What changed in this filing

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Item 1. Business

2023-02-16 compared with 2022-02-18 · 157 added, 183 removed, 401 unchanged (46% of the section changed)

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

Our culture is built on six core values:

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

Finkelstein has over 25 years of experience in fixed income investments.

Prior to the Federal Reserve Bank of New York, Mr.

Finkelstein held Agency MBS trading positions at Salomon Smith Barney, Citigroup Inc.

and Barclays PLC.

Finkelstein is a member of the Treasury Market Practices Group sponsored by the Federal Reserve Bank of New York.

Finkelstein received his B.A.

in Business Administration from the University of Washington and his M.B.A.

from the University of Chicago, Booth School of Business.

Finkelstein also holds the Chartered Financial Analyst® designation.

Serena Wolfe has served as Chief Financial Officer of Annaly since December 2019.

Prior to joining Annaly in 2019, Ms.

Wolfe served as a Partner at Ernst & Young (“EY”) since 2011 and as its Central Region Real Estate Hospitality & Construction (“RHC”) leader from 2017 to November 2019, managing the go-to-market efforts and client relationships across the sector.

Wolfe was previously also EY’s Global RHC Assurance Leader.

Wolfe practiced with EY for over 20 years, including six years with EY Australia and 16 years with the U.S.

Wolfe currently serves on the boards of Berkshire Grey, Inc.

and Doma Holdings, Inc.

Wolfe graduated from the University of Queensland with a Bachelor of Commerce in Accounting.

She is a Certified Public Accountant in the states of New York, California, Illinois and Pennsylvania.

Campbell has served as President of Annaly since December 2022 and Chief Operating Officer of Annaly since June 2020.

Prior to these positions, Mr.

Campbell served in a number of other senior roles at Annaly, including as Head of Business Operations from September 2019 to June 2020, Head of Credit Operations and Enterprise Risk from February 2018 to September 2019, Chief Operating Officer of Annaly Commercial Real Estate Group from December 2016 to February 2018 and Head of Credit Strategy from April 2015 to February 2018.

Campbell has over 25 years of experience in financial services.

Prior to joining Annaly in 2015, Mr.

Campbell held various roles over six years at Fortress Investment Group LLC, including serving as a Managing Director in the Credit Funds business.

Prior to that, Mr.

Campbell held positions at General Electric Capital Corporation and D.B.

Zwirn & Co., L.P.

with a focus on credit and debt restructuring.

Campbell received a B.B.A.

from the University of Notre Dame and a M.B.A.

from the University of Chicago, Booth School of Business.

Green has served as Chief Corporate Officer of Annaly since January 2019 and as Chief Legal Officer and Secretary of Annaly since March 2017.

Green previously served as Annaly’s Deputy General Counsel from 2009 until February 2017.

Prior to joining Annaly, Mr.

Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at the law firm K&L Gates LLP.

Green has over 20 years of experience in corporate and securities law.

Green holds a B.A.

in Economics and Political Science from the University of Pennsylvania and a J.D.

in International and Comparative Law from Cornell Law School.

Human Capital

Our Human Capital team oversees our company’s workforce management to ensure its objectives are strategically integrated with the firm’s goals and business plans.

We proactively review human capital management best practices on an ongoing basis to continually enhance our employee experience.

In addition, the Management Development and Compensation (“MDC”) Committee of the Board provides independent oversight of our policies and strategies related to human capital management.

Further, the Chair of the MDC Committee liaises on certain human capital topics with the Chair of the Corporate Responsibility Committee of the Board as appropriate.

As of December 31, 2022, we had 161 employees.

Our People and Culture

Our employees are the driving force behind Annaly’s success, and we are committed to promoting their well-being, engagement, and development to help them reach their highest potential.

Our culture is focused on fostering a diverse, inclusive and rewarding work environment for all employees, with ongoing opportunities for career development, wellness support, and empowerment.

Our culture is built on five core values:

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

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

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

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

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

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

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

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

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

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

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

Our leaders review and incorporate survey feedback to increase employee engagement and drive positive changes throughout our company.

We remain committed to maintaining an environment of consistent feedback as we strive for high employment satisfaction levels.

Diversity, Equity & Inclusion

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

The diversity of our employees enables our company to cultivate innovation, fresh perspectives and agility.

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

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

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

Our Human Capital team, in coordination with an Inclusion Support

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Committee of Executive Sponsors, is responsible for overseeing and continuing to improve our diversity, equity and inclusion initiatives.

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

With 53% of total employees in 2022 identifying as either female or racially/ethnically diverse, we are driven by the belief that having a diverse group of employees supports our continued long-term growth.

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

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

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

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

Employee Development, Benefits and Wellness

We seek to invest in and promote talent to cultivate a high-performance culture and build on the capabilities and full potential of our employees.

We invest in a wide range of benefits and wellness initiatives for our employees to support healthy lifestyles and choices.

Our seven employee network groups, which include the Women’s Interactive Network (“WIN”), the Asian American and Pacific Islander Employee Network, the Black Employee Network, the Latin American Employee Network, the Disabilities Within a Family Network, the Veteran’s Employee Network and the Annaly Pride Network, provide targeted development and networking opportunities, knowledge exchanges, mentorship, coaching and volunteer efforts.

Further, we recognize and understand that education, training and candid conversations are key to embedding and advancing diversity, equity and inclusion within our organization and culture.

To further promote and foster such a foundation, our efforts also include offering firm-wide training on topics such as unconscious bias and allyship, hosting various forums for employees to openly discuss their views and providing opportunities for employee connection and networking, as well as actively seeking out feedback through periodic employee surveys.

Compensation, Benefits and Wellness

Our employee compensation program includes base salary, annual incentive bonuses and stock-based awards.

Employee compensation packages are designed to align employee and stockholder interests and to provide incentives to attract, retain and motivate talented employees.

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

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

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

We offer a number of learning and development programs tailored to our employee needs and interests as well as our overall strategic business objectives.

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

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

In addition, we invest in a wide range of benefits and wellness initiatives that support healthy lifestyles and choices for our employees.

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

We also sponsor a wide range of initiatives that promote employee wellness and mental well-being, including access to talk therapy, health coaching and stress management support.

Over the last few years, we have enhanced our parental and family care benefits to provide extended leave and fertility assistance.

COVID-19 has challenged the way we work and operate.

It has tested our resiliency, nimbleness and flexibility of our people and culture.

At Annaly, we understand that we must continue to provide an environment where our employees feel safe, motivated, empowered, and prepared, regardless of whatever challenges arise in the future.

In addition to addressing physical health and safety concerns, we recognize that people’s daily emotional lives and mental health play a key role in their overall wellness.

As such, we continue to evaluate ways to promote and expand our mental health offerings.

Additionally, we recognize that part of meeting employee needs includes institutionalizing broader and longer-term flexibility where appropriate.

Flexibility comes in many forms at Annaly, including vacation and sick time, hybrid work options, and location strategy.

We remain committed to evaluating the evolving definition of flexibility and promoting programs and practices that foster inclusivity and well-being both personally and professionally.

Learning and Development

We seek to invest in and promote talent to cultivate a high-performance culture and build on the capabilities and full potential of our employees.

We offer a number of learning and development programs tailored to our employees’ needs and interests as well as our overall strategic business objectives.

We also have a tuition reimbursement plan that provides financial support toward the cost of furthering employee education in a field directly related to their job.

In 2022, we began offering individual style and culture sessions to new employees to promote professional awareness and understanding of our company’s culture initiatives.

Additionally, we continue to offer knowledge share sessions to all employees that focus on core business strategies and initiatives in an effort to foster holistic and inclusive learning.

Corporate and Employee Philanthropy and Volunteerism

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

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

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

Annaly and our employees endeavor to meaningfully contribute to the communities where we live, work, and invest by partnering with well-established non-profit organizations and through Annaly’s corporate giving, employee volunteerism and our employee charity match program.

Regulatory Requirements

We have elected, organized and operated in a manner that qualifies us to be taxed as a REIT under the Internal Revenue Code of 1986, as amended and regulations promulgated thereunder (the “Code”).

So long as we qualify for taxation as a REIT, we generally will not be subject to U.S.

So long as we qualify for taxation as a REIT, we

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generally will not be subject to U.S.

federal income tax on our taxable income that is distributed to our stockholders.

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We will continue to assess our business, risk management and compliance practices to conform to developments in the regulatory environment.

We operate in a highly competitive market for investment opportunities and competition may limit our ability to acquire desirable investments in our target assets and could also affect the pricing of these investments.

We operate in a highly competitive market for investment opportunities.

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

In acquiring our target assets, we will compete with financial institutions, institutional investors, other lenders, government entities and certain other REITs.

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Our notable governance practices and policies include:

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

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(i) 15th anniversary of service on our Board or (ii) 73rd birthday.

• We have adopted a Code of Business Conduct and Ethics, which sets forth the basic principles and guidelines for resolving various legal and ethical questions that may arise in the workplace and in the conduct of our business.

• We have adopted a Code of Business Conduct and Ethics, which sets forth the basic principles and guidelines for resolving various legal and ethical

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questions that may arise in the workplace and in the conduct of our business.

This code is applicable to our directors, officers and employees.

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

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

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

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

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

prohibits communicating material nonpublic information about our company to others.

Our Insider Trading Policy prohibits our directors, officers and employees, from (1) holding our stock in a margin account as eligible collateral, or otherwise pledging our stock as collateral for a loan, or (2) engaging in any hedging transactions with respect to our equity securities held by them.

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Annaly Capital Management, Inc.

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Annaly Capital Management, Inc.

1211 Avenue of the Americas

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Summary of Risk Factors

Risks Related to COVID-19

Risks Related to Our Liquidity and Funding

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Investment and Market Related Risks

Operational Risks

Operational a nd Cyb ersecurit y Risks

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Summary of Risk Factors

Risks Related to COVID-19

• COVID-19 has affected the U.S.

economy and our business.

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

Risks Related to Our Liquidity and Funding

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Risks of Ownership of Our Common Stock

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

• Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our preferred stock.

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

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

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

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

Compliance, Regulatory & Legal Risks

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

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

• We may not be able to maintain compliance with laws and regulations applicable to our Residential Credit and MSR businesses, including through the manner in which we oversee the compliance obligations of our third-party service providers.

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

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

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

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

• The failure of a mezzanine loan or similar debt to qualify as a real estate asset could adversely affect our ability to qualify as a REIT.

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

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

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

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

• The lease of qualified healthcare properties to a TRS is subject to special requirements.

• Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.

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

• We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential whole loans if they breach representations and warranties, which could cause us to suffer losses.

Investment and Market Related Risks

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• Investments in MSR may expose us to additional risks.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Operational Risks

Operational and Cybersecurity Risks

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

• We are highly dependent on information systems.

• We are highly dependent on information systems that may expose us to cybersecurity risks.

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

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

• The performance of loans underlying our MSR related assets may be adversely affected by the performance of the related mortgage servicer.

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

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• We may change our policies without stockholder approval.

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Risks Related to COVID-19

• COVID-19 has affected the U.S.

economy and our business.

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

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

COVID-19 and the related social distancing measures have had a broad negative impact on the U.S.

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

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

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

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

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

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

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

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

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

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

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

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

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

In addition to negative general economic conditions, the impact of COVID-19 caused severe volatility across asset classes, including mortgage-related assets.

In order to increase liquidity, fixed income investors were forced to sell U.S.

Treasuries and Agency MBS, leading to an excess supply of these assets in need of redistribution.

Pressure in financing markets and the need to meet margin obligations (particularly in the mortgage REIT industry in connection with repurchase financing obligations) created additional selling pressure in U.S.

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

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

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

Economic Conditions

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

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

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

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

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

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

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

Financing Conditions

We may also experience more difficulty in our financing operations.

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

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

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for borrowers.

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

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

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

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

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

Governments have adopted, and we expect will continue to adopt, policies, laws and plans intended to address the COVID-19 pandemic and adverse developments in the credit, financial and mortgage markets.

While the U.S.

Federal Reserve, the U.S.

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

Risks Related to Our Liquidity and Funding

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

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

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

• the availability of financing in the market decreases.

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

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We may exceed our target leverage ratios.

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

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

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Significant adverse changes in financial market conditions can result in a deleveraging of the global financial system and the forced sale of large quantities of mortgage-related and other financial assets.

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

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Concerns over economic recession, COVID-19 or other pandemic diseases, geopolitical issues including events such as the war in Ukraine, trade wars, unemployment, inflation, rising interest rates, the availability and cost of financing, the mortgage market, the repurchase agreement market and a declining real estate market or prolonged government shutdown may contribute to increased volatility and diminished expectations for the economy and markets.

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

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

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

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

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

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

Dollar LIBOR contracts except in limited circumstances.

The Alternative Reference Rates Committee, or ARRC, a committee of private sector entities with ex-officio official sector members convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has recommended the Secured Overnight Financing Rate (“SOFR”), and in some cases, the forward-looking term rate based on SOFR published by CME Group Benchmark Administration Ltd.

(“CME Term SOFR”) plus, in each case, a recommended spread adjustment as the replacement for LIBOR.

The Board of Governors of the Federal Reserve has also named CME Term SOFR as the Board-selected replacement rate for most cash products under the Adjustable Interest Rate (LIBOR) Act of 2021 (the “LIBOR Act”), which governs instruments for which there is no determining person to choose a LIBOR replacement or which have no fallback provisions specifying an alternate replacement rate.

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

If our LIBOR-based

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

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

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

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

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

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

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

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

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

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

We have opted into the ISDA 2020 IBOR Fallbacks protocol.

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

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

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

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

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

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

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

Certain instruments may be affected by the LIBOR Act.

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

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

ISDA has described the spread calculation methodology that will apply to derivatives

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that adopt the ISDA recommendations for derivatives, and the ARRC has recommended the same methodology for all cash products, with a one year transition period for consumer assets.

These same spread adjustments will be applied to contracts that transition to a SOFR-based rate under the LIBOR Act.

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

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

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

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

We are not aware of those service providers accounting for the cessation of LIBOR in their pricing models.

These service providers take various approaches to modelling LIBOR cessation.

The process of transition involves operational risks.

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

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

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

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

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

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

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

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

Brokerages may have restrictions in trading our preferred shares.

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

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

The drop is a reflection of the

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

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

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

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We access the DCO through several Futures Commission Merchants (“FCMs”).

For any cleared swap, we bear the credit risk of both the DCO and the relevant FCM, in the form of potential late or unrecoverable payments, potential difficulty or delay in accessing collateral that we have posted, and potential loss of any positive market value of the swap position.

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In the event of a default by the DCO or FCM, we also bear market risk, because the asset or liability being hedged is no longer effectively hedged.

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

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Securitizations expose us to additional risks.

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If we are unable to obtain and renew short-term facilities or to consummate securitizations to finance our assets on a long-term basis, we may be required to seek other forms of potentially less attractive financing or to liquidate assets at an inopportune time or price.

To the extent that we are unable to obtain financing for our assets, to the extent that we retain such assets in our portfolio, our returns on investment and earnings will be negatively impacted.

To the extent that we are unable to obtain

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financing for our assets, to the extent that we retain such assets in our portfolio, our returns on investment and earnings will be negatively impacted.

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

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As such, we can provide no assurance that we will be able to identify and make investments in residential mortgage loans at attractive levels and pricing, which could adversely affect our ability to execute future securitizations in this space.

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rate on this type of financing, the duration of the financing we incur, and the percentage of our mortgage loans for which third parties are willing to provide short-term financing.

Another factor that impacts the profitability of a securitization transaction is the cost to us of the short-term warehouse financing facilities that we use to finance our holdings of mortgage loans prior to securitization, which cost is affected by a number of factors including the availability of this type of financing to us, the interest rate on this type of financing, the duration of the financing we incur, and the percentage of our mortgage loans for which third parties are willing to provide short-term financing.

After we acquire mortgage loans that we intend to securitize, we can also suffer losses if the value of those loans declines prior to securitization.

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Risks of Ownership of Our Common Stock

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

Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our preferred stock.

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To maintain our qualification as a REIT for U.S.

federal income tax purposes, not more than 50% in value of the outstanding shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal tax laws to include certain entities).

For the purpose of preserving our REIT qualification and for other reasons, our charter prohibits direct or constructive ownership by any person of more than 9.8% of the total number or value of any class of our outstanding common stock or preferred stock.

Our charter’s constructive ownership rules are complex and may cause the outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual or entity.

As a result, the acquisition of less than 9.8% of the outstanding shares of any class of common stock or preferred stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of the outstanding shares of such class of stock and thus be subject to our charter’s ownership limit.

As a result, the acquisition of less than 9.8% of the outstanding shares of any class of common stock or any class of our preferred stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of the outstanding shares of such class of stock and thus be subject to our charter’s ownership limit.

Any attempt to own or transfer shares of our common stock or preferred stock in excess of the ownership limit without the consent of the Board shall be void, or, alternatively, will result in the shares being transferred by operation of law to a charitable trust.

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

Provisions contained in our charter and bylaws, as well as the Maryland General Corporation Law (the “MGCL”) corporate law, may have anti-takeover effects that delay, defer or prevent a takeover attempt, which may prevent stockholders from receiving a “control premium” for their shares.

Provisions contained in our charter and bylaws, as well as the Maryland General Corporation Law (the “MGCL”), may have anti-takeover effects that delay, defer or prevent a takeover attempt, which may prevent stockholders from receiving a “control premium” for their shares.

For example, these provisions may defer or prevent tender offers for our common stock or purchases of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their common stock over then-prevailing market prices.

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• Ownership limit.

The ownership limit in our charter limits related investors including, among other things, any voting group, from acquiring over 9.8% of any class our common stock or of our preferred

stock, in each case, in number of shares or value, without the consent of our Board.

The ownership limit in our charter limits related investors including, among other things, any voting group, from acquiring over 9.8% of any class our common stock or of our preferred stock, in each case, in number of shares or value, without the consent of our Board.

• Preferred Stock.

Our charter authorizes our Board to issue preferred stock in one or more classes and to

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establish the preferences and rights of any class of preferred stock issued.

Our charter authorizes our Board to issue preferred stock in one or more classes and to establish the preferences and rights of any class of preferred stock issued.

These actions can be taken without soliciting stockholder approval.

• Maryland Business Combination Act.

The Maryland Business Combination Act provides that, subject to certain exceptions and limitations, certain business combinations between a Maryland corporation and an “interested stockholder” (defined generally as any person who beneficially owns 10% or more of the voting power of our outstanding voting stock or an affiliate or associate of ours who, at any time within the two-year period immediately prior to the date in question, was the beneficial owner of 10% or more of the voting power of our then outstanding shares of stock) or an affiliate of any interested stockholder are prohibited for five years after the most recent date on which the stockholder becomes an interested stockholder, and thereafter imposes two super-majority stockholder voting requirements on these combinations, unless, among other conditions, our common stockholders receive a minimum price, as defined in the MGCL, for their shares of stock and the consideration is received in cash or in the same form as previously paid by the interested stockholder for its shares of stock.

interested stockholder for its shares of stock.

We have opted out of the Maryland Business Combination Act in our charter.

the difficulty of consummating any such offers, even if our acquisition would be in our stockholders’ best interests.

However, if we amend our charter to opt back in to the statute, subject to stockholder approval, the Maryland Business Combination Act could have the effect of discouraging offers to acquire us and of increasing the difficulty of consummating any such offers, even if our acquisition would be in our stockholders’ best interests.

• Maryland Control Share Acquisition Act.

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• Title 3, Subtitle 8 of the MGCL:

These provisions of the MGCL permit our board of directors, without stockholder approval and regardless of what is provided in our charter or bylaws, to implement certain takeover defenses, including adopting a classified board or increasing the vote required to remove a director.

These provisions of the MGCL permit our Board of Directors, without stockholder approval and regardless of what is provided in our charter or bylaws, to implement

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certain takeover defenses, including adopting a classified board or increasing the vote required to remove a director.

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

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Accounting rules for valuations of investments, mortgage loan sales and securitizations, investment consolidations, acquisitions of real estate and other aspects of our operations are highly complex and involve significant judgment and assumptions.

These complexities could lead to a delay in preparation of financial information and the delivery of this information to our

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stockholders.

These complexities could lead to a delay in preparation of financial information and the delivery of this information to our stockholders.

Changes in accounting interpretations or assumptions could impact our financial statements and our ability to prepare our financial statements in a timely fashion.

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Department of the Treasury entered into Preferred Stock Purchase Agreements with the FHFA and have taken various actions intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability.

In September 2019, FHFA and the U.S.

Treasury Department agreed to modifications to the Preferred Stock Purchase Agreements that will permit Fannie Mae and Freddie Mac to maintain capital reserves of $25 billion and $20 billion, respectively.

Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the U.S.

Treasury suggested that the guarantee payment structure of Fannie Mae and Freddie Mac in the U.S.

housing finance market should be re-examined.

The future roles of Fannie Mae and Freddie Mac could be significantly reduced and the nature of their guarantees could be eliminated or considerably limited relative to historical measurements.

Treasury could also stop providing credit support to Fannie Mae and Freddie Mac in the future.

Any changes to the nature of the guarantees provided by Fannie Mae and Freddie Mac could redefine what constitutes an Agency mortgage-backed security and could have broad adverse market implications.

While the likelihood that major mortgage finance system reform will be enacted in the short term remains uncertain, it is possible that the adoption of any such reforms could adversely affect the types of assets we can buy, the costs of these assets and our business operations.

A reduction in the ability of mortgage loan originators to access Fannie Mae and Freddie Mac to sell their mortgage loans may adversely affect the mortgage markets generally and adversely affect the ability of mortgagors to refinance their mortgage loans.

In addition, any decline in the value of securities issued by Fannie Mae and Freddie Mac may affect the value of MBS in general.

The change of FHFA leadership and the fact that a permanent Director has yet to be confirmed raise further uncertainties about whether, and if so on what timeline, the Biden administration will address the conservatorships of the GSEs and any comprehensive housing reform.If Fannie Mae or Freddie Mac was eliminated, or their structures were to change in a material manner that is not compatible with our business model, we would not be able to acquire Agency mortgage-backed securities from these entities, which could adversely affect our business operations.

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

Federal consumer protection laws and regulations regulate residential mortgage loan underwriting and originators’ lending processes, standards, and disclosures to borrowers.

These laws and regulations include, among others, the Consumer Financial Protection Bureau’s (“CFPB”) “ability-to-repay” and “qualified mortgage” regulations.

In addition, there are various other federal, state, and local laws and regulations that are intended to discourage predatory lending practices by residential mortgage loan originators.

For example, the federal Home Ownership and Equity Protection Act of 1994 (“HOEPA”) which was expanded under the Dodd Frank Act, prohibits inclusion of certain provisions in residential mortgage loans that have mortgage rates or origination costs in excess of prescribed levels and requires that borrowers be given certain disclosures prior to origination.

The Dodd-Frank Act grants enforcement authority and broad discretionary regulatory authority to the CFPB to

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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-K

Item 1. Business