What changed in this filing

/stocks — the workspaceLOADING

Item 9A. Controls and Procedures

2022-02-18 compared with 2021-02-19 · 506 added, 776 removed, 1614 unchanged (44% of the section changed)

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• 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;

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.

1 unchanged sentence

As a result, even systems determined to be effective can provide only reasonable assurance regarding the preparation and presentation of financial statements.

Moreover, projections of any evaluation of effectiveness to future periods are subject to the risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Moreover, projections of any evaluation of effectiveness to future periods are subject to the

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.

Annaly’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2021.

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

and Subsidiaries

Opinion on Internal Control Over Financial Reporting

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and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2021, 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, 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.

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, 2021 and 2020, 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, 2021, and the related notes and our report dated February 17, 2022 expressed an unqualified opinion thereon.

Basis for Opinion

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OTHER INFORMATION

DISCLOSE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS

Not applicable.

ANNALY CAPITAL MANAGEMENT, INC.

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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.

Since the adoption of the 2020 Equity Incentive Plan, no further awards have been made under the Prior Incentive Plan, although existing awards remained effective.

The following table provides information as of December 31, 2021 concerning shares of our common stock authorized for issuance under the Incentive Plans.

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See Index to Financial Statements below

All financial istatement schedules not included have been omitted because they are either inapplicable or the information required is provided in our Financial Statements and Notes thereto.

All financial statement schedules not included have been omitted because they are either inapplicable or the information required is provided in our Financial Statements and Notes thereto.

See Exhibit Index below.

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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).

Amended and Restated Bylaws of the Registrant, February 9 , 20 22 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed Febr uary 1 0 , 20 22 ).

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

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333-211140) on Form S-4/A filed May 27, 2016).

Specimen Series F Preferred Stock Certificate (incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017).

Specimen Series G Preferred Stock Certificate (incorporated by reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form 8-A filed January 10, 2018).

Specimen Series H Preferred Stock Certificate (incorporated by reference to Exhibit 4.10 to the Registrant’s Registration Statement on Form S-4A filed May 31, 2018).

Specimen Series I Preferred Stock Certificate (incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form 8-A filed June 26, 2019).

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Indenture, dated as of February 1, 2019, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.7 to the Registrant’s Current Report on Form S-3 filed February 1, 2019).

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Supplemental Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed February 12, 2010).

Second Supplemental Indenture, dated as of May 14, 2012, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed May 14, 2012).

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Description of Securities.

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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).*

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Form of 202 0 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).*

Form of 202 2 Performance Stock Unit Awar d .

Form of 2022 Restricted Stock Unit Award.

Subsidiaries of Registrant.

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Certification of David L.

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

Finkelstein, Chief Executive Officer and P resident (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.

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

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.

Finkelstein, Chief Executive Officer and President (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.

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104 The cover page for the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2021 (formatted in Inline XBRL and contained in Exhibit 101).

* Exhibit Numbers 10.2, 10.3, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11, 10.12, 10.13, 10.14, 10.15, 10.16 and 10.17 are management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K.

* Exhibit Numbers 10.2, 10.3, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11 are management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K.

† Submitted electronically herewith.

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Financial Statements Page

Report of Independent Registered Public Accounting Firm

Report of Independent Registered Public Accounting Firm (PCAOB ID:

Consolidated Financial Statements as of December 31, 2021 and 2020 and for the Years Ended December 31, 2021, 2020 and 2019

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Variable Interest Entities

S ale of Commercial Real Estate Business

Derivative Instruments

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Arcola Regulatory Requirements

Subsequent Events

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

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

and Subsidiaries

Opinion on the Financial Statements

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

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").

and subsidiaries (the Company) as of December 31, 2021 and 2020, 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, 2021, and the related notes (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, 2021 and 2020, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2021, 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

Amortization of net premiums on Agency mortgage-backed securities

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.

the Matter Amortization of net premiums on Agency securities totaled $761.8 million for the year ended December 31, 2021.

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

Amortization or accretion is derived taking into account estimates of future principal prepayments, which are derived using third-party models 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.

These assumptions have a significant effect on the amortization of net premiums on Agency mortgage-backed securities.

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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

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

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 Company’s 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 specialists 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.

Valuation of mortgage servicing rights

Description of

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 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 .

the Matter The Company invests in servicing related assets comprised of mortgage servicing rights and interests in mortgage servicing rights (collectively “MSR”) totaling $544.6 million and $69.3 million, respectively, as of December 31, 2021 as included in Note 7 to the consolidated financial statements.

The Company records MSR at fair value on a recurring basis with changes in fair value recognized in the statement of comprehensive income (loss).

These fair value estimates are based on valuation techniques used to estimate future cash flows that incorporate significant unobservable assumptions, which include discount rates, prepayment rates and servicing costs.

Auditing the valuation of MSR is complex and required the use of a specialist due to the high degree of judgement in the assumptions made by management which are unobservable in nature.

Additionally, selecting and applying audit procedures to address the estimation uncertainty involves auditor subjectivity and industry-specific knowledge of MSR, including the current market conditions considered by a market participant.

Addressed the

Matter in Our

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.

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.

Audit We obtained an understanding, evaluated and tested the Company’s processes and the design and operating effectiveness of internal controls addressing the valuation of MSR, comprising management’s governance over the functionality of the discounted cash flow model utilized to estimate fair value;

management’s review of the completeness and accuracy of the significant assumptions used in the discounted cash flow model (i.e., discount rates, prepayment rates and servicing costs);

management’s comparison of the assumptions used to independent third-party data;

and management’s evaluation of the internal fair value mark to third-party independent valuation firms’ ranges, as well as their evaluation of the competence and objectivity of those third-party independent valuation firms, to assess the reasonableness of the fair values developed by the Company.

To test the valuation of MSR, our audit procedures included, among others, evaluating the Company’s valuation techniques used to estimate future cash flows, validating the accuracy and completeness of model objective inputs by agreeing these inputs to the Company’s underlying records and third-party data, and testing the assumptions used by management by comparing them to current industry, market and economic trends.

We involved our valuation specialists to assist in our evaluation of the Company’s model, valuation methodology and the assumptions used by management, and to independently develop a range of fair values for the MSR.

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

We also assessed the competence and objectivity of management’s independent valuation firms engaged to evaluate the reasonableness of the fair values developed by the Company.

/s/ Ernst & Young LLP

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544,562 100,895

Interests in MSR 69,316 —

Assets transferred or pledged to securitization vehicles 6,086,308 6,910,020

Real estate, net — 656,314

Assets of disposal group held for sale 194,138 —

Derivative assets 170,370 171,134

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Mortgages payable — 426,256

Liabilities of disposal group held for sale 154,956 —

Derivative liabilities 881,537 1,033,345

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Stockholders’ equity

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

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

1,536,569 1,536,569

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

Common stock, par value $ 0.01 per share, 2,936,500,000 and 2,914,850,000 authorized, respectively, 1,459,736,258 and 1,398,240,618 issued and outstanding, respectively

14,597 13,982

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(1) Includes cash of consolidated Variable Interest Entities (“VIEs”) of $ 16.2 million and $ 22.2 million at December 31, 2021 and 2020, 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.

(2) Excludes $ 44.2 million and $ 81.5 million at December 31, 2021 and 2020, respectively, of agency mortgage-backed securities, $ 350.4 million and $ 576.6 million at December 31, 2021 and 2020, respectively, of non-Agency mortgage-backed securities and $ 0.0 million and $ 391.0 million at December 31, 2021 and 2020, 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 $ 2.3 million and $ 47.0 million of residential mortgage loans held for sale at December 31, 2021 and 2020, respectively.

See notes to consolidated financial statements.

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Subtotal 685,995 ( 3,030,037 ) ( 2,301,865 )

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

Net gains (losses) on other derivatives 756,305 ( 680,770 ) ( 403,001 )

Net gains (losses) on disposal of investments and other ( 62,705 ) 661,513 ( 47,944 )

Net gains (losses) on other derivatives and financial instruments 121,735 756,305 ( 680,770 )

Net unrealized gains (losses) on instruments measured at fair value through earnings 183,663 ( 303,024 ) 36,021

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

Loan loss (provision) reversal 145,066 ( 147,581 ) ( 16,569 )

Business divestiture-related gains (losses) ( 278,559 ) — —

Subtotal 109,200 967,213 ( 709,262 )

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— ( 445,457 ) ( 224,466 )

Acquisition of subsidiary

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

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

1 unchanged sentence

$ 13,982 $ 14,301 $ 13,138

— 1,422 1,103

Buyback of common stock

— ( 324 ) ( 261 )

Acquisition of subsidiary

Stock-based award activity 6 3 —

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— ( 209,094 ) ( 223,313 )

Acquisition of subsidiary

Stock-based award activity 11,408 6,452 2,162

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( 107,532 ) ( 142,036 ) ( 136,576 )

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

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

( 1,268,558 ) ( 1,285,124 ) ( 1,516,323 )

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Net (gains) losses on investments and derivatives ( 1,267,535 ) 2,368,879 1,855,025

Net (gains) losses on business divestitures 278,559 — —

Income from unconsolidated joint ventures 12,181 7,072 6,893

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

Loan loss provision (reversal) ( 145,066 ) 147,581 16,569

Payments on purchases of loans held for sale ( 51,403 ) ( 147,833 ) ( 250,348 )

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Payments on purchases and origination of loans ( 7,715,200 ) ( 2,257,314 ) ( 4,126,123 )

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

Proceeds from sales and maturities of loans 1,213,745 624,026 365,787

Principal payments on loans 2,610,912 2,222,500 3,139,084

Payments on purchases of MSRs — — ( 381 )

Proceeds from sales of MSRs 72,160 — —

Payments on purchases of MSR ( 473,035 ) — —

Proceeds from sales of MSR 82,175 72,160 —

Payments on purchases of interests in MSR ( 65,107 ) — —

Investments in real estate ( 2,329 ) ( 7,450 ) ( 39,144 )

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Distributions in excess of cumulative earnings from unconsolidated joint ventures 290 7,590 3,155

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

Proceeds from sale of equity securities 6,957 — —

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

Net proceeds from business divestiture 1,118,440 — —

Net cash provided by (used in) investing activities 4,899,279 40,351,774 ( 20,641,671 )

1 unchanged sentence

Proceeds from repurchase agreements and other secured financing 2,288,704,788 2,776,331,362 5,470,733,256

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

Payments on repurchase agreements and other secured financing ( 2,298,775,005 ) ( 2,816,805,618 ) ( 5,449,836,013 )

Proceeds from issuances of securitized debt 3,719,027 2,385,374 3,444,055

Principal repayments on securitized debt ( 1,238,962 ) ( 2,031,959 ) ( 1,384,333 )

Principal payments on securitized debt ( 1,716,196 ) ( 1,238,962 ) ( 2,031,959 )

Payment of deferred financing cost ( 9,279 ) ( 553 ) ( 12,228 )

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Proceeds from participations issued 1,847,821 38,741 —

Payments on repurchases of participations issued ( 818,575 ) — —

Principal payments on participations issued ( 23,374 ) — —

Net principal receipts (payments) on mortgages payable ( 2,237 ) ( 60,980 ) ( 26,202 )

Net contributions (distributions) from (to) noncontrolling interests 5,635 7,762 ( 1,136 )

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

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

Settlement of stock-based awards in satisfaction of withholding tax requirements ( 2,830 ) — —

Dividends paid ( 1,359,721 ) ( 1,475,650 ) ( 1,689,016 )

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Derecognition of securitized debt of consolidated VIEs $ 2,506,799 $ 1,141,311 $ —

Derecognition of mortgages payable $ 314,485 $ — $ —

See notes to consolidated financial statements.

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(the “Company” or “Annaly”) is a Maryland corporation that commenced operations on February 18, 1997.

The Company is a leading diversified capital manager that invests in and finances residential and commercial assets.

The Company owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, credit risk transfer (“CRT”) securities, other securities representing interests in or obligations backed by pools of mortgage loans, residential mortgage loans, mortgage servicing rights (“MSRs”), commercial real estate assets and corporate debt.

The Company is a leading diversified capital manager with investment strategies across mortgage finance and corporate middle market lending.

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

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 “Related Party Transactions” Note) on June 30, 2020, the Company was externally managed by Annaly Management Company LLC (the “Former Manager”).

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

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 Agency Group Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the Agency market, including MSR and Agency commercial mortgage-backed securities.

Annaly Residential Credit Group Invests primarily in non-Agency residential whole loans and securitized products within the residential and commercial markets.

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

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”).

In March 2021, the Company announced that it had entered into a definitive agreement to sell and exit its Commercial Real Estate (“CRE”) business.

During the year ended December 31, 2021, the platform and the significant majority of the assets were transferred with remaining assets expected to be transferred by the end of the first quarter of 2022 subject to regulatory approvals.

Refer to the “Sale of Commercial Real Estate Business” Note for additional information.

BASIS OF PRESENTATION

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

Beginning with the quarter ended June 30, 2021, the Company began classifying certain portfolio activity- or volume-related expenses (including but not limited to brokerage and commission fees, due diligence costs and securitization expenses) as Other income (loss) rather than Other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss) to better reflect the nature of the items.

As such, prior periods have been conformed to the current presentation.

Other general and administrative expenses for the three months ended March 31, 2021 decreased by $ 1.8 million and for the years ended December 31, 2020 and 2019 decreased by $ 17.0 million and $ 29.9 million, respectively, and Other income (loss) decreased by the same amounts for the three months ended March 31, 2021 and the years ended December 31, 2020 and 2019, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

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.

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.

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.

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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 $ 1.2 billion and $ 1.1 billion at December 31, 2021 and December 31, 2020, 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.

These equity securities are required to be reported at fair value with unrealized gains and losses reported in the Consolidated Statements of Comprehensive Income (Loss) as Net unrealized gains (losses) on instruments measured at fair value through earnings, unless the securities do not have readily determinable fair values.

For such equity securities without readily determinable fair values, the Company has elected to carry the securities at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer.

For equity securities carried at fair value through earnings, dividends are recorded in earnings on the declaration date.

Dividends from equity securities without readily determinable fair values are recognized as income when received to the extent they are distributed from net accumulated earnings.

Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”).

The Company chooses to elect the fair value option in order to simplify the accounting treatment for certain financial instruments.

Items for which the fair value option has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss).

For additional information regarding financial instruments for which the Company has elected the fair value option see the table in the “Financial Instruments” Note.

The Company chooses to elect the FVO in order to simplify the accounting treatment for certain financial instruments.

Items for which the FVO has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss).

For additional information regarding financial instruments for which the Company has elected the FVO see the table in the “Financial Instruments” Note.

Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to estimate the fair value of certain financial instruments.

Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in the “Derivative Instruments” Note.

Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they are subject to netting agreements and they meet the offsetting criteria.

Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they meet the offsetting criteria.

Please see below and refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements.

Derivative Instruments – Derivatives are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, which requires recognition of all derivatives as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss).

The changes in the estimated fair value are presented within Net gains (losses) on other derivatives with the exception of interest rate swaps which are separately presented.

Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss).

The changes in the estimated fair value are presented within Net gains (losses) on other derivatives and financial instruments with the exception of interest rate swaps which are separately presented.

None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes.

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

Stock-based awards that contain market-based conditions are valued using a model.

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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

Compensation expense for awards with market conditions is recognized irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met.

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

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

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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

Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities” Note), 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.

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Refer to the “Income Taxes” Note for further discussion on income taxes.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”).

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.

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”).

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

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Securities Non-agency mortgage-backed securities Fair value, with unrealized gains (losses) through earnings 1,663,336 972,192

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 other comprehensive income — 31,603

Securities Commercial real estate debt investments - CMBS (4)

Fair value, with unrealized gains (losses) through earnings 521,440 45,254

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Loans, net Residential mortgage loans Fair value, with unrealized gains (losses) through earnings 2,272,072 345,810

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

Loans, net Residential mortgage loan warehouse facility Fair value, with unrealized gains (losses) through earnings 980 —

Loans, net Commercial real estate debt and preferred equity, held for investment (4)

Amortized cost — 498,081

Loans, net Corporate debt, held for investment Amortized cost 1,968,991 2,239,930

Total loans, net 4,242,043 3,083,821

Interests in MSR Interest in net servicing cash flows Fair value, with unrealized gains (losses) through earnings 69,316 —

Assets transferred or pledged to securitization vehicles Agency mortgage-backed securities Fair value, with unrealized gains (losses) through other comprehensive income 589,873 620,347

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Participations issued Participations issued Fair value, with unrealized gains (losses) through earnings 1,049,066 39,198

Mortgages payable Loans Amortized cost 426,256 485,005

Mortgages payable Loans (5)

Amortized cost — 426,256

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

Interests in MSR are considered financial assets whereas directly held MSR are servicing assets or obligations.

(2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.

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

(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.

All of the debt securities are classified as available-for-sale.

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

(4) Excludes Assets of disposal group held for sale at December 31, 2021.

(5) Excludes Liabilities of disposal group held for sale at December 31, 2021.

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Financial Statements

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

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

All of the debt securities are classified as available-for-sale.

Available-for-sale debt 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 regular-way 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.

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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.

For the year ended December 31, 2021, the Company recognized a $ 0.4 million impairment on a commercial mortgage-backed security that it intended to sell.

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

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Many of the underlying loans and certificates are guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”).

Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis (“TBA securities”).

Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis.

TBA securities without intent to accept delivery (“TBA derivatives”) are accounted for as derivatives as discussed in the “Derivative Instruments” Note.

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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 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.

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

Management evaluates its Commercial Securities for impairment at least quarterly.

The Company elected the fair value option for all other Commercial Securities, including conduit and credit CMBS, to simplify the accounting where the unrealized gains and losses on these financial instruments are recorded through earnings.

As of December 31, 2021, CMBS included in the announced sale of the Company’s CRE business have been sold.

Prior to their sale, the securities were reported in Assets of disposal group held for sale and Securities, respectively, in the Consolidated Statements of Financial Condition.

Refer to the “Sale of Commercial Real Estate Business” Note for additional information on the transaction.

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, 2021:

Residential Securities Commercial Securities Total

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Financial Statements

Agency Securities Residential Credit Securities Commercial Securities Total

(dollars in thousands)

Beginning balance January 1, 2021

$ 74,067,059 $ 1,504,595 $ 80,742 $ 75,652,396

Purchases 18,887,983 2,129,147 534,226 21,551,356

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Ending balance December 31, 2021

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

$ 60,525,605 $ 2,599,564 $ 530,505 $ 63,655,674

(1) Includes transfers to assets of disposal group held for sale.

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Residential credit

Credit risk transfer (2)

$ 924,101 $ 8,754 $ ( 1,176 ) $ 927,555 $ 9,641 $ ( 968 ) $ 936,228

Alt-A 83,213 31 ( 17,133 ) 66,111 3,627 ( 251 ) 69,487

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

323,062 9,841 ( 14,757 ) 268,117 10,853 ( 3,529 ) 275,441

Subprime 170,671 349 ( 16,111 ) 154,909 8,285 ( 118 ) 163,076

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Prime jumbo (>=2010 vintage) (4)

Prime jumbo (>=2010 vintage) Interest-only 291,624 6,803 — 6,803 — ( 5,251 ) 1,552

299,783 5,680 ( 6,410 ) 172,598 4,272 ( 4,976 ) 171,894

Total residential credit securities $ 2,788,245 $ 25,605 $ ( 57,285 ) $ 2,575,957 $ 39,417 $ ( 15,810 ) $ 2,599,564

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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

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Residential credit

Credit risk transfer (2)

$ 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 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

372,539 7,008 ( 15,999 ) 168,861 14,607 ( 719 ) 182,749

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

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Prime jumbo (>=2010 vintage) (4)

Prime jumbo (>=2010 vintage) Interest-only 554,189 9,001 — 9,001 — ( 1,851 ) 7,150

336,320 7,010 ( 5,300 ) 46,406 3,680 ( 5,251 ) 44,835

Total residential credit securities $ 2,019,527 $ 22,798 $ ( 61,694 ) $ 1,483,587 $ 38,087 $ ( 17,079 ) $ 1,504,595

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Total securities $ 72,253,465 $ 3,971,492 $ ( 95,734 ) $ 72,487,080 $ 3,332,263 $ ( 166,947 ) $ 75,652,396

(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.

(1) Principal/Notional amount includes $ 4.5 billion and $ 354.6 million of Agency Multifamly interest-only security as of December 31, 2021 and December 31, 2020, respectively.

(2) Principal/Notional amount includes $ 4.1 million and $ 10.7 million of a CRT interest-only security as of December 31, 2021 and December 31, 2020, respectively.

(3) Principal/Notional amount includes $ 50.0 million and $ 194.7 million of Prime interest-only securities as of December 31, 2021 and December 31, 2020, respectively.

(4) Principal/Notional amount includes $ 126.5 million and $ 291.6 million of Prime Jumbo interest-only securities as of December 31, 2021 and December 31, 2020, respectively.

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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, 2021 and 2020:

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The decline in value of these securities is solely due to market conditions and not the quality of the assets.

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

Substantially all of the Agency mortgage-backed securities have an actual or implied credit rating that is the same as that of the U.S.

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.

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The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the years ended December 31, 2021 and 2020.

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Financial Statements

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

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December 31, 2021

$ 102,567 $ ( 105,646 ) $ ( 3,079 )

December 31, 2020

The Company invests in residential, commercial and corporate loans.

$ 942,450 $ ( 305,449 ) $ 637,001

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Financial Statements

The Company invests in residential and corporate loans.

Loans are classified as either held for investment or held for sale.

Loans are also eligible to be accounted for under the fair value option.

Excluding loans transferred or pledged to securitization vehicles, as of December 31, 2020 and 2019, the Company reported $ 0.3 billion and $ 1.6 billion, respectively, of loans for which the fair value option was elected.

If loans are held for investment and the fair value option has not been elected, they are accounted for at amortized cost less impairment.

Loans are eligible to be accounted for under the fair value option.

If loans are elected under the fair value option, they are carried at fair value with changes in fair value recognized in earnings.

Otherwise, loans held for investment are carried at cost less impairment and loans held for sale are accounted for at the lower of cost or fair value.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of December 31, 2021 and 2020, the Company reported $ 2.3 billion and $ 345.8 million, respectively, of loans for which the fair value option was elected.

If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale.

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

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.

The carrying value of the Company’s residential loans held for sale was $ 2.3 million and $ 47.0 million at December 31, 2021 and 2020, respectively.

Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment, which primarily include corporate debt and commercial loans, 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.

An allowance 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.

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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).

Changes in the lifetime expected credit loss are reflected in Loan loss (provision) reversal 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.

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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.

The Company’s commercial loans were 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 exceeded 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.

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

The Company recorded net loan loss (provisions) reversals of $ 145.1 million, ($ 147.6 ) million and ($ 16.6 ) million for the years ended December 31, 2021, 2020 and 2019, respectively.

As of December 31, 2021 and 2020, the Company’s loan loss allowance was $ 27.9 million and $ 169.5 million, respectively.

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Financial Statements

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

Residential Commercial Corporate Debt Corporate Debt Held for Sale (1)

(dollars in thousands)

Beginning balance January 1, 2021

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

$ 345,810 $ 498,081 $ 2,239,930 $ — $ 3,083,821

Purchases / originations 6,120,021 126,722 1,572,718 468,483 8,287,944

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Ending balance December 31, 2021

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

$ 2,272,072 $ — $ 1,968,991 $ — $ 4,241,063

(1) Represents loans the Company originated during the three months ended June 30, 2021 and subsequently syndicated and closed.

(2) Includes securitizations, syndications and transfers to securitization vehicles and commercial loan transfers to assets for disposal group held for sale.

Includes transfer of residential loans to securitization vehicles with a carrying value of $ 3.9 billion during the year ended December 31, 2021.

(3) 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 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.

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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.

Additionally, the Company consolidated a collateralized financing entity that securitized prime adjustable-rate jumbo residential mortgage loans until November 2021, when the Company exercised its clean-up call and liquidated the securitization trust.

The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts.

Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.

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, 2021 December 31, 2020

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Unpaid principal balance $ 7,535,855 $ 3,482,865

ANNALY CAPITAL MANAGEMENT, INC.

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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:

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for December 31, 2021 and 2020 for these investments, excluding loan warehouse facilities:

For the Years Ended

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Interest income $ 182,325 $ 170,259

Net gains (losses) on disposal of investments ( 38,372 ) ( 18,619 )

Net gains (losses) on disposal of investments and other ( 37,212 ) ( 38,372 )

Net unrealized gains (losses) on instruments measured at fair value through earnings 19,545 37,693

Total included in net income (loss) $ 164,658 $ 169,580

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Financial Statements

The following table provides the geographic concentrations based on the unpaid principal balances at December 31, 2021 and 2020 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

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At December 31, 2021 and 2020, approximately 16 % and 37 %, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

During the year ended December 31, 2021, the Company participated in an arrangement that provided a residential mortgage loan warehouse facility to a third-party originator.

The Company has elected to apply the fair value option to this lending facility in order to simplify the accounting and keep the accounting consistent with other residential credit financial instruments with similar characteristics.

At December 31, 2021, the fair value and carrying value of this warehouse facility was approximately $ 1.0 million and is reported as Loans, net in the Consolidated Statements of Financial Condition.

As of December 31, 2021, the lending facility was not on nonaccrual status nor past due.

As of December 31, 2021, commercial real estate loans are reported in Assets of disposal group held for sale in the Consolidated Statements of Financial Condition and classified as held for sale.

As of December 31, 2020, commercial real estate loans are reported in Loans, net in the Consolidated Statements of Financial Condition and classified as held for investment.

Refer to the “Sale of Commercial Real Estate Business” Note for additional information on the transaction.

The Company’s commercial real estate loans are comprised of adjustable-rate and fixed-rate loans.

The difference between the principal amount of a loan and proceeds at acquisition is recorded as either a discount or premium.

Commercial real estate loans and preferred equity interests that are designated as held for investment and are originated or purchased by the Company are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less an allowance for losses, if necessary.

Commercial real estate loans and preferred equity interests that were designated as held for investment and were originated or purchased by the Company are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less an allowance for losses, if necessary.

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

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

During the period the Company owns the assets, 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 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 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, 2021, the Company reversed the loan loss allowance

ANNALY CAPITAL MANAGEMENT, INC.

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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.

resulting in a loan loss reversal on impaired commercial loans of $ 67.4 million as the loans are classified as held for sale and are carried at lower of cost or fair value.

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.

2 unchanged sentences

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.

For the year ended December 31, 2021, the Company reversed the loan loss allowance based upon its Loss Given Default methodology resulting in a loan loss reversal on commercial loans of $ 62.5 million as the loans were classified as held for sale and carried at lower of cost or fair value.

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.

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.

2 unchanged sentences

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.

Future funding commitments on the restructured loans total $ 4.1 million at December 31, 2020.

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

For the year ended December 31, 2020, the Company recognized interest income on commercial loans on nonaccrual status of $ 2.1 million.

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

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.

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

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 Carrying

Portfolio (2)

(dollars in thousands)

Senior mortgages $ 387,124 $ 373,925 25.7 % $ 503,499 $ 499,690 30.9 %

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.

(2) Based on outstanding principal.

(3) Assets of consolidated VIEs.

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:

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

The following tables represent a rollforward of the activity for the Company’s commercial real estate investments held for sale at December 31, 2021and held for investment at December 31, 2020:

December 31, 2021

6 unchanged sentences

Principal payments ( 75,007 ) ( 87,584 ) ( 9,922 ) ( 172,513 )

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

Transfers (3)

Transfers and sales (3)

( 436,408 ) ( 849,469 ) ( 171,794 ) ( 1,457,671 )

Net (increase) decrease in origination fees ( 1,403 ) — — ( 1,403 )

Realized gain 204 — — 204

Amortization of net origination fees 501 486 43 1,030

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

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

Current period (allowance) reversal 10,911 62,149 56,873 129,933

Ending allowance — — — —

Net carrying value (December 31, 2021)

$ — $ — $ — $ —

ANNALY CAPITAL MANAGEMENT, INC.

6 unchanged sentences

Net carrying value (January 1, 2020)

$ 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)

1 unchanged sentence

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

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

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 provision ( 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)

(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)

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

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

6 / Performing - Special Mention 628,224 58,648 135,868 267,555 96,982 69,171 —

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

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

$ 373,925 $ 874,349 $ 124,156 $ 1,372,430

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.

(1) Represents assets of consolidated VIEs held for sale at December 31, 2021.

(2) Excludes loan loss allowances.

(3) Includes transfers to securitization vehicles and for the year ended December 31, 2021, transfers to assets for disposal group held for sale.

Corporate Debt

The Company’s investments in corporate loans typically take the form of senior secured loans primarily in first or second lien positions.

The Company’s senior secured loans generally have stated maturities of five to seven years .

The Company’s senior secured loans generally have stated maturities of five to eight years .

In connection with these senior secured loans, the Company receives a security interest in certain assets of the borrower and such assets support repayment of such loans.

2 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

10 unchanged sentences

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.

There was no provision for loan loss recorded on corporate loans using a discounted cash flow methodology for the year ended December 31, 2021.

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.

2 unchanged sentences

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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

For the year ended December 31, 2021, the Company recorded a net loan loss reversal on corporate loans of $ 11.6 million, based upon its Loss Given Default methodology.

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.

As of December 31, 2021 and December 31, 2020, no corporate loans were on nonaccrual status.

At December 31, 2021 and December 31, 2020, the Company had unfunded corporate loan commitments of $ 278.9 million and $ 87.3 million, respectively.

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

At December 31, 2021 and December 31, 2020, the liability related to the expected credit losses on the unfunded corporate loan commitments was $ 2.3 million and $ 0.7 million, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

6 unchanged sentences

(dollars in thousands)

Computer programming, data processing & other computer

related services 483,142 394,193

Management and public relations services 300,869 339,179

Industrial Inorganic Chemical 156,391 —

Public warehousing and storage 132,397 107,029

Computer Programming, Data Processing & Other Computer Related Services $ 437,257 $ 483,142

Management & Public Relations Services 263,187 300,869

Industrial Inorganic Chemicals 156,292 156,391

Metal Cans & Shipping Containers 118,204 115,670

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

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

Public Warehousing & Storage 94,179 132,397

Miscellaneous Industrial & Commercial 93,619 77,163

Electronic Components & Accessories 92,261 78,129

Surgical, Medical & Dental Instruments & Supplies 80,786 83,161

Miscellaneous Health & Allied Services, not elsewhere classified 64,133 58,857

Research, Development & Testing Services 59,311 62,008

Offices & Clinics of Doctors of Medicine 50,017 104,781

Engineering, Architectural & Surveying 49,088 77,308

Miscellaneous Industrial & Commercial 77,163 78,908

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

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

Insurance Agents, Brokers & Service 43,598 67,193

Electrical Work 42,617 41,128

Petroleum and petroleum products 33,890 24,923

Medical and dental laboratories 30,711 41,344

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

Telephone Communications 42,589 58,450

Miscellaneous Equipment Rental & Leasing 32,346 49,587

Medical & Dental Laboratories 30,199 30,711

Home Health Care Services 28,660 28,587

Metal Forgings and Stampings 27,523 —

Metal Forgings & Stampings 27,483 27,523

Legal Services 26,105 26,399

Petroleum & Petroleum Products 21,434 33,890

Sanitary Services 20,453 —

Grocery Stores 19,745 22,895

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

Coating, Engraving & Allied Services 17,705 19,484

Chemicals & Allied Products 14,657 14,686

Mailing, Reproduction, Commercial Art & Photography & Stenographic 12,388 12,733

Machinery, Equipment & Supplies 10,814 12,096

Offices & Clinics of Other Health Practitioners 10,083 9,730

Schools & Educational Services, not elsewhere classified 9,781 29,040

Miscellaneous Business Services — 12,980

Drugs — 12,942

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 $ 1,968,991 $ 2,239,930

5 unchanged sentences

Second lien loans (1)

577,774 750,805

Total $ 1,968,991 $ 2,239,930

(1) Includes mezzanine positions

ANNALY CAPITAL MANAGEMENT, INC.

8 unchanged sentences

Originations & advances 1,506,705 66,013 1,572,718

Sales and transfers (2)

( 1,122,275 ) ( 83,690 ) ( 1,205,965 )

Principal payments ( 492,884 ) ( 169,057 ) ( 661,941 )

Amortization & accretion of (premium) discounts 9,120 3,497 12,617

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

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

Current period (allowance) reversal 1,426 10,206 11,632

Ending allowance ( 17,341 ) ( 10,579 ) ( 27,920 )

1 unchanged sentence

$ 1,391,217 $ 577,774 $ 1,968,991

(1) Excludes loan loss allowances.

(2) Includes syndications.

December 31, 2020

1 unchanged sentence

(dollars in thousands)

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

Beginning balance (January 1, 2020) (1)

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

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

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

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

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

Sales ( 262,974 ) — ( 262,974 )

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

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

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) reversal ( 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.

The following table provides the amortized cost basis of corporate debt held for investment as of December 31, 2021 by vintage year and internal risk rating.

15 unchanged sentences

MORTGAGE SERVICING RIGHTS

The Company owns variable interests in an entity that invests in MSRs.

The Company owns variable interests in entities that invest in MSR and Interests in MSR.

Refer to the “Variable Interest Entities” Note for a detailed discussion on this topic.

MSRs represent the rights associated with servicing pools of residential mortgage loans.

MSR represent the rights and obligations associated with servicing pools of residential mortgage loans.

The Company and its subsidiaries do not originate or directly service residential mortgage loans.

Rather, these activities are carried out by duly licensed subservicers who perform substantially all servicing functions for the loans underlying the MSRs.

The Company intends to hold the MSRs as investments and elected to account for all of its investments in MSRs at fair value.

Rather, these activities are carried out by duly licensed subservicers who perform substantially all servicing functions for the loans underlying the MSR.

The Company generally intends to hold the MSR as investments and elected to account for all of its investments in MSR at fair value.

As such, they are recognized at fair value on the accompanying Consolidated Statements of Financial Condition with changes in the estimated fair value presented as a component of Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss).

Servicing income, net of servicing expenses, is reported in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

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

December 31, 2020 December 31, 2019

Interests in MSR represent agreements to purchase all, or a component of, net servicing cash flows.

A third party acts as a master servicer for the loans providing the net servicing cash flows represented by the Interests in MSR.

The Company accounts for its Interests in MSR at fair value with change in fair value presented in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss).

Cash flows received for Interests in MSR are recorded in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

The following table presents activity related to MSR and Interests in MSR for the years ended December 31, 2021 and 2020:

Mortgage Servicing Rights December 31, 2021 December 31, 2020

(dollars in thousands)

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

Purchases (1)

Sales ( 82,176 ) ( 72,160 )

4 unchanged sentences

Fair value, end of period $ 544,562 $ 100,895

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

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

For the years ended December 31, 2020 and 2019, the Company recognized $ 66.6 million and $ 108.0 million of net servicing income from MSRs in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

VARIABLE INTEREST ENTITIES

Commercial Trusts

The Company has invested in subordinate mortgage-backed securities issued by commercial securitization trusts (“Commercial Trusts”) and determined that it is the primary beneficiary as a result of its ability to replace the special servicer without cause through its ownership of the subordinate securities and its current designation as the directing certificate holder.

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

Interests in MSR December 31, 2021

(dollars in thousands)

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.

The fair value option requires that changes in fair value be reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss).

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

Beginning balance $ —

Purchases (1)

Gain (loss) included in net income 4,209

Ending balance December 31, 2021

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

For the years ended December 31, 2021 and 2020, the Company recognized $ 56.8 million and $ 66.6 million of net servicing income from MSR in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

For the year ended December 31, 2021, the Company recognized $ 7.6 million and for the year ended December 31, 2020, the Company did no t recognize net income from Interests in MSR in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

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.

The Commercial Trusts mortgage loans had an aggregate unpaid principal balance of $ 2.3 billion and $2.3 billion at December 31, 2020 and 2019, respectively.

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 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

The Company also invests in commercial mortgage-backed securities issued by entities that are VIEs because they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties, but the Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance.

For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other commitments to these VIEs.

See the “Securities” Note for further information on Commercial Securities.

Collateralized Loan Obligation

In February 2019, the Company closed NLY 2019-FL2, a managed commercial real estate collateralized loan obligation (“CLO”) securitization with a face value of $ 857.3 million, which provides non-recourse financing to the Company collateralized by certain commercial real estate mortgage loans originated by the Company.

As of December 31, 2020 a total of $ 625.8 million of notes were held by third parties and the Company retained or purchased $ 202.4 million of subordinated notes and preferred shares, which eliminate upon consolidation.

The Company has determined that it is the primary beneficiary because it has the right to direct the servicer as well as remove the special servicer without cause and it holds variable interests that could be potentially significant to the CLO.

The transfers of loans to the CLO did not qualify for sale accounting because the Company maintains effective control over the loans.

The Company elected the fair value option for the financial liabilities issued by the CLO in order to simplify the accounting;

however, the commercial loans continue to be carried at amortized cost as they were not eligible for the fair value option as it was not elected at origination of the loans.

The Company incurred $ 8.3 million of costs in connection with the CLO that were expensed as incurred during the year ended December 31, 2019.

The aggregate unpaid principal balance of loans in the CLO was $ 856.9 million at December 31, 2020 and 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 debt securities at December 31, 2020 based upon the Company’s process of monitoring events of default on the underlying mortgage loans.

The contractual principal amount of the CLO debt held by third parties was $ 633.9 million at December 31, 2020.

VARIABLE INTEREST ENTITIES

At December 31, 2021, commercial trusts, commercial securitizations and the collateralized loan obligation are reported in Assets of disposal group held for sale in the Consolidated Statements of Financial Condition.

Refer to the “Sale of Commercial Real Estate Business” Note for additional information.

Multifamily Securitization

4 unchanged sentences

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.

In 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).

1 unchanged sentence

Residential Trusts

The Company consolidates a securitization trust, which is included in “Residential Trusts” in the tables below, that issued residential mortgage-backed securities that are collateralized by residential mortgage loans that had been transferred to the trust by one of the Company’s subsidiaries.

The Company owns the subordinate securities, and a subsidiary of the Company continues to be the master servicer.

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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.

The Company consolidated a securitization trust, which is included in “Residential Trusts” in the table for the year ended December 31, 2020 below, that issued residential mortgage-backed securities that were collateralized by residential mortgage loans that had been transferred to the trust by one of the Company’s subsidiaries.

The Company owned the subordinate securities, and a subsidiary of the Company continued to be the master servicer.

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

The Company elected the fair value option for the financial assets and liabilities of this VIE, but did not elect 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 zero and $ 23.0 million at December 31, 2021 and 2020, respectively.

In November 2021, the Company exercised its clean-up call and liquidated the securitization trust.

There was no gain or loss recorded upon deconsolidation.

Residential Securitizations

3 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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Securitization Date of Closing Face Value at Closing

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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.

OBX 2021-NQM1 March 2021 $ 257,135

OBX 2021-J1 April 2021 $ 353,840

OBX 2021-NQM2 June 2021 $ 376,004

OBX 2021-J2 July 2021 $ 382,483

OBX 2021-NQM3 August 2021 $ 356,474

OBX 2021-INV1 September 2021 $ 320,199

OBX 2021-J3 October 2021 $ 453,650

OBX 2021-INV2 October 2021 $ 343,571

OBX 2021-INV3 November 2021 $ 470,576

OBX 2021-NQM4 November 2021 $ 542,836

As of December 31, 2021 and 2020, a total carrying value of $ 4.6 billion and $ 2.6 billion, respectively, of bonds were held by third parties and the Company retained $ 780.8 million and $ 653.0 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.

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In June 2016, 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 $ 625.0 million.

As of December 31, 2021 and 2020, the borrowing limit on this facility was $ 675.0 million and $ 625.0 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 collateral manager and because it holds a variable interest in the entity that could potentially be significant to the entity.

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The transfers did not qualify for sale accounting and are reflected as an intercompany secured borrowing that is eliminated upon consolidation.

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.

At December 31, 2021 and 2020, the subsidiary had an intercompany receivable of $ 433.3 million and $ 441.1 million, respectively, which eliminates upon consolidation and a secured financing of $ 433.3 million and $ 441.1 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, 2021 and 2020, the borrowing limit on this facility was $ 400.0 million and $ 320.0 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 corporate loans to the subsidiary with a carrying amount of $ 402.9 million and $ 400.4 million at December 31, 2021 and 2020, respectively, which continue to be reflected in the Company’s Consolidated Statements of Financial Condition under

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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, 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.

At December 31, 2021 and 2020, the subsidiary had a secured financing of $ 238.2 million and $ 209.7 million, respectively, to the third party financial institution.

In January 2019, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution.

As of December 31, 2021 and 2020, the borrowing limit on this facility was $ 400.0 million and $ 300.0 million, respectively.

The Company has pledged as collateral for this facility corporate loans with a carrying amount of $ 368.0 million and $ 409.2 million at December 31, 2021 and 2020, respectively.

As of December 31, 2021 and 2020, the Borrower had a secured financing of $ 231.8 million and $ 236.6 million, respectively, to the third party financial institution.

The Company owns variable interests in an entity that invests in MSR 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.

While the Company previously held 100 % of the voting interests in this entity, in August 2017, the Company sold 100 % of such interests, and entered into an agreement with the entity’s affiliated portfolio manager giving the Company the power over the silo in which it owns all of the beneficial interests.

As a result, the Company is considered to be the primary beneficiary and consolidates this silo.

The Company also owns variable interests in entities that invest in Interests in MSR.

These entities are VIEs because they do not have sufficient equity at risk to finance their activities and the Company is the primary beneficiary because it has power to remove the decision makers with or without cause and holds substantially all of the variable interests in the entities.

The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $ 2.4 billion at December 31, 2021.

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

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:

The statements of financial condition of the Company’s VIEs, excluding the multifamily securitization, 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, 2021 and 2020 are as follows:

December 31, 2021

Commercial Trusts Residential Trusts MSR Silo

Assets (dollars in thousands)

Cash and cash equivalents $ 16,187

Loans — — 47,048

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

Mortgage servicing rights 7,254

Principal and interest receivable 5,509 226 —

Interests in MSR 69,316

Other assets 10,406

Total assets $ 105,510

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

Other secured financing — — 30,420

Payable for unsettled trades 1,911

Interest payable 1,697 55 —

Other liabilities 14,582

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December 31, 2020

Commercial Trusts Residential Trusts MSR Silo

Commercial Trusts Residential Trusts MSR VIEs

Assets (dollars in thousands)

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Principal and interest receivable 5,509 226 —

Other assets — — 27,021

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

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Total liabilities $ 1,838,482 $ 23,652 $ 46,841

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 % 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

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

As of December 31, 2021 and 2020 the Company had outstanding participating interests in residential mortgage loans of $ 1.0 billion and $ 39.2 million, respectively.

These transfers do not meet the criteria for sale accounting and are accounted for as secured borrowings, 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.

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.

Historical cost includes all costs necessary to bring the asset to the condition and location necessary for its intended use, including financing during the construction period.

Costs directly related to acquisitions deemed to be business combinations are expensed.

Ordinary repairs and maintenance are expensed as incurred.

Major replacements and improvements that extend the useful life of the asset are capitalized and depreciated over their useful life.

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

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.

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.

Once a property is determined to be held for sale, depreciation is no longer recorded.

The Company’s real estate portfolio (REO and real estate held for investment) is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable.

A property’s value is considered impaired if the Company’s estimate of the aggregate future undiscounted cash flows to be generated by the property is less than the carrying value of the property.

In conducting this review, the Company considers U.S.

macroeconomic factors, including real estate sector conditions, together with asset specific and other factors.

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.

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, 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 )

Total real estate held for investment, at amortized cost, net 563,765 616,822

Equity in unconsolidated joint ventures 92,549 108,816

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

SALE OF COMMERCIAL REAL ESTATE BUSINESS

On March 25, 2021, the Company entered into a definitive agreement to sell substantially all of the assets that comprise its CRE business to Slate Asset Management L.P.

and Slate Grocery REIT (together, “Slate”) for $ 2.33 billion.

The transaction includes equity interests, loan assets and associated liabilities, and CMBS (other than commercial CRTs).

The Company also intends to sell nearly all of the remaining CRE business assets that are not included in the transaction with Slate.

A real estate property that was held for sale, which is not included in the transaction with Slate, was sold during the year ended December 31, 2021 and resulted in the recognition of a gain of $ 4.8 million in Business divestiture-related gains (losses) in the Consolidated Statements of Comprehensive Income (Loss).

In connection with the execution of the definitive agreement to sell the CRE business, during the year ended December 31, 2021, the Company performed an assessment of goodwill, which was related to the Company’s 2013 acquisition of CreXus Investment Corp., and recognized an impairment of $ 71.8 million.

As a result of classifying the loans as held for sale, the previously recognized allowance for loan losses of $ 135.0 million, which includes $ 5.1 million on unfunded loan commitments, was reversed during the three months ended March 31, 2021.

During the year ended December 31, 2021, the majority of assets held for sale and the associated liabilities were transferred to Slate, with the remaining assets expected to be transferred by the end of the first quarter of 2022 subject to regulatory approvals.

The pretax income (loss) of the CRE business was ($ 31.6 ) million for the year ended December 31, 2021 and ($ 99.6 ) million for the year

ANNALY CAPITAL MANAGEMENT, INC.

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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).

Rental Income

The minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments.

The leases generally also require that the tenants reimburse the Company for certain operating costs.

Rental income is included in Other income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss).

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:

December 31, 2020

(dollars in thousands)

2021 $ 44,267

Later years 60,971

Total $ 236,387

ended December 31, 2020.

Certain employees who primarily supported the CRE business joined Slate in connection with the sale.

The carrying value of the total assets in the disposal group was $ 194.1 million at December 31, 2021, primarily real estate, net.

The carrying value of total liabilities in the disposal group was $ 154.9 million at December 31, 2021, primarily mortgages payable on the related real estate held for sale.

DERIVATIVE INSTRUMENTS

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In the event of a default by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in accordance with the terms of the derivative contracts.

Derivatives are accounted for in accordance with FASB ASC 815, Derivatives and Hedging , which requires recognition of all derivatives as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss).

The changes in the estimated fair value are presented within Net gains (losses) on other derivatives with the exception of interest rate swaps which are separately presented.

Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss).

None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes.

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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, 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.

At December 31, 2021 and 2020, ($ 393.4 ) million and $ 1.5 billion, 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

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.

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.

The Company may have outstanding 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.

Interest rate swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”).

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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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

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Assets (dollars in thousands)

Interest rate swaps $ — $ 1,199

Interest rate swaptions $ 105,710 $ 74,470

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$ 881,537 $ 1,033,345

(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.

(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $ 400.0 million and $ 504.0 million at December 31, 2021 and December 31, 2020, respectively, plus any coupon shortfalls on the underlying tranche.

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.

As of December 31, 2021 and 2020, the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA, and AAA and A, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

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

(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.

(1) As of December 31, 2021, 18 %, 53 % and 29 % 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, 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.

(2) There were no forward starting swaps at December 31, 2021 and December 31, 2020.

(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.

(3) At December 31, 2021 and 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.

The following table summarizes certain characteristics of the Company’s swaptions at December 31, 2021 and 2020.

December 31, 2021

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table summarizes certain characteristics of the Company’s TBA derivatives at December 31, 2021 and 2020:

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

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table summarizes certain characteristics of the Company’s futures derivatives at December 31, 2021 and 2020:

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$ — $ ( 7,509,200 ) 1.96

Treasury futures - 5 year

— ( 5,644,900 ) 4.38

Treasury futures - 10 year and greater

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$ — $ ( 1,240,000 ) 4.40

Treasury futures - 5 year

— ( 2,953,300 ) 4.42

Treasury futures - 10 year and greater

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Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset on our Consolidated Statements of Financial Condition at December 31, 2021 and 2020, respectively.

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Purchase commitments 1,779 — — 1,779

Credit derivatives 1,160 ( 516 ) — 644

Interest rate swaps, at fair value $ 747,036 $ — $ ( 77,607 ) $ 669,429

TBA derivatives, at fair value 3,916 ( 3,876 ) ( 40 ) —

Futures contracts, at fair value 129,134 ( 9,028 ) ( 120,106 ) —

Purchase commitments 870 — — 870

Credit derivatives 581 ( 516 ) ( 65 ) —

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Assets (dollars in thousands)

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

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

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Purchase commitments 49 — — 49

Credit derivatives 5,657 — — 5,657

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

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

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

Purchase commitments 907 — — 907

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

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December 31, 2019 $ 351,375 $ ( 1,442,964 ) $ ( 1,210,276 )

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The effect of other derivative contracts on the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:

Year Ended December 31, 2021

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 and Financial Instruments

(dollars in thousands)

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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 and Financial Instruments

(dollars in thousands)

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FAIR VALUE MEASUREMENTS

The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSRs that are accounted for at fair value.

The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR that are accounted for at fair value.

The fair value of a financial instrument and MSR is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

GAAP requires classification of financial instruments and MSRs into a three-level hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

If the inputs used to measure the financial instruments and MSRs fall within different levels of the hierarchy, the categorization is based on the lowest priority input that is significant to the fair value measurement of the instrument.

Financial assets and liabilities recorded at fair value on the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows:

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

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

“Sale of Commercial Real Estate Business” Note for fair value measurements related to the assets and liabilities of the disposal group held for sale as of December 31, 2021.

GAAP requires classification of financial instruments and MSR into a three-level hierarchy based on the priority of the inputs to the valuation technique.

The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

If the inputs used to measure the financial instrument and MSR fall within different levels of the hierarchy, the categorization is based on the lowest priority input that is significant to the fair value measurement of the instrument.

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.

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Consequently, commercial real estate debt investments carried at fair value are classified as Level 2.

For the fair value of debt issued by securitization vehicles, refer to the Note titled “Variable Interest Entities” for additional information.

The Company classifies its investments in MSRs as Level 3 in the fair value measurements hierarchy.

For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional information.

The Company classifies its investments in MSR and Interests in MSR as Level 3 in the fair value measurements hierarchy.

Fair value estimates for these investments are obtained from models, which use significant unobservable inputs in their valuations.

These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including prepayment rates, delinquency levels, costs to service and discount rates.

These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including discount rates, prepayment rates, delinquency levels and costs to service.

Model valuations are then compared to valuations obtained from third party pricing providers.

Management reviews the valuations received from third party pricing providers and uses them as a point of comparison to modeled values.

The valuation of MSRs requires significant judgment by management and the third-party pricing providers.

The valuation of MSR and Interests in MSR require significant judgment by management and the third party pricing providers.

Assumptions used for which there is a lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s financial statements.

The following tables present the estimated fair values of financial instruments and MSRs measured at fair value on a recurring basis.

There were no transfers between levels of the fair value hierarchy during the periods presented.

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

The following tables present the estimated fair values of financial instruments and MSR measured at fair value on a recurring basis.

There were no transfers between levels of the fair value hierarchy during the periods presented.

December 31, 2021

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Residential mortgage loans — 2,272,072 — 2,272,072

Residential mortgage loan warehouse facility — 980 — 980

Mortgage servicing rights — — 544,562 544,562

Interests in MSR — — 69,316 69,316

Assets transferred or pledged to securitization vehicles — 6,086,308 — 6,086,308

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Derivative assets

Interest rate swaps — 1,199 — 1,199

Other derivatives 506 170,628 — 171,134

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Debt issued by securitization vehicles $ — $ 5,652,982 $ — $ 5,652,982

Participations issued — 39,198 — 39,198

Derivative liabilities

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Total liabilities $ 19,413 $ 6,706,112 $ — $ 6,725,525

Quantitative Information about Level 3 Fair Value Measurements

Qualitative and Quantitative Information about Level 3 Fair Value Measurements

The Company considers unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset.

Relevant inputs vary depending on the nature of the instrument being measured at fair value.

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 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

The sensitivities of significant unobservable

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

unobservable inputs.

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 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.

Such relationships have not been included in the discussion below.

For each of the individual relationships described below, the inverse relationship would also generally apply.

For MSRs, in general, increases in the discount, prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement.

A decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in MSRs, which in turn could result in a decline in the estimated fair value of MSRs.

Refer to the Note titled “Mortgage Servicing Rights” for additional information.

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSRs.

For MSR and Interest in MSR, in general, increases in the discount, prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement.

A decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in MSR and Interest in MSR, which in turn could result in a decline in the estimated fair value of MSR and Interest in MSR.

Refer to the “Mortgage Servicing Rights” Note for additional information, including rollforwards.

The table below presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR and Interest in MSR.

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, 2020 December 31, 2019

Valuation Technique Unobservable Input (1)

(Weighted Average ) (2)

Unobservable Input (1)

(Weighted Average ) (2)

Discounted cash flow Discount rate 9.0 % - 12.0 % ( 9.4 %)

Discount rate 9.0 % - 12.0 % ( 9.3 %)

Prepayment rate 19.3 % - 55.5 % ( 42.0 %)

Prepayment rate 6.3 % - 26.6 % ( 13.7 %)

Delinquency rate 0.0 % - 6.0 % ( 2.5 %)

Delinquency rate 0.0 % - 4.0 % ( 2.2 %)

Cost to service $ 83 - $ 108 ($ 98 )

Cost to service $ 81 - $ 135 ($ 107 )

December 31, 2021

Unobservable Input (1) / Range (Weighted Average) (2)

Discount rate Prepayment rate Delinquency rate Cost to service

MSR held directly 3.3 % - 11.1 % ( 7.0 %)

7.3 % - 15.9 % ( 9.4 %)

0.2 % - 2.5 % ( 1.2 %)

$ 90 - $ 103 ($ 96 )

Interests in MSR 8.4 % - 8.4 % ( 8.4 %)

5.0 % - 14.4 % ( 9.1 %)

0.0 % - 0.2 % ( 0.1 %)

$ 78 - $ 84 ($ 81 )

December 31, 2020

Unobservable Input (1) / Range (Weighted Average) (2)

Discount rate Prepayment rate Delinquency rate Cost to service

MSR consolidated with VIE 9.0 % - 12.0 % ( 9.4 %)

19.3 % - 55.5 % ( 42.0 %)

0.0 % - 6.0 % ( 2.5 %)

$ 83 - $ 108 ($ 98 )

(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.

(2) Weighted average discount rate computed based on the fair value of MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR.

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at December 31, 2021 and 2020.

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(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.

Commercial real estate debt and preferred equity, held for investment, corporate debt held, for investment, corporate debt, held for sale and mortgages payable are valued using Level 3 inputs.

The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered Level 2 fair value measurements.

Long term other secured financing is valued using Level 2 inputs.

GOODWILL AND INTANGIBLE ASSETS

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The Company’s acquisitions are accounted for using the acquisition method if the acquisition is deemed to be a business.

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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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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.

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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.

At December 31, 2021 and 2020, goodwill totaled $ 0 and $ 71.8 million, respectively.

The change reflects the goodwill impairment in connection with the sale of the CRE business.

Refer to the “Sale of Commercial Real Estate Business” Note for additional information.

Intangible assets, net

Finite life intangible assets are amortized over their expected useful lives.

As part of the Internalization, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired assembled workforce of approximately $ 41.2 million based on the replacement cost of the employee base acquired by the Company.

As part of the sale of the CRE business, certain intangible assets connected with those real estate assets were transferred into the disposal group held for sale.

During the year ended December 31, 2021, the Company recognized an impairment of $ 4.3 million in Other income (loss) and $ 5.2 million in Business divestiture-related gains (losses) in the Consolidated Statements of Comprehensive Income (Loss) for changes to the assembled workforce.

The following table presents the activity of finite lived intangible assets for the year ended December 31, 2021.

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Balance at December 31, 2020

Intangible assets acquired 50,360

Intangible assets divested

Impairment ( 9,549 )

Intangible assets transferred to disposal group held for sale ( 14,528 )

amortization expense

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Reverse Repurchase and Repurchase Agreements – The Company finances a significant portion of its assets with repurchase agreements.

At the inception of each transaction, the Company assessed each of the specified criteria in ASC 860, Transfers and Servicing , and has determined that each of the financing agreements meet the specified criteria in this guidance.

The Company enters into reverse repurchase agreements to earn a yield on excess cash balances.

The Company obtains collateral in connection with the reverse repurchase agreements in order to mitigate credit risk exposure to its counterparties.

To mitigate credit exposure, the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in market value of these securities.

Generally, the Company receives or posts collateral with a fair value approximately equal to or greater than the value of the secured financing.

Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements meet the criteria to permit netting.

The Company reports cash flows on repurchase agreements as financing activities and cash flows on reverse repurchase agreements as investing activities in the Consolidated Statements of Cash Flows.

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 had outstanding $ 54.8 billion and $ 64.8 billion of repurchase agreements with weighted average remaining maturities of 52 days and 64 days at December 31, 2021 and 2020, respectively.

The Company has select arrangements with counterparties to enter into repurchase agreements for $ 1.9 billion with remaining capacity of $ 1.4 billion at December 31, 2021.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

At December 31, 2021 and 2020, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates:

December 31, 2021

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

Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Residential Mortgage Loans Commercial Mortgage-Backed Securities (1)

Total Repurchase Agreements Weighted Average Rate

(dollars in thousands)

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Total $ 52,724,923 $ 176,450 $ 977,366 $ 505,001 $ 385,903 $ 54,769,643 0.17 %

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2020

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

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)

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Total $ 62,744,910 $ 245,686 $ 1,050,439 $ 184,723 $ 271,801 $ 327,680 $ 64,825,239 0.32 %

(1) Includes commercial mortgage-backed securities held for sale.

(2) No repurchase agreements had a remaining maturity over 1 year at December 31, 2021.

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, 2021 and 2020.

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Netted amounts $ — $ 54,769,643 $ — $ 64,825,239

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, 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.

AND SUBSIDIARIES

Financial Statements

Mortgage loans payable at December 31, 2020 and 2019, were as follows:

December 31, 2020

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 %

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

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 %

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:

Mortgage Loan Principal Payments

(dollars in thousands)

2021 $ 11,123

Later years 81,447

Total $ 429,650

The fair value of mortgage-backed securities received as collateral in connection with reverse repurchase agreements was approximately $ 250.0 million, which the Company fully repledged, at December 31, 2020.

Other Secured Financing - Refer to the “Variable Interest Entities” Note 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 $ 59.2 billion and $ 160.8 million, respectively, at December 31, 2021 and $ 70.6 billion and $ 196.9 million, respectively, at December 31, 2020.

ANNALY CAPITAL MANAGEMENT, INC.

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2,936,500,000 2,914,850,000 1,459,736,258 1,398,240,618 $ 0.01

During the year ended December 31, 2019, the Company closed the public offering of an original issuance of 75.0 million shares of common stock for proceeds of $ 730.5 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 $ 109.6 million in proceeds before deducting offering expenses.

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.

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 “2021 Share Repurchase Program”).

The 2021 Share Repurchase Program replaced the Prior Share Repurchase Program.

In January 2022, we announced that our Board authorized the repurchase of up to $ 1.5 billion of our outstanding shares of common stock through December 31, 2024 (the “Current Share Repurchase Program”).

The Current Share Repurchase Program replaced the 2019 - 2020 Share Repurchase Program, which had replaced the Prior Share Repurchase Program.

During the year ended December 31, 2021, no shares were repurchased under the 2021 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.

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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.

In January 2018, the Company entered into separate Distribution Agency Agreements (as amended and restated on August 6, 2021 and August 6, 2020, collectively, the “Sales Agreements”) with each of Wells Fargo Securities, LLC, BofA Securities, Inc.

(formerly known as Merrill Lynch, Pierce, Fenner & Smith, Incorporated), Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co.

Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., RBC Capital Markets, LLC and UBS Securities LLC (the “Sales Agents”).

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.

No shares were issued under the at-the-market sales program during the year ended December 31, 2020.

During the year ended December 31, 2021, the Company issued 60.9 million shares of common stock for proceeds of $ 552.4 million, net of commissions and fees, under the at-the-market sales program.

No shares were issued under the at-the-market sales program during the year ended December 31, 2020.

(B) Preferred Stock

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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.

The cash redemption amount for each share of Series C Preferred Stock was $ 25.00 plus accrued and unpaid dividends to, but not including, the redemption date of July 21, 2019.

During the year ended December 31, 2019, the Company redeemed all 2.2 million of its issued and outstanding shares of 8.125 % Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”) for $ 55.0 million.

The cash redemption amount for each share of Series H Preferred Stock was $ 25.00 plus accrued and unpaid dividends to, but not including, the redemption date of May 31, 2019.

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.

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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Fixed-to-Floating Rate Cumulative Preferred Stock and Series I Fixed-to-Floating Rate Cumulative Preferred Stock rank senior to the common stock of the Company.

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Distributions declared per common share (1)

$ 0.88 $ 0.91

Distributions paid to common stockholders after period end $ 321,142 $ 307,613

1 unchanged sentence

Date of distributions paid to common stockholders after period end January 31, 2022 January 29, 2021

Dividends declared to series C preferred stockholders $ — $ 7,414

Dividends declared per share of series C preferred stock $ — $ 1.060

Dividends declared to series D preferred stockholders $ — $ 34,500

2 unchanged sentences

Dividends declared per share of series F preferred stock (2)

$ 1.738 $ 1.738

Dividends declared to series G preferred stockholders $ 27,624 $ 27,625

Dividends declared per share of series G preferred stock (2)

Dividends declared to series H preferred stockholders $ — $ 1,862

Dividends declared per share of series H preferred stock $ — $ 0.846

$ 1.625 $ 1.625

Dividends declared to series I preferred stockholders $ 29,868 $ 29,871

Dividends declared per share of series I preferred stock (2)

$ 1.688 $ 1.688

(1) For the year ended December 31, 2021, 100 % of common stock dividend distributions of $ 0.87 per share was taxable as a return of capital.

For the year ended December 31, 2020, 74 % and 26 % of common stock dividend distributions of $ 0.95 per share were taxable as ordinary income and capital gains, respectively.

(2) For the year ended December 31, 2021, 100 % of the preferred stock dividend distributions per share was taxable as a return of capital.

For the year ended December 31, 2020, 74 % and 26 % of the preferred stock dividend distributions per share were taxable as ordinary income and capital gains, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

LONG-TERM STOCK INCENTIVE PLAN

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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:

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(2) The ending balance includes 680,351 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.

The Company recognized equity-based compensation expense of $ 9.8 million for the year ended December 31, 2021.

As of December 31, 2021, there was $ 12.1 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 1.73 years.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

INTEREST INCOME AND INTEREST EXPENSE

Refer to the note titled “Significant Accounting Policies” for details surrounding the Company’s accounting policy related to net interest income on securities and loans.

Refer to the “Significant Accounting Policies” Note for details surrounding the Company’s accounting policy related to net interest income on securities and loans.

The following table summarizes the interest income recognition methodology for Residential Securities:

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Prime jumbo (2)

Prime jumbo interest-only (2)

(1) Changes in fair value are recognized in Other comprehensive income (loss) on the accompanying Consolidated Statements of Comprehensive Income (Loss).

1 unchanged sentence

(3) Effective yield is recalculated for differences between estimated and actual prepayments and the amortized cost is adjusted as if the new effective yield had been applied since inception.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following presents the components of the Company’s interest income and interest expense for the years ended December 31, 2021, 2020 and 2019.

2 unchanged sentences

Interest income (dollars in thousands)

Residential Securities (1)

Agency Securities (1)

$ 1,484,354 $ 1,661,566 $ 3,105,035

Residential credit securities 78,681 57,394 90,511

Residential mortgage loans (1)

2 unchanged sentences

237,597 338,763 378,395

Treasury securities — — 160

Reverse repurchase agreements 45 1,643 63,290

9 unchanged sentences

(2) Includes commercial real estate debt and preferred equity and corporate debt.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

NET INCOME (LOSS) PER COMMON SHARE

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To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within the next year as permitted by the Code.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The Company and certain of its direct and indirect subsidiaries, including Annaly TRS, Inc.

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The Company’s TRSs are subject to federal, state and local taxes.

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.

During the years ended December 31, 2021, 2020 and 2019 the Company recorded $ 4.7 million, ($ 28.4 ) million and ($ 10.8 ) million, respectively, of income tax expense (benefit) attributable to its TRSs.

The Company’s federal, state and local tax returns from 2018 and forward remain open for examination.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

RISK MANAGEMENT

The primary risks to the Company are capital, liquidity and funding risk, investment/market risk and credit risk.

The primary risks to the Company are capital, liquidity and funding risk, investment/market risk, credit risk and operational risk.

Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control.

3 unchanged sentences

The Company may seek to mitigate the potential financial impact by entering into interest rate agreements such as interest rate swaps, interest rate swaptions and other hedges.

Weakness in the mortgage market, the shape of the yield curve and changes in the expectations for the volatility of future interest rates may adversely affect the performance and market value of the Company’s investments.

Weakness in the mortgage market, the shape of the yield curve, changes in the expectations for the volatility of future interest rates and deterioration of financial conditions in general may adversely affect the performance and market value of the Company’s investments.

This could negatively impact the Company’s book value.

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The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities, which exclude CRT securities issued by Freddie Mac and Fannie Mae, is guaranteed by those respective agencies and the payment of principal and interest on Ginnie Mae Agency mortgage-backed securities is backed by the full faith and credit of the U.S.

Substantially all of the Company’s Agency mortgage-backed securities have an actual or implied “AAA” rating.

The Company faces credit risk on the portions of its portfolio which are not guaranteed by the respective Agency or by the full faith and credit of the U.S.

The Company is exposed to credit risk on CRE Debt and Preferred Equity Investments, real estate investments, commercial mortgage-backed securities, residential mortgage loans, CRT securities, other non-Agency mortgage-backed securities and corporate debt.

MSR values may also be adversely impacted if overall costs to service the underlying mortgage loans increase due to borrower performance.

The Company is exposed to risk of loss if an issuer, borrower, tenant or counterparty fails to perform its obligations under contractual terms.

The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, maintaining qualifying collateral and continually assessing the creditworthiness of issuers, borrowers, tenants and counterparties.

The Company is exposed to credit risk on commercial mortgage-backed securities, residential mortgage loans, CRT securities, other non-Agency mortgage-backed securities and corporate debt.

MSR values may also be adversely impacted by rising borrower delinquencies which would reduce servicing income and increase overall costs to service the underlying mortgage loans.

The Company is exposed to risk of loss if an issuer, borrower, or counterparty fails to perform its obligations under contractual terms.

The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral and continually assessing the creditworthiness of issuers, borrowers, and counterparties, credit rating monitoring and active servicer oversight.

The Company depends on third-party service providers to perform various business processes related to its operations, including mortgage loan servicers and sub-servicers.

The Company’s vendor management policy establishes procedures for engaging, onboarding and monitoring the performance of third-party vendors.

These procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information.

ANNALY CAPITAL MANAGEMENT, INC.

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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.

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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.

For the six months ended June 30, 2020, the compensation and management fee computed in accordance with the Management Agreement was $ 77.9 million and reimbursement payments to the former manager was $ 14.2 million.

For the year ended December 31, 2019, the compensation and management fee was $ 170.6 million and reimbursement payments to the former manager was $ 21.4 million.

ANNALY CAPITAL MANAGEMENT, INC.

2 unchanged sentences

LEASE COMMITMENTS AND CONTINGENCIES

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 five years .

The Company’s operating leases are primarily comprised of a corporate office lease with a remaining lease term of approximately four 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.

17 unchanged sentences

Years ended December 31, (dollars in thousands)

Later years —

Total lease payments $ 14,481

8 unchanged sentences

Arcola is subject to regulations of the securities business that include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and employees.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Arcola is a member of various clearing organizations with which it maintains cash required to conduct its day-to-day clearance activities.

5 unchanged sentences

All reverse repurchase activities are transacted under master repurchase agreements or other documentation that give Arcola the right, in the event of default, to liquidate collateral held and in some instances, to offset receivables and payables with the same counterparty.

As a member of the Financial Industry Regulatory Authority (“FINRA”), Arcola is required to maintain a minimum net capital balance.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

As a member of FINRA, Arcola is required to maintain a minimum net capital balance.

At December 31, 2021, Arcola had a minimum net capital requirement of $ 0.3 million.

1 unchanged sentence

Arcola’s regulatory net capital as defined by SEC Rule 15c3-1 at December 31, 2021 was $ 512.3 million with excess net capital of $ 512.0 million.

Schedule III - Real Estate and Accumulated Depreciation

(dollars in thousands)

December 31, 2020

Initial Cost to Company Cost Capitalized Subsequent to

Acquisition Gross Amounts Carried at

Close of Period 12/31/20

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

Retail - Plano, TX 1 11,817 4,616 12,691 205 4,616 12,896 17,512 ( 3,368 ) 1994 11/25/2015 38

Retail - Grapevine, TX 1 12,692 4,713 13,888 248 4,713 14,136 18,849 ( 3,123 ) 1998 11/25/2015 38

Retail - Flower Mound, TX 1 13,085 4,963 14,477 14 4,963 14,491 19,454 ( 3,461 ) 1999 11/25/2015 38

Retail - Grapevine, TX 1 9,797 3,932 9,972 11 3,932 9,983 13,915 ( 2,401 ) 1994 11/25/2015 38

Retail - Flower Mound, TX 1 7,492 2,696 7,351 209 2,696 7,560 10,256 ( 2,424 ) 1992 11/25/2015 38

Retail - Flower Mound, TX 1 8,929 3,571 8,280 219 3,571 8,499 12,070 ( 1,774 ) 1996 11/25/2015 38

Retail - Plano, TX 1 4,637 1,459 4,533 95 1,459 4,628 6,087 ( 2,046 ) 1995 11/25/2015 38

Retail - Largo, FL 1 12,750 4,973 12,812 286 4,973 13,098 18,071 ( 3,255 ) 1988 8/14/2015 27

Retail - Grass Valley, CA 1 25,900 9,872 28,680 479 9,872 29,159 39,031 ( 7,979 ) 1988 10/27/2015 25

Multifamily - Washington, DC 1 57,500 31,999 42,623 1,155 31,999 43,778 75,777 ( 8,575 ) 1978, 2008 10/20/2015 28

Retail - Penfield, NY 1 23,558 4,121 22,413 1,546 4,122 23,958 28,080 ( 8,037 ) 1957 11/10/2014 24

Retail - Orchard Park, NY 1 12,888 4,204 20,617 224 4,189 20,856 25,045 ( 5,344 ) 1997, 2000 11/10/2014 32

Retail - Cheektowaga, NY 1 9,447 1,961 12,259 245 1,939 12,526 14,465 ( 3,317 ) 1978 11/10/2014 25

Retail - Amherst, NY 1 8,270 2,131 9,740 1,193 2,132 10,932 13,064 ( 2,871 ) 1986 11/10/2014 28

Retail - Ontario, NY 1 5,406 575 6,813 27 574 6,841 7,415 ( 2,189 ) 1998 11/10/2014 31

Retail - Irondequoit, NY 1 15,000 2,438 14,684 1,936 2,438 16,620 19,058 ( 4,824 ) 1972 11/10/2014 27

Retail - LeRoy, NY 1 3,492 374 4,922 405 343 5,358 5,701 ( 1,729 ) 1997 11/10/2014 29

Retail - Jamestown, NY 1 7,356 820 4,915 — 820 4,915 5,735 ( 1,783 ) 1997 11/10/2014 29

Retail - Warsaw, NY 1 3,415 407 4,117 6 407 4,123 4,530 ( 1,216 ) 1998 11/10/2014 31

Retail - Chillicothe, OH 1 7,887 1,262 10,819 57 1,262 10,876 12,138 ( 2,872 ) 1981, 1998 11/10/2014 26

Retail - Loganville, GA 1 7,230 3,217 8,386 604 3,217 8,990 12,207 ( 2,464 ) 1996 11/10/2014 28

Retail - Chillicothe, OH 1 7,700 2,282 9,566 209 2,282 9,775 12,057 ( 2,407 ) 1995 7/22/2015 25

Retail - Knoxville, TN 1 — 3,503 13,309 400 3,503 13,709 17,212 ( 2,980 ) 2002 4/9/2014 34

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

Healthcare - Gainesville, VA 1 — 1,470 13,894 ( 15,364 ) — — — — 2006 9/7/2018 38

Healthcare - Pennington Gap, VA 1 — 190 11,549 ( 11,739 ) — — — — 2001 9/7/2018 33

Healthcare - Manassas, VA 1 — 2,040 14,041 ( 16,081 ) — — — — 2006 9/7/2018 38

Healthcare - Radford, VA 1 — 370 12,623 ( 12,993 ) — — — — 2002 9/7/2018 34

Healthcare - Hopewell, VA 1 — 560 12,181 ( 12,741 ) — — — — 2005 9/7/2018 37

Healthcare - Clifton Forge, VA 1 — 710 5,368 ( 6,078 ) — — — — 1986 9/7/2018 18

Healthcare - Allen, TX 1 8,847 800 10,858 — 800 10,858 11,658 ( 1,452 ) 2000 9/7/2018 22

Healthcare - Frisco, TX 1 6,559 1,000 7,420 — 1,000 7,420 8,420 ( 828 ) 1999 9/7/2018 31

Healthcare - Garland, TX 1 8,999 740 10,705 — 740 10,705 11,445 ( 1,000 ) 2004 9/7/2018 36

Healthcare - Denison, TX 1 4,211 650 6,527 — 650 6,527 7,177 ( 1,078 ) 1992 9/7/2018 19

Healthcare - Lewisville, TX 1 3,966 870 7,020 — 870 7,020 7,890 ( 887 ) 2004 9/7/2018 26

Healthcare - Kaukauna, WI 1 7,677 240 8,904 — 240 8,904 9,144 ( 797 ) 2009, 2013 9/7/2018 34

Healthcare - Mankato, MN 1 7,372 660 9,040 — 660 9,040 9,700 ( 1,108 ) 2004 9/7/2018 21

Healthcare - Mankato, MN 1 5,700 410 6,618 — 410 6,618 7,028 ( 579 ) 2014 9/7/2018 31

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

Healthcare - Blue Ridge, GA 1 12,889 630 15,576 3,471 630 19,047 19,677 ( 1,407 ) 7/8/1905 9/7/2018 38

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:

2020 2019 2018

Real Estate (dollars in thousands)

Beginning balance $ 704,354 $ 721,664 $ 441,971

Acquisitions and improvements 83,979 5,811 279,693

Property sold ( 124,421 ) ( 23,121 ) —

Ending balance $ 663,912 $ 704,354 $ 721,664

Accumulated Depreciation

Beginning balance $ 87,532 $ 67,026 $ 48,920

Property sold ( 10,098 ) ( 3,166 ) —

Depreciation 22,713 23,672 18,106

Ending balance $ 100,147 $ 87,532 $ 67,026

December 31, 2020

Schedule IV - Mortgage Loans on Commercial Real Estate

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

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.

(2) LIBOR represents the one month London Interbank Offer Rate.

(3) Assumes all extension options are exercised.

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of New York, State of New York.

SUBSEQUENT EVENTS

In January 2022, the Company completed and closed the securitizations of residential mortgage loans, OBX 2022-NQM1 and OBX 2022-INV1, with face values of $ 556.7 million and $ 377.3 million, respectively and in February 2022, completed and closed OBX 2022-INV2, with a face value of $ 466.7 million.

The securitizations represented financing transactions which provided non-recourse financing to the Company collateralized by residential mortgage loans purchased by the Company.

Pursuant to the requirements of Section 13 or 15(d) the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

ANNALY CAPITAL MANAGEMENT, INC.

February 17, 2022 By:

Chief Executive Officer and Chief Investment Officer (Principal Executive Officer)

Chief Executive Officer and President (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.

Signature Title Date

Chief Executive Officer and Chief Investment Officer (Principal Executive Officer)

Chief Executive Officer, President and Director (Principal Executive Officer)

February 17, 2022

19 unchanged sentences

Director February 17, 2022

/s/ Donnell A.

Director February 17, 2022

4 unchanged sentences

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