What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-08-01 compared with 2022-05-04 · 446 added, 420 removed, 1046 unchanged (45% of the section changed)

16 unchanged sentences

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

As of March 31, 2022, the assets held for sale and the associated liabilities were transferred.

As of June 30, 2022, the CRE assets held for sale and the associated liabilities were transferred.

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

In April 2022, the Company announced that it had entered into a definitive agreement to sell substantially all of the assets that comprise the Annaly Middle Market Lending ("MML") portfolio, including assets held on balance sheet as well as assets managed for third parties.

Subject to customary closing conditions, the sale of the MML business is expected to be completed by the second quarter of 2022.

Refer to the "Subsequent Events" Note for additional information.

The majority of these assets were legally transferred during the second quarter of 2022 and the remaining assets are expected to be transferred by the end of the third quarter of 2022.

Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

BASIS OF PRESENTATION

8 unchanged sentences

As a result of this change, prior periods have been adjusted to conform to the current presentation.

In addition, the Company consolidated certain line items in its Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation.

In addition, beginning with the quarter ended March 31, 2022, the Company consolidated certain line items in its Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation.

Amounts previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined into a single line item titled Net gains (losses) on derivatives.

Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings are combined into a single line item titled Net

gains (losses) on investments and other.

Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings

are combined into a single line item titled Net gains (losses) on investments and other.

As a result of these changes, 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, net 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 Other, net decreased by the same amounts for the three months ended March 31, 2021.

These reclassifications had no effect on the reported net income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss).

In the opinion of management, all normal, recurring adjustments have been included for a fair presentation of this interim financial information.

17 unchanged sentences

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

Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $ 0.8 billion and $ 1.2 billion at March 31, 2022 and December 31, 2021, respectively.

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 $ 0.7 billion and $ 1.2 billion at June 30, 2022 and December 31, 2021, respectively.

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”).

3 unchanged sentences

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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

3 unchanged sentences

The changes in the estimated fair value are presented within Net gains (losses) on derivatives.

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

None of the Company’s

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

derivative transactions have been designated as hedging instruments for accounting purposes.

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

31 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

4 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Recent Accounting Pronouncements

12 unchanged sentences

FINANCIAL INSTRUMENTS

The following table presents characteristics for certain of the Company’s financial instruments at March 31, 2022 and December 31, 2021.

The following table presents characteristics for certain of the Company’s financial instruments at June 30, 2022 and December 31, 2021.

Financial Instruments (1)

Balance Sheet Line Item Type / Form Measurement Basis March 31, 2022 December 31, 2021

Balance Sheet Line Item Type / Form Measurement Basis June 30, 2022 December 31, 2021

Assets (dollars in thousands)

50 unchanged sentences

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.

The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the three months ended March 31, 2022:

The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the six months ended June 30, 2022:

Agency Securities Residential Credit Securities Commercial Securities Total

8 unchanged sentences

Fair value adjustment ( 5,265,562 ) ( 177,535 ) ( 13,283 ) ( 5,456,380 )

Ending balance March 31, 2022

Ending balance June 30, 2022

$ 55,593,336 $ 2,992,372 $ 457,026 $ 59,042,734

2 unchanged sentences

Financial Statements

The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that were carried at their fair value at March 31, 2022 and December 31, 2021:

March 31, 2022

June 30, 2022

Notional Remaining Premium Remaining Discount Amortized

51 unchanged sentences

Total securities $ 65,793,672 $ 3,771,429 $ ( 77,850 ) $ 62,903,483 $ 1,425,965 $ ( 673,774 ) $ 63,655,674

(1) Principal/Notional amount includes $ 5.3 billion and $ 4.5 billion of Agency Multifamily interest-only securities as of March 31, 2022 and December 31, 2021, respectively.

(2) Principal/Notional amount includes $ 1.4 million and $ 4.1 million of a CRT interest-only security as of March 31, 2022 and December 31, 2021, respectively.

(3) Principal/Notional amount includes $ 30.4 million and $ 50.0 million of Prime interest-only securities as of March 31, 2022 and December 31, 2021, respectively.

(4) Principal/Notional amount includes $ 1.2 billion and $ 126.5 million of Prime Jumbo interest-only securities as of March 31, 2022 and December 31, 2021, respectively.

(1) Principal/Notional amount includes $ 7.3 billion and $ 4.5 billion of Agency Multifamily interest-only securities as of June 30, 2022 and December 31, 2021, respectively.

(2) Principal/Notional amount includes $ 0.0 million and $ 4.1 million of a CRT interest-only security as of June 30, 2022 and December 31, 2021, respectively.

(3) Principal/Notional amount includes $ 920.3 million and $ 50.0 million of Prime interest-only securities as of June 30, 2022 and December 31, 2021, respectively.

(4) Principal/Notional amount includes $ 1.9 billion and $ 126.5 million of Prime Jumbo interest-only securities as of June 30, 2022 and December 31, 2021, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Investment Type (dollars in thousands)

4 unchanged sentences

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

The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at March 31, 2022 and December 31, 2021, according to their estimated weighted average life classifications:

March 31, 2022 December 31, 2021

The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021, according to their estimated weighted average life classifications:

June 30, 2022 December 31, 2021

Estimated Fair Value Amortized

6 unchanged sentences

Total $ 58,585,708 $ 63,273,642 $ 63,125,169 $ 62,370,539

The estimated weighted average lives of the Residential Securities at March 31, 2022 and December 31, 2021 in the table above are based upon projected principal prepayment rates.

The estimated weighted average lives of the Residential Securities at June 30, 2022 and December 31, 2021 in the table above are based upon projected principal prepayment rates.

The actual weighted average lives of the Residential Securities could be longer or shorter than projected.

The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Estimated Fair Value (1)

11 unchanged sentences

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.

During the three months ended March 31, 2022 and 2021, the Company disposed of $ 2.8 billion and $ 3.0 billion of Residential Securities, respectively.

The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the three months ended March 31, 2022 and 2021.

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

For the three months ended (dollars in thousands)

March 31, 2022 $ 1,565 $ ( 146,056 ) $ ( 144,491 )

March 31, 2021 $ 4,646 $ ( 65,340 ) $ ( 60,694 )

An impairment has not been recognized in earnings related to these investments because the decline in value is not related to credit quality, the Company currently has not made a decision to sell the securities nor is it more likely than not that the securities will be required to be sold before recovery.

During the three and six months ended June 30, 2022, the Company disposed of $ 6.6 billion and $ 9.4 billion of Residential Securities, respectively.

During the three and six months ended June 30, 2021, the Company disposed of $ 3.3 billion and $ 6.2 billion of Residential Securities, respectively.

The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the three and six months ended June 30, 2022 and 2021.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The Company invests in residential and corporate loans.

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

For the three months ended (dollars in thousands)

June 30, 2022 $ 27,263 $ ( 684,560 ) $ ( 657,297 )

June 30, 2021 $ 52,485 $ ( 17,680 ) $ 34,805

For the six months ended

June 30, 2022 $ 28,828 $ ( 830,615 ) $ ( 801,787 )

June 30, 2021 $ 57,131 $ ( 83,021 ) $ ( 25,890 )

The Company invests in residential loans.

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

2 unchanged sentences

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 March 31, 2022 and December 31, 2021, the Company rep orted $ 1.7 billion and $ 2.3 billion, respectively, of loans for which the fair value option was elected.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of June 30, 2022 and December 31, 2021, the Company rep orted $ 1.5 billion and $ 2.3 billion, 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.

2 unchanged sentences

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

The carrying value of the Company’s residential loans held for sale was $ 1.9 million and $ 2.3 million at March 31, 2022 and December 31, 2021, respectively.

The carrying value of the Company’s residential loans held for sale was $ 1.5 million and $ 2.3 million at June 30, 2022 and December 31, 2021, 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, where the fair value option is not elected.

8 unchanged sentences

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

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

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

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

7 unchanged sentences

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

The Company recorded net loan loss (provisions) reversals of ($ 0.6 ) million and $ 139.6 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022 and December 31, 2021, the Company’s loan loss allowance was $ 28.5 million and $ 27.9 million, respectively.

The Company recorded net loan loss (provisions) reversals of $ 26.9 million and $ 26.3 million for the three and six months ended June 30, 2022, respectively.

The Company recorded net loan loss (provisions) reversals of ($ 0.5 ) million and $ 139.1

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

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 and loan warehouse facilities, for the three months ended March 31, 2022:

million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2022 and December 31, 2021, the Company’s loan loss allowance was $ 0.0 million and $ 27.9 million, respectively.

The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, for the six months ended June 30, 2022:

Residential Corporate Debt

9 unchanged sentences

(Amortization) / accretion ( 8,888 ) 2,694 ( 6,194 )

Ending balance March 31, 2022

Ending balance June 30, 2022

$ 1,486,811 $ — $ 1,486,811

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

Includes transfer of residential loans to securitization vehicles with a carrying value of $ 2.5 billion during the three months ended March 31, 2022.

(1) Includes securitizations, syndications, transfers to securitization vehicles and corporate debt transfers to assets of disposal group held for sale and other assets.

Includes transfer of residential loans to securitization vehicles with a carrying value of $ 4.4 billion during the six months ended June 30, 2022.

(2) Includes loan loss allowances.

The Company’s corporate loans also have off-balance-sheet credit exposure related to unfunded loan commitments, including revolvers, delayed draw term loans and future funding commitments that are not unconditionally cancellable by the Company.

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

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

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

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

2 unchanged sentences

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 and excluding loan warehouse facilities, at March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

(dollars in thousands)

1 unchanged sentence

Unpaid principal balance $ 10,516,244 $ 7,535,855

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 for these investments, excluding loan warehouse facilities:

For the Three Months Ended

March 31, 2022 March 31, 2021

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2022 and 2021 for these investments, excluding loan warehouse facilities:

For the Three Months Ended For the Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

(dollars in thousands)

6 unchanged sentences

(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (Loss)

The following table provides the geographic concentrations based on the unpaid principal balances at June 30, 2022 and December 31, 2021 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The following table provides the geographic concentrations based on the unpaid principal balances at March 31, 2022 and December 31, 2021 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

Geographic Concentrations of Residential Mortgage Loans

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Property location % of Balance Property location % of Balance

4 unchanged sentences

Total 100.0 % 100.0 %

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at March 31, 2022 and December 31, 2021:

March 31, 2022 December 31, 2021

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

Portfolio Weighted

11 unchanged sentences

67 % 8 % - 103 %

At March 31, 2022 and December 31, 2021, approximately 13 % and 16 %, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

At June 30, 2022 and December 31, 2021, approximately 12 % and 16 %, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

The Company participates in an arrangement that provides 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 March 31, 2022 and December 31, 2021, the fair value and carrying value of this warehouse facility was $ 0 and $ 1.0 million, respectively, and reported as Loans, net in the Consolidated Statements of Financial Condition.

As of March 31, 2022, the lending facility was not on nonaccrual status nor past due.

At June 30, 2022 and December 31, 2021, the fair value and carrying value of this warehouse facility was $ 0.3 million and $ 1.0 million, respectively, and reported as Loans, net in the Consolidated Statements of Financial Condition.

As of June 30, 2022, 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.

1 unchanged sentence

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 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.

Senior secured loans are generally exposed to less credit risk than more junior loans given their seniority to scheduled principal and interest and priority of security in the assets of the borrower.

Interest income from coupon payments is accrued based upon the outstanding principal amounts of the debt and its contractual terms.

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

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Risk Rating - Corporate Debt Description

1-5 / Performing Meets all present contractual obligations.

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

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

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

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

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

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

9 / Loss Considered uncollectible.

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 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 three months ended March 31, 2022 and 2021.

For the three months ended March 31, 2022 and 2021 the Company recorded a net loan loss (provision) reversal on corporate loans of ($ 0.6 ) million and $ 6.2 million, respectively, based upon its Loss Given Default methodology.

At March 31, 2022 and December 31, 2021, the Company had unfunded corporate loan commitments of $ 284.5 million and $ 278.9 million, respectively.

At March 31, 2022 and December 31, 2021, the liability related to the expected credit losses on the unfunded corporate loan commitments was $ 2.5 million and $ 2.3 million, respectively.

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

The industry and rate attributes of the portfolio at March 31, 2022 and December 31, 2021 are as follows:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Industry Dispersion

March 31, 2022 December 31, 2021

(dollars in thousands)

Computer Programming, Data Processing & Other Computer Related Services $ 464,921 $ 437,257

Management & Public Relations Services 229,097 263,187

Industrial Inorganic Chemicals 155,728 156,292

Miscellaneous Industrial & Commercial 96,789 93,619

Miscellaneous Health & Allied Services, not elsewhere classified 96,104 64,133

Public Warehousing & Storage 95,037 94,179

Electronic Components & Accessories 92,166 92,261

Surgical, Medical & Dental Instruments & Supplies 80,391 80,786

Drugs 67,244 —

Research, Development & Testing Services 62,689 59,311

Engineering, Architectural & Surveying 50,023 49,088

Offices & Clinics of Doctors of Medicine 49,910 50,017

Medical & Dental Laboratories 48,603 30,199

Insurance Agents, Brokers & Service 43,360 43,598

Telephone Communications 42,651 42,589

Electrical Work 42,611 42,617

Miscellaneous Equipment Rental & Leasing 32,367 32,346

Home Health Care Services 28,600 28,660

Metal Forgings & Stampings 27,514 27,483

Legal Services 26,146 26,105

Petroleum & Petroleum Products 20,705 21,434

Sanitary Services 20,410 20,453

Grocery Stores 19,646 19,745

Coating, Engraving & Allied Services 17,742 17,705

Chemicals & Allied Products 14,626 14,657

Mailing, Reproduction, Commercial Art & Photography & Stenographic 12,431 12,388

Machinery, Equipment & Supplies 10,323 10,814

Offices & Clinics of Other Health Practitioners 10,068 10,083

Schools & Educational Services, not elsewhere classified 9,765 9,781

Metal Cans & Shipping Containers — 118,204

Total $ 1,967,667 $ 1,968,991

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

The table below reflects the Company’s aggregate positions by their respective place in the capital structure of the borrowers at March 31, 2022 and December 31, 2021.

March 31, 2022 December 31, 2021

(dollars in thousands)

First lien loans $ 1,471,546 $ 1,391,217

Second lien loans (1)

496,121 577,774

Total $ 1,967,667 $ 1,968,991

(1) Includes mezzanine positions.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following tables represent a rollforward of the activity for the Company’s corporate debt investments held for investment at March 31, 2022 and December 31, 2021:

March 31, 2022

First Lien Second Lien Total

(dollars in thousands)

Beginning balance (January 1, 2022) (1)

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

Originations & advances 154,396 17,301 171,697

Principal payments ( 74,251 ) ( 99,987 ) ( 174,238 )

Amortization & accretion of (premium) discounts 885 940 1,825

Allowance for loan losses

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

Current period (allowance) reversal ( 701 ) 93 ( 608 )

Ending allowance ( 18,042 ) ( 10,486 ) ( 28,528 )

Net carrying value (March 31, 2022)

$ 1,471,546 $ 496,121 $ 1,967,667

December 31, 2021

First Lien Second Lien Total

(dollars in thousands)

Beginning balance (January 1, 2021) (1)

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

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

Allowance for loan losses

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 )

Net carrying value (December 31, 2021)

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

(1) Excludes loan loss allowances.

(2) Includes syndications.

The following table provides the amortized cost basis of corporate debt held for investment as of March 31, 2022 by vintage year and internal risk rating.

Amortized Cost Basis by Risk Rating and Vintage (1)

Risk Rating Vintage

Total 2022 2021 2020 2019 2018 2017 2016

(dollars in thousands)

1-5 / Performing $ 1,797,943 $ 55,565 $ 641,746 $ 342,945 $ 221,796 $ 358,884 $ 138,903 $ 38,104

6 / Performing - Closely Monitored 65,000 — 22,522 26,146 16,332 — — —

7 / Substandard 104,724 — — 10,323 9,276 85,125 — —

8 / Doubtful — — — — — — — —

9 / Loss — — — — — — — —

Total $ 1,967,667 $ 55,565 $ 664,268 $ 379,414 $ 247,404 $ 444,009 $ 138,903 $ 38,104

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

As of March 31, 2022, the Company had $ 9.7 million of accrued interest receivable on corporate loans, which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition, and $ 0.8 million of deferred loan fees on unfunded loans, which is reported in Loans, net in the Consolidated Statements of Financial Condition.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the "MML Portfolio"), to Ares Capital Management LLC (“Ares”).

The majority of these assets were legally transferred to Ares during the three months ended June 30, 2022, and the remaining assets are expected to be transferred by the end of the third quarter of 2022.

Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

MORTGAGE SERVICING RIGHTS

1 unchanged sentence

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

7 unchanged sentences

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

The following tables present activity related to MSR and Interests in MSR for the three months ended March 31, 2022 and 2021:

Mortgage Servicing Rights Three Months Ended

March 31, 2022 March 31, 2021

The following tables present activity related to MSR and Interests in MSR for the three and six months ended June 30, 2022 and 2021:

Mortgage Servicing Rights Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

(dollars in thousands)

1 unchanged sentence

Purchases (1)

262,960 98,983 683,983 98,983

Sales ( 9,065 ) ( 376 ) ( 9,075 ) ( 376 )

Change in fair value due to:

5 unchanged sentences

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

Interests in MSR Three Months Ended

March 31, 2022

Interests in MSR Three Months Ended Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

(dollars in thousands)

1 unchanged sentence

Purchases (1)

( 53 ) 47,098 4,860 47,098

Gain (loss) included in net income ( 1,978 ) 1,937 9,446 1,937

Ending balance March 31, 2022

Ending balance June 30, 2022

$ 83,622 $ 49,035 $ 83,622 $ 49,035

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

VARIABLE INTEREST ENTITIES

The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $ 1.1 billion at June 30, 2022.

Assets of the VIEs may only be used to settle obligations of the VIEs.

Creditors of the VIEs have no recourse to the general credit of the Company.

The Company is not contractually required to provide and has not provided any form of financial support to the VIEs.

No gains or losses were recognized upon consolidation of existing VIEs.

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

Multifamily Securitization

3 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Residential Securitizations

2 unchanged sentences

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

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.

Residential securitizations are issued by entities generally 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.

Residential securitizations closed during the year are included in the table below.

Securitization Date of Closing Face Value at Closing

(dollars in thousands)

OBX 2018-1 March 2018 $ 327,162

OBX 2018-EXP1 August 2018 $ 383,451

OBX 2018-EXP2 October 2018 $ 384,027

OBX 2019-INV1 January 2019 $ 393,961

OBX 2019-EXP1 April 2019 $ 388,156

OBX 2019-INV2 June 2019 $ 383,760

OBX 2019-EXP2 July 2019 $ 463,405

OBX 2019-EXP3 October 2019 $ 465,492

OBX 2020-INV1 January 2020 $ 374,609

OBX 2020-EXP1 February 2020 $ 467,511

OBX 2020-EXP2 July 2020 $ 489,352

OBX 2020-EXP3 September 2020 $ 514,609

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

OBX 2022-NQM1 January 2022 $ 556,696

4 unchanged sentences

OBX 2022-NQM3 March 2022 $ 315,843

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

As of March 31, 2022 and December 31, 2021, a total carrying value of $ 6.2 billion and $ 4.6 billion, respectively, of bonds were held by third parties and the Company retained $ 892.5 million and $ 780.8 million, respectively, of mortgage-backed securities, which were eliminated in consolidation.

OBX 2022-NQM4 May 2022 $ 457,285

OBX 2022-J1 May 2022 $ 389,334

OBX 2022-NQM5 June 2022 $ 390,775

OBX 2022-INV4 June 2022 $ 335,900

OBX 2022-NQM6 June 2022 $ 387,913

As of June 30, 2022 and December 31, 2021, a total carrying value of $ 7.1 billion and $ 4.6 billion, respectively, of bonds were held by third parties and the Company retained $ 998.4 million and $ 780.8 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.

The Company has elected the fair value option for the financial assets and liabilities of these VIEs, but has not elected the practical expedient under ASU 2014-13 as prices of both the financial assets and financial liabilities of the residential mortgage trusts are available from third party pricing services.

The Company incurred $ 3.4 million and $ 0.7 million of costs during the three months ended March 31, 2022 and 2021, respectively, in connection with these securitizations that were expensed as incurred.

The contractual principal amount of the OBX Trusts’ debt held by third parties was $ 6.5 billion and $ 4.6 billion at March 31, 2022 and December 31, 2021, respectively.

The Company incurred $ 1.8 million and $ 1.2 million of costs during the three months ended June 30, 2022 and 2021, respectively, and $ 5.1 million and $ 1.8 million of costs during the six months ended June 30, 2022 and 2021, respectively, in connection with these securitizations that were expensed as incurred.

The contractual principal amount of the OBX Trusts’ debt held by third parties was $ 7.8 billion and $ 4.6 billion at June 30, 2022 and December 31, 2021, respectively.

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

Credit Facility VIEs

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

As of March 31, 2022 and December 31, 2021, the borrowing limit on this facility was $ 675.0 million.

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

The Company has pledged as collateral for this facility corporate loans with a carrying amount of $ 716.4 million and $ 692.6 million at March 31, 2022 and December 31, 2021, respectively.

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

At March 31, 2022 and December 31, 2021, the subsidiary had an intercompany receivable of $ 455.5 million and $ 433.3 million, respectively, which eliminates upon consolidation and a secured financing of $ 455.5 million and $ 433.3 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 March 31, 2022 and December 31, 2021, the borrowing limit on this facility was $ 234.2 million and $ 400.0 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 $ 396.6 million and $ 402.9 million at March 31, 2022 and December 31, 2021, respectively, which continue to be reflected in the Company’s Consolidated Statements of Financial Condition under Loans, net.

At March 31, 2022 and December 31, 2021, the subsidiary had a secured financing of $ 234.2 million and $ 238.2 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 March 31, 2022 and December 31, 2021, the borrowing limit on this facility was $ 400.0 million.

The Company has pledged as collateral for this facility corporate loans with a carrying amount of $ 362.4 million and $ 368.0 million at March 31, 2022 and December 31, 2021, respectively.

As of March 31, 2022 and December 31, 2021, the subsidiary had a secured financing of $ 224.6 million and $ 231.8 million, respectively, to the third party financial institution.

In connection with the sale of substantially all of the assets that comprise the MML Portfolio, these credit facilities which provided financing for the Company’s corporate debt were paid-off and terminated during the three months ended June 30, 2022.

Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

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.

1 unchanged sentence

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 $ 2.5 billion at March 31, 2022.

Assets of the VIEs may only be used to settle obligations of the VIEs.

Creditors of the VIEs have no recourse to the general credit of the Company.

The Company is not contractually required to provide and has not provided any form of financial support to the VIEs.

No gains or losses were recognized upon consolidation of existing VIEs.

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

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

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 March 31, 2022 and December 31, 2021 are as follows:

March 31, 2022

Assets (dollars in thousands)

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

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 June 30, 2022 and December 31, 2021 are as follows:

June 30, 2022

Cash and cash equivalents $ 2,446

7 unchanged sentences

December 31, 2021

Assets (dollars in thousands)

Cash and cash equivalents $ 16,187

7 unchanged sentences

Corporate Debt Funds

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

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

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

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

During the three months ended March 31, 2022 and 2021, the Company transferred $ 0 and $ 15.1 million, respectively, of loans for cash.

The loan transfers were accounted for as sales.

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

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

The fees that the Company earned were not considered variable interests of the VIE.

The Company was not the primary beneficiary of the Fund Entities and therefore did not consolidate the Fund Entities.

The corporate loans in the Fund Entities were assets managed for third parties and were part of the MML Portfolio transferred to Ares during the three months ended June 30, 2022.

Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

Residential Credit Fund

2 unchanged sentences

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 March 31, 2022 and December 31, 2021, the Company had outstanding participating interests in residential mortgage loans of $ 0.8 billion and $ 1.0 billion, respectively.

As of June 30, 2022 and December 31, 2021, the Company had outstanding participating interests in residential mortgage loans of $ 0.7 billion and $ 1.0 billion, 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.

10 unchanged sentences

In connection with the execution of the definitive agreement to sell the CRE business, during the three months ended March 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.

During the three months ended March 31, 2021, the Company reported Business divestiture-related gains (losses) of ($ 249.6 ) million, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill impairment as well as valuation adjustments resulting from classifying the assets as held for sale and estimated transaction costs.

In addition, 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.

As of March 31, 2022, the assets held for sale and the associated liabilities were transferred to Slate.

During the six months ended June 30, 2021, the Company reported Business divestiture-related gains (losses) of ($ 248.0 ) million, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill impairment as well as valuation adjustments resulting from classifying the CRE assets as held for sale and estimated transaction costs.

As of June 30, 2022, the assets held for sale and the associated liabilities were transferred to Slate.

SALE OF MIDDLE MARKET LENDING PORTFOLIO

The Company’s loans, having an unpaid principal balance of $ 1.8 billion, were transferred to Ares for cash proceeds of $ 1.8 billion and a realized gain of $ 40.1 million was recorded during the three months ended June 30, 2022.

As of June 30, 2022, loans with an unpaid principal balance of $ 121.2 million were classified as held for sale pending receipt of required consents to assign the loans to Ares.

The loans classified as held for sale are carried at lower of cost or fair value measured using a discounted cash flow methodology.

This methodology is considered to be Level 3 in the fair value measurement hierarchy because the valuation requires inputs (i.e., the discount rate) that are both significant to the measurement and unobservable.

The nature of the Company’s continuing involvement with the transferred loans is primarily administrative, including providing customary representations and warranties regarding the transferred loans.

DERIVATIVE INSTRUMENTS

17 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives.

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 March 31, 2022 and December 31, 2021, ($ 1.5 ) billion and ($ 0.4 ) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.

At June 30, 2022 and December 31, 2021, ($ 2.1 ) billion and ($ 0.4 ) 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.

3 unchanged sentences

Uncleared interest rate swaps are fair valued using internal pricing models and compared to the counterparty market values.

Centrally cleared interest rate swaps, including MAC interest rate swaps, are generally fair valued

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

using the DCO’s market values.

Centrally cleared interest rate swaps, including MAC interest rate swaps, are generally fair valued using the DCO’s market values.

If an interest rate swap is terminated, the realized gain (loss) on the interest rate swap would be equal to the difference between the cash received or paid and fair value.

19 unchanged sentences

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

The table below summarizes fair value information about our derivative assets and liabilities at March 31, 2022 and December 31, 2021:

Derivatives Instruments March 31, 2022 December 31, 2021

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The table below summarizes fair value information about our derivative assets and liabilities at June 30, 2022 and December 31, 2021:

Derivatives Instruments June 30, 2022 December 31, 2021

Assets (dollars in thousands)

Interest rate swaps $ 9,408 $ —

Interest rate swaptions 333,318 105,710

10 unchanged sentences

Total derivative liabilities $ 379,708 $ 881,537

(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $ 410.0 million and $ 400.0 million at March 31, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche.

As of March 31, 2022 and December 31, 2021 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.

The following table summarizes certain characteristics of the Company’s interest rate swaps at March 31, 2022 and December 31, 2021:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

March 31, 2022

(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $ 410.0 million and $ 400.0 million at June 30, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche.

As of June 30, 2022 and December 31, 2021 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.

The following table summarizes certain characteristics of the Company’s interest rate swaps at June 30, 2022 and December 31, 2021:

June 30, 2022

Maturity Current Notional (1)(2)

18 unchanged sentences

Total / Weighted average $ 45,907,300 0.59 % 0.08 % 3.32

(1) As of March 31, 2022, 17 %, 46 % and 37 % of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively.

(1) As of June 30, 2022, 23 %, 35 % and 42 % 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, 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.

(2) There were no forward starting swaps at March 31, 2022 and December 31, 2021.

(3) At March 31, 2022 and December 31, 2021, 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.

(2) There were no forward starting swaps at June 30, 2022 and December 31, 2021.

(3) At June 30, 2022 and December 31, 2021, 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 summarizes certain characteristics of the Company’s swaptions at March 31, 2022 and December 31, 2021:

March 31, 2022

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table summarizes certain characteristics of the Company’s swaptions at June 30, 2022 and December 31, 2021:

June 30, 2022

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

7 unchanged sentences

Long receive $ 2,000,000 1.47 % 3M LIBOR 10.95 11.38

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table summarizes certain characteristics of the Company’s TBA derivatives at March 31, 2022 and December 31, 2021:

March 31, 2022

The following table summarizes certain characteristics of the Company’s TBA derivatives at June 30, 2022 and December 31, 2021:

June 30, 2022

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

5 unchanged sentences

Purchase contracts $ 20,133,000 $ 20,289,856 $ 20,338,633 $ 48,777

The following table summarizes certain characteristics of the Company’s futures derivatives at March 31, 2022 and December 31, 2021:

March 31, 2022

The following table summarizes certain characteristics of the Company’s futures derivatives at June 30, 2022 and December 31, 2021:

June 30, 2022

Notional - Long

23 unchanged sentences

Total $ — $ ( 22,535,100 ) 4.60

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

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

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 March 31, 2022 and December 31, 2021, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

March 31, 2022

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

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

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in our Consolidated Statements of Financial Condition at June 30, 2022 and December 31, 2021, respectively.

June 30, 2022

Amounts Eligible for Offset

1 unchanged sentence

Assets (dollars in thousands)

Interest rate swaps, at fair value $ 9,408 $ ( 5,195 ) $ — $ 4,213

Interest rate swaptions, at fair value 333,318 — — 333,318

2 unchanged sentences

Purchase commitments 3,615 — — 3,615

Credit derivatives 256 ( 256 ) — —

Interest rate swaps, at fair value $ 272,055 $ ( 5,195 ) $ ( 13,910 ) $ 252,950

17 unchanged sentences

Credit derivatives 581 ( 516 ) ( 65 ) —

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

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

Location on Consolidated Statements of Comprehensive Income (Loss)

Net Interest Component of Interest Rate Swaps (1)

2 unchanged sentences

For the three months ended (dollars in thousands)

March 31, 2022 $ ( 62,541 ) $ — $ 1,323,439

March 31, 2021 $ ( 79,747 ) $ — $ 772,262

(1) Included in Net gains (losses) on derivatives on the Consolidated Statements of Comprehensive Income (Loss).

June 30, 2022 $ 992 $ ( 16 ) $ 897,537

June 30, 2021 $ ( 83,087 ) $ — $ ( 141,067 )

For the six months ended

June 30, 2022 $ ( 61,549 ) $ ( 16 ) $ 2,220,976

June 30, 2021 $ ( 162,834 ) $ — $ 631,195

(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

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

Three Months Ended March 31, 2022

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

Three Months Ended June 30, 2022

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

5 unchanged sentences

Credit derivatives 374 ( 9,189 ) ( 8,815 )

Three Months Ended March 31, 2021

Three Months Ended June 30, 2021

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

6 unchanged sentences

Total $ ( 357,808 )

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

Six Months Ended June 30, 2022

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

(dollars in thousands)

Net TBA derivatives $ ( 1,820,381 ) $ ( 79,239 ) $ ( 1,899,620 )

Net interest rate swaptions ( 14,450 ) 242,058 227,608

Futures 1,720,678 458,516 2,179,194

Purchase commitments — 2,172 2,172

Credit derivatives 1,434 ( 12,528 ) ( 11,094 )

Total $ 498,260

Six Months Ended June 30, 2021

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

(dollars in thousands)

Net TBA derivatives $ ( 277,844 ) $ ( 67,002 ) $ ( 344,846 )

Net interest rate swaptions ( 44,997 ) 73,130 28,133

Futures 479,547 ( 60,766 ) 418,781

Purchase commitments — 469 469

Credit derivatives 4,408 10,954 15,362

Total $ 117,899

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange.

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

The aggregate fair value of all derivative instruments with the aforementioned features were in a net asset position at March 31, 2022.

The aggregate fair value of all derivative instruments with the aforementioned features were in a net asset position at June 30, 2022.

FAIR VALUE MEASUREMENTS

5 unchanged sentences

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:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

14 unchanged sentences

Consequently, the Company has classified Residential Securities, residential mortgage loans, interest rate swaps, swaptions, TBA derivatives and MBS options as Level 2 inputs in the fair value hierarchy.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying collateral.

10 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

March 31, 2022

June 30, 2022

Level 1 Level 2 Level 3 Total

5 unchanged sentences

Residential mortgage loans — 1,486,811 — 1,486,811

Residential mortgage loan warehouse facility — 322 — 322

Mortgage servicing rights — — 1,421,420 1,421,420

2 unchanged sentences

Derivative assets

Interest rate swaps — 9,408 — 9,408

Other derivatives 341,430 397,594 — 739,024

6 unchanged sentences

Total liabilities $ 3,020 $ 8,576,115 $ — $ 8,579,135

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2021

22 unchanged sentences

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

The sensitivities of significant unobservable

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements are described below.

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.

8 unchanged sentences

The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments.

March 31, 2022

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

June 30, 2022

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

21 unchanged sentences

(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 March 31, 2022 and December 31, 2021.

March 31, 2022 December 31, 2021

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at June 30, 2022 and December 31, 2021.

June 30, 2022 December 31, 2021

Value Carrying

13 unchanged sentences

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.

2 unchanged sentences

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 March 31, 2022 and December 31, 2021, there was no goodwill balance.

At June 30, 2022 and December 31, 2021, there was no goodwill balance.

During the three months ended March 31, 2021, the Company recognized an impairment on goodwill in connection with the sale of the CRE business.

3 unchanged sentences

As part of the Company’s management internalization transaction, 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.

The following table presents the activity of finite lived intangible assets for the three months ended March 31, 2022.

The following table presents the activity of finite lived intangible assets for the six months ended June 30, 2022.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Intangible Assets, net

1 unchanged sentence

Balance at December 31, 2021

Impairment ( 4,157 )

amortization expense ( 1,889 )

Balance at March 31, 2022

Balance at June 30, 2022

SECURED FINANCING

6 unchanged sentences

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 $ 52.6 billion and $ 54.8 billion of repurchase agreements with weighted average remaining maturities of 68 days and 52 days at March 31, 2022 and December 31, 2021, respectively.

The Company has select arrangements with counterparties to enter into repurchase agreements for $ 1.9 billion with remaining capacity of $ 1.5 billion at March 31, 2022.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

At March 31, 2022 and December 31, 2021, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates:

March 31, 2022

The Company had outstanding $ 51.4 billion and $ 54.8 billion of repurchase agreements with weighted average remaining maturities of 47 days and 52 days at June 30, 2022 and December 31, 2021, respectively.

The Company has select arrangements with counterparties to enter into repurchase agreements for $ 1.8 billion with remaining capacity of $ 1.3 billion at June 30, 2022.

At June 30, 2022 and December 31, 2021, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates:

June 30, 2022

Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Residential Mortgage Loans Commercial Mortgage-Backed Securities Total Repurchase Agreements Weighted Average Rate

8 unchanged sentences

Total $ 47,293,951 $ 723,574 $ 2,392,774 $ 533,435 $ 420,363 $ 51,364,097 1.60 %

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2021

9 unchanged sentences

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

(1) No repurchase agreements had a remaining maturity over 1 year at March 31, 2022 and December 31, 2021.

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 March 31, 2022 and December 31, 2021.

(1) No repurchase agreements had a remaining maturity over 1 year at June 30, 2022 and December 31, 2021.

Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.

March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021

Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements

4 unchanged sentences

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 mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $ 57.5 billion and $ 163.0 million, respectively, at March 31, 2022 and $ 59.2 billion and $ 160.8 million, respectively, at December 31, 2021.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $ 54.8 billion and $ 166.3 million, respectively, at June 30, 2022 and $ 59.2 billion and $ 160.8 million, respectively, at December 31, 2021.

CAPITAL STOCK

(A) Common Stock

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at March 31, 2022 and December 31, 2021.

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at June 30, 2022 and December 31, 2021.

Shares authorized Shares issued and outstanding

March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021 Par Value

June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021 Par Value

2,936,500,000 2,936,500,000 1,609,215,497 1,459,736,258 $ 0.01

2 unchanged sentences

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

During the three months ended March 31, 2022 and 2021, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

During the three and six months ended June 30, 2022 and 2021, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

During the three and six months ended June 30, 2022, the Company closed the public offering of an original issuance of 100.0 million shares of common stock for proceeds of $ 645.0 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 15.0 million shares of common stock, which the underwriters exercised in full resulting in an additional $ 96.8 million in proceeds before deducting offering expenses.

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.

2 unchanged sentences

The Company may offer and sell shares of its common stock, having an aggregate offering price of up to $ 1.5 billion, from time to time through any of the Sales Agents.

During the three months ended March 31, 2022, the Company issued 0.8 million shares for proceeds of $ 6.2 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 three months ended March 31, 2021.

During the three and six months ended June 30, 2022, the Company issued 33.0 million shares for proceeds of $ 214.9 million, net of commissions and fees, and 33.8 million shares for proceeds of $ 221.1 million, net of commissions and fees, respectively, under the at-the-market sales program.

During the three and six months ended June 30, 2021, the Company issued 45.5 million shares for proceeds of $ 420.4 million, net of commissions and fees, under the at-the-market sales program.

(B) Preferred Stock

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at March 31, 2022 and December 31, 2021.

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at June 30, 2022 and December 31, 2021.

In the event of a liquidation or dissolution of the Company, the Company’s then outstanding preferred stock takes precedence over the Company’s common stock with respect to payment of dividends and the distribution of assets.

1 unchanged sentence

Date At Which Dividend Rate Becomes Floating Floating Annual Rate

March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021

June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021 June 30, 2022 December 31, 2021

Fixed-to-floating rate

5 unchanged sentences

Each series of preferred stock has a par value of $ 0.01 per share and a liquidation and redemption price of $ 25.00 , plus accrued and unpaid dividends through their redemption date.

Through March 31, 2022, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

Through June 30, 2022, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

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.

The following table provides a summary of the Company’s dividend distribution activity for the periods presented:

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The following table provides a summary of the Company’s dividend distribution activity for the periods presented:

For the Three Months Ended

March 31, 2022 March 31, 2021

For the Three Months Ended For the Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

(dollars in thousands, except per share data)

3 unchanged sentences

Distributions paid per common share after period end $ 0.22 $ 0.22 $ 0.22 $ 0.22

Date of distributions paid to common stockholders after period end April 29, 2022 April 30, 2021

Date of distributions paid to common stockholders after period end July 29, 2022 July 30, 2021 July 29, 2022 July 30, 2021

Dividends declared to series F preferred stockholders $ 12,510 $ 12,510 $ 25,020 $ 25,020

25 unchanged sentences

Financial Statements

The following presents the components of the Company’s interest income and interest expense for the three months ended March 31, 2022 and March 31, 2021.

For the Three Months Ended March 31,

The following presents the components of the Company’s interest income and interest expense for the three and six months ended June 30, 2022 and June 30, 2021.

For the Three Months Ended June 30, For the Six Months Ended June 30,

2022 2021 2022 2021

Interest income (dollars in thousands)

17 unchanged sentences

NET INCOME (LOSS) PER COMMON SHARE

The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income (loss) per share for the three months ended March 31, 2022 and March 31, 2021.

For the Three Months Ended

March 31, 2022 March 31, 2021

The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income (loss) per share for the three and six months ended June 30, 2022 and June 30, 2021.

For the Three Months Ended For the Six Months Ended

June 30, 2022 June 30, 2021 June 30, 2022 June 30, 2021

(dollars in thousands, except per share data)

10 unchanged sentences

Diluted $ 0.55 $ ( 0.23 ) $ 1.90 $ 1.00

The computations of diluted net income (loss) per share available (related) to common share for the three months ended March 31, 2022 and 2021 excludes 2.2 million and 0 , respectively, of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.

For the three months ended March 31, 2022 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860.

The computations of diluted net income (loss) per share available (related) to common share for the three and six months ended June 30, 2022 excludes 3.2 million and 2.6 million, respectively, and the three months ended June 30, 2021 excludes 3.2 million of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.

For the three months ended June 30, 2022 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860.

As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders.

11 unchanged sentences

The Company does not have any unrecognized tax benefits that would affect its financial position.

Thus, no accruals for penalties and interest were deemed necessary at March 31, 2022 and December 31, 2021.

Thus, no accruals for penalties and interest were deemed necessary at June 30, 2022 and December 31, 2021.

The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status as a REIT, and therefore, the Company generally does not pay income tax in such jurisdictions.

1 unchanged sentence

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

During the three months ended March 31, 2022 and 2021, the Company recorded $ 26.5 million and ($ 0.3 ) million, respectively, of income tax expense (benefit) attributable to its TRSs.

During the three and six months ended June 30, 2022, the Company recorded $ 23.4 million and $ 50.0 million, respectively, of income tax expense attributable to its TRSs.

During the three and six months ended June 30, 2021, the Company recorded $ 5.1 million and $ 4.8 million, respectively, of income tax expense attributable to its TRSs.

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

17 unchanged sentences

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

The Company’s vendor management policy establishes procedures for

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

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.

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.

LEASE COMMITMENTS AND CONTINGENCIES

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

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

1 unchanged sentence

The Company recognizes lease expense for these leases on a straight-line basis over the lease term.

The lease cost for the three months ended March 31, 2022 and 2021 was $ 0.8 million and $ 0.9 million, respectively.

Supplemental information related to leases as of and for the three months ended March 31, 2022 was as follows:

Operating Leases Classification March 31, 2022

The lease cost for the three and six months ended June 30, 2022 and 2021 was $ 0.8 million and $ 1.6 million, and $ 0.7 million and $ 1.6 million, respectively.

Supplemental information related to leases as of and for the six months ended June 30, 2022 was as follows:

Operating Leases Classification June 30, 2022

Assets (dollars in thousands)

18 unchanged sentences

In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated financial statements.

There were no material contingencies at March 31, 2022 and December 31, 2021.

There were no material contingencies at June 30, 2022 and December 31, 2021.

ARCOLA REGULATORY REQUIREMENTS

12 unchanged sentences

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

At March 31, 2022, Arcola had a minimum net capital requirement of $ 0.3 million.

At June 30, 2022, Arcola had a minimum net capital requirement of $ 0.3 million.

Arcola consistently operates with capital in excess of its regulatory capital requirements.

Arcola’s regulatory net capital as defined by SEC Rule 15c3-1 at March 31, 2022 was $ 504.5 million with excess net capital of $ 504.2 million.

Arcola’s regulatory net capital as defined by SEC Rule 15c3-1 at June 30, 2022 was $ 502.5 million with excess net capital of $ 502.2 million.

SUBSEQUENT EVENTS

Subject to customary closing conditions, the transfer of the MML Portfolio is expected to be completed by the end of the second quarter of 2022.

In May 2022, the Company completed and closed the securitization of residential mortgage loans, OBX 2022-NQM4 Trust with a face value of $ 457.3 million.

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

In July 2022, the Company closed a $ 500 million credit facility for Annaly’s MSR platform, which includes a $ 250 million committed credit facility and a $ 250 million incremental facility provision.

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

Special Note Regarding Forward-Looking Statements

Certain statements contained in this quarterly report, and certain statements contained in our future filings with the Securities and Exchange Commission (the “SEC” or the “Commission”), in our press releases or in our other public or stockholder communications contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms.

Certain statements contained in this quarterly report, and certain statements contained in our future filings with the Securities and Exchange Commission (the “SEC” or the “Commission”), in our press releases or in our other public or stockholder communications contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “should,” “estimate,” “project,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms.

Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions (and our outlook for our business in light of these conditions, which is uncertain);

8 unchanged sentences

our ability to grow our residential credit business;

the sale of our middle market lending portfolio;

credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets, and corporate debt;

credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities, and related residential mortgage credit assets;

risks related to investments in mortgage servicing rights (“MSR”);

15 unchanged sentences

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Recent Developments

Business Environment

Economic Environment

London Interbank Offered Rate (“LIBOR”) Transition Working Group

London Interbank Offered Rate (“LIBOR”) Transition

Results of Operations

1 unchanged sentence

Non-GAAP Financial Measures

Earnings available for distribution , earnings available for distribution attributable to common stockholders, earnings available for distribution per average common share and annualized EAD return on average equity

Earnings Available for Distribution , Earnings Available for Distribution A ttributable to C ommon S tockholders, Earnings Available for Distribution P er A verage C ommon S hare and A nnualized EAD R eturn on A verage E quity

Premium Amortization Expense

Economic leverage and economic capital ratios

Interest Income (excluding PAA), economic interest expense and economic net interest income (excluding PAA)

Economic L everage and E conomic C apital R atios

Interest Income (excluding PAA), E conomic I nterest E xpense and E conomic N et I nterest I ncome (excluding PAA)

Experienced and Projected Long-term CPR

44 unchanged sentences

For a full discussion of our business, refer to the section titled “Business Overview” in our most recent Annual Report on Form 10-K.

Recent Developments

In April 2022, we entered into a definitive agreement to sell all of the corporate loan interests held by the MML business operated by us, as well as assets managed for third parties (collectively, the "MML Portfolio"), to Ares Capital Management LLC (“Ares”).

Subject to customary closing conditions, the sale of the MML Portfolio is expected to be completed by the end of the second quarter of 2022.

Business Environment

By many markers, the U.S.

economy remained robust in the first quarter 2022, with a majority of the slowdown in U.S.

gross domestic product (“GDP”) coming from volatile components such as inventories and trade.

Moreover, inflation readings and the U.S.

labor market remain very strong, suggesting that the Federal Reserve needs to remove monetary policy accommodation much faster than previously anticipated.

The repricing expectations around Federal Reserve monetary policy led to a meaningful rise in Treasury yield levels, where 2-year yields rose 160 basis points during the quarter, marking the most severe quarterly selloff in nearly 40 years, while 10-year Treasury yields rose by somewhat less.

Given the rise in Treasury yields, as well as concerning geopolitical developments that include the Russian invasion of Ukraine, interest rate volatility rose to the highest realized levels since the financial crisis.

The volatile rate environment weighed heavily on mortgages, with production coupon nominal spreads widening roughly 40 basis points this quarter.

The elevated volatility, combined with the prospects of an expeditious removal of monetary policy accommodation has led to a sharp repricing of fixed income assets during the first quarter, with the Bloomberg U.S.

Aggregate Bond Market Index facing the worst quarterly performance since 1980.

Consistent with the broader market, our portfolio was vulnerable to the exceptional volatility in this environment despite our efforts to defensively position it, experiencing an economic return of negative 12% for the quarter.

In this challenging environment, we maintained a stable notional exposure to Agency mortgage-backed securities (“MBS”) after we began the year with our leverage at its lowest level since 2015.

We actively managed our hedges to the shifting interest rate risk over the quarter and rebalanced our coupon exposure to better position ourselves in the rising rate environment.

The spread widening seen during the quarter led to a notable change in prepayment dynamics.

With mortgage rates at roughly 5% at quarter end, only a small fraction of borrowers maintained an incentive to refinance their mortgages.

At the same time, cash-out activity should remain somewhat elevated due to the recent strong housing market and summer seasonals.

As a result, the convexity of the broader Agency MBS universe and our mortgage portfolio improved meaningfully.

Our portfolio speeds slowed 22 percent quarter-over-quarter, with our aggregate portfolio paying 16.7% measured in constant prepayment rates (“CPR”).

Meanwhile, as mortgage production shifted into higher coupons, the to-be announced (“TBA”) deliverable in higher coupons shifted from seasoned, faster paying pools to new production, resulting in collateral scarcity and meaningful dollar roll specialness in these coupons.

While this specialness will not last in perpetuity, we expect to continue to shift up in coupon while preferring TBA over pools given the favorable carry and spread dynamics.

In MSR, mortgage originators continue to be active sellers as operating profitability has come under pressure from rising mortgage rates with traded MSR volumes nearly reaching levels seen in the full year 2020 in the first quarter alone.

We used this opportunity to grow our portfolio through net purchases of over $400 million in market value.

Combined with mark to market gains, we increased our MSR position to over $1.2 billion at quarter end.

We continue to see MSR as complementary to our core Agency strategy due to its negative interest rate and mortgage spread duration and attractive unlevered returns and expect to allocate capital to the sector should market conditions remain favorable.

In Residential Credit, our economic portfolio ended the quarter with $4.4 billion of assets, with the modest decline in the portfolio primarily driven by our robust securitization activity as we converted whole loans to OBX securities.

The residential credit market was not immune to the volatility in the broader rates and credit markets with key benchmark asset classes establishing widest levels since the onset of the pandemic two years ago.

AAA-rate non-qualified mortgage spreads widened 75 basis points while benchmark credit risk transfer M2-tranche spreads widened 160 basis points.

Despite the challenging

The first half of 2022 has been an exceptionally challenging investment environment, with fixed income returns marking the most negative half-year return in more than 40 years.

The poor performance was driven by significantly elevated inflation, geopolitical uncertainty, and the fastest monetary policy tightening in recent memory.

Economic activity remained relatively strong in recent months as consumers benefited from rising wages in a strong labor market and continued to have excess savings accumulated over the past two years.

In light of these developments, it has become increasingly clear that economic activity is too strong for inflation to decline more meaningfully in the near term.

As a result, the Federal Reserve has increased the Federal Funds Target Rate (“Fed Funds Rate”) by 125 basis points (“bps”) in the second quarter, announced runoff of its balance sheet, and signaled an additional 175 bps of increases to the Fed Funds Rate during the second half of the year.

The realized and forecasted rate hikes appear to have begun slowing economic activity, which can be best seen by the decline in activity in interest rate sensitive sectors such as housing.

Although home prices have continued to rise sharply in 2022 thus far, activity has slowed recently as higher mortgage rates and record home price levels have weighed on both consumer and builder sentiment.

Monthly mortgage payments are an estimated 50% higher in June 2022 compared to a year earlier.

This is curbing consumers’ ability to purchase homes and, in turn, reducing demand for mortgages.

We expect that the housing activity slowdown will lead to waning home price appreciation in the coming months.

However, a systematic shortage of single-family homes relative to longer term demand, low leverage as measured by outstanding mortgage debt-to-equity, historically tight underwriting standards, and the majority of mortgage borrowers locked in a low, fixed rate mortgage suggest that a moderation in home price growth is more likely than pronounced declines.

Slower home price appreciation will be supportive to our Agency business, as less mortgage supply will need to be absorbed by investors.

While our MSR and Residential Credit businesses have benefited from strong home price appreciation in the past, we maintain a constructive outlook given the underlying composition of our portfolios and continued support from the long-term supply/ demand imbalance in the housing market.

In light of the challenging economic environment, Annaly produced a negative 9.6 percent economic return as the portfolio generated earnings available for distribution of $0.30 per share.

Economic leverage increased slightly to end the quarter at 6.6x.

Beyond the challenging portfolio performance, we achieved several strategic milestones during the quarter, including the completion of the accretive sale of our Middle Market Lending portfolio, which enabled us to monetize a less liquid, non-core business and culminate our natural evolution toward becoming a dedicated housing finance REIT.

Annaly’s Residential Credit and Mortgage Servicing Rights businesses have gained market share and built on their strategic capabilities in 2022 while maintaining an intentional focus on credit and risk management.

Within Residential Credit, Onslow Bay, Annaly’s wholly owned subsidiary, remains a programmatic securitization issuer.

The platform was the largest non-bank issuer of prime-jumbo and expanded credit MBS in the first half of 2022.

Issuance has benefited from momentum in Onslow Bay’s residential whole loan correspondent channel, which generated substantial year-to-date activity.

Our 2022 Non-QM loan lock commitments are nearly 50 percent ahead of total 2021 volume as of the end of the second quarter.

The MSR business has grown substantially in a short period of time with Onslow Bay establishing itself as the fourth largest purchaser of MSR year-to-date and a top-20 servicer of Agency MBS.

Economic Environment

The pace of economic growth continued to slow with U.S.

gross domestic product (“GDP”) declined 0.9 percent on a seasonally adjusted annualized rate in the second quarter.

Growth moderated as higher goods and services prices contributed to somewhat reduced consumer confidence and spending.

This, combined with tighter financial conditions and reduced government spending, slowed economic activity.

According to the Bureau of Labor Statistics, seasonally adjusted total non-farm payroll employment rose by an average 375 thousand workers during the second quarter.

This was below the 539 thousand workers added during the first quarter 2022.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Overall, employment gains remain strong, but the unemployment rate remained unchanged during the quarter at the historically low level of 3.6%.

Meanwhile, U.S.

job openings remain near all-time record levels.

Wage growth, as measured by the year-over-year change in private sector average hourly earnings, slowed somewhat during the quarter, reading 5.1% in June compared to 5.6% in March 2022.

Inflation readings, as measured by the year-over-year changes in the Personal Consumption Expenditure Chain Price Index (“PCE”), remained meaningfully above the Fed’s 2% inflation target.

The headline PCE measure increased by 6.8% year-over-year in June 2022.

Meanwhile, the more stable core PCE measure, which excludes volatile food and energy prices, registered a 4.8% year-over-year increase.

Prices remain meaningfully elevated, which is driven by continued strong demand for goods and services.

The Russian invasion of Ukraine and related Western economic sanctions have also led to a sharp increase in food and commodity prices.

Inflation pressures remain a major challenge for the United States and the broader global economy as price pressures have failed to ease thus far.

While forecasts continue to see a slowdown in coming months, the degree of the slowdown remains very uncertain.

The Federal Open Market Committee (“FOMC”) conducts monetary policy with a dual mandate:

to ensure full employment and stable prices.

Given continued strong labor markets and significantly elevated inflation, the FOMC is aggressively tightening monetary policy to ensure it meets its mandate.

As such, the FOMC raised the Federal Funds Target Rate by 125 bps to the 1.50% - 1.75% range during the second quarter.

It also signaled that additional rate increases of potentially similar magnitudes will be necessary in the coming months.

Regarding its balance sheet, the FOMC set forth a policy to let assets mature at an aggregate pace of up to $95 billion per month across U.S.

Treasuries and Agency MBS following a brief ramp-up period.

During the second quarter of 2022, the 10-year U.S.

Treasury rate continued to rise from 2.34% on March 31, 2022 to 3.01% on June 30, 2022.

The mortgage basis, or the spread between the 30-year Agency MBS coupon and 10-year U.S.

Treasury rate, widened further over the course of the quarter to 137 bps on June 30, 2022.

This widening occurred as a result of the shift in monetary policy, elevated financial market volatility, and reduced investor demand for Agency MBS weighing on the sector.

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

June 30, 2022 December 31, 2021 June 30, 2021

30-Year mortgage current coupon 4.38% 2.07% 1.83%

Mortgage basis 137 bps 56 bps 36 bps

Treasury rate 3.01% 1.51% 1.47%

1-Month 1.79% 0.10% 0.10%

6-Month 2.94% 0.34% 0.16%

OIS SOFR Swaps

1-Month 1.68% 0.05% 0.05%

6-Month 2.59% 0.19% 0.05%

London Interbank Offered Rate (“LIBOR”) Transition

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

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

These announcements mean that any of our LIBOR-based borrowings that extend beyond June 30, 2023 will need to be converted to a replacement rate.

In 2018, the firm established a cross-functional LIBOR Transition Committee to define a plan facilitating an orderly conversion to alternative reference rates.

The plan included steps to evaluate exposure;

review contracts;

assess impact to our business;

process and technology and outline a communication strategy with shareholders;

regulators and other stakeholders.

As LIBOR cessation enters its final stages, we continue to remain on track with our transition plan, which requires different solutions depending on the underlying asset or liability.

federal government enacted a legislative solution for certain LIBOR contracts, which in some cases inserts fallback language into the contract or provides a determining party with a safe harbor from litigation.

Under the legislation, the Board of Governors of the Federal Reserve (the “Federal Reserve”) is required to

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

promulgate rules designating a SOFR-based rate and incorporating the statutory spread adjustments for each LIBOR tenor (which match the ARRC/ISDA spread adjustments, including the 1-year transition period for consumer loans) as the replacement rates for covered LIBOR contracts.

The Federal Reserve has proposed (i) SOFR compounded in arrears for derivatives, using the same methodology as the ISDA protocol, (ii) CME Term SOFR for all other covered non-GSE cash products and (iii) a 30-day compounded SOFR average for certain GSE contracts, but the proposed rules remain subject to public comment.

We are evaluating the potential impact of the proposed rules on assets and liabilities covered by the legislation and considering all available options with respect to our preferred stock, which include liability management actions such as tenders, calls, exchange offers, language amendments, changing the calculation agent, and/or allowing fallbacks to trigger.

Some of these options fall within the safe harbor of the federal legislation.

As of June 30, 2022, we had $1.5 billion of USD LIBOR-linked preferred stock that may remain outstanding beyond the June 30, 2023 cessation date.

Results of Operations

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

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

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

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

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

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

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

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

Beginning with the quarter ended March 31, 2022, in light of the continued growth of our mortgage servicing rights portfolio, we enhanced our financial disclosures by separately reporting servicing income and servicing expense in our Consolidated Statements of Comprehensive Income (Loss).

Servicing income and servicing expense were previously included within Other income (loss).

As a result of this change, prior periods have been adjusted to conform to the current presentation.

In addition, beginning with the quarter ended March 31, 2022, we consolidated certain line items in our Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation.

As a result of these changes, prior periods have been adjusted to conform to the current presentation.

Earnings Available for Distribution (“EAD”), which is a non-GAAP financial measure intended to supplement our financial results computed in accordance with GAAP, is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items) and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items) and excludes (g) the premium amortization adjustment (“PAA”) representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities.

Earnings Available for Distribution should not be considered a substitute for, or superior to, GAAP net income.

Please refer to the “Non-GAAP Financial Measures” section for a detailed discussion of Earnings Available for Distribution.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Net Income (Loss) Summary

The following table presents financial information related to our results of operations as of and for the three and six months ended June 30, 2022 and 2021.

As of and for the Three Months Ended June 30,

As of and for the Six Months Ended June 30,

2022 2021 2022 2021

(dollars in thousands, except per share data)

Interest income $ 645,615 $ 383,906 $ 1,301,465 $ 1,147,284

Interest expense 170,475 61,047 245,397 137,020

Net interest income 475,140 322,859 1,056,068 1,010,264

Servicing and related income 55,685 10,519 90,400 19,748

Servicing and related expense 5,949 2,603 9,706 4,900

Net servicing income 49,736 7,916 80,694 14,848

Other income (loss) 397,899 (566,963) 1,882,219 537,418

Total general and administrative expenses 36,038 53,526 81,802 101,431

Income (loss) before income taxes 886,737 (289,714) 2,937,179 1,461,099

Income taxes 23,420 5,134 49,968 4,813

Net income (loss) 863,317 (294,848) 2,887,211 1,456,286

Net income (loss) attributable to noncontrolling interests (3,379) 794 (1,740) 1,115

Net income (loss) attributable to Annaly 866,696 (295,642) 2,888,951 1,455,171

Dividends on preferred stock 26,883 26,883 53,766 53,766

Net income (loss) available (related) to common stockholders $ 839,813 $ (322,525) $ 2,835,185 $ 1,401,405

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

Basic $ 0.55 $ (0.23) $ 1.90 $ 1.00

Diluted $ 0.55 $ (0.23) $ 1.90 $ 1.00

Weighted average number of common shares outstanding

Basic 1,522,436,766 1,410,239,138 1,492,068,912 1,404,755,496

Diluted 1,523,595,000 1,410,239,138 1,493,254,890 1,405,764,272

Other information

Investment portfolio at period-end $ 71,009,570 $ 80,222,151 $ 71,009,570 $ 80,222,151

Average total assets $ 74,911,192 $ 83,872,947 $ 75,528,816 $ 85,400,332

Average equity $ 11,284,335 $ 13,853,386 $ 11,921,332 $ 13,909,522

GAAP leverage at period-end (1)

5.4:1 4.7:1 5.4:1 4.7:1

GAAP capital ratio at period-end (2)

15.1 % 16.6 % 15.1 % 16.6 %

Annualized return on average total assets 4.61 % (1.41 %) 7.65 % 3.41 %

Annualized return on average equity 30.60 % (8.51 %) 48.44 % 20.94 %

Net interest margin (3)

2.64 % 1.66 % 2.92 % 2.54 %

Average yield on interest earning assets (4)

3.58 % 1.97 % 3.60 % 2.89 %

Average GAAP cost of interest bearing liabilities (5)

1.12 % 0.35 % 0.80 % 0.39 %

Net interest spread 2.46 % 1.62 % 2.80 % 2.50 %

Weighted average experienced CPR for the period 14.9 % 26.4 % 15.8 % 25.2 %

Weighted average projected long-term CPR at period-end 7.7 % 12.9 % 7.7 % 12.9 %

Common stock book value per share $ 5.90 $ 8.37 $ 5.90 $ 8.37

Non-GAAP metrics *

Interest income (excluding PAA) $ 518,094 $ 537,513 $ 994,428 $ 1,086,321

Economic interest expense (5)

$ 169,483 $ 144,134 $ 306,946 $ 299,854

Economic net interest income (excluding PAA) $ 348,611 $ 393,379 $ 687,482 $ 786,467

Premium amortization adjustment cost (benefit) $ (127,521) $ 153,607 $ (307,037) $ (60,963)

Earnings available for distribution (6)

$ 490,802 $ 451,358 $ 921,433 $ 890,877

Earnings available for distribution per average common share $ 0.30 $ 0.30 $ 0.58 $ 0.59

Annualized EAD return on average equity (excluding PAA) 17.49 % 13.05 % 15.52 % 12.82 %

Economic leverage at period-end (1)

6.6:1 5.8:1 6.6:1 5.8:1

Economic capital ratio at period-end (2)

13.0 % 14.3 % 13.0 % 14.3 %

Net interest margin (excluding PAA) (3)

2.20 % 2.09 % 2.12 % 2.00 %

Average yield on interest earning assets (excluding PAA) (4)

2.87 % 2.76 % 2.75 % 2.73 %

Average economic cost of interest bearing liabilities (5)

1.11 % 0.83 % 1.00 % 0.85 %

Net interest spread (excluding PAA) 1.76 % 1.93 % 1.75 % 1.88 %

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

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

What changed 10-Q

Item 1. Financial Statements