain of these measures, substantial restrictions on economic activity remain in place or may be put in place.

Although it cannot be predicted, additional policy action at the federal, state and local level is possible in the future.

The COVID-19 pandemic (and any future COVID-19 outbreaks) and resulting emergency measures have led (and may continue to lead) to significant disruptions in the global supply chain, global capital markets, the economy of the United States and the economies of other nations.

Concern about the potential effects of the COVID-19 pandemic and the effectiveness of measures being put in place by governmental bodies and reserve banks at various levels as well as by private enterprises to contain or mitigate its spread has adversely affected economic conditions and capital markets globally, and have led to significant volatility in global financial markets.

There can be no assurance that the vaccination efforts, containment measures or other measures implemented from time to time will be successful and what effect those measures will have on the economy.

Disruption and volatility in the credit markets and the reduction of economic activity in severely affected sectors may occur in the United States and/or globally.

Beginning in the first quarter of 2020, particularly in March, COVID-19 began to adversely affect the mortgage REIT industry generally.

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Treasury and Agency MBS markets, and widening of credit spreads.

Other markets, including the market for residential credit and commercial real estate securities, also experienced similar trends, albeit on a relatively lesser scale.

Other markets, including the market for residential credit securities, also experienced similar trends, albeit on a relatively lesser scale.

Future market shocks, from COVID-19 or otherwise, could have similar effects.

Economic Conditions

The conditions related to COVID-19 discussed above have also adversely affected our business and we expect these conditions to continue during 2021.

The significant decrease in economic activity and/or resulting decline in the housing market could have an adverse effect on the value of our investments in mortgage real estate-related assets, particularly residential real estate assets.

In addition, as interest rates continue to decline as a result of demand for U.S.

Treasury securities and the activities of the Federal Reserve, prepayments on our assets are likely to increase due to refinancing activity, which could have a material adverse effect on our results of operations.

Further, in light of COVID-19’s impact on the overall economy, such as rising unemployment levels or changes in consumer behavior related to loans as well as government policies and pronouncements, borrowers may experience difficulties meeting their obligations or seek to forbear payment on or refinance their mortgage loans to avail themselves of lower rates.

The conditions related to COVID-19 discussed above have also adversely affected our business and we expect these conditions to continue to some extent during 2022.

The significant decrease in economic activity could have an adverse effect on the value of our investments in mortgage real estate-related assets, particularly residential real estate assets.

In light of COVID-19’s impact on the overall economy, such as a possible return to rising unemployment levels or changes in consumer behavior related to loans as well as government policies and pronouncements, borrowers may experience difficulties meeting their obligations or seek to forbear payment on or refinance their mortgage loans to avail themselves of lower rates.

Elevated levels of delinquency or default would have an adverse impact on the value of our mortgage real estate related-assets.

In addition to residential mortgage-related assets, the adverse economic conditions could negatively impact tenants on our commercial property assets and/or businesses in which we lend to in connection with our middle market lending activities, resulting in potential delinquencies, defaults or declines in asset values.

To the extent current

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conditions persist or worsen, we expect there to be a negative effect on our results of operations, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

The continued spread of COVID-19 could also negatively impact the availability of key personnel necessary to conduct our business.

Adverse economic conditions could negatively impact businesses in which we lend to in connection with our middle market lending activities, resulting in potential delinquencies, defaults or declines in asset values.

To the extent current conditions persist or worsen, there may be a negative effect on our results of operations, which may reduce earnings and, in turn, cash available for distribution to our stockholders.

COVID-19 could also negatively impact the availability of key personnel necessary to conduct our business.

Financing Conditions

We may also experience more difficulty in our financing operations.

COVID-19 has caused mortgage REITs to experience severe disruptions in financing operations (including the cost, attractiveness and availability of financing), especially the ability to utilize repurchase financing and the margin requirements related to such financing.

The less liquid markets that make up a significant portion of our credit portfolio, including residential securities and whole loans, commercial real estate securities and loans and middle market lending, experienced significant disruption over this crisis period, marked by a sharp retraction in volumes and a lack of access to credit for borrowers.

If conditions related to COVID-19 persist, we could experience an unwillingness or inability of our potential lenders to provide us with or renew financing, increased margin calls, and/or additional capital requirements.

COVID-19 had previously caused mortgage REITs to experience severe disruptions in financing operations (including the cost, attractiveness and availability of financing), especially the ability to utilize repurchase financing and the margin requirements related to such financing.

The less liquid markets that make up a significant portion of our credit portfolio, including residential securities and whole loans and corporate loans, experienced significant disruption over this crisis period, marked by a sharp retraction in volumes and a lack of access to credit

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for borrowers.

If conditions related to COVID-19 deteriorate, we could experience an unwillingness or inability of our potential lenders to provide us with or renew financing, increased margin calls, and/or additional capital requirements.

These conditions could force us to sell our assets at inopportune times or otherwise cause us to potentially revise our strategic business initiatives, which could adversely affect our business.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K for the year ended December 31, 2020, such as our risks related to our use of leverage, management of our liquidity, exposure to counterparties, our ability to pay dividends in the future and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other events that could have a security impact as a result of our remote working environment or otherwise.

We cannot predict the effect that government policies, laws and plans adopted in response to the COVID-19 pandemic and global recessionary economic conditions will have on us.

To the extent the COVID-19 pandemic adversely affects our business and financial results, it may also have the effect of heightening many of the other risks described in this Annual Report on Form 10-K for the year ended December 31, 2021, such as our risks related to our use of leverage, management of our liquidity, exposure to counterparties, our ability to pay dividends in the future and our ability to protect our information technology networks and infrastructure from unauthorized access, misuse, malware, phishing and other security events as a result of our remote working environment or otherwise.

We cannot predict the effect of the government response to COVID-19 on us.

The extent of the COVID-19-related disruptions and the duration of the pandemic as well as the long-term impacts of the social, economic, and financial disruptions caused by the COVID-19 pandemic are unknown at this time and may be severe.

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Federal Reserve, the U.S.

government and other governments have implemented unprecedented financial support or relief measures in response to concerns surrounding the economic effects of the COVID-19 pandemic, the likelihood of such measures calming the volatility in the financial markets or addressing a long-term national or global economic downturn cannot be predicted and we cannot assure you that these programs will be effective or sufficient at addressing the adverse impacts of the pandemic or otherwise have a positive impact on our business.

Risks Related to Our Investing, Portfolio Management and Financing Activities

We may change our policies without stockholder approval.

Our Board has established very broad investment guidelines that may be amended from time to time.

Our Board and management determine all of our significant policies, including our investment, financing, capital and asset allocation and distribution policies.

They may amend or revise these policies at any time without a vote of our stockholders, or otherwise initiate a change in asset allocation.

For example, in the first quarter of 2020, we proactively reduced the size of our Agency MBS portfolio in order to manage our leverage profile in response to COVID-19.

Policy changes could adversely affect our financial condition, results of operations, the market price of our common stock or our ability to pay dividends or distributions.

government and other governments have implemented unprecedented financial support or relief measures in response to concerns surrounding the economic effects of the COVID-19 pandemic, the ongoing results of such measures or the results of such measures ending, cannot be predicted and we cannot assure you that these programs will be effective or sufficient at addressing the adverse impacts of the pandemic or otherwise have a positive impact on our business.

Risks Related to Our Liquidity and Funding

Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses.

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Leverage, which is fundamental to our investment strategy, creates significant risks.

The risks associated with leverage are more acute during periods of economic slowdown or recession, which the U.S.

economy has experienced in connection with the conditions created by the COVID-19 pandemic.

The risks associated with leverage are more acute during periods of economic slowdown or recession.

Because of our leverage, we may incur substantial losses if our borrowing costs increase, and we may be unable to execute our investment strategy if leverage is unavailable or is unavailable on attractive terms.

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• interest rate volatility increases;

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• forced sales, particularly under adverse market conditions, such as those which occured as a result of the COVID-19 pandemic;

• there is a disruption in the repo market generally or the infrastructure that supports it;

• forced sales, particularly under adverse market conditions, such as those which occurred as a result of the COVID-19 pandemic;

• disruption in the repo market generally or the infrastructure that supports it;

• the availability of financing in the market decreases.

Our leverage may cause margin calls and defaults and force us to sell assets under adverse market conditions.

Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions.

Because of our leverage, a decline in the value of our interest earning assets may result in our lenders initiating margin calls.

A margin call means that the lender requires us to pledge additional collateral to re-establish the ratio of the value of the collateral to the amount of the borrowing.

Our fixed-rate mortgage-backed securities generally are more susceptible to margin calls as increases in interest rates tend to more negatively affect the market value of fixed-rate securities.

Borrowings secured by our fixed-rate mortgage-backed securities generally are more susceptible to margin calls as increases in interest rates tend to more negatively affect the market value of fixed-rate securities.

Margin calls are most likely in market conditions in which the unencumbered assets that we would use to meet the margin calls have also decreased in value.

The risks associated with margin calls are more acute during periods of economic slowdown or recession, which the U.S.

economy has experienced in connection with the conditions created by the COVID-19 pandemic.

The risks associated with margin calls are more acute during periods of economic slowdown or recession.

We experienced margin calls much higher than historical norms during the onset of COVID-19.

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Bankruptcy Code and to liquidate the collateral under these agreements without delay.

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We may exceed our target leverage ratios.

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We use leverage as a strategy to increase the return to our investors.

However, we may not be able to achieve our desired leverage for any of the following reasons:

• we determine that the leverage would expose us to excessive risk;

However, we may not be able to achieve our desired leverage if we determine that the leverage would expose us to excessive risk;

our lenders do not make funding available to us at acceptable rates;

• our lenders require that we provide additional collateral to cover our borrowings.

or our lenders require that we provide additional collateral to cover our borrowings.

Failure to procure or renew funding on favorable terms, or at all, would adversely affect our results and financial condition.

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Furthermore, if any of our potential lenders or existing lenders is unwilling or unable to provide us with financing or if we are not able to renew or replace maturing borrowings, we could be forced to sell our assets at an inopportune time when prices are depressed.

Our business, results of operations and financial condition may be materially adversely affected by disruptions in the financial markets, including disruptions associated with the conditions created by the COVID-19 pandemic.

Our business, results of operations and financial condition may be materially adversely affected by disruptions in the financial markets.

We cannot assure you that, under such extreme conditions, these markets will remain an efficient source of financing for our assets.

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We cannot assure you that any, or sufficient, funding or capital will be available to us in the future on terms that are acceptable to us.

If we cannot obtain sufficient funding on acceptable terms, there may be a negative impact on the

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market price of our common stock and our ability to make distributions to our stockholders.

If we cannot obtain sufficient funding on acceptable terms, there may be a negative impact on the market price of our common stock and our ability to make distributions to our stockholders.

Moreover, our ability to grow will be dependent on our ability to procure additional funding.

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Potential conditions that could impair our liquidity include:

unwillingness or inability of any of our potential lenders to provide us with or renew financing, margin calls, additional capital requirements applicable to our lenders, a disruption in the financial markets (especially in light of the disruption caused by the COVID-19 pandemic) or declining confidence in our reputation or in financial markets in general.

unwillingness or inability of any of our potential lenders to provide us with or renew financing, margin calls, additional capital requirements applicable to our lenders, a disruption in the financial markets or declining confidence in our creditworthiness or in financial markets in general.

These conditions could force us to sell our assets at inopportune times or otherwise cause us to potentially revise our strategic business initiatives.

Risk management policies and procedures may not adequately identify all risks to our businesses.

We have established and maintain risk management policies and procedures designed to support our risk framework, and to identify, measure, monitor and control financial risks.

Risks include market risk (interest rate, spread and prepayment), liquidity risk, credit risk and operational risk.

These policies and procedures may not sufficiently identify the full range of risks that we are or may become exposed to.

Any changes to business activities, including expansion of traded or illiquid products, may result in our being exposed to different risks or an increase in certain risks.

Our management may have less experience in identifying and managing the risks of new business activities.

Any failure to identify and mitigate financial risks could result in an adverse impact to our financial condition, business or results of operations.

Additionally, as regulations and markets in which we operate continue to evolve, our risk management policies and procedures may not always keep sufficient pace with those changes.

An increase or decrease in prepayment rates may adversely affect our profitability.

The mortgage-backed securities we acquire are backed by pools of mortgage loans.

We receive payments, generally, from the payments that are made on the underlying mortgage loans.

We often purchase mortgage-backed securities that have a higher coupon rate than the prevailing market interest rates.

In exchange for a higher coupon rate, we typically pay a premium over par value to acquire these mortgage-backed securities.

In accordance with U.S.

generally accepted accounting principles (“GAAP”), we amortize the premiums on our mortgage-backed securities over the expected life of the related mortgage-backed securities.

If the mortgage loans securing these mortgage-backed securities prepay at a more rapid rate than anticipated, we will have to amortize our premiums on an accelerated basis that may adversely affect our profitability.

Defaults on mortgage loans underlying Agency mortgage-backed securities typically have the same effect as prepayments because of the underlying Agency guarantee.

Prepayment rates generally increase when interest rates fall and decrease when interest rates rise, but changes in prepayment rates are difficult to predict.

Prepayment rates also may be affected by conditions in the housing and financial markets, general economic conditions and the relative interest rates on fixed-rate and adjustable-rate mortgage loans.

We may seek to minimize prepayment risk to the extent practical, and in selecting investments we must balance prepayment risk against other risks and the potential returns of each investment.

No strategy can completely insulate us from prepayment risk.

We may choose to bear increased prepayment risk if we believe that the potential returns justify the risk.

Conversely, a decline in prepayment rates on our investments will reduce the amount of principal we receive and therefore reduce the amount of cash we otherwise could have reinvested in higher yielding assets at that time, which could negatively impact our future operating results.

We are subject to reinvestment risk.

We also are subject to reinvestment risk as a result of changes in interest rates.

Any significant decrease in economic activity or resulting decline in the housing market could have an adverse effect on our investments in mortgage-related assets.

Declines in interest rates are generally accompanied by increased prepayments of mortgage loans, which in turn results in a prepayment of the related mortgage-backed securities.

An increase in prepayments could result in the reinvestment of the proceeds we receive from such prepayments into lower yielding assets.

Conversely, increases in interest rates are generally accompanied by decreased prepayments of mortgage loans, which could reduce our capital available to reinvest into higher-yielding assets.

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Volatile market conditions for mortgages and mortgage-related assets as well as the broader financial markets can result in a significant contraction in liquidity for mortgages and mortgage-related assets, which may adversely affect the value of the assets in which we invest.

Volatile market conditions for our assets can result in contraction in liquidity for those assets and the related financing.

Our results of operations are materially affected by conditions in the markets for mortgages and mortgage-related assets, including Agency mortgage-backed securities, as well as the broader financial markets and the economy generally.

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Concerns over economic recession, COVID-19 or other pandemic diseases, geopolitical issues including events such as the United Kingdom’s recent exit from the European Union (commonly referred to as “Brexit”), trade wars, unemployment, the availability and cost of financing, the mortgage market, the repurchase agreement market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.

Increased market uncertainty and instability in light of the COVID-19 pandemic in both U.S.

and international capital and credit markets, combined with declines in business and consumer confidence and increased unemployment, have also contributed to volatility in domestic and international markets.

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For example, as a result of the financial crises beginning in the summer of 2007 and through the subsequent credit and housing crisis, many traditional mortgage investors suffered severe losses in their residential mortgage portfolios and several major market participants failed or were impaired, resulting in a significant contraction in market liquidity for mortgage-related assets.

This illiquidity negatively affected both the terms and availability of financing for all mortgage-related assets.

Additionally, the recession resulting from the COVID-19 pandemic could be more protracted than the recession caused by the financial crisis, which could result in a significant rise in delinquencies and defaults on mortgage-related assets and further negatively impact market liquidity for mortgage-related assets.

Further increased volatility and deterioration in the markets for mortgages and mortgage-related assets as well as the broader financial markets may adversely affect the performance and market value of our Agency mortgage-backed securities.

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Our profitability and financial condition may be adversely affected if we are unable to obtain cost-effective financing for our investments.

Competition may limit our ability to acquire desirable investments in our target assets and could also affect the pricing of these assets.

We operate in a highly competitive market for investment opportunities.

Our profitability depends, in large part, on our ability to acquire our target assets at attractive prices.

In acquiring our target assets, we will compete with a variety of institutional investors, including other REITs, specialty finance companies, public and private funds, government entities, commercial and investment banks, commercial finance and insurance companies and other financial institutions.

Many of our competitors are substantially larger and have considerably greater financial, technical, technological, marketing and other resources than we do.

Other REITs with investment objectives that overlap with ours may elect to raise significant amounts of capital, which may create additional competition for investment opportunities.

Some competitors may have a lower cost of funds and access to funding sources that may not be available to us.

Many of our competitors are not subject to the operating constraints associated with REIT compliance or maintenance of an exemption from the Investment Company Act.

In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us.

Furthermore, competition for investments in our target assets may lead to the price of such assets increasing, which may further limit our ability to generate desired returns.

We cannot provide assurance that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations.

Also, as a result of this competition, desirable investments in our target assets may be limited in the future and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no assurance that we will be able to identify and make investments that are consistent with our investment objectives.

An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets may adversely affect our profitability.

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Periods of rising interest rates or a relatively flat or inverted yield curve could decrease or eliminate the spread between the interest payments we earn on our interest earning assets and the interest payments we must make on our borrowings.

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Differences in timing of interest rate adjustments on our interest earning assets and our borrowings may adversely affect our profitability.

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Treasury securities, as published by the Federal Reserve Bank of New York.

A benchmark based on Secured Overnight Financing Rate futures, administered by CME Group.

These indices generally reflect short-term interest rates.

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Accordingly, in a period of rising interest rates, we could experience a decrease in net income or a net loss because the interest rates on our borrowings adjust faster than the interest rates on our adjustable-rate interest earning assets.

Changes in the method pursuant to which LIBOR is determined and potential discontinuation of LIBOR may affect our results.

LIBOR and other indices which are deemed “benchmarks” are the subject of recent national, international, and other regulatory guidance and proposals for reform.

These reforms may cause such benchmarks to perform differently than in the past, or have other consequences which cannot be predicted.

In particular, regulators and law enforcement agencies in the U.K.

and elsewhere conducted criminal and civil investigations into whether the banks that contributed information to the British Bankers’ Association (“BBA”) in connection with the daily calculation of various LIBOR rates (“LIBOR rates”) may have been under-reporting or otherwise manipulating or attempting to manipulate LIBOR rates.

A number of BBA member banks have entered into settlements with their regulators and law enforcement agencies with respect to this alleged manipulation of LIBOR rates.

LIBOR rates are calculated by reference to a market for interbank lending that continues to shrink, as it is based on increasingly fewer actual transactions.

This increases the subjectivity of the calculation process and increases the risk of manipulation.

Actions by the regulators or law enforcement agencies, as well as ICE Benchmark Administration (the current administrator), are expected to result in changes to the manner in which LIBOR rates are determined or the establishment of alternative reference rates.

For example, on July 27, 2017, the U.K.

Financial Conduct Authority announced that it intends to stop persuading or compelling banks to submit LIBOR rates after 2021.

It is not possible to predict the effect of these changes, other reforms, or the establishment of alternative reference rates in the United Kingdom or elsewhere.

Furthermore, in the U.S., efforts to identify a set of U.S.

dollar reference interest rates include proposals by the Alternative Reference Rates Committee of the Federal Reserve Board and the Federal Reserve Bank of New York.

Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S.

financial institutions, is considering replacing U.S.

dollar LIBOR with the Secured Overnight Financing Rate (“SOFR”), a new index calculated by short-term repurchase agreements, backed by Treasury securities.

The Federal Reserve Bank of New York began publishing SOFR rates in April 2018.

It is likely that U.S.

Dollar LIBOR (“USD-LIBOR”) will be replaced by SOFR published by the Federal Reserve Bank of New York.

The manner and timing of this shift is not known with certainty.

It is possible, but unlikely, that USD-LIBOR will be used in new instruments created after 2021.

Global regulators expect that the most-used tenors of USD-LIBOR will continue to be published through June 2023, but are encouraging regulated institutions to make the shift earlier.

For each existing LIBOR-based instrument, the manner and timing of the switch depends on the terms of the relevant contract and the specifics of future events.

The market transition away from LIBOR and towards SOFR is expected to be gradual and complicated.

Any of these alternative methods may result in interest rates that are higher than if LIBOR were available in its current form, which could have a material adverse effect on results.

SOFR is not an exact replacement for USD-LIBOR.

USD-LIBOR accounts for bank credit risk, while SOFR does not.

Therefore, LIBOR and SOFR are expected to behave differently at times when market participants are concerned about the financial strength of banks.

Also, SOFR is an overnight rate instead of a term rate.

There is currently no perfect way to create robust, forward-looking SOFR term rates.

A large and liquid market in SOFR-based futures could eventually lead to the ability to calculate forward-looking SOFR term rates, but currently the SOFR-based futures market is small relative to LIBOR-based futures markets.

Regulators and other members of the Alternative Reference Rates Committee (“ARRC”) have indicated that market participants should stop using USD-LIBOR now, despite the unavailability of a forward-looking SOFR term rate.

The discontinuation of LIBOR may affect our results.

The United Kingdom Financial Conduct Authority, or FCA, which regulates LIBOR, has announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.

The FCA's announcement coincided with the March 5, 2021, announcement of LIBOR's administrator, the ICE Benchmark Administration Limited, or IBA, indicating that, as a result of not having access to input data necessary to calculate LIBOR tenors relevant to us on a representative basis after June 30, 2023, IBA would have to cease publication of such LIBOR tenors immediately after the last publication on June 30, 2023.

These announcements mean that any of our LIBOR-based borrowings and assets that mature beyond June 30, 2023 need to be converted to alternative interest rates.

Many of our counterparties are now subject to regulatory guidance not to enter new U.S.

Dollar LIBOR ("LIBOR") contracts except in limited circumstances.

The Alternative Reference Rates Committee, or ARRC, a committee of private sector entities with ex-officio official sector members convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate (“SOFR”) plus a recommended spread adjustment as the replacement for LIBOR.

There are significant differences between LIBOR and SOFR, such as LIBOR being an unsecured lending rate while SOFR is a secured lending rate, and SOFR is an overnight rate while LIBOR reflects term rates at different maturities.

If our LIBOR-based

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However, a large majority of new issuance of floating-rate instruments, including some transactions in which we are issuer or sponsor, still reference USD-LIBOR.

Regulators and other members of the ARRC have also indicated that all instruments that reference USD-LIBOR should include robust fallbacks.

The ARRC has published fallbacks for several asset types, and the International Swaps and Derivatives Association (“ISDA”) has prepared documentation to implement fallbacks for derivatives.

Switching existing financial instruments and hedging transactions from LIBOR to SOFR requires calculations of a spread.

ISDA has described the spread calculation methodology that will apply to derivatives that adopt the ISDA recommendations for derivatives.

The spread calculation methodology for non-derivatives is currently not known.

The spread calculation is intended to minimize value transfer between counterparties, borrowers, and lenders, but there is no assurance that the calculated spread will be fair and accurate.

The fallbacks recommended by the ARRC are different for various non-derivative instruments, and not all USD-LIBOR-based instruments will incorporate the recommended fallbacks.

This could result in unexpected differences between our USD-LIBOR-based assets and our USD-LIBOR-based interest rate hedges.

Many existing USD-LIBOR-based instruments either do not contemplate the discontinuation of LIBOR, provide a fallback that in practice will make the instrument fixed-rate, or provide a fallback that one party may believe is contrary to the contractual intent.

We have adhered to the ISDA 2020 IBOR Fallbacks Protocol, but may incur costs amending instruments not covered by that Protocol or by clearinghouse rulebooks to implement fallbacks recommended by the ARRC.

We may decide not to amend, in which case we may bear the cost and risk of litigation.

borrowings are converted to SOFR, the differences between LIBOR and SOFR, plus the recommended spread adjustment, could result in interest costs that are higher than if LIBOR remained available, which could have a material adverse effect on our results.

Although SOFR is the ARRC's recommended replacement rate, it is also possible that lenders may instead choose alternative replacement rates that may differ from LIBOR in ways similar to SOFR or in other ways that would result in higher borrowing costs for us.

It is not yet possible to predict the magnitude of LIBOR's end on our borrowing costs given the uncertainty about which rates will replace LIBOR and the timing of actual replacement.

New York State has passed legislation intended to help with "tough legacy" LIBOR contracts and the federal government may pass similar legislation.

Many floating-rate instruments, including some transactions in which we are issuer or sponsor, reference LIBOR.

US regulators and the ARRC have recommended that all LIBOR-based instruments include robust fallback language dictating what rate will apply when LIBOR ends.

The fallbacks recommended by the ARRC are different for various non-derivative instruments, and not all LIBOR-based instruments will incorporate the recommended fallbacks.

The International Swaps and Derivatives Association ("ISDA") has implemented fallback language and a protocol that will ensure LIBOR-based derivatives amongst protocol participants fallback to compounded SOFR.

We have opted into the ISDA 2020 IBOR Fallbacks protocol.

However, the variations in fallback language in different financial instruments and the adoption of different replacement rates or methodologies in such fallback language could result in unexpected differences between our LIBOR-based assets and our LIBOR-based interest rate hedges or borrowings.

Certain instruments may be affected by legislation adopted at the state or federal level.

We may incur costs amending instruments not covered by the ISDA protocol, clearinghouse rulebooks or legislation to implement fallbacks.

We may also decide not to amend, in which case we may bear the cost and risk of litigation.

Some instruments, particularly consumer-facing adjustable-rate mortgages, are impractical to amend.

With respect to those instruments, we may bear the cost and risk of litigation.

With respect to those instruments, we may bear the cost and risk of litigation if not adequately addressed by legislation.

Our lenders may be less willing to extend credit secured by assets that do not include robust fallbacks.

It is expected that switching existing financial instruments and hedging transactions from LIBOR to SOFR or other replacement rates will include a spread adjustment.

ISDA has described the spread calculation methodology that will apply to derivatives that adopt the ISDA recommendations for derivatives, and the ARRC has recommended the same methodology for all non-consumer financial instruments.

The adjustment calculation is intended to minimize value transfer between counterparties, borrowers, and lenders, but there is no assurance that the calculated spread adjustment will be fair and accurate or that it will not result in higher interest costs.

We and other market participants have less experience understanding and modeling SOFR-based assets and liabilities than LIBOR-based assets and liabilities, increasing the difficulty of investing, hedging, and risk management.

Because the impact of USD-LIBOR cessation is dependent on unknown future facts, the language of individual contracts, and the outcome of potential future litigation, it is not currently practical for our valuation models to account for the cessation of LIBOR.

Because the impact of LIBOR cessation is dependent on unknown future facts, the language of individual contracts, and the outcome of potential future legislation or litigation, it is not currently practical for our valuation models to account for the cessation of LIBOR.

We use service providers to validate the fair values of certain financial instruments.

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The process of transition involves operational risks.

References to USD-LIBOR may be embedded in computer code or models, and we may not identify and correct all of those references.

Because compounded SOFR is backward-looking rather than forward-looking, parties making or receiving USD-LIBOR-based payments may be unable to calculate payment amounts until the day that payment is due.

References to LIBOR may be embedded in computer code or models, and we may not identify and correct all of those references.

Because compounded SOFR is backward-looking rather than forward-looking, parties making or receiving LIBOR-based payments may be unable to calculate payment amounts until the day that payment is due.

Proposed mechanisms to solve the operational timing issue may result in a payment amount that does not fully reflect interest rates during the calculation period.

It is also possible that USD-LIBOR will continue to be published without being representative of any underlying market, meaning that some instruments would continue to be subject to the weaknesses of the LIBOR calculation process.

A rate may also be published that continues to be named USD-LIBOR and therefore continues to be used for certain contracts, but is calculated pursuant to an entirely different methodology.

Preparing for and addressing the cessation of USD-LIBOR cessation may require significant time and resources.

Holders of our fixed-to-floating preferred shares should refer to the relevant prospectus to understand the USD-LIBOR-cessation provisions applicable to that class.

We do not currently intend to amend any classes of our fixed-to-floating preferred shares to change the existing USD-LIBOR cessation fallbacks.

Each such class that is currently outstanding becomes callable at the same time it begins to pay a USD-LIBOR-based rate.

Should we choose to call a class of preferred shares in order to avoid a dispute over the results of the USD-LIBOR fallbacks for that class, we may be forced to raise additional funds at an unfavorable time.

An increase in interest rates may adversely affect the market value of our interest earning assets and, therefore, also our book value.

Increases in interest rates may negatively affect the market value of our interest earning assets because in a period of rising interest rates, the value of certain interest earning assets may fall and reduce our book value.

For example, our fixed-rate interest earning assets are generally negatively affected by increases in interest rates because in a period of rising rates, the coupon we earn on our fixed-rate interest earning assets would not change.

Our book value would be reduced by the amount of a decline in the market value of our interest earning assets.

We may experience declines in the market value of our assets resulting in us recording impairments, which may have an adverse effect on our results of operations and financial condition.

Holders of our fixed-to-floating preferred shares should refer to the relevant prospectus to understand the LIBOR-cessation provisions applicable to that class.

We are considering all available options with respect to our preferred stock, which include liability management actions such as tenders, calls, exchange offers, language amendments, changing the calculation agent, and/or allowing fallbacks to trigger.

Each such class that is currently outstanding becomes callable at the same time it begins to pay a LIBOR-based rate.

Should we choose to call a class of preferred shares in order to avoid a dispute over the results of the LIBOR fallbacks for that class, we may be forced to raise additional funds at an unfavorable time.

Brokerages may have restrictions in trading our preferred shares.

It may be uneconomical to "roll" our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contracts.

From time to time, we enter into TBAs as an alternate means of investing in and financing Agency mortgage-backed securities.

A TBA contract is an agreement to purchase or sell, for future delivery, an Agency mortgage-backed security with a specified issuer, term and coupon.

A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are simultaneously bought and sold.

The TBA contract settling in the later month typically prices at a discount to the earlier month contract with the difference in price commonly referred to as the “drop”.

The drop is a reflection of the

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A decline in the market value of our mortgage-backed securities or other assets may require us to recognize an “other-than-temporary” impairment (“OTTI”) against such assets under GAAP.

For a discussion of the assessment of OTTI, see the section titled “Significant Accounting Policies” in the Notes to the Consolidated Financial Statements included in Item 15.

“Exhibits, Financial Statement Schedules.” The determination as to whether an OTTI exists and, if so, the amount we consider other-than-temporarily impaired is subjective, as such determinations are based on both factual and subjective information available at the time of assessment.

As a result, the timing and amount of OTTI constitute material estimates that are susceptible to significant change.

The soundness of other financial institutions could adversely affect us.

Financial services institutions are interrelated as a result of trading, clearing, counterparty, borrower, or other relationships.

We have exposure to many different counterparties, and routinely execute transactions with counterparties in the financial services industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, and other financial institutions.

Many of these transactions expose us to credit or counterparty risk in the event of default of our counterparty or, in certain instances, our counterparty’s customers.

Such credit risk could be heightened in respect of our European counterparties due to continuing uncertainty in the global finance market, including Brexit.

There is no assurance that any such losses would not materially and adversely impact our revenues, financial condition and earnings.

Our hedging strategies may be costly, and may not hedge our risks as intended.

Our policies permit us to enter into interest rate swaps, caps and floors, interest rate swaptions, interest rate futures, and other derivative transactions to help us mitigate our interest rate and prepayment risks described above subject to maintaining our qualification as a REIT and our Investment Company Act exemption.

We have used interest rate swaps and options to enter into interest rate swaps (commonly referred to as interest rate swaptions) to provide a level of protection against interest rate risks.

We may also purchase or sell TBAs on Agency mortgage-backed securities, purchase or write put or call options on TBAs and invest in other types of mortgage derivatives, such as interest-only securities.

No hedging strategy can protect us completely.

Entering into interest rate hedging may fail to protect or could adversely affect us because, among other things:

interest rate hedging can be expensive, particularly during periods of volatile interest rates;

available hedges may not correspond directly with the risk for which protection is sought;

and the duration of the hedge may not match the duration of the related asset or liability.

The expected transition from LIBOR to alternative reference rates adds additional complication to our hedging strategies.

expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing cost, that would be foregone as a result of settling the contract in the later month rather than in the earlier month.

The drop between the current settlement month price and the forward settlement month price occurs because in the TBA dollar roll market, the party providing the implied financing is the party that would retain all principal and interest payments accrued during the financing period.

Accordingly, TBA dollar roll income generally represents the economic equivalent of the net interest income earned on the underlying Agency mortgage-backed security less an implied financing cost.

Consequently, dollar roll transactions and such forward purchases of Agency securities represent a form of off-balance sheet financing and increase our "at risk" leverage.

The economic return of a TBA dollar roll generally equates to interest income on a generic TBA-eligible security less an implied financing cost, and there may be situations in which the implied financing cost exceeds the interest income, resulting in a negative carry on the position.

If we roll our TBA dollar roll positions when they have a negative carry, the positions would decrease net income and amounts available for distributions to shareholders.

There may be situations in which we are unable or unwilling to roll our TBA dollar roll positions.

The TBA transaction could have a negative carry or otherwise be uneconomical, we may be unable to find counterparties with whom to trade in sufficient volume, or we may be required to collateralize the TBA positions in a way that is uneconomical.

Because TBA dollar rolls represent implied financing, an inability or unwillingness to roll has effects similar to any other loss of financing.

If we do not roll our TBA positions prior to the settlement date, we would have to take physical delivery of the underlying securities and settle our obligations for cash.

We may not have sufficient funds or alternative financing sources available to settle such obligations.

Counterparties may also make margin calls as the value of a generic TBA-eligible security (and therefore the value of the TBA contract) declines.

Margin calls on TBA positions or failure to roll TBA positions could have the effects described in the liquidity risks described above.

Our use of derivatives may expose us to counterparty and liquidity risks.

The Dodd-Frank Act, and regulations under it, have caused significant changes to the structure of the market for interest rate swaps and swaptions.

These new structures change, but do not eliminate, the risks we face in our hedging activities.

Most swaps that we enter into must be cleared by a Derivatives Clearing Organization (“DCO”).

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The relevant contract or clearinghouse rules dictate the method of determining the required amount of margin, the types of collateral accepted and the timing required to meet margin calls.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Additionally, for cleared swaps and futures, FCMs may have the right to require more margin than the clearinghouse requires.

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Ongoing regulatory change in this area could increase costs, increase risks, and adversely affect our business and results of operations.

It may be uneconomical to "roll" our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA contracts, which could negatively affect our financial condition and results of operations.

From time to time, we enter into TBAs as an alternate means of investing in and financing Agency mortgage-backed securities.

A TBA contract is an agreement to purchase or sell, for future delivery, an Agency mortgage-backed security with a specified issuer, term and coupon.

A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are simultaneously bought and sold.

The TBA contract settling in the later month typically prices at a discount to the earlier month contract with the difference in price commonly referred to as the “drop”.

The drop is a reflection of the expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing cost, that would be foregone as a result of settling the contract in the later month rather than in the earlier month.