What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-03 compared with 2022-08-01 · 357 added, 266 removed, 1226 unchanged (34% 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 June 30, 2022, the CRE assets held for sale and the associated liabilities were transferred.

As of September 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.

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.

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

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

16 unchanged sentences

Interim period operating results may not be indicative of the operating results for a full year.

Reverse Stock Split

On September 8, 2022, the Company announced that its Board of Directors had unanimously approved a reverse stock split of the Company’s common stock at a ratio of 1-for-4 (the “Reverse Stock Split”).

The Reverse Stock Split was effective following the close of business on September 23, 2022 (the “Effective Time”).

Accordingly, at the Effective Time, every four issued and outstanding shares of the Company’s common stock were converted into one share of the Company’s common stock.

No fractional shares were issued in connection with the Reverse Stock Split.

Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares.

The par value per share of the Company’s common stock remained unchanged at $ 0.01 per share after the Reverse Stock Split.

Accordingly, for all historical periods presented, an amount equal to the par value of the reduced number of shares resulting from the Reverse Stock Split was reclassified from Common stock to Additional paid in capital in the Company’s Consolidated Statements of Financial Condition.

All other references made to share or per share amounts in the accompanying consolidated financial statements and disclosures have also been retroactively adjusted, where applicable, to reflect the effects of the Reverse Stock Split.

SIGNIFICANT ACCOUNTING POLICIES

15 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 $ 0.7 billion and $ 1.2 billion at June 30, 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 $ 1.2 billion and $ 1.2 billion at September 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”).

1 unchanged sentence

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

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

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

4 unchanged sentences

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

None of the Company’s

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

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

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

28 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

7 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 June 30, 2022 and December 31, 2021.

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

Financial Instruments (1)

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

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

Assets (dollars in thousands)

22 unchanged sentences

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

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

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

(2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities purchased prior to July 1, 2022.

(3) Includes interest-only securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.

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

1 unchanged sentence

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

Effective July 1, 2022, the Company elected the fair value option for any newly purchased Agency mortgage-backed securities in order to simplify the accounting for these securities.

Agency mortgage-backed securities purchased prior to July 1, 2022, are still classified as available-for-sale with changes in fair value recognized in other comprehensive income.

Transactions for regular-way securities are recorded on trade date, including to-be-announced (“TBA”) securities that meet the regular-way securities scope exception from derivative accounting.

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

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

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

For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

Impairment – Management evaluates available-for-sale securities where the fair value option has not been elected and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation.

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

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

1 unchanged sentence

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

For the three months ended March 31, 2021, the Company recognized a $ 0.4 million impairment on a commercial mortgage-backed security that was sold subsequently in 2021.

For the nine months ended September 30, 2021, the Company recognized a $ 0.4 million impairment on a commercial mortgage-backed security that was sold subsequently in 2021.

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

6 unchanged sentences

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

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

Management evaluates its Commercial Securities for impairment at least quarterly.

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

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:

Commercial Mortgage-Backed Securities (“Commercial Securities”) - The Company invests in Commercial securities such as conduit, credit CMBS, single-asset single borrower and collateralized loan obligations.

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

Agency Securities Residential Credit Securities Commercial Securities Total

8 unchanged sentences

Fair value adjustment ( 7,416,565 ) ( 223,913 ) ( 17,438 ) ( 7,657,916 )

Ending balance June 30, 2022

Ending balance September 30, 2022

$ 63,037,241 $ 3,213,612 $ 588,500 $ 66,839,353

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 June 30, 2022 and December 31, 2021:

June 30, 2022

September 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 $ 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.

(1) Principal/Notional amount includes $ 7.2 billion and $ 4.5 billion of Agency Multifamily interest-only securities as of September 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 September 30, 2022 and December 31, 2021, respectively.

(3) Principal/Notional amount includes $ 1.7 billion and $ 50.0 million of Prime interest-only securities as of September 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 September 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 June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

September 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 June 30, 2022 and December 31, 2021, according to their estimated weighted average life classifications:

June 30, 2022 December 31, 2021

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

September 30, 2022 December 31, 2021

Estimated Fair Value Amortized

6 unchanged sentences

Total $ 66,250,853 $ 73,136,095 $ 63,125,169 $ 62,370,539

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 estimated weighted average lives of the Residential Securities at September 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 June 30, 2022 and December 31, 2021.

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Estimated Fair Value (1)

8 unchanged sentences

Total $ 40,818,813 $ ( 5,413,016 ) 2,859 $ 23,211,971 $ ( 486,024 ) 590

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

(1) Excludes interest-only mortgage-backed securities and reverse mortgages and effective July 1, 2022, newly purchased Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.

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

1 unchanged sentence

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.

During the three and nine months ended September 30, 2022, the Company disposed of $ 11.6 billion and $ 21.0 billion of Residential Securities, respectively.

During the three and nine months ended September 30, 2021, the Company disposed of $ 4.8 billion and $ 11.1 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 nine months ended September 30, 2022 and 2021.

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

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 )

September 30, 2022 $ 17,324 $ ( 1,491,325 ) $ ( 1,474,001 )

September 30, 2021 $ 30,368 $ ( 3,636 ) $ 26,732

For the nine months ended

September 30, 2022 $ 46,152 $ ( 2,321,940 ) $ ( 2,275,788 )

September 30, 2021 $ 87,499 $ ( 86,657 ) $ 842

The Company invests in residential loans.

3 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 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.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of September 30, 2022 and December 31, 2021, the Company rep orted $ 1.6 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 $ 1.5 million and $ 2.3 million at June 30, 2022 and December 31, 2021, respectively.

The carrying value of the Company’s residential loans held for sale was $ 1.4 million and $ 2.3 million at September 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.

17 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 $ 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 $ 1.6 million and $ 27.9 million for the three and nine months ended September 30, 2022, respectively.

The Company recorded net loan loss (provisions) reversals of $ 6.1 million and $ 145.3

2 unchanged sentences

Financial Statements

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:

million for the three and nine months ended September 30, 2021, respectively.

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

Residential Corporate Debt

9 unchanged sentences

(Amortization) / accretion ( 5,948 ) 2,694 ( 3,254 )

Ending balance June 30, 2022

Ending balance September 30, 2022

$ 1,551,637 $ — $ 1,551,637

(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.

Includes transfer of residential loans to securitization vehicles with a carrying value of $ 5.5 billion during the nine months ended September 30, 2022.

(2) Includes loan loss allowances.

3 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 June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(dollars in thousands)

1 unchanged sentence

Unpaid principal balance $ 11,469,486 $ 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 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

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

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 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:

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

ANNALY CAPITAL MANAGEMENT, INC.

2 unchanged sentences

Geographic Concentrations of Residential Mortgage Loans

June 30, 2022 December 31, 2021

September 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 June 30, 2022 and December 31, 2021:

June 30, 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 September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

Portfolio Weighted

11 unchanged sentences

67 % 8 % - 103 %

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.

At September 30, 2022 and December 31, 2021, approximately 11 % 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 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.

At September 30, 2022 and December 31, 2021, the fair value and carrying value of this warehouse facility was $ 0.1 million and $ 1.0 million, respectively, and reported as Loans, net in the Consolidated Statements of Financial Condition.

As of September 30, 2022, the lending facility was not on nonaccrual status nor past due.

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

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

1 unchanged sentence

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.

The vast majority of these assets were legally transferred to Ares at the end of the third quarter and the remaining assets are expected to be transferred by the end of the fourth quarter of 2022.

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

14 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 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

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

Mortgage Servicing Rights Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

(dollars in thousands)

2 unchanged sentences

182,784 312,327 866,767 411,309

Transfers (2)

82,650 — 82,650 —

Sales — — ( 9,076 ) ( 376 )

5 unchanged sentences

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

(2) Transfers from Interests in MSR - Refer to the “Variable Interest Entities” Note for additional information.

(3) 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 Six Months Ended

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

Interests in MSR Three Months Ended Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

(dollars in thousands)

2 unchanged sentences

— 5,936 4,860 53,034

Transfers (2)

( 82,650 ) — ( 82,650 ) —

Gain (loss) included in net income ( 972 ) 2,559 8,474 4,496

Ending balance June 30, 2022

Ending balance September 30, 2022

$ — $ 57,530 $ — $ 57,530

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

(2) Transfers to MSR - Refer to the “Variable Interest Entities” Note for additional information

ANNALY CAPITAL MANAGEMENT, INC.

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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.

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 September 30, 2022.

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

8 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

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

The Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance.

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

15 unchanged sentences

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.

OBX 2022-J2 August 2022 $ 305,969

OBX 2022-NQM7 August 2022 $ 358,931

OBX 2022-NQM8 September 2022 $ 397,470

As of September 30, 2022 and December 31, 2021, a total carrying value of $ 7.4 billion and $ 4.6 billion, respectively, of bonds were held by third parties and the Company retained $ 1.0 billion 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 $ 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.

The Company has elected the fair value option for the financial assets and liabilities of these VIEs, but had 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.

Effective August 1, 2022, upon initial consolidation of new securitization entities, the Company elected to apply the measurement alternative for consolidated collateralized financing entities in order to simplify its accounting and valuation processes.

The liabilities of these securitization entities are deemed to be more observable and are used to measure the fair

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

value of the assets.

The Company incurred $ 1.7 million and $ 2.2 million of costs during the three months ended September 30, 2022 and 2021, respectively, and $ 6.8 million and $ 4.0 million of costs during the nine months ended September 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 $ 8.6 billion and $ 4.6 billion at September 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 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.

In connection with the sale of substantially all of the assets that comprise the MML Portfolio, the 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.

2 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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 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

The Company owned variable interests in entities that invested in Interests in MSR.

These entities were VIEs because they did not have sufficient equity at risk to finance their activities and the Company was the primary beneficiary because it had power to remove the decision makers with or without cause and held substantially all of the variable interests in the entities.

During the quarter ended September 30, 2022, the Company terminated its contracts previously classified as Interests in MSR on its Consolidated Statements of Financial Condition and purchased the underlying mortgage servicing rights.

As a result, consolidated VIEs holding the Interests in MSR and related assets and liabilities were liquidated.

No gain or loss was recognized upon deconsolidation.

The underlying mortgage servicing rights were initially recognized at fair value and subsequent changes in fair value are recognized in earnings.

See the “Mortgage Servicing Rights” Note and “Fair Value Measurements” Note for further information regarding 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 September 30, 2022 and December 31, 2021 are as follows:

September 30, 2022

Cash and cash equivalents $ 3,533

6 unchanged sentences

Total liabilities $ 5,788

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

December 31, 2021

18 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 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.

As of September 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.

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

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AND SUBSIDIARIES

Financial Statements

SALE OF COMMERCIAL REAL ESTATE BUSINESS

5 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 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.

During the nine months ended September 30, 2021, the Company reported Business divestiture-related gains (losses) of ($ 262.0 ) 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 September 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 Company’s loans, having an unpaid principal balance of

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

$ 1.9 billion, were transferred to Ares for cash proceeds of $ 1.9 billion and a realized gain of $ 20.4 million was recorded during the nine months ended September 30, 2022.

As of September 30, 2022, loans with an unpaid principal balance of $ 14.2 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 the agreed upon sales price, which is considered to be Level 2 in the fair value measurement hierarchy.

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.

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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 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.

At September 30, 2022 and December 31, 2021, ($ 3.2 ) 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.

10 unchanged sentences

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

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

If the Company sells or exercises a swaption, the realized gain (loss) on the swaption would be equal to the difference between the cash

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

received or the fair value of the underlying interest rate swap received and the premium paid.

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

12 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.

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

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

Derivatives Instruments September 30, 2022 December 31, 2021

Assets (dollars in thousands)

12 unchanged sentences

Total derivative liabilities $ 764,535 $ 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 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

(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $ 420.0 million and $ 400.0 million at September 30, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche.

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

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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

September 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 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.

(1) As of September 30, 2022, 22 %, 30 % and 48 % 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 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.

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

(3) At September 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.

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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

June 30, 2022

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

September 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

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

June 30, 2022

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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

September 30, 2022

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

1 unchanged sentence

Purchase contracts $ 18,064,000 $ 17,686,372 $ 17,060,584 $ ( 625,788 )

Sale contracts ( 1,980,000 ) ( 1,895,947 ) ( 1,877,778 ) 18,169

Net TBA derivatives $ 16,084,000 $ 15,790,425 $ 15,182,806 $ ( 607,619 )

December 31, 2021

2 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 June 30, 2022 and December 31, 2021:

June 30, 2022

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

September 30, 2022

Notional - Long

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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

September 30, 2022

Amounts Eligible for Offset

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For the three months ended (dollars in thousands)

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

September 30, 2022 $ 141,110 $ ( 83,393 ) $ 1,251,350

September 30, 2021 $ ( 54,411 ) $ ( 1,196,417 ) $ 1,380,946

For the nine months ended

September 30, 2022 $ 79,561 $ ( 83,409 ) $ 3,472,326

September 30, 2021 $ ( 217,245 ) $ ( 1,196,417 ) $ 2,012,141

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

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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

Three Months Ended September 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 1,105 ( 1,982 ) ( 877 )

Three Months Ended June 30, 2021

Three Months Ended September 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 $ ( 45,168 )

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

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

6 unchanged sentences

Total $ 1,306,433

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

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

6 unchanged sentences

Total $ 72,731

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.

ANNALY CAPITAL MANAGEMENT, INC.

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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 June 30, 2022.

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

FAIR VALUE MEASUREMENTS

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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.

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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.

1 unchanged sentence

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

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

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

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

June 30, 2022

September 30, 2022

Level 1 Level 2 Level 3 Total

7 unchanged sentences

Mortgage servicing rights — — 1,705,254 1,705,254

Interests in MSR — — 83,622 83,622

Assets transferred or pledged to securitization vehicles — 9,202,014 — 9,202,014

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Financial Statements

June 30, 2022

September 30, 2022

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

4 unchanged sentences

$ 88 - $ 108 ($ 94 )

Interests in MSR 8.0 % - 8.0 % ( 8.0 %)

4.0 % - 9.6 % ( 6.8 %)

0.4 % - 4.3 % ( 1.4 %)

$ 82 - $ 87 ($ 84 )

December 31, 2021

11 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 June 30, 2022 and December 31, 2021.

June 30, 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 September 30, 2022 and December 31, 2021.

September 30, 2022 December 31, 2021

Value Carrying

5 unchanged sentences

Corporate debt, held for investment and corporate debt, held for sale are valued using Level 3 inputs.

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

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

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

At September 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 six months ended June 30, 2022.

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

ANNALY CAPITAL MANAGEMENT, INC.

6 unchanged sentences

amortization expense ( 2,647 )

Balance at June 30, 2022

Balance at September 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 $ 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

The Company had outstanding $ 54.2 billion and $ 54.8 billion of repurchase agreements with weighted average remaining maturities of 57 days and 52 days at September 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 $ 1.4 billion at September 30, 2022.

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

September 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

22 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 June 30, 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 June 30, 2022 and December 31, 2021.

(1) Approximately 0 % repurchase agreements had a remaining maturity over 1 year at September 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.

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements

3 unchanged sentences

Netted amounts $ — $ 54,160,731 $ — $ 54,769,643

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 $ 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.

Other Secured Financing - As of September 30, 2022, the Company had a $ 250 million committed credit facility and a $ 250 million incremental facility provision to finance a portion of its MSR portfolio.

Outstanding borrowings under this facility as of September 30, 2022 totaled $ 250.0 million with maturities ranging between one to three years .

The weighted average rate of the advances was 5.81 % as of September 30, 2022.

Borrowings are reported in Other secured financing in the Company’s Consolidated Statements of Financial Condition.

Refer to the “Variable Interest Entities” Note for additional information on the Company’s other secured financing arrangements at December 31, 2021.

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 $ 57.2 billion and $ 199.1 million, respectively, at September 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 June 30, 2022 and December 31, 2021.

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

Shares authorized Shares issued and outstanding

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

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

2,936,500,000 2,936,500,000 467,911,144 364,934,065 $ 0.01

In December 2020, the Company announced that its board of directors (“Board”) authorized the repurchase of up to $ 1.5 billion of its outstanding common shares through December 31, 2021 (the “Prior Share Repurchase Program”).

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

The Current Share Repurchase Program replaced the 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.

In January 2022, the Company announced that its Board authorized the repurchase of up to $ 1.5 billion of its outstanding shares of common stock

ANNALY CAPITAL MANAGEMENT, INC.

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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.

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

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

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

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.

through December 31, 2024 (the “Current Share Repurchase Program”).

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

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

During the three months ended September 30, 2022, the Company closed the public offering of an original issuance of 25 million shares of common stock for proceeds of $ 665.0 million before deducting offering expenses.

During the the nine months ended September 30, 2022, the Company closed two public offerings for an aggregate original issuance of 50 million shares of common stock for aggregate proceeds of $ 1.31 billion before deducting offering expenses.

In connection with each offering, the Company granted the underwriters a thirty-day option to purchase up to an additional 3.75 million shares of common stock, which the underwriters exercised in full in both instances, resulting in an additional $ 99.8 million and $ 196.5 million in proceeds before deducting offering expenses for the three and nine months ended September 30, 2022, respectively.

The stock offerings conducted during the three and nine months ended September 30, 2022 were completed prior to the Reverse Stock Split and the foregoing share amounts have been retroactively adjusted to reflect the effects thereof.

On August 6, 2020, the Company entered into separate Amended and Restated Distribution Agency Agreements (as amended by Amendment No.

1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, collectively, the “Sales Agreements”) with each of RBC Capital Markets, LLC, Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co.

LLC, Keefe, Bruyette & Woods, Inc., J.P.

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

Pursuant to the Sales Agreements, 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 (the “at-the-market sales program”).

During the three and nine months ended September 30, 2022, under the at-the-market sales program, the Company issued 36.8 million shares for proceeds of $ 913.9 million and 45.2 million shares for proceeds of $ 1.1 billion, respectively, each net of commissions and fees.

During the three and nine months ended September 30, 2021, under the at-the-market sales program, the Company issued 1.4 million shares for proceeds of $ 49.0 million and 12.8 million shares for proceeds of $ 469.5 million, respectively, each net of commissions and fees.

The foregoing share amounts have been retroactively adjusted to reflect the effects of the Reverse Stock Split.

(B) Preferred Stock

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

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at September 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

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

September 30, 2022 December 31, 2021 September 30, 2022 December 31, 2021 September 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 June 30, 2022, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

Through September 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.

4 unchanged sentences

Financial Statements

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

(dollars in thousands, except per share data)

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Distributions paid per common share after period end $ 0.88 $ 0.88 $ 0.88 $ 0.88

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

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

Dividends declared to series F preferred stockholders $ 12,510 $ 12,510 $ 37,530 $ 37,530

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Prime jumbo (2)

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

(1) Changes in fair value are recognized in Other comprehensive income (loss) on the accompanying Consolidated Statements of Comprehensive Income (Loss) for securities purchased prior to July 1, 2022.

Effective July 1, 2022, changes in fair value are recognized in Net gains (losses) on investments and other on the accompanying Consolidated Statements of Comprehensive Income (Loss) for newly purchased securities.

(2) Changes in fair value are recognized in Net gains (losses) on investments and other on the accompanying Consolidated Statements of Comprehensive Income (Loss).

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Financial Statements

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,

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

For the Three Months Ended September 30, For the Nine Months Ended September 30,

2022 2021 2022 2021

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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 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

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 nine months ended September 30, 2022 and September 30, 2021.

For the Three Months Ended For the Nine Months Ended

September 30, 2022 September 30, 2021 September 30, 2022 September 30, 2021

(dollars in thousands, except per share data)

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Diluted $ ( 0.70 ) $ 1.36 $ 6.45 $ 5.34

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.

The computations of diluted net income (loss) per share available (related) to common share for the three and nine months ended September 30, 2022 excludes 1.4 million and 0.7 million, respectively, of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.

For the three months ended September 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.

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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 June 30, 2022 and December 31, 2021.

Thus, no accruals for penalties and interest were deemed necessary at September 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.

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

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.

During the three and nine months ended September 30, 2022, the Company recorded ($ 4.3 ) million and $ 45.7 million, respectively, of income tax expense/(benefit) attributable to its TRSs.

During the three and nine months ended September 30, 2021, the Company recorded ($ 6.8 ) million and ($ 2.0 ) million, respectively, of income tax benefit attributable to its TRSs.

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

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

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

The Company’s vendor management policy establishes procedures for

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

engaging, onboarding and monitoring the performance of third-party vendors.

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

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

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

LEASE COMMITMENTS AND CONTINGENCIES

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.

The Company’s operating leases are primarily comprised of corporate office leases with remaining lease terms of approximately three years and 5 years, respectively.

The corporate office leases include options to extend for up to five years , however the extension terms were not included in the operating lease liability calculation.

Leases with an initial term of 12 months or less are not recorded on the balance sheet.

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

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

The lease cost for the three and nine months ended September 30, 2022 and 2021 was $ 0.8 million and $ 2.4 million, and $ 0.8 million and $ 2.5 million, respectively.

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

Operating Leases Classification September 30, 2022

Assets (dollars in thousands)

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Operating cash flows from operating leases $ 2,906

(1) As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

(1) For the Company’s leases that do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

The following table provides details related to maturities of lease liabilities:

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2022 (remaining) $ 965

Later years 291

Total lease payments $ 12,835

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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 June 30, 2022 and December 31, 2021.

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

ARCOLA REGULATORY REQUIREMENTS

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

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

At September 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 June 30, 2022 was $ 502.5 million with excess net capital of $ 502.2 million.

Arcola’s regulatory net capital as defined by SEC Rule 15c3-1 at September 30, 2022 was $ 513.8 million with excess net capital of $ 513.5 million.

SUBSEQUENT EVENTS

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.

In October 2022, the Company exercised the $ 250 million incremental facility provision for financing its MSR investments.

On November 3, 2022, the Company’s Board of Directors approved a repurchase plan for all of its existing outstanding Preferred Stock (as defined below, the “Preferred Stock Repurchase Program”).

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

The aggregate liquidation value of the Preferred Stock that may be repurchased by the Company pursuant to the Preferred Stock Repurchase Program, as of November 3, 2022, was approximately $ 1.6 billion.

The Preferred Stock Repurchase Program became effective on November 3, 2022, and shall expire on December 31, 2024.

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

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

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

On November 3, 2022, the Company entered into an Amendment No.

2 (collectively, the “Amendments”) to each of the separate Amended and Restated Distribution Agency Agreements, previously entered into on August 6, 2020 and amended by Amendment No.

1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021 (collectively, the “Sales Agreements,” as amended by the Amendments, the “Amended Sales Agreements”), with each of J.P.

Morgan Securities LLC, Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co.

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

Under the terms of the Amended Sales Agreements, 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.

Refer to Item 5 for additional information related to this increase to the at-the-market program.

ANNALY CAPITAL MANAGEMENT, INC.

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

Reverse Stock Split

Business Environment

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London Interbank Offered Rate (“LIBOR”) Transition

Income Tax Reform

Results of Operations

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Non-GAAP Financial Measures

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

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

Premium Amortization Expense

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)

Economic Leverage and Economic Capital Ratios

Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)

Experienced and Projected Long-term CPR

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

Reverse Stock Split

On September 8, 2022, we announced that our Board of Directors had unanimously approved a reverse stock split of our common stock at a ratio of 1-for-4 (the “Reverse Stock Split”).

The Reverse Stock Split was effective following the close of business on September 23, 2022 (the “Effective Time”).

Accordingly, at the Effective Time, every four issued and outstanding shares of our common stock were converted into one share of our common stock.

No fractional shares were issued in connection with the Reverse Stock Split.

Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares.

The par value per share of our common stock remained unchanged at $0.01 per share after the Reverse Stock Split.

Accordingly, for all historical periods presented, an amount equal to the par value of the reduced number of shares resulting from the Reverse Stock Split was reclassified from Common stock to Additional paid in capital in our Consolidated Statements of Financial Condition.

Business Environment

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.

As 2022 continues to be a historically challenging year, the third quarter (“Q3 2022”) saw broader fixed income markets underperform and mortgage spreads widen once again.

Stubbornly elevated inflation readings, rapid Federal Reserve (“Fed”) interest rate hikes, tightening financial conditions, high volatility, geopolitical turmoil, and rising financial stability risks have weighed on markets.

The total return for the Bloomberg U.S.

Aggregate Bond Market index was negative 14.6% in the first three quarters of 2022, far worse than 1994 – the prior worst year in the history of the index – when the total return was negative 2.9%.

In light of this difficult environment, we experienced a negative economic return of 11.7% during Q3 2022.

The Fed has signaled it is determined to keep tightening monetary policy until inflation returns to its target, a commitment that has been echoed by all Fed officials since Fed Chair Jerome Powell’s speech at the Federal Reserve Bank of Kansas City’s Economic Symposium in Jackson Hole, Wyoming at the end of August.

This has caused a meaningful repricing of the Federal Funds Target Rate expectations.

The repricing in monetary policy rates has led to a sharp selloff in interest rates and high levels of volatility as surprises in economic data have fueled expectations for an ever-higher monetary policy rate.

In light of this volatility and price action, investor demand for fixed income products has been weak, particularly for Agency mortgage-backed securities (“Agency MBS”).

Q3 2022 represents only the third quarter in the last ten years in which banks and mutual funds, the two largest holders of mortgage securities and loans, have reduced their Agency MBS holdings simultaneously.

In light of the sharp selloff in interest rates and widening in mortgage spreads, the Freddie Mac national survey mortgage rate rose to 6.70% as of September 30, 2022, more than doubling in 2022 and contributing to a sharp slowdown in housing market activity.

Home price appreciation appears to have peaked and has begun to reverse in several cities, if not nationwide.

Given significantly reduced mortgage affordability from high home prices and rapidly rising mortgage rates, we now expect the housing market to correct downward, potentially erasing the entire home price appreciation seen thus far this year by early to mid 2023.

Although prices could fall significantly from their recent highs, we anticipate housing fundamentals could ultimately see help from the structural tailwinds of strong demographics and a shortage in construction over the last ten plus years.

Slower housing activity should benefit the Agency MBS market primarily by reducing net supply, although we believe it should not be enough to have a material impact on our Residential Credit portfolio in the near-term.

Homeowners have built up meaningful equity cushions, mortgage lending standards have been robust, and given low rates on existing mortgages, most homeowners with steady incomes are unlikely to default unless labor markets weaken considerably in coming months.

Despite the volatility in interest rate and mortgage markets, funding conditions have been stable.

Agency MBS repurchase agreements (“repo”), residential credit financing, and MSR financing facilities remain readily available.

Our financing rates have risen sharply but have been thus far commensurate with other short-term interest rates.

While high volatility could drive an increase in repo haircuts, we have seen limited evidence of such a dynamic thus far.

The favorable financing conditions

ANNALY CAPITAL MANAGEMENT, INC.

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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%.

continue to be driven by the high balances of investor cash in short-term interest rate products, best seen by the elevated bank reserve balances and the near record Reverse Repo facility with the Fed.

Notwithstanding the Fed balance sheet runoff reaching its steady-state run rate of up to $95 billion per month, financing conditions should remain accommodative as cash remains ample over the medium-term.

For much of this challenging year, we have remained focused on prudently managing our liquidity, leverage, and risk profile in the current environment.

We continue to position ourselves defensively given sustained volatility and have robust liquidity with $6.1 billion in unencumbered assets, including $4.3 billion in cash and unencumbered Agency MBS.

This represents over 50% of our equity as of September 30, 2022.

During Q3 2022, we maintained our economic leverage around 6.5x until mid-September.

However, in light of the sharp market selloff in the last two weeks of the Q3 2022, our leverage increased to end Q3 2022 at 7.1x.

While we are comfortable with our current portfolio positioning, we would expect our leverage range to trend lower over the long term, reflective of our target capital allocation.

In terms of our portfolio mix, we modestly grew each of our three strategies with our total portfolio assets increasing to $86.2 billion in market value, up from $82.3 billion in the quarter prior.

Starting with Agency, despite our capital allocation decreasing to 67% from 71% in the prior quarter, our overall Agency portfolio holdings grew by $3 billion in market value as we selectively deployed capital from our accretive equity raises.

Meanwhile, Residential Credit portfolio growth was focused on opportunistic additions of securities that are less susceptible to home price declines in light of deteriorating housing market fundamentals.

Although we believe that our whole loan portfolio is well-positioned amidst further anticipated weakness in the sector, we have begun tightening our already stringent credit standards and expect the pace of securitizations to moderate in the near-term.

Nevertheless, we remained the largest nonbank issuer of prime-jumbo and expanded credit MBS this quarter, pricing three residential whole loan securitizations totaling $1.1 billion in proceeds.

This has largely been a result of our residential whole loan correspondent channel, which recently achieved over $2 billion in aggregated loans since its inception in April 2021.

Finally, we have now further scaled our MSR platform, having more than tripled our portfolio size year-over-year.

The MSR portfolio benefits from stable cash flows in the current environment of low prepayments and helps hedge the risks of further slowdown in housing activity.

We were active in the market during Q3 2022, growing our portfolio by nearly 10%.

Though we were the second largest purchaser of MSR year-to-date through September 30, 2022, we expect to be measured with respect to future growth considerate of the sector’s relative attractiveness and our risk parameters.

Overall, we expect market challenges will persist in the near-term and expect to maintain a defensive posture until volatility subsides.

While spreads across our investment strategies are historically attractive, we are focused on liquidity management and optionality in light of potential additional market turbulence in the near-term.

When the market outlook improves, we expect to be well-positioned to take advantage of attractive opportunities across our three businesses.

Economic Environment

The pace of economic growth rebounded in Q3 2022 relative to the quarterly pace seen in the first half of 2022, with U.S.

gross domestic product (“GDP”) rising 2.6 percent on a seasonally adjusted annualized rate.

Growth improved as consumption and investment activity, outside of residential investment, remained robust, while inventories and net exports provided less of a drag on economic activity than in the first six months of the year.

According to the Bureau of Labor Statistics, seasonally adjusted total non-farm payroll employment rose by an average 372 thousand workers during Q3 2022.

This is slightly above the 349 thousand workers added during the second quarter 2022.

Overall, employment gains remain strong as the unemployment rate fell to 3.5% during Q3 2022.

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.

job openings remain above historical levels.

Wage growth, as measured by the year-over-year change in private sector average hourly earnings, slowed somewhat during the quarter, reading 5.0% in September compared to 5.2% in June 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.

The headline PCE measure increased by 6.2% year-over-year in September 2022.

Meanwhile, the more stable core PCE measure, which excludes volatile food and energy prices, registered a 5.1% 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.

Prices remain meaningfully elevated, which is driven by continued strong demand for services, while goods prices have eased somewhat.

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

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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.

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

As such, the FOMC raised the Federal Funds Target Rate by 150 bps to the 3.00% - 3.25% range during the third 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.

Regarding its balance sheet, the FOMC transitioned to implement the full

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

aggregate pace of asset maturities of up to $95 billion per month across U.S.

Treasuries and Agency MBS starting in September.

During Q3 2022, the 10-year U.S.

Treasury rate continued to rise from 3.01% on June 30, 2022 to 3.83% on September 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.

Treasury rate, widened further over the course of Q3 2022 to 185 basis points on September 30, 2022 and is now 137 basis points wider than at the end of the third quarter 2021.

This widening continues to be driven by the meaningful tightening in monetary policy, elevated financial market volatility, and reduced investor demand for Agency MBS.

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

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

September 30, 2022 December 31, 2021 September 30, 2021

30-Year mortgage current coupon 5.68% 2.07% 1.97%

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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 firm has a plan facilitating an orderly conversion to alternative reference rates.

The plan included steps to evaluate exposure;

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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

Under the legislation, the Board of Governors of the Federal Reserve is required to 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 are not yet final.

When final rules are released, we will evaluate the impact of the the final rules on assets and liabilities covered by the legislation and continue to consider 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 September 30, 2022, we had $1.5 billion of USD LIBOR-linked preferred stock that may remain outstanding beyond the June 30, 2023 cessation date.

Income Tax Reform

On August 16, 2022, tax legislation, informally known as the Inflation Reduction Act (the “IRA”), was enacted, and included several changes impacting U.S.

federal income tax laws applicable to corporations.

The components most relevant to our business are the imposition of a 1% excise tax on stock repurchases by publicly-traded corporations and a 15% corporate minimum tax (“CMT”) on GAAP financial statement income.

However, the new legislation explicitly excludes REITs from the law and we do not expect the CMT to apply to our TRSs.

In the event the application of the CMT were to be imposed on our

ANNALY CAPITAL MANAGEMENT, INC.

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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.

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.

TRSs, we do not expect a material impact to our operations as it would simply affect the timing of the payment of income taxes already accrued.

While technical corrections or other amendments to the IRA or administrative guidance interpreting the IRA may be forthcoming, we continue to analyze the overall effects of the IRA to our operations, our industry and the economy in general.

Results of Operations

21 unchanged sentences

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,

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

As of and for the Three Months Ended September 30,

As of and for the Nine Months Ended September 30,

2022 2021 2022 2021

65 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements