What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2022-11-03 compared with 2022-08-01 · 273 added, 258 removed, 1290 unchanged (29% of the section changed)

19 unchanged sentences

(6) Excludes dividends on preferred stock.

Net income (loss) was $863.3 million, which includes ($3.4) million attributable to noncontrolling interests, or $0.55 per average basic common share, for the three months ended June 30, 2022 compared to ($294.8) million, which includes $0.8 million attributable to noncontrolling interests, or ($0.23) per average basic common share, for the same period in 2021.

We attribute the majority of the change in net income (loss) to favorable changes net gains (losses) on derivatives and net interest income, partially offset by an unfavorable change in net gains (losses) on investments and other.

Net gains (losses) on derivatives was $1.0 billion for the three months ended June 30, 2022 compared to ($0.6) billion for the same period in 2021.

Net interest income for the three months ended June 30, 2022 was $475.1 million compared to $322.9 million for the same period in 2021.

Net gains (losses) on investments and other was ($615.2) million for the three months ended June 30, 2022 compared to $20.2 million for the same period in 2021.

Net income (loss) was ($274.0) million, which includes $1.3 million attributable to noncontrolling interests, or ($0.70) per average basic common share, for the three months ended September 30, 2022 compared to $521.5 million, which includes $2.3 million attributable to noncontrolling interests, or $1.36 per average basic common share, for the same period in 2021.

We attribute the majority of the change in net income (loss) to an unfavorable change in net gains (losses) on investments and other and net interest income, partially offset by a favorable change in net gains (losses) on derivatives and net servicing income.

Net gains (losses) on investments and other was ($2.7) billion for the three months ended September 30, 2022 compared to $102.8 million for the same period in 2021.

Net interest income for the three months ended September 30, 2022 was $278.0 million compared to $362.5 million for the same period in 2021.

Net gains (losses) on derivatives was $2.1 billion for the three months ended September 30, 2022 compared to $85.0 million for the same period in 2021.

Net servicing income for the three months ended September 30, 2022 was $66.7 million compared to $14.9 million for the same period in 2021.

Refer to the section titled “Other income (loss)” located within this Item 2 for additional information related to these changes.

Net income (loss) was $2.9 billion, which includes ($1.7) million attributable to noncontrolling interests, or $1.90 per average basic common share, for the six months ended June 30, 2022 compared to $1.5 billion which includes $1.1 million attributable to noncontrolling interests, or $1.00 per average basic common share, for the same period in 2021.

We attribute the majority of the change in net income (loss) to higher net gains on derivatives and lower business divestiture-related losses, partially offset by an unfavorable change in net gains (losses) on investments and other.

Net gains on derivatives was for the six months ended June 30, 2022 was $2.7 billion compared to $587.4 million for the same period in 2021.

Business divestiture-related (losses) was ($24.3) million for the six months ended June 30, 2022 compared to ($248.0) million for the same period in 2021.

Net gains (losses) on investments and other was ($775.0) million for the six months ended June 30, 2022 compared to $58.6 million for the same period in 2021.

Net income (loss) was $2.6 billion, which includes ($0.5) million attributable to noncontrolling interests, or $6.46 per average basic common share, for the nine months ended September 30, 2022 compared to $2.0 billion which includes $3.4 million attributable to noncontrolling interests, or $5.34 per average basic common share, for the same period in 2021.

We attribute the majority of the change in net income (loss) to higher net gains (losses) on derivatives and lower business divestiture-related losses, partially offset by an unfavorable change in net gains (losses) on investments and other.

Net gains on derivatives for the nine months ended September 30, 2022 was $4.8 billion compared to $672.4 million for the same period in 2021.

Business divestiture-related (losses) was ($27.2) million for the nine months ended September 30, 2022 compared to ($262.0) million for the same period in 2021.

Net gains (losses) on investments and other was ($3.5) billion for the nine months ended September 30, 2022 compared to $161.4 million for the same period in 2021.

Refer to the section titled “Other income (loss)” located within this Item 2 for additional information related to these changes.

Earnings available for distribution were $490.8 million, or $0.30 per average common share, for the three months ended June 30, 2022, compared to $451.4 million, or $0.30 per average common share, for the same period in 2021.

The change in earnings available for distribution during the three months ended June 30, 2022 compared to the same period in 2021 was primarily due to lower amortization expense, excluding PAA, resulting from lower prepayment speed projections, a favorable change in the net interest component of interest rate swaps, higher TBA dollar roll income and higher net servicing income, partially offset by higher interest expense from an increase in borrowing rates.

Earnings available for distribution were $921.4 million, or $0.58 per average common share, for the six months ended June 30, 2022, compared to $890.9 million, or $0.59 per average common share, for the same period in 2021.

The change in earnings available for distribution during the six months ended June 30, 2022 compared to the same period in 2021 was primarily due to lower amortization expense, excluding PAA, resulting from lower prepayment speed projections, a favorable change in the net interest component of interest rate swaps, higher TBA dollar roll income and higher net servicing income, partially offset by higher interest expense from an increase in borrowing rates.

Earnings available for distribution were $480.7 million, or $1.06 per average common share, for the three months ended September 30, 2022, compared to $437.5 million, or $1.14 per average common share, for the same period in 2021.

The change in earnings available for distribution during the three months ended September 30, 2022 compared to the same period in 2021 was primarily due to lower premium amortization expense, excluding PAA, resulting from lower prepayment speed projections, a favorable change in the net interest component of interest rate swaps, and higher net servicing income, partially offset by higher interest expense from an increase in average borrowing rates and average interest bearing liabilities.

Earnings available for distribution were $1.4 billion, or $3.37 per average common share, for the nine months ended September 30, 2022, compared to $1.3 billion, or $3.52 per average common share, for the same period in 2021.

The change in earnings available for distribution during the nine months ended September 30, 2022 compared to the same period in 2021 was primarily due to lower premium amortization expense, excluding PAA, resulting from lower prepayment speed projections, a favorable change in the net interest component of interest rate swaps, higher TBA dollar roll income and higher net servicing income, partially offset by higher interest expense from an increase in average borrowing rates.

ANNALY CAPITAL MANAGEMENT, INC.

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The following table presents a reconciliation of GAAP financial results to non-GAAP earnings available for distribution for the periods presented:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2022 2021 2022 2021

37 unchanged sentences

(1) The adjustment to add back Net (gains) losses on derivatives does not include the net interest component of interest rate swaps which is reflected in earnings available for distribution.

The net interest component of interest rate swaps totaled $1.0 million and ($83.1) million for the three months ended June 30, 2022 and June 30, 2021, respectively and ($61.5) million and ($162.8) million for the six months ended June 30, 2022 and June 30, 2021, respectively.

(2) Includes ($2.5) million and $0.6 million for the three months ended June 30, 2022 and 2021, respectively, and ($2.3) million and ($4.7) million for the six months ended June 30, 2022 and 2021, respectively, of loss provision (reversal) on unfunded loan commitments which is reported in Other, net in the Consolidated Statements of Comprehensive Income (Loss).

The net interest component of interest rate swaps totaled $141.1 million and ($54.4) million for the three months ended September 30, 2022 and September 30, 2021, respectively and $79.6 million and ($217.2) million for the nine months ended September 30, 2022 and September 30, 2021, respectively.

(2) Includes $0.0 million and ($0.6) million for the three months ended September 30, 2022 and 2021, respectively, and ($2.3) million and ($5.3) million for the nine months ended September 30, 2022 and 2021, respectively, of loss provision (reversal) on unfunded loan commitments which is reported in Other, net in the Consolidated Statements of Comprehensive Income (Loss).

(3) Includes depreciation and amortization expense related to equity method investments.

(4) Represents unrealized (gains) losses allocated to equity interests in a portfolio of MSR which is a component of Other, net in the Consolidated Statements of Comprehensive Income (Loss).

(5) The three and six months ended June 30, 2022 and 2021 includes costs incurred in connection with securitizations of residential whole loans.

(5) The three and nine months ended September 30, 2022 and 2021 includes costs incurred in connection with securitizations of residential whole loans.

(6) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

CMBX coupon income totaled $1.1 million and $1.4 million for the three months ended June 30, 2022 and 2021, respectively and $2.1 million and $2.9 million for the six months ended June 30, 2022 and 2021, respectively.

CMBX coupon income totaled $1.1 million and $1.2 million for the three months ended September 30, 2022 and 2021, respectively and $3.2 million and $4.1 million for the nine months ended September 30, 2022 and 2021, respectively.

(7) MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected MSR yield income and net servicing income for the period.

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The following table illustrates the impact of the PAA on premium amortization expense for our Residential Securities portfolio and residential securities transferred or pledged to securitization vehicles, for the periods presented:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2022 2021 2022 2021

16 unchanged sentences

The following table presents a reconciliation of GAAP debt to economic debt for purposes of calculating our economic leverage ratio for the periods presented:

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Economic leverage ratio reconciliation

3 unchanged sentences

Other secured financing

250,000 729,555

Debt issued by securitization vehicles

7 unchanged sentences

Credit facilities (1)

$ — $ (729,555)

Debt issued by securitization vehicles

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The following table presents a reconciliation of GAAP total assets to economic total assets for purposes of calculating our economic capital ratio for the periods presented:

June 30, 2022 June 30, 2021

September 30, 2022 September 30, 2021

Economic capital ratio reconciliation

15 unchanged sentences

(1) Included in Derivative assets in the Consolidated Statements of Financial Condition.

(2) Includes debt issued by securitization vehicles reported in Liabilities of disposal group held for sale in the Consolidated Statements of Financial Condition.

(2) Economic capital ratio is computed as total equity divided by total economic assets.

10 unchanged sentences

In accordance with GAAP, upfront payments associated with MAC interest rate swaps are not reflected in the net interest component of interest rate swaps, which is presented in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

We did not enter into any MAC interest rate swaps during the three and six months ended June 30, 2022.

We did not enter into any MAC interest rate swaps during the three and nine months ended September 30, 2022.

Similarly, economic net interest income (excluding PAA), as computed below, provides investors with additional information to enhance their understanding of the net economics of our primary business operations.

4 unchanged sentences

For the three months ended (dollars in thousands)

June 30, 2022 $ 645,615 $ (127,521) $ 518,094

June 30, 2021 $ 383,906 $ 153,607 $ 537,513

For the six months ended

June 30, 2022 $ 1,301,465 $ (307,037) $ 994,428

June 30, 2021 $ 1,147,284 $ (60,963) $ 1,086,321

September 30, 2022 $ 678,488 $ (45,414) $ 633,074

September 30, 2021 $ 412,972 $ 60,726 $ 473,698

For the nine months ended

September 30, 2022 $ 1,979,953 $ (352,451) $ 1,627,502

September 30, 2021 $ 1,560,256 $ (237) $ 1,560,019

* Represents a non-GAAP financial measure.

6 unchanged sentences

For the three months ended (dollars in thousands)

June 30, 2022 $ 170,475 $ (992) $ 169,483 $ 475,140 $ (992) $ 476,132 $ (127,521) $ 348,611

June 30, 2021 $ 61,047 $ 83,087 $ 144,134 $ 322,859 $ 83,087 $ 239,772 $ 153,607 $ 393,379

For the six months ended

June 30, 2022 $ 245,397 $ 61,549 $ 306,946 $ 1,056,068 $ 61,549 $ 994,519 $ (307,037) $ 687,482

June 30, 2021 $ 137,020 $ 162,834 $ 299,854 $ 1,010,264 $ 162,834 $ 847,430 $ (60,963) $ 786,467

September 30, 2022 $ 400,491 $ (141,110) $ 259,381 $ 277,997 $ (141,110) $ 419,107 $ (45,414) $ 373,693

September 30, 2021 $ 50,438 $ 54,411 $ 104,849 $ 362,534 $ 54,411 $ 308,123 $ 60,726 $ 368,849

For the nine months ended

September 30, 2022 $ 645,888 $ (79,561) $ 566,327 $ 1,334,065 $ (79,561) $ 1,413,626 $ (352,451) $ 1,061,175

September 30, 2021 $ 187,458 $ 217,245 $ 404,703 $ 1,372,798 $ 217,245 $ 1,155,553 $ (237) $ 1,155,316

* Represents a non-GAAP financial measure.

2 unchanged sentences

Prepayment speeds, as reflected by the CPR and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty.

In general, as prepayment speeds and

In general, as prepayment speeds and expectations of prepayment speeds on our Agency MBS portfolio increase, related purchase premium amortization increases,

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

expectations of prepayment speeds on our Agency MBS portfolio increase, related purchase premium amortization increases, thereby reducing the yield on such assets.

thereby reducing the yield on such assets.

The following table presents the weighted average experienced CPR and weighted average projected long-term CPR on our Agency MBS portfolio as of and for the periods presented.

2 unchanged sentences

For the three months ended

June 30, 2022 14.9 % 7.7 %

June 30, 2021 26.4 % 12.9 %

For the six months ended

June 30, 2022 15.8 % 7.7 %

June 30, 2021 25.2 % 12.9 %

(1) For the three and six months ended June 30, 2022 and 2021, respectively.

(2) At June 30, 2022 and 2021, respectively.

September 30, 2022 9.8 % 7.6 %

September 30, 2021 23.1 % 12.7 %

For the nine months ended

September 30, 2022 13.8 % 7.6 %

September 30, 2021 24.5 % 12.7 %

(1) For the three and nine months ended September 30, 2022 and 2021, respectively.

(2) At September 30, 2022 and 2021, respectively.

Average Yield on Interest Earning Assets (excluding PAA), Net Interest Spread (excluding PAA), Net Interest Margin (excluding PAA) and Average Economic Cost of Interest Bearing Liabilities

5 unchanged sentences

Average Yield on Interest Earning Assets (excluding PAA) *

Average Interest Bearing Liabilities Economic Interest Expense * (2)

Average Interest Bearing Liabilities (2)

Economic Interest Expense * (2)

Average Economic Cost of Interest Bearing Liabilities * (2)

2 unchanged sentences

For the three months ended (dollars in thousands)

June 30, 2022 $ 72,123,055 $ 518,094 2.87 % $ 60,446,528 $ 169,483 1.11 % 348,611 1.76 %

June 30, 2021 $ 77,916,766 $ 537,513 2.76 % $ 68,469,413 144,134 0.83 % 393,379 1.93 %

For the six months ended

June 30, 2022 $ 72,356,966 $ 994,428 2.75 % $ 61,155,910 $ 306,946 1.00 % 687,482 1.75 %

June 30, 2021 $ 79,519,053 $ 1,086,321 2.73 % $ 70,235,722 $ 299,854 0.85 % 786,467 1.88 %

September 30, 2022 $ 78,143,337 $ 633,074 3.24 % $ 65,755,563 $ 259,381 1.54 % 373,693 1.70 %

September 30, 2021 $ 72,145,283 $ 473,698 2.63 % $ 62,614,042 104,849 0.66 % 368,849 1.97 %

For the nine months ended

September 30, 2022 $ 74,285,756 $ 1,627,502 2.92 % $ 62,689,128 $ 566,327 1.19 % 1,061,175 1.73 %

September 30, 2021 $ 77,061,130 $ 1,560,019 2.70 % $ 67,695,162 $ 404,703 0.79 % 1,155,316 1.91 %

* Represents a non-GAAP financial measure.

1 unchanged sentence

(1) Based on amortized cost.

(2) Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities.

(2) Average interest bearing liabilities reflects the average balances during the period.

Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.

Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities.

ANNALY CAPITAL MANAGEMENT, INC.

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For the three months ended (dollars in thousands)

June 30, 2022 $ 518,094 161,673 (169,483) $ 510,284 $ 72,123,055 20,566,553 $ 92,689,608 2.20 %

June 30, 2021 $ 537,513 111,592 (144,134) $ 504,971 $ 77,916,766 18,761,062 $ 96,677,828 2.09 %

For the six months ended

June 30, 2022 $ 994,428 291,165 (306,946) $ 978,647 $ 72,356,966 19,898,046 $ 92,255,012 2.12 %

June 30, 2021 $ 1,086,321 210,525 (299,854) $ 996,992 $ 79,519,053 20,313,516 $ 99,832,569 2.00 %

September 30, 2022 $ 633,074 105,543 (259,381) $ 479,236 $ 78,143,337 18,837,475 $ 96,980,812 1.98 %

September 30, 2021 $ 473,698 115,586 (104,849) $ 484,435 $ 72,145,283 22,739,226 $ 94,884,509 2.04 %

For the nine months ended

September 30, 2022 $ 1,627,502 396,708 (566,327) $ 1,457,883 $ 74,285,756 19,544,521 $ 93,830,277 2.07 %

September 30, 2021 $ 1,560,019 326,111 (404,703) $ 1,481,427 $ 77,061,130 21,122,086 $ 98,183,216 2.01 %

* Represents a non-GAAP financial measure.

1 unchanged sentence

(1) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives.

Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities

15 unchanged sentences

For the three months ended

June 30, 2022 $ 60,446,528 $ 59,563,524 $ 169,483 1.11 % 1.02 % 2.11 % (1.09 %) 0.09 % (1.00 %)

June 30, 2021 $ 68,469,413 $ 66,642,378 $ 144,134 0.83 % 0.10 % 0.19 % (0.09 %) 0.73 % 0.64 %

For the six months ended

June 30, 2022 $ 61,155,910 $ 59,563,524 $ 306,946 1.00 % 0.61 % 1.44 % (0.83 %) 0.39 % (0.44 %)

June 30, 2021 $ 70,235,722 $ 66,642,378 $ 299,854 0.85 % 0.11 % 0.20 % (0.09 %) 0.74 % 0.65 %

September 30, 2022 $ 65,755,563 $ 63,000,978 $ 259,381 1.54 % 2.47 % 3.56 % (1.09 %) (0.93 %) (2.02 %)

September 30, 2021 $ 62,614,042 $ 60,781,391 $ 104,849 0.66 % 0.09 % 0.15 % (0.06 %) 0.57 % 0.51 %

For the nine months ended

September 30, 2022 $ 62,689,128 $ 63,000,978 $ 566,327 1.19 % 1.25 % 2.17 % (0.92 %) (0.06 %) (0.98 %)

September 30, 2021 $ 67,695,162 $ 60,781,391 $ 404,703 0.79 % 0.10 % 0.19 % (0.09 %) 0.69 % 0.60 %

* Represents a non-GAAP financial measure.

1 unchanged sentence

(1) Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.

Economic interest expense increased by $25.3 million for the three months ended June 30, 2022 compared to the same period in 2021, primarily due to higher interest expense on repurchase agreements reflecting higher borrowing rates, partially offset by lower average interest bearing liabilities and the change in the net interest component of interest rate swaps, which was $1.0 million for the three months ended June 30, 2022 compared to ($83.1) million for the same period in 2021.

Economic interest expense increased by $7.1 million for the six months ended June 30, 2022 compared to the same period in 2021, primarily due to higher interest expense on repurchase agreements reflecting higher borrowing rates, partially offset by lower average interest bearing liabilities and the change in the net interest component of interest rate swaps, which was ($61.5) million for the six months ended June 30, 2022 compared to ($162.8) million for the same period in 2021.

Economic interest expense increased by $154.5 million for the three months ended September 30, 2022 compared to the same period in 2021, primarily due to higher interest expense on repurchase agreements reflecting higher borrowing rates and higher average interest bearing liabilities, partially offset by the change in the net interest component of interest rate swaps, which was $141.1 million for the three months ended September 30, 2022 compared to ($54.4) million for the same period in 2021.

Economic interest expense increased by $161.6 million for the nine months ended September 30, 2022 compared to the same period in 2021, primarily due to higher interest expense on repurchase agreements reflecting higher borrowing rates, partially offset by lower average interest bearing liabilities and the change in the net interest component of interest rate swaps, which was $79.6 million for the nine months ended September 30, 2022 compared to ($217.2) million for the same period in 2021.

We do not manage our portfolio to have a pre-designated amount of borrowings at quarter or year end.

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The mortgage-backed securities we own pay principal and interest towards the end of each month and the mortgage-backed securities we purchase are typically settled during the beginning of the month.

As a result, depending on the amount of mortgage-backed securities we have committed to purchase, we may retain the principal and interest we receive in the prior month, or we may use it to pay down our borrowings.

Moreover, we generally use interest rate swaps, swaptions

As a result, depending on the amount of mortgage-backed securities we have committed to purchase, we may retain the principal and interest we receive

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

and other derivative instruments to hedge our portfolio, and as we pledge or receive collateral under these agreements, our borrowings on any given day may be increased or decreased.

in the prior month, or we may use it to pay down our borrowings.

Moreover, we generally use interest rate swaps, swaptions and other derivative instruments to hedge our portfolio, and as we pledge or receive collateral under these agreements, our borrowings on any given day may be increased or decreased.

Our average borrowings during a quarter may differ from period end borrowings as we implement our portfolio management strategies and risk management strategies over changing market conditions by increasing or decreasing leverage.

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Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings during a period provide a more accurate representation of our exposure to the risks associated with leverage than our period end borrowings.

At June 30, 2022 and December 31, 2021, the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, and corporate loans.

At September 30, 2022 the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, and MSR.

At December 31, 2021, the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, and corporate loans.

All of our Residential Securities are currently accepted as collateral for these borrowings.

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Other Income (Loss)

Other income (loss) is comprised of net gains (losses) on investments and other, net gains (losses) on derivatives, loan loss (provision) reversal, business divestiture-related gains (losses) and other, net.

These components of realized and unrealized gains (losses) for the three and six months ended June 30, 2022 and 2021 were as follows:

For the Three Months Ended June 30,

For the Six Months Ended June 30,

2022 2021 2022 2021

(dollars in thousands)

Net gains (losses) on investments and other $ (615,216) $ 20,207 $ (775,020) $ 58,612

Net gains (losses) on derivatives

1,015,643 (581,962) 2,657,671 587,421

Loan loss (provision) reversal 26,913 (494) 26,305 139,126

Business divestiture-related gains (losses) (23,955) 1,527 (24,309) (248,036)

Other, net (5,486) (6,241) (2,428) 295

Total $ 397,899 $ (566,963) $ 1,882,219 $ 537,418

For the Three Months Ended June 30, 2022 and 2021

For the Three Months Ended September 30, 2022 and 2021

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments was ($646.2) million for the three months ended June 30, 2022 compared to $16.2 million for the same period in 2021.

For the three months ended June 30, 2022, we disposed of Residential Securities with a carrying value of $6.6 billion for an aggregate net loss of ($657.3) million.

Net gains (losses) on disposal of investments was ($1.5) billion for the three months ended September 30, 2022 compared to $12.0 million for the same period in 2021.

For the three months ended September 30, 2022, we disposed of Residential Securities with a carrying value of $11.6 billion for an aggregate net loss of ($1.5) billion.

For the same period in 2021, we disposed of Residential Securities with a carrying value of $4.8 billion for an aggregate net gain of $26.7 million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was $31.0 million for the three months ended June 30, 2022 compared to $4.0 million for the same period in 2021, primarily due to favorable changes in unrealized gains (losses) on residential securitized debt of consolidated VIEs of $386.8 million, MSR, including interests in MSR, of $73.9 million and Agency interest-only securities of $28.3 million, partially offset by unfavorable changes on securitized residential whole loans of consolidated VIEs of ($340.7) million, non-Agency MBS of ($65.9) million and credit risk transfer securities of ($52.4) million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($1.2) billion for the three months ended September 30, 2022 compared to $90.8 million for the same period in 2021, primarily due to unfavorable changes in unrealized gains (losses) on Agency MBS of ($1.0) billion, securitized residential whole loans of consolidated VIEs of ($492.9) million, residential whole loans of ($64.1) million, partially offset by favorable changes on securitized debt of consolidated VIEs of $335.2 million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the three months ended June 30, 2022 was $898.5 million compared to ($224.2) million for the same period in 2021, primarily attributable to a favorable change in unrealized gains (losses) on interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $897.5 million for the three months ended June 30, 2022, reflecting a rise in forward interest rates during the period, compared to ($141.1) million for the same period in 2021, reflecting a decline in forward interest rates during the period.

Net gains (losses) on interest rate swaps for the three months ended September 30, 2022 was $1.3 billion compared to $130.1 million for the same period in 2021, primarily attributable to the change in realized gains (losses) on termination of interest rate swaps.

Realized gains (losses) on termination of interest rate swaps was ($83.4) million for the three months ended September 30, 2022 compared to ($1.2) billion for 2021 as in in the current period we terminated fixed-receiver interest rate swaps with a notional amount of $10.0 billion compared to the same period in 2021 when we repositioned our swap portfolio to reduce our exposure to LIBOR and terminated fixed-rate payer and receiver interest rate swaps with notional amounts of $14.7 billion and $14.8 billion, respectively.

Net gains (losses) on other derivatives was $808.2 million for the three months ended September 30, 2022 compared to ($45.2) million for the same period in 2021.

The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures, which was $1.8 billion for the three months ended September 30, 2022 compared to $49.8 million for the same period in 2021, and net gains (losses) on interest rate swaptions, which was $11.7 million for the three months ended September 30, 2022 compared to ($68.9) million for the same period in 2021, partially offset by an unfavorable change in net gains (losses) on TBA derivatives, which was ($1.0) billion for the three months ended September 30, 2022 compared to ($27.3) million for the same period in 2021.

Loan Loss (Provision) Reversal

For the three months ended September 30, 2022 and 2021, net loan loss (provision) reversal were $1.6 million and $6.1 million on corporate loans, respectively.

Refer to the “Loans” Note located within Item 1 for additional information related to the loan loss (provisions) reversals.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Net gains (losses) on other derivatives was $117.1 million for the three months ended June 30, 2022 compared to ($357.8) million for the same period in 2021.

The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures, which was $787.1 million for the three months ended June 30, 2022 compared to ($394.5) million for the same period in 2021, and interest rate swaptions, which was $119.4 million for the three months ended June 30, 2022 compared to ($255.6) million for the same period in 2021, partially offset by an unfavorable change in net gains (losses) on TBA derivatives, which was ($783.3) million for the three months ended June 30, 2022 compared to $285.3 million for the same period in 2021.

Loan Loss (Provision) Reversal

For the three months ended June 30, 2022 and 2021, net loan loss (provision) reversal were $26.9 million and ($0.5) million on corporate loans, respectively.

Refer to the “Loans” Note located within Item 1 for additional information related to the loan loss (provisions) reversals.

Business Divestiture-Related Gains (Losses)

For the three months ended June 30, 2022, the majority of business divestiture-related gains (losses) was associated with the sale of our corporate loan interests, in connection with the announcement of the sale of our MML Portfolio.

For the three months ended September 30, 2022, the majority of business divestiture-related gains (losses) was associated with the sale of our corporate loan interests, in connection with the announcement of the sale of our MML Portfolio.

Refer to the “Sale of Middle Market Lending Portfolio” Note and the “Loans” Note located within Item 1 for additional information related to the transaction.

For the three months ended June 30, 2021, business divestiture-related gains (losses) was associated with the sale of our commercial real estate business.

For the three months ended September 30, 2021, the majority of business divestiture-related gains (losses) was associated with the sale of our commercial real estate business.

Refer to the “Sale of Commercial Real Estate Business” Note located within Item 1 for additional information related to the transaction.

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Given the nature of certain components of this line item, balances may fluctuate from period to period.

For the Six Months Ended June 30, 2022 and 2021

For the Nine Months Ended September 30, 2022 and 2021

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments and other was ($790.4) million for the six months ended June 30, 2022 compared to ($49.6) million for the same period in 2021.

For the six months ended June 30, 2022, we disposed of Residential Securities with a carrying value of $9.4 billion for an aggregate net loss of ($801.8) million.

Net gains (losses) on disposal of investments and other was ($2.3) billion for the nine months ended September 30, 2022 compared to ($37.6) million for the same period in 2021.

For the nine months ended September 30, 2022, we disposed of Residential Securities with a carrying value of $21.0 billion for an aggregate net loss of ($2.3) billion.

For the same period in 2021, we disposed of Residential Securities with a carrying value of $11.1 billion for an aggregate net loss of $0.8 million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was $15.4 million for the six months ended June 30, 2022 compared to $108.2 million for the same period in 2021, primarily due to unfavorable changes in unrealized gains (losses) on securitized residential whole loans of consolidated VIEs of ($717.2) million, securitized commercial loans of ($129.8) million and non-Agency MBS of ($125.9) million, partially offset by favorable changes on residential securitized debt of consolidated VIEs of $672.0 million and MSR, including Interests in MSR, of $225.4 million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($1.2) billion for the nine months ended September 30, 2022 compared to $199.0 million for the same period in 2021, primarily due to unfavorable changes in unrealized gains (losses) on securitized residential whole loans of consolidated VIEs of ($1.2) billion, Agency MBS of ($1.0) billion, non-Agency MBS of ($170.2) million, residential whole loans of ($123.7) million, CRT securities of ($72.5) million, partially offset by favorable changes on residential securitized debt of consolidated VIEs of $1.0 billion, and MSR of $185.5 million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the six months ended June 30, 2022 was $2.2 billion compared to $468.4 million for the same period in 2021, primarily attributable to favorable changes in unrealized gains (losses) on interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $2.2 billion for the six months ended June 30, 2022 compared to $631.2 million for the same period in 2021, reflecting a sharper rise in forward interest rates during the current period.

Net gains (losses) on other derivatives was $498.3 million for the six months ended June 30, 2022 compared to $119.1 million for the same period in 2021.

The change in net gains (losses) on other derivatives was primarily due to the favorable changes in net gains (losses) on futures derivatives, which was $2.2 billion for the six months ended June 30, 2022 compared to $418.8 million for the same period in 2021, and interest rate swaptions, which was $227.6 million for the six months ended

Net gains (losses) on interest rate swaps for the nine months ended September 30, 2022 was $3.5 billion compared to $598.5 million for the same period in 2021, attributable to favorable changes in unrealized gains (losses) on interest rate swaps and realized gains (losses) on termination of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $3.5 billion for the nine months ended September 30, 2022 compared to $2.0 billion for the same period in 2021, reflecting a sharper rise in forward interest rates during the current period.

Realized gains (losses) on termination of interest rate swaps was ($83.4) million for the nine months ended September 30, 2022 compared to ($1.2) billion for the same period in 2021 as in the current period we terminated fixed-receiver interest rate swaps with a notional amount of $10.0 billion compared to the same period in 2021 when we repositioned our swap portfolio to reduce our exposure to LIBOR and terminated fixed-rate payer and receiver interest rate swaps with notional amounts of $14.7 billion and $14.8 billion, respectively.

Net gains (losses) on other derivatives was $1.3 billion for the nine months ended September 30, 2022 compared to $73.9 million for the same period in 2021.

The change in net gains (losses) on other derivatives was primarily due to the favorable changes in net gains (losses) on futures derivatives, which was $4.0 billion for the nine months ended September 30, 2022 compared to $468.5 million for the same period in 2021, and net gains (losses) on interest rate swaptions, which was $239.3 million for the nine months ended September 30, 2022 compared to ($40.7) million for the same period in 2021, partially offset by an unfavorable change in TBA derivatives, which was ($2.9) billion for the nine months ended September 30, 2022 compared to ($372.1) million million for the same period in 2021.

Loan Loss (Provision) Reversal

For the nine months ended September 30, 2022 and 2021, net loan loss reversals of $27.9 million on corporate loans and $145.3 million on commercial mortgage and corporate loans, respectively.

Refer to the “Loans” Note located within Item 1 for additional information related to these loan loss provisions.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

June 30, 2022 compared to $28.1 million for the same period in 2021, partially offset by an unfavorable change in TBA derivatives, which was ($1.9) billion for the six months ended June 30, 2022 compared to ($344.8) million for the same period in 2021.

Loan Loss (Provision) Reversal

For the six months ended June 30, 2022 and 2021, net loan loss reversals of $26.3 million on corporate loans and $139.1 million on commercial mortgage and corporate loans, respectively.

Refer to the “Loans” Note located within Item 1 for additional information related to these loan loss provisions.

Business Divestiture-Related Gains (Losses)

For the six months ended June 30, 2022, the majority of business divestiture-related gains (losses) was associated with the sale of our corporate loan interests.

For the nine months ended September 30, 2022, the majority of business divestiture-related gains (losses) were associated with the sale of our corporate loan interests.

Refer to the “Sale of Middle Market Lending Portfolio” Note and located within Item 1 for additional information related to the transaction.

For the six months ended June 30, 2021, business divestiture-related gains (losses) was associated with the sale of our commercial real estate business.

For the nine months ended September 30, 2021, business divestiture-related gains (losses) were associated with the sale of our commercial real estate business.

Refer to the “Sale of Commercial Real Estate Business” Note located within Item 1 for additional information related to the transaction.

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For the three months ended (dollars in thousands)

June 30, 2022 $ 36,038 0.19 % 1.28 %

June 30, 2021 $ 53,526 0.26 % 1.55 %

For the six months ended

June 30, 2022 $ 81,802 0.22 % 1.37 %

June 30, 2021 $ 101,431 0.24 % 1.46 %

G&A expenses were $36.0 million for the three months ended June 30, 2022, a decrease of $17.5 million compared to the same period in 2021.

G&A expenses were $81.8 million for the six months ended June 30, 2022, a decrease of $19.6 million compared to the same period in 2021.

The change in each period was primarily due to lower expenses on our commercial portfolio during the three and six months ended June 30, 2022 as a result of the sale of the commercial real estate business, which was announced in the first quarter of 2021, compared with the same periods in 2021.

September 30, 2022 $ 37,922 0.19 % 1.38 %

September 30, 2021 $ 43,882 0.22 % 1.28 %

For the nine months ended

September 30, 2022 $ 119,724 0.20 % 1.37 %

September 30, 2021 $ 145,313 0.23 % 1.40 %

G&A expenses were $37.9 million for the three months ended September 30, 2022, a decrease of $6.0 million compared to the same period in 2021.

G&A expenses were $119.7 million for the nine months ended September 30, 2022, a decrease of $25.6 million compared to the same period in 2021.

The change in each period was primarily due to lower expenses on our commercial portfolio, as a result of the sale of our commercial real estate business which was announced in the first quarter of 2021, as well as lower expenses resulting from the divestiture of our MML assets, which was announced in the second quarter of 2022, during the three and nine months ended September 30, 2022 compared with the same periods in 2021.

Return on Average Equity

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For the three months ended

June 30, 2022 16.88 % 1.76 % 14.07 % (1.28 %) (0.83 %) 30.60 %

June 30, 2021 6.92 % 0.23 % (13.96 %) (1.55 %) (0.15 %) (8.51 %)

For the six months ended

June 30, 2022 16.68 % 1.35 % 32.62 % (1.37 %) (0.84 %) 48.44 %

June 30, 2021 12.18 % 0.21 % 10.08 % (1.46 %) (0.07 %) 20.94 %

September 30, 2022 15.21 % 2.42 % (26.35 %) (1.38 %) 0.16 % (9.94 %)

September 30, 2021 9.01 % 0.44 % 6.88 % (1.28 %) 0.20 % 15.25 %

For the nine months ended

September 30, 2022 16.14 % 1.68 % 13.90 % (1.37 %) (0.52 %) 29.83 %

September 30, 2021 11.12 % 0.29 % 8.99 % (1.40 %) 0.02 % 19.02 %

(1) Economic net interest income includes the net interest component of interest rate swaps.

(2) Other income (loss) excludes the net interest component of interest rate swaps.

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Management’s Discussion and Analysis

Unrealized Gains and Losses - Available-for-Sale Investments

With our available-for-sale accounting treatment on our Agency MBS, which represent the largest portion of assets on balance sheet, as well as certain commercial mortgage-backed securities, unrealized fluctuations in market values of assets do not impact our GAAP net income (loss) but rather are reflected on our balance sheet by changing the carrying value of the asset and stockholders’ equity under accumulated other comprehensive income (loss).

With our available-for-sale accounting treatment on our Agency MBS, which represent the largest portion of assets on balance sheet, unrealized fluctuations in market values of assets do not impact our GAAP net income (loss) but rather are reflected on our balance sheet by changing the carrying value of the asset and stockholders’ equity under accumulated other comprehensive income (loss).

As a result of this fair value accounting treatment, our book value and book value per share are likely to fluctuate far more than if we used amortized cost accounting.

As a result, comparisons with companies that use amortized cost accounting for some or all of their balance sheet may not be meaningful.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

The table below shows cumulative unrealized gains and losses on our available-for-sale investments reflected in the Consolidated Statements of Financial Condition.

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

(dollars in thousands)

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A very large negative change in the net fair value of our available-for-sale Residential Securities might impair our liquidity position, requiring us to sell assets with the potential result of realized losses upon sale.

The fair value of these securities being less than amortized cost at June 30, 2022 is solely due to market conditions and not the quality of the assets.

The fair value of these securities being less than amortized cost at September 30, 2022 is solely due to market conditions and not the quality of the assets.

Substantially all of the Agency MBS have an actual or implied credit rating that is the same as that of the U.S.

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Financial Condition

Total assets were $73.6 billion and $76.8 billion at June 30, 2022 and December 31, 2021, respectively.

The change was primarily due to decreases in Agency MBS of $4.9 billion and corporate loans of $2.0 billion, partially offset by increases in residential mortgage loans, including assets transferred or pledged to securitization vehicles, of $2.1 billion, MSR of $0.9 billion and derivative assets of $0.6 billion.

Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at June 30, 2022:

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Total assets were $85.4 billion and $76.8 billion at September 30, 2022 and December 31, 2021, respectively.

The change was primarily due to increases in Agency MBS of $2.5 billion, residential mortgage loans, including assets transferred or pledged to securitization vehicles, of $2.6 billion, MSR of $1.2 billion, derivative assets of $1.8 billion, and receivable for unsettled trades of $2.2 billion, partially offset by decreases in corporate loans of $2.0 billion.

Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at September 30, 2022:

Residential Commercial

Agency MBS MSR Residential Credit (1)

Commercial Real Estate Corporate Debt Total

Commercial Real Estate Total

Assets (dollars in thousands)

5 unchanged sentences

15,790,425 — — 419,461 16,209,886

Other secured financing — 250,000 — — 250,000

Debt issued by securitization vehicles 398,762 — 7,445,756 — 7,844,518

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Net equity allocated (%) 66 % 15 % 18 % 1 % 100 %

Debt/net equity ratio 6.2:1 NM 7.6:1 3.4:1 NM 5.4:1 (4)

(1) Fair value/carrying includes residential loans held for sale.

Debt/net equity ratio 7.0:1 0.2:1 6.1:1 3.9:1 5.8:1 (4)

(1) Fair value/carrying includes residential loans held for sale, and assets and liabilities associated with non-controlling interests.

(2) Derivatives include TBA contracts under Agency MBS and CMBX balances under Commercial Real Estate.

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(4) Represents the debt/net equity ratio as determined using amounts on the Consolidated Statements of Financial Condition.

NM Not meaningful.

Residential Securities

Substantially all of our Agency MBS at June 30, 2022 and December 31, 2021 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties.

Our mortgage-backed securities were largely Freddie Mac, Fannie Mae or Ginnie Mae pass through certificates or CMOs, which have an actual or implied credit rating that is the same as that of the U.S.

Substantially all of our Agency MBS at September 30, 2022 and December 31, 2021 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties.

Our mortgage-backed

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

securities were largely Freddie Mac, Fannie Mae or Ginnie Mae pass through certificates or CMOs, which have an actual or implied credit rating that is the same as that of the U.S.

We carry all of our Agency MBS at fair value on the Consolidated Statements of Financial Condition.

We accrete discount balances as an increase to interest income over the expected life of the related interest earning assets and we amortize premium balances as a decrease to interest income over the expected life of the related interest earning assets.

At June 30, 2022 and December 31, 2021 we had on our Consolidated Statements of Financial Condition a total of $380.1 million and $77.7 million, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities, excluding securities transferred or pledged to securitization vehicles, acquired at a price below principal value) and a total of $3.7 billion and $3.8 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities, excluding securities transferred or pledged to securitization vehicles, acquired at a price above principal value).

The weighted average experienced prepayment speed on our Agency MBS portfolio for the three months ended June 30, 2022 and 2021 was 14.9% and 26.4%, respectively.

The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of June 30, 2022 and 2021 was 7.7% and 12.9%, respectively.

At September 30, 2022 and December 31, 2021 we had on our Consolidated Statements of Financial Condition a total of $843.0 million and $77.7 million, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities, excluding securities transferred or pledged to securitization vehicles, acquired at a price below principal value) and a total of $3.3 billion and $3.8 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities, excluding securities transferred or pledged to securitization vehicles, acquired at a price above principal value).

The weighted average experienced prepayment speed on our Agency MBS portfolio for the three months ended September 30, 2022 and 2021 was 9.8% and 23.1%, respectively.

The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of September 30, 2022 and 2021 was 7.6% and 12.7%, respectively.

Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period.

Similarly, if mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net premium balance over a longer time period.

The following tables present our Residential Securities, excluding securities transferred or pledged to securitization vehicles, that were carried at fair value at June 30, 2022 and December 31, 2021.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

June 30, 2022 December 31, 2021

The following tables present our Residential Securities, excluding securities transferred or pledged to securitization vehicles, that were carried at fair value at September 30, 2022 and December 31, 2021.

September 30, 2022 December 31, 2021

Estimated Fair Value

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Total Residential Securities $ 66,250,853 $ 63,125,169

The following table summarizes certain characteristics of our Residential Securities (excluding interest-only mortgage-backed securities) and interest-only mortgage-backed securities, excluding securities transferred or pledged to securitization vehicles, at June 30, 2022 and December 31, 2021.

June 30, 2022 December 31, 2021

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

September 30, 2022 December 31, 2021

Residential Securities (1)

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Weighted average coupon rate 0.85 % 2.01 %

Weighted average yield 0.83 % NM

Weighted average yield NM NM

(1) Excludes interest-only MBS.

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NM Not meaningful.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

The following tables summarize certain characteristics of our Residential Credit portfolio at June 30, 2022.

The following tables summarize certain characteristics of our Residential Credit portfolio at September 30, 2022.

Payment Structure Investment Characteristics

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(2) Total investment characteristics exclude the impact of interest-only securities.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Product ARM Fixed Floater Interest-Only Estimated Fair Value

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Contractual Obligations

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at June 30, 2022.

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at September 30, 2022.

The table does not include the effect of net interest rate payments on our interest rate swap agreements.

The net swap payments will fluctuate based on monthly changes in the receive rate.

At June 30, 2022, the interest rate swaps had a net fair value of ($0.3) billion.

At September 30, 2022, the interest rate swaps had a net fair value of ($71.2) million.

Year One to Three

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273,695 1,661 — — 275,356

Other secured financing — 250,000 — — 250,000

Interest expense on other secured financing (1)

14,736 11,022 — — 25,758

Debt issued by securitization vehicles (principal) — — — 9,018,805 9,018,805

4 unchanged sentences

Total $ 54,571,780 $ 1,124,922 $ 648,950 $ 18,998,108 $ 75,343,760

(1) Interest expense on repurchase agreements calculated based on rates at June 30, 2022.

(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at September 30, 2022.

In the coming periods, we expect to continue to finance our Residential Securities in a manner that is largely consistent with our current operations via repurchase agreements.

We may use securitization structures, credit facilities, or other term financing structures to finance certain of our assets.

During the six months ended June 30, 2022, we received $5.7 billion from principal repayments and $8.4 billion in cash from disposal of Residential securities.

During the six months ended June 30, 2021, we received $10.2 billion from principal repayments and $6.4 billion in cash from disposal of Residential Securities.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

During the nine months ended September 30, 2022, we received $7.9 billion from principal repayments and $16.7 billion in cash from disposal of Residential securities.

During the nine months ended September 30, 2021, we received $14.6 billion from principal repayments and $11.1 billion in cash from disposal of Residential Securities.

Off-Balance Sheet Arrangements

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In addition, we have provided customary non-recourse carve-out and environmental guarantees (or underlying indemnities with respect thereto) with respect to mortgage loans held by subsidiaries of these unconsolidated joint ventures.

We believe that the likelihood of making any payments under these guarantees is remote, and have not accrued a related liability at June 30, 2022.

We believe that the likelihood of making any payments under these guarantees is remote, and have not accrued a related liability at September 30, 2022.

Capital Management

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A strong and robust capital position is essential to executing our investment strategy.

Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy regardless of the market environment.

Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy

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Management’s Discussion and Analysis

regardless of the market environment.

Our capital policy defines the parameters and principles supporting a comprehensive capital management practice.

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Stockholders’ Equity

The following table provides a summary of total stockholders’ equity at June 30, 2022 and December 31, 2021:

June 30, 2022 December 31, 2021

The following table provides a summary of total stockholders’ equity at September 30, 2022 and December 31, 2021:

September 30, 2022 December 31, 2021

Stockholders’ equity (dollars in thousands)

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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.

During the three and six months ended June 30, 2022, we 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, we 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.

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, we 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, we 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, we 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, we 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, we 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, we 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, we

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Management’s Discussion and Analysis

In January 2018, we 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”).

We may offer and sell shares of our 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, we issued 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, we issued 45.5 million shares for proceeds of $420.4 million, net of commissions and fees, under the at-the-market sales program.

issued 1.4 million and 12.8 million shares for proceeds of $49.0 million and $469.5 million, respectively, each net of commissions and fees.

Refer to the “Capital Stock” Note located within Item 1 for additional information related to the at-the-market sales program.

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

On November 3, 2022, we entered into Amendment No.

2 to the Sales Agreements with each of the Sales Agents to increase the available amount of shares of our common stock that we may sell through the Sales Agents.

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

Preferred Stock

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

Under the terms of the plan, we are 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 our 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 our 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 our 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 us 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 us in our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors.

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

Leverage and Capital

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Our actual economic leverage ratio varies from time to time based upon various factors, including our management’s opinion of the level of risk of our assets and liabilities, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-collateralization levels required by lenders when we pledge assets to secure borrowings and our assessment of domestic and international market conditions.

Our GAAP leverage ratio at June 30, 2022 and December 31, 2021 was 5.4:1 and 4.7:1, respectively.

Our economic leverage ratio, which is computed as the sum of Recourse Debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity was 6.6:1 and 5.7:1, at June 30, 2022 and December 31, 2021, respectively.

Our GAAP capital ratio at June 30, 2022 and December 31, 2021 was 15.1% and 17.2%, respectively.

Our economic capital ratio, which represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives and net of debt issued by securitization vehicles), was 13.0% and 14.4% at June 30, 2022 and December 31, 2021, respectively.

Our GAAP leverage ratio at September 30, 2022 and December 31, 2021 was 5.8:1 and 4.7:1, respectively.

Our economic leverage ratio, which is computed as the sum of Recourse Debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity was 7.1:1 and 5.7:1, at September 30, 2022 and December 31, 2021, respectively.

Our GAAP capital ratio at September 30, 2022 and December 31, 2021 was 12.8% and 17.2%, respectively.

Our economic capital ratio, which represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives and net of debt issued by securitization vehicles), was 11.8% and 14.4% at September 30, 2022 and December 31, 2021, respectively.

Economic leverage ratio and economic capital ratio are non-GAAP financial measures.

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Each employee is accountable for identifying, monitoring and managing risk within their area of responsibility.

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Management’s Discussion and Analysis

Risk Appetite

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The risk appetite statement asserts the following key risk parameters to guide our investment management activities:

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Management’s Discussion and Analysis

Risk Parameter Description

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Membership of these committees is reviewed regularly to ensure the appropriate personnel are engaged in the risk management process.

Four primary management committees have been established to provide a comprehensive framework for risk management.

The management committees responsible for our risk management include the Enterprise Risk Committee (“ERC”), Asset and Liability Committee (“ALCO”), Investment Committee and the Financial Reporting and Disclosure Committee (“FRDC”).

Three primary management committees have been established to provide a comprehensive framework for risk management.

The management committees responsible for our risk management include the Enterprise Risk Committee (“ERC”), Asset and Liability Committee (“ALCO”) and the Financial Reporting and Disclosure Committee (“FRDC”).

Each of these committees reports to our management Operating Committee which is responsible for oversight and management of our operations, including oversight and approval authority over all aspects of our enterprise risk management.

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Our Chief Compliance Officer has reporting lines to the BAC.

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Management’s Discussion and Analysis

Description of Risks

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We have identified the following primary categories that we utilize to identify, assess, measure and monitor risk.

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Management’s Discussion and Analysis

Risk Description

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To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements.

At June 30, 2022 and December 31, 2021, the weighted average days to maturity was 47 days and 52 days, respectively.

Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on the same business day that a margin call is made.

Should prepayment speeds on the mortgages underlying our Agency and Residential mortgage-backed securities and/or market interest rates or other factors move suddenly and cause declines in the market value of assets posted as collateral, resulting margin calls may cause an adverse change in our liquidity position.

At June 30, 2022, we had total financial assets and cash pledged against existing liabilities of $55.5 billion.

The weighted average haircut was approximately 3% on repurchase agreements, primarily attributable to Agency MBS.

The quality and character of the Residential Securities that we pledge as collateral under the repurchase agreements and interest rate swaps did

At September 30, 2022 and December 31, 2021, the weighted average days to maturity was 57 days and 52 days, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

not materially change at June 30, 2022 compared to the same period in 2021, and our counterparties did not materially alter any requirements, including required haircuts, related to the col lateral we pledge under repurchase agreements and interest rate swaps during the three months ended June 30, 2022.

Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on the same business day that a margin call is made.

At September 30, 2022, we had total financial assets and cash pledged against existing liabilities of $57.6 billion.

The weighted average haircut was approximately 4% on repurchase agreements, primarily attributable to Agency MBS.

The quality and character of the Residential Securities that we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at September 30, 2022 compared to the same period in 2021, and our counterparties did not materially alter any requirements, including required haircuts, related to the col lateral we pledge under repurchase agreements and interest rate swaps during the three months ended September 30, 2022.

The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement balances outstanding for the periods presented:

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For the three months ended (dollars in thousands)

September 30, 2022 $ 56,354,310 $ 54,160,731 $ 139,991 $ —

June 30, 2022 51,606,720 51,364,097 117,903 —

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September 30, 2020 67,542,187 64,633,447 286,792 —

June 30, 2020 68,468,813 67,163,598 183,423 —

The following table provides information on our repurchase agreements by maturity date at June 30, 2022.

The weighted average remaining maturity on our repurchase agreements was 47 days at June 30, 2022:

June 30, 2022

The following table provides information on our repurchase agreements and other secured financing by maturity date at September 30, 2022.

The weighted average remaining maturity on our repurchase agreements and other secured financing was 59 days at September 30, 2022:

September 30, 2022

Balance Weighted

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Total $ 54,410,731 3.08 % 100.0 %

(1) Approximately 0% of the total repurchase agreements had a remaining maturity over 1 year.

The table below presents our outstanding debt balances and associated weighted average rates and days to maturity at June 30, 2022:

(1) Approximately 0% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.

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Management’s Discussion and Analysis

The table below presents our outstanding debt balances and associated weighted average rates and days to maturity at September 30, 2022:

Weighted Average Rate

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Other secured financing 250,000 5.81 % 7.15 % 638

— — % 3.38 % —

Debt issued by securitization vehicles (2)

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(1) Determined based on estimated weighted-average lives of the underlying debt instruments.

(2) Includes financing under credit facilities.

(2) Non-recourse to Annaly.

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The following table illustrates our asset portfolio available to support potential collateral obligations and funding needs.

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Management’s Discussion and Analysis

Assets are considered encumbered if pledged as collateral against an existing liability, and therefore are no longer available to support additional funding.

An asset is considered unencumbered if it has not been pledged or securitized.

The following table also provides the carrying amount of our encumbered and unencumbered financial assets at June 30, 2022:

The following table also provides the carrying amount of our encumbered and unencumbered financial assets at September 30, 2022:

Encumbered Assets Unencumbered Assets Total

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MSR 727,927 977,327 1,705,254

Interests in MSR — 83,622 83,622

Assets of disposal group held for sale (3)

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(3) Comprised of corporate loans held for sale

(4) Includes corporate loans, commercial real estate investments and interests in certain joint ventures.

(4) Includes commercial real estate investments and interests in certain joint ventures.

We maintain liquid assets in order to satisfy our current and future obligations in normal and stressed operating environments.

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Our balance sheet also generates liquidity on an on-going basis through mortgage principal and interest repayments and net earnings held prior to payment of dividends.

The following table presents our liquid assets as a percentage of total assets at June 30, 2022:

The following table presents our liquid assets as a percentage of total assets at September 30, 2022:

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Management’s Discussion and Analysis

Carrying Value (1)

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(1) Carrying value approximates the market value of assets.

The assets listed in this table include $55.5 billion of assets that have been pledged as collateral against existing liabilities at June 30, 2022.

The assets listed in this table include $57.6 billion of assets that have been pledged as collateral against existing liabilities at September 30, 2022.

Please refer to the Encumbered and Unencumbered Assets table for related information.

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The table is based on a static portfolio and assumes no reinvestment of asset cash flows and no future liabilities are entered into.

In assessing the maturity of our assets, liabilities and off balance sheet obligations, we use the stated maturities, or our prepayment

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Management’s Discussion and Analysis

expectations for assets and liabilities that exhibit prepayment characteristics.

In assessing the maturity of our assets, liabilities and off balance sheet obligations, we use the stated maturities, or our prepayment expectations for assets and liabilities that exhibit prepayment characteristics.

Cash and cash equivalents are included in the ‘Less than 3 Months’ maturity bucket, as they are typically held for a short period of time.

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The effects of interest rate swaps, whereby we generally pay a fixed rate and receive a floating rate and effectively lock in our financing costs for a longer term, are also reflected in our interest rate sensitivity gap.

The interest rate sensitivity of our assets and liabilities in the following table at June 30, 2022 could vary substantially based on actual prepayment experience.

The interest rate sensitivity of our assets and liabilities in the following table at September 30, 2022 could vary substantially based on actual prepayment experience.

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Management’s Discussion and Analysis

Months More than 1 Year to 3 Years 3 Years and Over Total

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Repurchase agreements $ 38,028,019 $ 15,927,117 $ 205,595 $ — $ 54,160,731

Other secured financing

— — 250,000 — 250,000

Debt issued by securitization vehicles (principal)

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(2) Includes effect of interest rate swaps.

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Management’s Discussion and Analysis

The methodologies we employ for evaluating interest rate risk include an analysis of our interest rate “gap,” measurement of the duration and convexity of our portfolio and sensitivities to interest rates and spreads.

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One of the primary risks we are subject to is investment/market risk.

Changes in the level of interest rates can affect our net interest income, which is the difference between the income we earn on our interest earning assets and the interest expense incurred from interest bearing liabilities and derivatives.

Changes in the level of interest rates can affect our net interest income, which is the difference between the income we earn on our interest earning assets and the interest expense

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Management’s Discussion and Analysis

incurred from interest bearing liabilities and derivatives.

Changes in the level of interest rates and spreads can also affect the value of our assets and potential realization of gains or losses from the sale of these assets.

We may utilize a variety of financial instruments, including interest rate swaps, swaptions, options, futures and other hedges, in order to limit the adverse effects of interest rates on our results.

In the case of interest rate swaps, we utilize contracts linked to LIBOR but may also enter into interest rate swaps where the floating leg is linked to the overnight index swap rate or another index, particularly in light of a potential transition away from LIBOR.

In addition, we may use MAC interest rate swaps in which we may receive or make a payment at the time of entering such interest rate swap to compensate for the off-market nature of such interest rate swap.

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The results assume no management actions in response to the rate or spread changes.

The following table presents estimates at June 30, 2022.

The following table presents estimates at September 30, 2022.

Actual results could differ materially from these estimates.

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Management’s Discussion and Analysis

Change in Interest Rate (1)

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Actual results could differ materially from these estimates.

(2) Scenarios include securities, residential mortgage loans, repurchase agreements, and interest rate swaps.

(2) Scenarios include securities, residential mortgage loans, repurchase agreements, other secured financing and interest rate swaps.

Economic net interest income includes the net interest component of interest rate swaps.

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Generally, we are subject to risk of loss if an issuer or borrower fails to perform its contractual obligations.

We have established policies and procedures for mitigating credit risk, including establishing and reviewing limits for credit exposure.

We have established policies and

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Management’s Discussion and Analysis

procedures for mitigating credit risk, including establishing and reviewing limits for credit exposure.

We will originate or purchase commercial investments that meet our comprehensive underwriting process and credit standards and are approved by the appropriate committee.

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Additionally, ALCO has oversight of our credit risk exposure.

Our portfolio composition, based on balance sheet values, at June 30, 2022 and December 31, 2021 was as follows:

June 30, 2022 December 31, 2021

Our portfolio composition, based on balance sheet values, at September 30, 2022 and December 31, 2021 was as follows:

September 30, 2022 December 31, 2021

Agency mortgage-backed securities (1)

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(2) Excludes commercial real estate assets held for sale as of December 31, 2021.

(3) Excludes corporate loans held for sale as of June 30, 2022.

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Management’s Discussion and Analysis

(3) Excludes corporate loans held for sale as of September 30, 2022.

Counterparty Risk Management

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We monitor our exposure to counterparties across several dimensions including by type of arrangement, collateral type, counterparty type, ratings and geography.

Additionally, ALCO has oversight of our counterparty exposure.The following table summarizes our exposure to counterparties by geography at June 30, 2022:

Additionally, ALCO has oversight of our counterparty exposure.

The following table summarizes our exposure to counterparties by geography at September 30, 2022:

Number of Counterparties Secured Financing (1)

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Total 36 $ 54,410,731 $ (71,210) $ 5,195,547

(1) Represents repurchase agreements.

(1) Represents repurchase agreements and other secured financing.

(2) Represents the amount of cash and/or securities pledged as collateral to each counterparty less the aggregate of repurchase agreement and other secured financing and derivatives for each counterparty.

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Management’s Discussion and Analysis

Operational Risk Management

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Our 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

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Management’s Discussion and Analysis

oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information.

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.

Compliance, Regulatory and Legal Risk Management

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The monitoring of this risk is also under the oversight of the ERC.

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Management’s Discussion and Analysis

As a result of the Dodd-Frank Act, the U.S.

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“Financial Statements.”

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Management’s Discussion and Analysis

Valuation of Financial Instruments

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Since we primarily invest in residential loans that can be valued using actively quoted prices for similar assets, there are observable inputs in measuring fair value.

Internal fair values are determined using quoted prices for similar market transactions, the swap curve and the underlying characteristics of the individual loans, which may include loan term, coupon, and reset dates.

Internal fair values are determined using quoted prices for

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Management’s Discussion and Analysis

similar market transactions, the swap curve and the underlying characteristics of the individual loans, which may include loan term, coupon, and reset dates.

While prepayment rates may be difficult to predict and are a significant estimate requiring judgment in the valuation of residential whole loans, we validate prepayment speeds against those provided by independent pricing analytic providers specializing in residential mortgage loans.

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“Financial Statements.”

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Management’s Discussion and Analysis

Interest Rate Swaps

We are required to account for its derivative assets and liabilities at fair value, which may or may not be cleared through a derivative clearing organization.

We are required to account for derivative assets and liabilities at fair value, which may or may not be cleared through a derivative clearing organization.

We value our cleared interest rate swaps using the prices provided by the derivatives clearing organization.

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Our valuations are most sensitive to changes in interest rate, which also impacts prepayment speeds.

See the interest rate sensitivity and interest rate shock analysis and discussions within this Item 2.

for further information.

See the interest rate sensitivity and interest rate shock analysis and discussions within this Item 2 for further information.

Revenue Recognition

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Changes to model assumptions, including interest rates and other market data, as well as periodic revisions to the model will cause changes in the results.

Adjustments are made for actual prepayment activity as it relates to calculating the effective yield.

Adjustments are made for actual prepayment activity as it

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Management’s Discussion and Analysis

relates to calculating the effective yield.

The sensitivity of changes in interest rates to our economic net interest income is included in the interest rate shock analysis and discussions within this Item 2 for further information.

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Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities.

Average interest bearing liabilities reflects the average balances during the period.

Average interest bearing liabilities is a non-GAAP financial measure that reflects the average balances during the period.

Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities.

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Average interest earning assets reflects the average amortized cost of our investments during the period.

Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).

Average yield on interest earning assets (excluding PAA) is a non-GAAP financial measure that is calculated using annualized interest income (excluding PAA).

Basis Point (“bp” or “bps”)

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Earnings available for distribution (“EAD”) and Earnings available for distribution Per Average Common Share

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

Earnings available for distribution per average common share is calculated by dividing earnings available for distribution by average basic common shares for the period.

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

Earnings available for distribution per average common share is a non-GAAP financial measure calculated by dividing earnings available for distribution by average basic common shares for the period.

This metric was previously labeled Core Earnings (excluding PAA) and Core Earnings (excluding PAA) Per Average Common Share).

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Net interest margin represents our interest income less interest expense divided by average interest earning assets.

Net interest margin (excluding PAA) represents the sum of our interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average outstanding TBA contract and CMBX balances.

Net interest margin (excluding PAA) is a non-GAAP financial measure that represents the sum of our interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average outstanding TBA contract and CMBX balances.

Net Interest Spread and Net Interest Spread (excluding PAA)

Net interest spread represents the average yield on interest earning assets less the average GAAP cost of interest bearing liabilities.

Net interest spread (excluding PAA) represents the average yield on interest earning assets (excluding PAA) less the average economic cost of interest bearing liabilities.

Net interest spread (excluding PAA) is a non-GAAP financial measure that represents the average yield on interest earning assets (excluding PAA) less the average economic cost of interest bearing liabilities.

Non-Performing Loan (“NPL”)

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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 2. Management’s Discussion and Analysis