Management’s Discussion and Analysis
−Removed: Beginning with the quarter ended June 30, 2021, we began classifying certain portfolio activity-related or volume-related expenses as Other income (loss) rather than Other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss) to better reflect the nature of the items.
−Removed: As such, prior periods have been conformed to the current presentation.
−Removed: Refer to the “General and Administrative Expenses” section for additional information.
Net Income (Loss) Summary
6 unchanged sentences
Net interest income 1,469,152 1,733,793 1,330,513
−Removed: Realized and unrealized gains (losses) 795,195 (2,062,824) (3,011,127)
+Added: Servicing and related income 246,926 69,018 94,190
+Added: Servicing and related expense 25,145 12,202 26,437
+Added: Net servicing income 221,781 56,816 67,753
Other income (loss) 243,787 796,360 (2,094,266)
41 unchanged sentences
$ 1,850,138 $ 1,768,391 $ 1,696,167
−Removed: Earnings available for distribution per common share $ 1.16 $ 1.10 $ 1.00
+Added: Earnings available for distribution per average common share $ 4.23 $ 4.65 $ 4.39
Annualized EAD return on average equity (excluding PAA) 16.02 % 12.90 % 12.03 %
10 unchanged sentences
Net interest spread (excluding PAA) 1.70 % 1.89 % 1.56 %
+Added: * Represents a non-GAAP financial measure.
+Added: Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued and mortgages payable divided by total equity.
1 unchanged sentence
Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities).
−Removed: Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage.
+Added: Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to us and are excluded from economic leverage.
(2) GAAP capital ratio is computed as total equity divided by total assets.
10 unchanged sentences
Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
−Removed: (6) Represents a non-GAAP financial measure.
−Removed: Refer to the “Non-GAAP Financial Measures” section for additional information.
(6) Excludes dividends on preferred stock.
Net income (loss) was $1.7 billion, which includes $1.1 million attributable to noncontrolling interests, or $3.93 per average basic common share, for the year ended December 31, 2022 compared to $2.4 billion, which includes $6.4 million attributable to noncontrolling interests, or $6.40 per average basic common share, for the same period in 2021.
−Removed: We attribute the majority of the change in net income (loss) to favorable changes in unrealized gains (losses) on interest rate swaps, realized gains (losses) on termination or maturity of interest rate swaps, net unrealized gains (losses) on instruments measured at fair value through earnings and net interest income, partially offset by unfavorable changes in Net gains (losses) on disposal of investments and other and Net gains (losses) on other derivatives and financial instruments.
−Removed: Net unrealized gains (losses) on interest rate swaps was $2.2 billion for the year ended December 31, 2021 compared to ($0.9) billion for the same period in 2020.
−Removed: Realized losses on termination or maturity of interest rate swaps was ($1.2) billion for the year ended December 31, 2021 compared to ($1.9) billion for the same period in 2020.
−Removed: Net unrealized gains (losses) on instruments measured at fair value through earnings for the year ended December 31, 2021 was $183.7 million compared to ($303.0) million for the same period in 2020.
+Added: 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 favorable changes in net gains (losses) on derivatives, lower business divestiture-related losses, and higher net servicing income.
+Added: Net gains (losses) on investments and other for the year ended December 31, 2022 was ($4.6) billion compared to $121.0 million for the same period in 2021.
+Added: Part of this unfavorable change is attributable to the change in fair value flowing through the income statement on Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities purchased in the second half of 2022.
Net interest income for the year ended December 31, 2022 was $1.5 billion compared to $1.7 billion for the same period in 2021.
−Removed: Net gains (losses) on disposal of investments and other was ($62.7) million for the year ended December 31, 2021 compared to $661.5 million for the same period in 2020.
−Removed: Net gains (losses) on other derivatives and financial instruments was $121.7 million for the year ended December 31, 2021 compared to $756.3 million for the same period in 2020.
−Removed: Refer to the section titled “Realized and Unrealized Gains (Losses)” located within this Item 7 for additional information related to these changes.
+Added: Net gains (losses) on derivatives for the year ended December 31, 2022 was $4.9 billion compared to $807.7 million for the same period in 2021.
+Added: Business divestiture-related gains (losses) for the year ended December 31, 2022 was ($40.3) million compared to ($278.6) million for the same period in 2021.
+Added: Net servicing income for the year ended December 31, 2022 was $221.8 million compared to $56.8 million for the same period in 2021.
+Added: Refer to the section titled “Other income (loss)” located within this Item 7 for additional information related to these changes.
Earnings available for distribution were $1.9 billion, or $4.23 per average common share, for the year ended December 31, 2022, compared to $1.8 billion, or $4.65 per average common share, for the same period in 2021.
−Removed: The changes in earnings available for distribution for the year ended December 31, 2021 compared to the same period in 2020 were primarily due to lower interest expense from lower borrowing rates and average interest bearing liabilities, and higher TBA dollar roll income, partially offset by lower coupon income resulting from lower average interest earning assets and an unfavorable change in the net interest component of interest rate swaps.
+Added: The change in earnings available for distribution for the year ended December 31, 2022 compared to the same period in 2021 was primarily due to a favorable change in the net interest component of interest rate swaps, lower premium amortization expense, excluding PAA, resulting from lower prepayment speed projections, higher net servicing income from an increase in average MSR balances, and higher coupon income from an increase in interest rates, partially offset by higher interest expense from an increase in average borrowing rates.
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Non-GAAP Financial Measures
7 unchanged sentences
• interest income (excluding PAA);
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
• economic interest expense;
14 unchanged sentences
We generate net income by earning a net interest spread on our investment portfolio, which is a function of interest income from our investment portfolio less financing, hedging and operating costs.
−Removed: Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSR, (d) other income (loss) (excluding depreciation and amortization expense on real estate and related intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items), and excludes (g) the premium amortization adjustment (“PAA”) representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities, is used by management and, we believe, used by analysts and investors to measure our progress in achieving our principal business objective.
+Added: Earnings available for distribution, which 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 and amortization expense on real estate and related intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items), and excludes (g) the premium amortization adjustment (“PAA”) representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities, is used by management and, we believe, used by analysts and investors to measure our progress in achieving our principal business objective.
We seek to fulfill our principal business objective through a variety of factors including portfolio construction, the degree of market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of our capital allocation policy and risk governance framework.
We believe these non-GAAP measures provide management and investors with additional details regarding our underlying operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive income (loss), and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to provide additional transparency into the operating performance of our portfolio.
−Removed: In addition, EAD serves as a useful indicator for investors in evaluating the Company's performance and ability to pay dividends.
+Added: In addition, EAD serves as a useful indicator for investors in evaluating our performance and ability to pay dividends.
Annualized EAD return on average equity, which is calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional detail on the earnings available for distribution generated by our invested equity capital.
10 unchanged sentences
Adjustments to exclude reported realized and unrealized (gains) losses
−Removed: Realized (gains) losses on termination or maturity of interest rate swaps 1,236,349 1,917,628 1,442,964
−Removed: Unrealized (gains) losses on interest rate swaps (2,198,486) 904,532 1,210,276
−Removed: Net (gains) losses on disposal of investments and other 62,705 (661,513) 47,944
−Removed: Net (gains) losses on other derivatives and financial instruments (121,735) (756,305) 680,770
−Removed: Net unrealized (gains) losses on instruments measured at fair value through earnings (183,663) 303,024 (36,021)
−Removed: Loan loss provision (1)
+Added: Net (gains) losses on investments and other 4,602,456 (120,958) (358,489)
+Added: Net (gains) losses on derivatives (1)
(4,493,013) (1,083,872) 2,065,855
+Added: Loan loss provision (reversal) (2)
+Added: (22,923) (148,632) 151,188
Business divestiture-related (gains) losses 40,258 278,559 —
22 unchanged sentences
EAD return on average equity (excluding PAA) * 16.02 % 12.90 % 12.03 %
−Removed: 12.90 % 12.03 % 10.28 %
−Removed: (1) Includes ($3.6) million and $3.6 million of loss provision (reversal) on the Company’s unfunded loan commitments for the years ended December 31, 2021 and 2020, respectively, which is reported in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).
+Added: * Represents a non-GAAP financial measure.
+Added: Refer to the disclosure within this section above for additional information on non-GAAP financial measures.
+Added: (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.
+Added: The net interest component of interest rate swaps totaled $366.2 million, ($276.1) million and ($207.9) million for the years ended December 31, 2022, 2021 and 2020, respectively.
+Added: (2) Includes ($2.3) million, ($3.6) million, and $3.6 million of loss provision (reversal) on unfunded loan commitments for the years ended December 31, 2022, 2021, and 2020, respectively, 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.
−Removed: (3) The Company excludes non-EAD (income) loss allocated to equity method investments, which represents the unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is a component of Other income (loss).
+Added: (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) Includes costs incurred in connection with securitizations of residential whole loans.
−Removed: The year ended December 31, 2020 also includes costs incurred in connection with the Company’s management internalization, the CEO search process and a securitization of Agency mortgage-backed securities.
−Removed: The year ended December 31, 2019 also includes costs incurred in connection with the securitization of commercial loans and Agency mortgage-backed securities.
−Removed: (5) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives and financial instruments.
+Added: The year ended December 31, 2020 also includes costs incurred in connection with the management internalization, the CEO search process and a securitization of Agency mortgage-backed securities.
+Added: (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 $4.4 million, $5.2 million and $5.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.
−Removed: (6) MSR amortization represents the portion of changes in fair value that is attributable to the realization of estimated cash flows on the Company’s MSR portfolio and is reported as a component of Net unrealized gains (losses) on instruments measured at fair value.
−Removed: (7) Represents a non-GAAP financial measure.
−Removed: Refer to disclosures within this section above for additional information on non-GAAP financial measures.
−Removed: From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency mortgage-backed securities.
−Removed: A TBA contract is an agreement to purchase or sell, for future delivery, an Agency mortgage-backed security with a specified issuer, term and coupon.
+Added: (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.
+Added: From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency MBS.
+Added: A TBA contract is an agreement to purchase or sell, for future delivery, an Agency MBS with a specified issuer, term and coupon.
A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are simultaneously bought and sold.
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”.
−Removed: 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.
+Added: The drop is a reflection of the expected net interest income from an investment in similar Agency MBS, 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 financing is the party that would retain all principal and interest payments accrued during the financing period.
−Removed: Accordingly, TBA dollar roll income generally represents the economic equivalent of the net interest income earned on the underlying Agency mortgage-backed security less an implied financing cost.
+Added: Accordingly, TBA dollar roll income generally represents the economic equivalent of the net interest income earned on the underlying Agency MBS less an implied financing cost.
+Added: TBA dollar roll transactions are accounted for under GAAP as a series of derivatives transactions.
+Added: The fair value of TBA derivatives is based on methods similar to those used to value Agency MBS.
+Added: We record TBA derivatives at fair value on our Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
−Removed: TBA dollar roll transactions are accounted for under GAAP as a series of derivatives transactions.
−Removed: The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities.
−Removed: We record TBA derivatives at fair value on our Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on other derivatives and financial instruments in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives (excluding interest rate swaps).
+Added: derivatives in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives (excluding interest rate swaps).
TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different settlement dates multiplied by the notional amount of the TBA contract.
−Removed: Although accounted for as derivatives, TBA dollar rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency mortgage-backed security (interest income less an implied cost of financing).
−Removed: TBA dollar roll income is reported as a component of Net gains (losses) on other derivatives and financial instruments in the Consolidated Statements of Comprehensive Income (Loss).
+Added: Although accounted for as derivatives, TBA dollar rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency MBS (interest income less an implied cost of financing).
+Added: TBA dollar roll income is reported as a component of Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).
The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities of a particular rating and vintage.
1 unchanged sentence
Additionally, the protection seller is obligated to pay to the protection buyer the amount of principal losses and/or coupon shortfalls on the underlying commercial mortgage-backed securities as they occur.
−Removed: We report income (expense) on CMBX positions in Net gains (losses) on other derivatives and financial instruments in the Consolidated Statements of Comprehensive Income (Loss).
+Added: We report income (expense) on CMBX positions in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).
The coupon payments received or paid on CMBX positions is equivalent to interest income (expense) and therefore included in earnings available for distribution.
Premium Amortization Expense
−Removed: In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency mortgage-backed securities, excluding interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the calculation of the effective yield.
+Added: In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency MBS, excluding interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the calculation of the effective yield.
We recalculate the effective yield as differences between anticipated and actual prepayments occur.
18 unchanged sentences
Equity capital primarily consists of common and preferred stock.
+Added: Our economic leverage ratio 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.
+Added: Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities).
+Added: Certain credit facilities (included within other secured
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
−Removed: Our economic leverage ratio 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.
−Removed: Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities).
−Removed: Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to us and are excluded from economic leverage.
+Added: financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to us and are excluded from economic leverage.
The following table presents a reconciliation of GAAP debt to economic debt for purposes of calculating our economic leverage ratio for the periods presented:
10 unchanged sentences
800,849 1,049,066
−Removed: Mortgages payable
Debt included in liabilities of disposal group held for sale — 112,144
3 unchanged sentences
Credit facilities (1)
−Removed: (903,255) (887,455)
Debt issued by securitization vehicles
2 unchanged sentences
(800,849) (1,049,066)
−Removed: Mortgages payable
Non-recourse debt included in liabilities of disposal group held for sale — (112,144)
9 unchanged sentences
Economic leverage ratio *
−Removed: (1) Included in Other secured financing in the Consolidated Statements of Financial Condition.
* Represents a non-GAAP financial measure.
Refer to the disclosure within this section above for additional information on non-GAAP financial measures.
+Added: (1) Included in Other secured financing in the Consolidated Statements of Financial Condition.
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:
13 unchanged sentences
Economic capital ratio (2) *
−Removed: (1) Included in Derivative assets in the Consolidated Statements of Financial Condition.
−Removed: (2) Includes debt issued by securitization vehicles reported in Liabilities of disposal group held for sale in the Consolidated Statements of Financial Condition.
* Represents a non-GAAP financial measure.
Refer to the disclosure within this section above for additional information on non-GAAP financial measures.
+Added: (1) Included in Derivative assets in the Consolidated Statements of Financial Condition.
(2) Economic capital ratio is computed as total equity divided by total economic assets.
+Added: Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)
+Added: Interest income (excluding PAA) represents interest income excluding the effect of the premium amortization adjustment, and serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA), which are discussed below.
+Added: We believe this measure provides management and investors with additional detail to enhance their understanding of our operating results and trends by excluding the component
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
−Removed: Interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA)
−Removed: Interest income (excluding PAA) represents interest income excluding the effect of the premium amortization adjustment, and serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA), which are discussed below.
−Removed: We believe this measure provides management and investors with additional detail to enhance their understanding of our operating results and trends by excluding the component of premium amortization expense representing the cumulative effect of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio.
+Added: of premium amortization expense representing the cumulative effect of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency MBS (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio.
Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
2 unchanged sentences
We may use market agreed coupon (“MAC”) interest rate swaps in which we may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-market nature of such interest rate swap.
−Removed: In accordance with GAAP, upfront payments associated with MAC interest rate swaps are not reflected in the net interest component of interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss).
+Added: 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 years ended December 31, 2022 and December 31, 2021.
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.
−Removed: The following tables present a reconciliation of GAAP interest income and interest expense to non-GAAP interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA), respectively, for the periods presented:
+Added: The following tables present a reconciliation of GAAP interest income and GAAP interest expense to non-GAAP interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA), respectively, for the periods presented:
Interest Income (excluding PAA)
11 unchanged sentences
of Interest Rate Swaps Economic
+Added: Income * Add:
(Benefit) Economic Net Interest Income (excluding PAA) *
7 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.
−Removed: In general, as prepayment speeds and expectations of prepayment speeds on our Agency mortgage-backed securities portfolio increase, related purchase premium amortization increases, thereby reducing the yield on such assets.
−Removed: The following table presents the weighted average
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
−Removed: experienced CPR and weighted average projected long-term CPR on our Agency mortgage-backed securities portfolio as of and for the periods presented.
+Added: In general, as prepayment speeds and expectations of prepayment speeds on our Agency MBS portfolio increase, related purchase premium amortization increases, thereby reducing the yield on such assets.
+Added: 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.
Experienced CPR (1)
6 unchanged sentences
(2) At December 31, 2022, 2021 and 2020, respectively.
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
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
3 unchanged sentences
Average Interest Earning
−Removed: Interest Income (excluding PAA) (2)
−Removed: Average Yield on Interest Earning Assets (excluding PAA) (2)
−Removed: Average Interest Bearing Liabilities Economic Interest Expense (2)(3)
+Added: Interest Income (excluding PAA) * Average Yield on Interest Earning Assets (excluding PAA) * Average Interest Bearing Liabilities Economic Interest Expense * (2)
Average Economic Cost of Interest Bearing Liabilities * (2)
−Removed: Economic Net Interest Income (excluding PAA) (2)
−Removed: Net Interest Spread (excluding PAA) (2)
+Added: Economic Net Interest Income (excluding PAA) * Net Interest Spread (excluding PAA) *
For the years ended (dollars in thousands)
2 unchanged sentences
December 31, 2020 $91,198,821 $2,645,069 2.90% $82,719,182 $1,106,989 1.34% $1,538,080 1.56 %
−Removed: (1) Based on amortized cost.
* Represents a non-GAAP financial measure.
Refer to the “Non-GAAP Financial Measures” section for additional information.
−Removed: (3) Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities.
+Added: (1) Based on amortized cost.
(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.
+Added: Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities.
Net Interest Margin (excluding PAA)
−Removed: Interest Income (excluding PAA) (1)
−Removed: TBA Dollar Roll and CMBX Coupon Income (2)
−Removed: Economic Interest Expense (1)
−Removed: Subtotal Average Interest Earnings Assets Average TBA Contract and CMBX Balances Subtotal Net Interest Margin (excluding PAA) (1)
+Added: Interest Income (excluding PAA) * TBA Dollar Roll and CMBX Coupon Income (1)
+Added: Economic Interest Expense * Subtotal Average Interest Earnings Assets Average TBA Contract and CMBX Balances Subtotal Net Interest Margin (excluding PAA) *
For the years ended (dollars in thousands)
4 unchanged sentences
Refer to the “Non-GAAP Financial Measures” section for additional information.
−Removed: (2) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives and financial instruments.
+Added: (1) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives.
CMBX coupon income totaled $4.4 million, $5.2 million and $5.8 million for the years ended December 31, 2022, 2021 and 2020, respectively.
11 unchanged sentences
Average Economic
−Removed: Liabilities (2)
+Added: Liabilities * Average
LIBOR Average
8 unchanged sentences
December 31, 2020 $ 82,719,182 $ 71,435,295 $ 1,106,989 1.34 % 0.52 % 0.69 % (0.17 %) 0.82 % 0.65 %
−Removed: (1) Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
* Represents a non-GAAP financial measure.
Refer to the “Non-GAAP Financial Measures” section for additional information.
+Added: (1) Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
2022 Compared with 2021
−Removed: Economic interest expense decreased by $581.6 million for the year ended December 31, 2021 compared to the same period in 2020.
−Removed: The change was due to lower borrowing rates and decreases in average interest bearing liabilities, partially offset by the change in the net interest component of interest rate swaps, which was ($276.1) million for the year ended December 31, 2021 compared to ($207.9) million for the same period in 2020.
+Added: Economic interest expense increased by $418.2 million for the year ended December 31, 2022 compared to the same period in 2021.
+Added: The change was 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 $366.2 million for the year ended December 31, 2022 compared to ($276.1) 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.
6 unchanged sentences
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.
−Removed: At December 31, 2021 and 2020, 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.
+Added: At December 31, 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.
+Added: 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.
However, we limit our borrowings, and thus our potential asset growth, in order to maintain unused borrowing capacity and maintain the liquidity and strength of our balance sheet.
−Removed: Realized and Unrealized Gains (Losses)
−Removed: Realized and unrealized gains (losses) is comprised of net gains (losses) on interest rate swaps, net gains (losses) on disposal of investments and other, net gains (losses) on other derivatives and financial instruments, and net unrealized gains (losses) on instruments measured at fair value through earnings.
−Removed: These components of realized and unrealized gains (losses) for the years ended December 31, 2021, 2020 and 2019 were as follows:
+Added: Other Income (Loss)
+Added: 2022 Compared with 2021
+Added: Net Gains (Losses) on Investments and Other
+Added: Net gains (losses) on disposal of investments and other was ($3.5) billion for the year ended December 31, 2022 compared with ($62.7) million for the same period in 2021.
+Added: For the year ended December 31, 2022, we disposed of Residential Securities with a carrying value of $28.9 billion for an aggregate net loss of ($3.6) billion and we recognized a realized gain of $33.4 million as a result of deconsolidating a multifamily VIE.
+Added: For the same period in 2021, we disposed of Residential Securities with a carrying value of $11.5 billion for an aggregate net loss of ($3.1) million.
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
−Removed: For the Years Ended December 31,
−Removed: 2021 2020 2019
−Removed: (dollars in thousands)
−Removed: Net gains (losses) on interest rate swaps (1)
−Removed: $ 685,995 $ (3,030,037) $ (2,301,865)
−Removed: Net gains (losses) on disposal of investments and other (62,705) 661,513 (47,944)
−Removed: Net gains (losses) on other derivatives and financial instruments 121,735 756,305 (680,770)
−Removed: Net unrealized gains (losses) on instruments measured at fair value through earnings 183,663 (303,024) 36,021
−Removed: Loan loss provision 145,066 (147,581) (16,569)
−Removed: Business divestiture-related gains (losses) (278,559) — —
−Removed: Total $ 795,195 $ (2,062,824) $ (3,011,127)
−Removed: (1) Includes the net interest component of interest rate swaps, realized gains (losses) on termination or maturity of interest rate swaps and unrealized gains (losses) on interest rate swaps.
−Removed: 2021 Compared with 2020
−Removed: Net gains (losses) on interest rate swaps for the year ended December 31, 2021 was $686.0 million compared to ($3.0) billion for the same period in 2020, primarily attributable to favorable changes in unrealized gains (losses) on interest rate swaps and realized gains (losses) on termination or maturity of interest rate swaps.
−Removed: Unrealized gains (losses) on interest rate swaps was $2.2 billion for the year ended December 31, 2021, reflecting a rise in forward interest rates during the period, compared to ($0.9) billion for the same period in 2020, reflecting a decline in forward interest rates during the earlier period.
−Removed: Realized gains (losses) on termination or maturity of interest rate swaps was ($1.2) billion resulting from the termination or maturity of interest rate swaps with a notional amount of $30.9 billion for the year ended December 31, 2021 compared to ($1.9) billion resulting from the termination or maturity of interest rate swaps with a notional amount of $104.1 billion for the same period in 2020.
−Removed: Net gains (losses) on disposal of investments and other was ($62.7) million for the year ended December 31, 2021 compared with $661.5 million for the same period in 2020.
−Removed: For the year ended December 31, 2021, we disposed of Residential Securities with a carrying value of $11.5 billion for an aggregate net loss of ($3.1) million.
−Removed: For the same period in 2020, we disposed of Residential Securities with a carrying value of $51.8 billion for an aggregate net gain of $637.0 million and we recognized a realized gain of $104.8 million as a result of deconsolidating a multifamily VIE.
−Removed: Net gains (losses) on other derivatives and financial instruments was $121.7 million for the year ended December 31, 2021 compared to $756.3 million for the same period in 2020.
−Removed: The change in net gains (losses) on other derivatives and financial instruments was primarily comprised of changes in net gains (losses) on TBA derivatives, which was ($401.7) million for the year ended December 31, 2021 compared to $985.4 million for the same period in 2020, and interest rate swaptions, which was ($76.0) million for the year ended December 31, 2021 compared to $58.0 million for the same period in 2020, partially offset by the change in net gains (losses) on futures contracts, which was $582.3 million for the year ended December 31, 2021 compared to ($280.1) million for the same period in 2020.
−Removed: Net unrealized gains (losses) on instruments measured at fair value through earnings was $183.7 million for the year ended December 31, 2021 compared to ($303.0) million for the same period in 2020, primarily due to favorable changes in unrealized gains (losses) on MSR, including Interests in MSR, of $275.8 million, securitized commercial loans of $268.4 million, residential securitized debt of consolidated VIEs of $88.5 million and securitized debt of consolidated VIEs backed by Agency mortgage-backed securities of $59.7 million, partially offset by an unfavorable change in commercial securitized debt of consolidated VIEs of ($211.6) million for the year ended December 31, 2021 compared to the same period in 2020.
+Added: Net unrealized gains (losses) on instruments measured at fair value through earnings was ($1.1) billion for the year ended December 31, 2022 compared to $183.7 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 ($1.3) billion, Agency MBS of ($743.9) million, non-Agency MBS of ($213.3) million, residential whole loans of ($123.9) million, and CRT securities of ($41.7) million partially offset by favorable changes in residential securitized debt of consolidated VIEs of $1.1 billion and MSR of $89.7 million.
+Added: Net Gains (Losses) on Derivatives
+Added: Net gains (losses) on interest rate swaps for the year ended December 31, 2022 was $3.6 billion compared to $686.0 million for the same period in 2021, attributable to favorable changes in unrealized gains (losses) on interest rate swaps, realized gains (losses) on termination or maturity of interest rate swaps, and net interest component of interest rate swaps.
+Added: Unrealized gains (losses) on interest rate swaps was $3.5 billion for the year ended December 31, 2022, reflecting a rise in forward interest rates during the period, compared to $2.2 billion for the same period in 2021.
+Added: Realized gains (losses) on termination or maturity of interest rate swaps was ($266.4) million resulting from the termination or maturity of interest rate swaps with a notional amount of $21.3 billion for the year ended December 31, 2022 compared to ($1.2) billion resulting from the termination or maturity of interest rate swaps with a notional amount of $30.9 billion for the same period in 2021.
+Added: Net interest component of interest rate swaps was $366.2 million for the year ended December 31, 2022 compared to ($276.1) million for the same period in 2021 as the swaps portfolio changed from a net pay to a net receive position as the floating receive leg reflected the rise in interest rates.
+Added: Net gains (losses) on other derivatives was $1.3 billion for the year ended December 31, 2022 compared to $121.7 million for the same period in 2021.
+Added: The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures contracts, which was $4.0 billion for the year ended December 31, 2022 compared to $582.3 million for the same period in 2021 and net gains (losses) on interest rate swaptions, which was $152.0 million for the year ended December 31, 2022 compared to ($76.0) million for the same period in 2021, partially offset by an unfavorable change in net gains (losses) on TBA derivatives, which was ($2.8) billion for the year ended December 31, 2022 compared to ($401.7) million for the same period in 2021.
+Added: Loan Loss (Provision) Reversal
For the year ended December 31, 2022, a loan loss (provision) reversal of $20.7 million was recorded on commercial mortgage and corporate loans compared to $145.1 million for the same period in 2021.
Refer to the “Loans” Note located within Item 15 for additional information related to these loan loss provisions.
−Removed: For the year ended December 31, 2021, a business divestiture-related gain (loss) of ($278.6) million was recorded on the sale of our CRE business to Slate.
−Removed: There was no comparative transaction for the same period in 2020.
+Added: Business Divestiture-Related Gains (Losses)
+Added: For the year ended December 31, 2022, the majority of business divestiture-related gains (losses) were associated with the sale of our corporate loan interests.
+Added: Refer to the “Sale of Middle Market Lending Portfolio” Note located within Item 15 for additional information related to to the transaction.
+Added: For the year ended December 31, 2021, business divestiture-related gain (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 15 for additional information related to to the transaction.
−Removed: Other Income (Loss)
−Removed: Other income (loss) includes certain revenues and costs associated with our investments in commercial real estate, including rental income and recoveries, operating costs as well as depreciation and amortization expense, net servicing income on MSR, brokerage and commission fees, due diligence costs and securitization expenses.
−Removed: We also report in Other income (loss) items
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
−Removed: whose amounts, either individually or in the aggregate, would not, in the opinion of management, be meaningful to readers of the financial statements.
+Added: Other, net includes brokerage and commission fees, due diligence costs, securitization expenses and certain revenues and costs associated with our investments in commercial real estate, including rental income and recoveries, operating costs as well as depreciation and amortization expense.
+Added: We also report in Other, net items whose amounts, either individually or in the aggregate, would not, in the opinion of management, be meaningful to readers of the financial statements.
Given the nature of certain components of this line item, balances may fluctuate from period to period.
1 unchanged sentence
General and administrative (“G&A”) expenses consist of compensation and other expenses.
−Removed: Prior to the closing of the Company's management internalization transaction (the "Internalization") on June 30, 2020, G&A also consisted of management fees paid to Annaly Management Company LLC (our “Former Manager”).
−Removed: Beginning with the quarter ended June 30, 2021, we began classifying certain portfolio activity- or volume-related expenses (including but not limited to brokerage and commission fees, due diligence costs and securitization expenses) as Other income (loss) rather than Other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss) to better reflect the nature of the items.
−Removed: As such, prior periods have been conformed to the current presentation with Other general and administrative expenses for the three months ended March 31, 2021 adjusted downward by $1.8 million and for the years ended December 31, 2020 and 2019 adjusted downward by $17.0 million and $29.9 million, respectively.
The following table shows our total G&A expenses as compared to average total assets and average equity for the periods presented.
+Added: Prior to the closing of the management internalization transaction (the "Internalization") on June 30, 2020, G&A also consisted of management fees paid to Annaly Management Company LLC (our “Former Manager”).
+Added: Beginning with the quarter ended June 30, 2021, we began classifying certain portfolio activity- or volume-related expenses (including but not limited to brokerage and commission fees,
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
+Added: due diligence costs and securitization expenses) as Other income (loss) rather than Other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss) to better reflect the nature of the items.
+Added: As such, prior periods have been conformed to the current presentation with Other general and administrative expenses for the three months ended March 31, 2021 adjusted downward by $1.8 million and for the year ended December 31, 2020 adjusted downward by $17.0 million.
+Added: The following table shows our total G&A expenses as compared to average total assets and average equity for the periods presented.
G&A Expenses and Operating Expense Ratios
5 unchanged sentences
December 31, 2020 $ 222,195 0.22 % 1.58 %
−Removed: (1) Includes $2.9 million of costs incurred in connection with the Company’s management internalization and costs incurred in connection with the CEO search process for the year ended December 31, 2020.
+Added: (1) Includes $2.9 million of costs incurred in connection with the management internalization and costs incurred in connection with the CEO search process for the year ended December 31, 2020.
Excluding these transaction costs, G&A expenses as a percentage of average total assets and as a percentage of average equity were 0.22% and 1.55%, respectively, for the year ended December 31, 2020.
1 unchanged sentence
G&A expenses decreased $23.3 million to $162.7 million for the year ended December 31, 2022 compared to the same period in 2021.
−Removed: The change was largely attributable to lower professional fees, lower compensation costs due to the sale of the CRE business and cost savings generated from the Company’s management internalization, which closed on June 30, 2020, during the year ended December 31, 2021 compared with the same period in 2020.
+Added: The change 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 year ended December 31, 2022 compared with the same period in 2021.
Return on Average Equity
2 unchanged sentences
Economic Net Interest Income/ Average Equity (1)
−Removed: Realized and Unrealized Gains and Losses/Average Equity (2)
−Removed: Other Income (Loss)/Average Equity G&A Expenses/ Average Equity Income
+Added: Net Servicing Income/Average Equity Other Income (Loss)/Average Equity (2)
+Added: G&A Expenses/ Average Equity Income
Taxes/ Average Equity Return on
5 unchanged sentences
(1) Economic net interest income includes the net interest component of interest rate swaps.
−Removed: (2) Realized and unrealized gains and losses excludes the net interest component of interest rate swaps.
+Added: (2) Other income (loss) excludes the net interest component of interest rate swaps.
Unrealized Gains and Losses - Available-for-Sale Investments
−Removed: With our available-for-sale accounting treatment on our Agency mortgage-backed securities, 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
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
−Removed: of the asset and stockholders’ equity under accumulated other comprehensive income (loss).
+Added: 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.
6 unchanged sentences
Accumulated other comprehensive income (loss) $ (3,708,896) $ 958,410
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Unrealized changes in the estimated fair value of available-for-sale investments may have a direct effect on our potential earnings and dividends:
2 unchanged sentences
The fair value of these securities being less than amortized cost at December 31, 2022 is solely due to market conditions and not the quality of the assets.
−Removed: Substantially all of the Agency mortgage-backed securities have an actual or implied credit rating that is the same as the U.S.
+Added: Substantially all of the Agency MBS have an actual or implied credit rating that is the same as that of the U.S.
The investments do not require an allowance for credit losses because we currently have the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that we will be required to sell the investments before recovery of the amortized cost bases, which may be maturity.
Also, we are guaranteed payment of the principal and interest amounts of the securities by the respective issuing Agency.
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
Financial Condition
Total assets were $81.9 billion and $76.8 billion at December 31, 2022 and 2021, respectively.
−Removed: The change was primarily due to a decrease in Agency mortgage-backed securities, including assets transferred or pledged to securitization vehicles, of $13.6 billion and commercial real estate debt investments, including assets transferred or pledged to securitization vehicles, of $1.7 billion, partially offset by an increase in residential mortgage loans, including assets transferred or pledged to securitization vehicles, of $4.2 billion.
+Added: The change was primarily due to increases in Agency MBS of $1.7 billion, residential mortgage loans, including assets transferred or pledged to securitization vehicles, of $3.2 billion, MSR of $1.2 billion, receivable for unsettled trades of $0.6 billion, and principal and interest receivable of $0.4 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 December 31, 2022:
−Removed: Residential Commercial
−Removed: Agency MBS and MSR Residential Credit (1)
−Removed: Commercial Real Estate (2)
−Removed: Corporate Debt Total
+Added: Agency MBS MSR Residential Credit (1)
+Added: Commercial Total
Assets (dollars in thousands)
9 unchanged sentences
Net forward purchases 536,401 46,316 38 — 582,755
−Removed: Liabilities of disposal group held for sale — — 112,144 — 112,144
−Removed: Other assets / liabilities (4)
−Removed: 474,740 7,878 4,024 35,665 522,307
+Added: Net other assets / liabilities 1,614,121 150,705 4,255 86,319 1,855,400
Net equity allocated $ 7,445,108 $ 1,602,598 $ 2,179,099 $ 142,621 $ 11,369,426
1 unchanged sentence
Debt/net equity ratio (3)
−Removed: (1) Fair value/carrying includes residential loans held for sale.
−Removed: (2) Fair value/carrying includes commercial real estate investments held for sale.
−Removed: (3) Derivatives include TBA contracts under Agency MBS and MSR and CMBX balances under Commercial Real Estate.
−Removed: (4) Dedicated capital allocations assume capital related to held for sale assets will be redeployed within the Agency business line.
+Added: 7.5:1 0.2:1 5.4:1 3.2:1 6.0:1
+Added: (1) Fair value/carrying includes residential loans held for sale, and assets and liabilities associated with non-controlling interests.
+Added: (2) Derivatives include TBA contracts under Agency MBS and CMBX balances under Commercial.
(3) Represents the debt/net equity ratio as determined using amounts on the Consolidated Statements of Financial Condition.
−Removed: Excludes liabilities of disposal group held for sale.
Residential Securities
−Removed: Substantially all of our Agency mortgage-backed securities at December 31, 2021 and December 31, 2020 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties.
+Added: Substantially all of our Agency MBS at December 31, 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.
−Removed: We carry all of our Agency mortgage-backed securities at fair value on the Consolidated Statements of Financial Condition.
+Added: 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.
−Removed: At December 31, 2021 and December 31, 2020 we had on our Consolidated Statements of Financial Condition a total of $77.7 million and $88.3 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 $3.8 billion and $4.0 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).
−Removed: The weighted average experienced prepayment speed on our Agency mortgage-backed securities portfolio for the years ended December 31, 2021 and 2020 was 23.7% and 20.2%, respectively.
−Removed: The weighted average projected long-term prepayment speed on our Agency mortgage-backed securities portfolio as of December 31, 2021 and 2020 was 12.7% and 16.4%, respectively.
−Removed: 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.
−Removed: Similarly, if mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being
+Added: At December 31, 2022 and December 31, 2021 we had on our Consolidated Statements of Financial Condition a total of $1.1 billion 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 $2.9 billion and $3.8 billion, respectively, of unamortized premium
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
−Removed: 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.
+Added: (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).
+Added: The weighted average experienced prepayment speed on our Agency MBS portfolio for the years ended December 31, 2022 and 2021 was 12.2% and 23.7%, respectively.
+Added: The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of December 31, 2022 and 2021 was 7.8% and 12.7%, respectively.
+Added: 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.
+Added: 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 December 31, 2022 and December 31, 2021.
56 unchanged sentences
Weighted average yield NM NM
−Removed: (1) Excludes interest-only mortgage-backed securities.
−Removed: (2) Excludes non-Agency mortgage-backed securities and CRT securities.
−Removed: (3) Excludes non-Agency mortgage-backed securities and CRT securities as this attribute is not applicable to these asset classes.
+Added: (1) Excludes interest-only MBS.
+Added: (2) Excludes non-Agency MBS and CRT securities.
+Added: (3) Excludes non-Agency MBS and CRT securities as this attribute is not applicable to these asset classes.
NM Not meaningful.
1 unchanged sentence
Payment Structure Investment Characteristics
−Removed: Product Total Senior Subordinate Coupon Credit Enhancement 60+
+Added: Product Estimated Fair Value Senior Subordinate Coupon Credit Enhancement 60+
Delinquencies 3M VPR (1)
9 unchanged sentences
$ 2,988,703 $ 1,097,565 $ 1,891,138 5.62 % 16.90 % 22.46 % 5.99 %
−Removed: (1) Represents the 3 month voluntary prepayment rate (“VPR”).
−Removed: Excludes the impact of interest-only securities.
+Added: (1) Represents the 3 month voluntary prepayment rate (“VPR”) and excludes the impact of interest-only securities.
(2) Total investment characteristics exclude the impact of interest-only securities.
14 unchanged sentences
The following table summarizes the effect on our liquidity and cash flows from contractual obligations at December 31, 2022.
−Removed: The table does not include the effect of net interest rate payments on our interest rate swap agreements and excludes assets and liabilities of the disposal group held for sale.
+Added: 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.
−Removed: At December 31, 2021, the interest rate swaps had a net fair value of ($0.7) billion.
+Added: At December 31, 2022, the interest rate swaps had a net fair value of ($75.7) million.
Year One to Three
18 unchanged sentences
We may use securitization structures, credit facilities, or other term financing structures to finance certain of our assets.
−Removed: During the year ended December 31, 2021, we received $18.7 billion from principal repayments and $11.5 billion in cash from disposal of Residential Securities.
−Removed: During the year ended December 31, 2020, we received $19.6 billion from principal repayments and $52.6 billion in cash from disposal of Residential Securities.
−Removed: Off-Balance Sheet Arrangements
−Removed: We do not have any relationships with unconsolidated entities or financial partnerships which would have been established for the sole purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
−Removed: We have limited future funding commitments related to certain of our unconsolidated joint ventures.
−Removed: 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.
−Removed: We believe that the likelihood of making any payments under these guarantees is remote, and have not accrued a related liability at December 31, 2021.
+Added: During the year ended December 31, 2022, we received $9.5 billion from principal repayments and $25.0 billion in cash from disposal of Securities.
+Added: During the year ended December 31, 2021, we received $18.7 billion from principal repayments and $11.5 billion in cash from disposal of Securities.
+Added: Commitments and Contractual Obligations with Unconsolidated Entities
+Added: We do not have any commitments or contractual obligations arising from arrangements with unconsolidated entities that have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.
Capital Management
1 unchanged sentence
A strong and robust capital position is essential to executing our investment strategy.
−Removed: Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy
+Added: Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy regardless of the market environment.
+Added: Our capital policy defines the parameters and principles supporting a comprehensive capital management practice.
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
−Removed: regardless of the market environment.
−Removed: Our capital policy defines the parameters and principles supporting a comprehensive capital management practice.
The major risks impacting capital are capital, liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk and compliance, regulatory and legal risk.
16 unchanged sentences
Capital Stock
−Removed: The following table provides activity related to our Direct Purchase and Dividend Reinvestment Program for the periods presented:
−Removed: For the Years Ended
−Removed: December 31, 2021 December 31, 2020
−Removed: (dollars in thousands)
−Removed: Shares issued through direct purchase and dividend reinvestment program — 166,000
−Removed: Amount raised from direct purchase and dividend reinvestment program $ — $ 1,175
−Removed: In June 2019, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock, which expired on December 31, 2020 (the “2019 - 2020 Repurchase Program”).
−Removed: In December 2020, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding common shares, which expired on December 31, 2021 (the “2021 Share Repurchase Program”).
+Added: In December 2020, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding common shares, which expired on December 31, 2021 (the “Prior Share Repurchase Program”).
In January 2022, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock through December 31, 2024 (the “Current Share Repurchase Program”).
−Removed: The Current Share Repurchase Program replaced the 2021 Share Repurchase Program, which had replaced the 2019 - 2020 Share Repurchase Program.
−Removed: During the year ended December 31, 2021, no shares were repurchased under the 2021 Share Repurchase Program.
−Removed: During the year ended December 31, 2020, we repurchased 32.4 million shares of our common stock for an aggregate amount of $208.9 million, excluding commission costs, respectively.
−Removed: All common shares purchased were part of a publicly announced plans in open-market transactions.
−Removed: In January 2018, the Company entered into separate Distribution Agency Agreements (as amended and restated on August 6, 2021 and August 6, 2020, collectively, the “Sales Agreements”) with each of Wells Fargo Securities, LLC, BofA Securities, Inc.
−Removed: (formerly known as Merrill Lynch, Pierce, Fenner & Smith, Incorporated), Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co.
−Removed: Morgan Securities LLC, Keefe, Bruyette & Woods,Inc., RBC Capital Markets, LLC and UBS Securities LLC (the “Sales Agents”).
−Removed: The Company may offer and sell shares
+Added: The Current Share Repurchase Program replaced the Prior Share Repurchase Program.
+Added: During the years ended December 31, 2022 and 2021, no shares were repurchased under the Current Share Repurchase Program or Prior Share Repurchase Program.
+Added: During the year ended December 31, 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.
+Added: 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 $196.5 million in proceeds before deducting offering expenses for the year ended December 31, 2022.
+Added: The stock offerings conducted during the year ended December 31, 2022 were completed prior to the Reverse Stock Split and the foregoing share amounts have been retroactively adjusted to reflect the effects thereof.
+Added: On August 6, 2020, we entered into separate Amended and Restated Distribution Agency Agreements (as amended by Amendment No.
+Added: 1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, and Amendment No.
+Added: 2 to the Amended and Restated Distribution Agency Agreements on November 3, 2022, 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.
+Added: LLC, Keefe, Bruyette & Woods, Inc., J.P.
+Added: Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”).
+Added: Pursuant to the Sales Agreements, 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 (the “at-the-market sales program”).
+Added: During the year ended December 31, 2022, under the at-the-market sales program, we issued 45.7 million shares for proceeds of $1.1 billion, net of commissions and fees.
+Added: During the year ended December 31, 2021, under the at-the-market sales program, we issued 15.2 million shares for proceeds of $552.4 million, net of commissions and fees.
+Added: The foregoing share amounts have been retroactively adjusted to reflect the effects of the Reverse Stock Split.
+Added: Preferred Stock
+Added: On November 3, 2022, our Board approved a repurchase plan for all of our existing outstanding Preferred Stock (as defined below, the “Preferred Stock Repurchase Program”).
+Added: Under the terms of the plan, we are authorized to repurchase up to an
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
−Removed: 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.
−Removed: During the years ended December 31, 2021, we issued 60.9 million shares of common stock for proceeds of $552.4 million, net of commissions and fees, under the at-the-market sales program.
−Removed: No shares were issued under the at-the-market sales program during the year ended December 31, 2020.
−Removed: Preferred Stock
−Removed: During the year ended December 31, 2020, the Company redeemed all 18.4 million of its issued and outstanding shares of 7.50% Series D Cumulative Redeemable Preferred Stock (“Series D Preferred Stock”) for $460.0 million.
−Removed: The cash redemption amount for each share of Series D Preferred Stock was $25.00.
+Added: 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”).
+Added: 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.
+Added: The Preferred Stock Repurchase Program became effective on November 3, 2022, and shall expire on December 31, 2024.
+Added: No shares were repurchased to with respect to the Preferred Stock Repurchase Program during the year ended December 31, 2022.
+Added: 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.
+Added: 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.
+Added: 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
6 unchanged sentences
Our GAAP capital ratio at December 31, 2022 and 2021 was 13.9% and 17.2%, respectively.
−Removed: Our economic capital ratio, which represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied total market value of TBA derivatives and net of debt issued by securitization vehicles), was 14.4% and 13.6% at December 31, 2021 and 2020, respectively.
+Added: 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 13.4% and 14.4% at December 31, 2022 and 2021, respectively.
Economic leverage ratio and economic capital ratio are non-GAAP financial measures.
1 unchanged sentence
Risk Management
−Removed: For more information on COVID-19, including actions we have taken in response, please refer to the section titled “Business Environment and COVID-19” within this Item 7.
We are subject to a variety of risks in the ordinary conduct of our business.
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Capital Preservation We will seek to protect our capital base through disciplined risk management practices.
−Removed: Operational We will seek to limit impacts to our business through disciplined operational risk management practices addressing areas including but not limited to, management of key third party relationships (i.e.
+Added: Operational Risk We will seek to limit impacts to our business through disciplined operational risk management practices addressing areas including but not limited to, management of key third party relationships (i.e.
originators, sub-servicers), human capital management, cybersecurity and technology related matters, business continuity and financial reporting risk.
4 unchanged sentences
The BAC is responsible for oversight of the quality and integrity of our accounting, internal controls and financial reporting practices, including independent auditor selection, evaluation and review, and oversight of the internal audit function.
+Added: The BRC and the BAC jointly oversee practices and policies related to cybersecurity and receive regular reports from management throughout the year on cybersecurity and related risks.
The Management Development and Compensation Committee is responsible for oversight of risk related to our compensation policies and practices and other human capital matters such as succession and culture.
−Removed: The Corporate Responsibility Committee assists the Board in its oversight of any matters that may present reputational or ESG risk to us, and the Nominating/Corporate Governance Committee assists the Board in its oversight of our corporate governance framework and the annual self-evaluation of the Board.
+Added: The Nominating/Corporate Governance Committee assists the Board in its oversight of our corporate governance framework and the annual self-evaluation of the Board, and the Corporate Responsibility Committee assists the Board in its oversight of any matters that may present reputational or ESG risk to us.
+Added: The Corporate Responsibility Committee shares oversight of specific ESG-related matters with other Board Committees and meets jointly with the Management Development and Compensation Committee on the Company's human capital management and culture and with the BRC on ESG-related regulatory and policy risks.
Risk assessment and risk management are the responsibility of our management.
1 unchanged sentence
Membership of these committees is reviewed regularly to ensure the appropriate personnel are engaged in the risk management process.
−Removed: Four primary management committees have been established to provide a comprehensive framework for risk management.
−Removed: 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”).
+Added: Three primary management committees have been established to provide a comprehensive framework for risk management.
+Added: 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.
37 unchanged sentences
Arcola borrows funds through the General Collateral Finance Repo service offered by the FICC, with FICC acting as the central counterparty.
−Removed: In addition, Arcola borrows funds through direct repurchase agreements.
+Added: In addition, Arcola may borrow funds through direct repurchase agreements.
To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements.
5 unchanged sentences
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 December 31, 2022 compared to the same period in 2021, and our counterparties did not materially alter any requirements, including required haircuts, related to the collateral we pledge under repurchase agreements and interest rate swaps during the year ended December 31, 2022.
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement balances outstanding for the periods presented:
13 unchanged sentences
December 31, 2020 65,528,297 64,825,239 210,484 —
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
The following table provides information on our repurchase agreements and other secured financing by maturity date at December 31, 2022.
12 unchanged sentences
Total $ 59,762,597 4.30 % 100.0 %
−Removed: (1) Approximately 2% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.
+Added: (1) Less than 1% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.
+Added: We also finance our investments in residential mortgage loans through the issuance of securitization transactions sponsored by our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) under the Onslow Bay private-label securitization program.
The table below presents our outstanding debt balances and associated weighted average rates and days to maturity at December 31, 2022:
5 unchanged sentences
Other secured financing 250,000 7.07 % 7.20 % 545
−Removed: 903,255 2.86 % 3.50 % 1,644
Debt issued by securitization vehicles (2)
4 unchanged sentences
(1) Determined based on estimated weighted-average lives of the underlying debt instruments.
−Removed: (2) Includes financing under credit facilities.
(2) Non-recourse to Annaly.
Excess Liquidity
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
Our primary source of liquidity is the availability of unencumbered assets which may be provided as collateral to support additional funding needs.
4 unchanged sentences
The following table also provides the carrying amount of our encumbered and unencumbered financial assets at December 31, 2022:
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Assets Unencumbered Assets Total
3 unchanged sentences
Agency mortgage-backed securities 57,893,285 3,881,181 61,774,466
−Removed: 55,933,623 5,086,790 61,020,413
Credit risk transfer securities 606,700 390,857 997,557
4 unchanged sentences
MSR 684,703 1,063,506 1,748,209
−Removed: Interests in MSR — 69,316 69,316
−Removed: Corporate debt, held for investment 1,463,480 505,511 1,968,991
Other assets (3)
3 unchanged sentences
(2) Includes assets transferred or pledged to securitization vehicles.
−Removed: (3) Includes commercial real estate investments held for sale and interests in certain joint ventures.
+Added: (3) 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.
11 unchanged sentences
Residential mortgage loans (3)
−Removed: Corporate debt, held for investment (5)
Total liquid assets $ 68,675,895
4 unchanged sentences
(2) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the Consolidated Statements of Financial Condition.
−Removed: (3) Excludes securitized Agency mortgage-backed securities of consolidated VIEs carried at fair value of $0.6 billion.
(3) Excludes securitized residential mortgage loans transferred or pledged to consolidated VIEs carried at fair value of $9.1 billion.
−Removed: (5) Excludes unpledged second lien loans.
−Removed: (6) Denominator is computed based on the carrying amount of encumbered and unencumbered financial assets, excluding assets transferred or pledged to securitization vehicles and certain assets of disposal group held for sale of $6.1 billion.
+Added: (4) Denominator is computed based on the carrying amount of encumbered and unencumbered financial assets, excluding assets transferred or pledged to securitization vehicles, of $9.2 billion.
Maturity Profile
We consider the profile of our assets, liabilities and derivatives when managing both liquidity risk as well as investment/market risk employing a measurement of both the maturity gap and interest rate sensitivity gap.
−Removed: We determine the amount of liquid
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
−Removed: assets that are required to be held by monitoring several liquidity metrics.
+Added: We determine the amount of liquid assets that are required to be held by monitoring several liquidity metrics.
We utilize several modeling techniques to analyze our current and potential obligations including the expected cash flows from our assets, liabilities and derivatives.
7 unchanged sentences
Unlike the calculation of maturity gap, interest rate sensitivity gap includes the effect of our interest rate swaps.
−Removed: A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities.
+Added: A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
+Added: interest-rate sensitive liabilities.
A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets.
4 unchanged sentences
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.
−Removed: The interest rate sensitivity of our assets and liabilities, excluding assets and liabilities of the disposal group held for sale and corporate loans held for sale, in the following table at December 31, 2021 could vary substantially based on actual prepayment experience.
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
+Added: The interest rate sensitivity of our assets and liabilities in the following table at December 31, 2022 could vary substantially based on actual prepayment experience.
Months 3-12 Months More than 1 Year to 3 Years 3 Years and Over Total
7 unchanged sentences
Residential mortgage loans (principal) — — — 1,910,604 1,910,604
−Removed: Corporate debt (principal) — — 264,786 1,755,389 2,020,175
Total loans — — — 1,910,604 1,910,604
25 unchanged sentences
The stresses applied include market-wide and firm-specific stresses.
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Liquidity Management Policies
We utilize a comprehensive liquidity policy structure to inform our liquidity risk management practices including monitoring and measurement, along with well-defined key risk indicators.
−Removed: Both quantitative and qualitative targets are utilized to measure the ongoing stability and condition of the liquidity position, and include the level and composition of unencumbered assets, as sustainability of the funding composition under stress conditions.
+Added: Both quantitative and qualitative targets are utilized to measure the ongoing stability and condition of the liquidity position, and include the level and composition of unencumbered assets, as well as the sustainability of the funding composition under stress conditions.
We also monitor early warning metrics designed to measure the quality and depth of liquidity sources based upon both company-specific and market conditions.
The metrics assist in assessing our liquidity conditions and are integrated into our escalation protocol.
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
Investment/Market Risk Management
3 unchanged sentences
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.
−Removed: 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.
+Added: 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 the scheduled cessation of 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.
11 unchanged sentences
Actual results could differ materially from these estimates.
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Change in Interest Rate (1)
21 unchanged sentences
Actual results could differ materially from these estimates.
−Removed: (2) Scenarios include Residential Securities, commercial real estate investments, corporate debt, repurchase agreements, other secured financing and interest rate swaps.
+Added: (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.
−Removed: (3) Scenarios include Residential Securities, residential mortgage loans, MSR and derivative instruments.
+Added: (3) Scenarios include securities, residential mortgage loans, MSR and derivative instruments.
(4) NAV represents book value of equity.
1 unchanged sentence
Key risk parameters have been established to specify our credit risk appetite.
−Removed: We seek to manage credit risk by making investments which conform within the firm’s specific investment policy parameters and optimize risk-return attributes.
+Added: We seek to manage credit risk by making investments which conform to the firm’s specific investment policy parameters and optimize risk-return attributes.
While we do not expect to encounter credit risk in our Agency mortgage-backed securities, we face credit risk on the non-Agency mortgage-backed securities and CRT securities in our portfolio.
−Removed: In addition, we are also exposed to credit risk on
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
−Removed: residential mortgage loans, commercial real estate investments and corporate debt.
+Added: In addition, we are also exposed to credit risk on residential mortgage loans and commercial real estate investments.
MSR values may also be impacted through reduced servicing fees and higher costs to service the underlying mortgage loans due to borrower performance.
14 unchanged sentences
Residential mortgage loans (1)
+Added: 13.9 % 10.4 %
Mortgage servicing rights 2.2 % 0.7 %
3 unchanged sentences
(1) Includes assets transferred or pledged to securitization vehicles.
−Removed: (2) Net of unamortized origination fees.
(2) Excludes commercial real estate assets held for sale as of December 31, 2021.
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Counterparty Risk Management
11 unchanged sentences
Additionally, ALCO has oversight of our counterparty exposure.
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
The following table summarizes our exposure to counterparties by geography at December 31, 2022:
11 unchanged sentences
Operational risk may arise from internal or external sources including human error, fraud, systems issues, process change, vendors, business interruptions and other external events.
−Removed: Model risk considers potential errors with a model’s results due to uncertainty in model parameters and inappropriate methodologies used.
−Removed: The result of these risks may include financial loss and reputational damage.
We manage operational risk through a variety of tools including policies and procedures that cover topics such as business continuity, personal conduct, cybersecurity and vendor management.
−Removed: Other tools include testing, including disaster recovery testing;
+Added: Other tools include Risk and Control Self Assessment (“RCSA”) testing, including disaster recovery/testing;
systems controls, including access controls;
−Removed: training, including cybersecurity awareness training;
+Added: training, including phishing exercises and cybersecurity awareness training;
and monitoring, which includes the use of key risk indicators.
+Added: Our Operational Risk team conducts a disaster recovery exercise on an annual basis.
+Added: Cyber security-related threats are addressed in tabletop exercises managed by the Cybersecurity Committee and business disruption events are addressed in tabletop exercises managed by the Operational Risk team.
+Added: The results of these tabletop exercises are reported to management.
Employee-level lines of defense against operational risk include proper segregation of incompatible duties, activity-level internal controls over financial reporting, the empowerment of business units to identify and mitigate operational risk sources, testing by our internal audit staff, and our overall governance framework.
−Removed: We have established a Cybersecurity Committee to help mitigate cybersecurity risks.
+Added: Operational Risk Management responsibilities are overseen by the ERC.
+Added: The ERC is responsible for supporting the Operating Committee in the implementation, ongoing monitoring, and evaluation of the effectiveness of the enterprise-wide risk management framework.
+Added: This oversight authority includes review of the strategies, policies, and practices established by management to identify, assess, measure, and manage enterprise-wide risk.
+Added: Members of the Operational Risk Management team participate in the Cybersecurity Committee established to help mitigate cybersecurity risks.
The role of the committee is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, oversee our Cybersecurity Incident Response Plan and engage third parties to conduct periodic penetration testing.
+Added: The Head of Information Technology Infrastructure is responsible for continuously reporting to the Cybersecurity Committee throughout the year regarding cybersecurity and related risks.
+Added: Our Chief Technology Officer and
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
+Added: Head of Information Technology Infrastructure are members of multiple industry associations that discuss industry threats, challenges and solutions to cybersecurity issues.
Our cybersecurity risk assessment includes an evaluation of cyber risk related to sensitive data held by third parties on their systems.
The Cybersecurity Committee periodically reports to the ERC and the relevant Board committees.
−Removed: There is no assurance that these efforts will effectively mitigate cybersecurity risk and mitigation efforts are not an assurance that no cybersecurity incidents will occur.
+Added: Our internal audit department determines whether our cybersecurity program and information security practices align with relevant portions of the National Institute of Standards and Technology (“NIST”) framework.
+Added: There is no assurance that our efforts will effectively mitigate cybersecurity risk and mitigation efforts are not an assurance that no cybersecurity incidents will occur.
We currently maintain cybersecurity insurance, however, there is no assurance that our current policy will cover all cybersecurity breaches or our related losses, or that we will be able to continue to maintain cybersecurity insurance in the future.
13 unchanged sentences
We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act, and we seek to continue to meet the requirements for this exemption from registration.
−Removed: The determination that we qualify for this
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
−Removed: exemption from registration depends on various factual matters and circumstances.
+Added: The determination that we qualify for this exemption from registration depends on various factual matters and circumstances.
Accordingly, in conjunction with our legal department, we closely monitor our compliance with Section 3(c)(5)(C) within our risk management program.
7 unchanged sentences
While we disagree with the CFTC’s position that mortgage REITs that use swaps as part of their business model fall within the statutory definition of a CPO, we have submitted a claim for the relief set forth in the no-action relief entitled “No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts” and believe we meet the criteria for such relief set forth therein.
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Critical Accounting Estimates
6 unchanged sentences
Residential Securities
−Removed: The Company carries its residential securities at estimated fair value.
+Added: We carry residential securities at estimated fair value.
There is an active market for our Agency mortgage-backed securities, CRT securities and non-Agency mortgage-backed securities.
11 unchanged sentences
for further information.
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
Residential Mortgage Loans
−Removed: The Company has elected to account for its Residential Mortgage Loans at fair value.
+Added: We elected to account for Residential Mortgage Loans at fair value.
There is an active market for the residential whole loans in which we invest.
9 unchanged sentences
for further information.
−Removed: The Company has elected to account for its MSR at fair value.
−Removed: The market for mortgage servicing rights is considered less active and transparent compared to securities.
+Added: We elected to account for MSR at fair value.
+Added: The market for MSR is considered less active and transparent compared to securities.
As such fair value estimates for our investment in MSR are obtained from models, which use significant unobservable inputs in their valuations.
2 unchanged sentences
Model valuations are then compared to valuations obtained from third party pricing providers.
−Removed: Management reviews the valuations received from third party pricing providers and uses them as a point of comparison to modeled values.
+Added: Management reviews the valuations received from
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
+Added: third party pricing providers and uses them as a point of comparison to modeled values.
The valuation of MSR requires significant judgment by management and the third party pricing providers.
4 unchanged sentences
Interest Rate Swaps
−Removed: The Company is required to account for its derivative assets and liabilities at fair value, which may or may not be cleared through a derivative clearing organization.
+Added: 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.
+Added: We value uncleared derivatives using internal models with prices compared to counterparty marks.
Judgments and Uncertainties:
−Removed: We use the overnight indexed swap (“OIS”) curve as an input to value substantially all of our uncleared interest rate swaps.
−Removed: We believe using the OIS curve, which reflects the interest rate typically paid on cash collateral, enables us to most accurately determine the fair value of uncleared interest rate swaps.
+Added: We use the overnight indexed swap (“OIS”) curve, the SOFR curve, or SOFR forward rates as an input to value substantially all of our uncleared interest rate swaps.
Consistent with market practice, we exchange collateral (also called margin) based on the fair values of our interest rate swaps.
9 unchanged sentences
Gains or losses on sales of Residential Securities are recorded on trade date based on the specific identification method.
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
Judgments and Uncertainties:
5 unchanged sentences
Adjustments are made for actual prepayment activity as it relates to calculating the effective yield.
−Removed: 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 7.
+Added: 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 7 for further information.
Consolidation of Variable Interest Entities
−Removed: The Company is required to determine if it is required to consolidate entities in which it holds a variable interest.
+Added: We are required to determine if it is required to consolidate entities in which it holds a variable interest.
Judgments and Uncertainties:
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Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities.
−Removed: Average interest bearing liabilities reflects the average balances during the period.
+Added: 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.
3 unchanged sentences
Average interest earning assets reflects the average amortized cost of our investments during the period.
−Removed: Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).
−Removed: Basis Point (“bp”)
+Added: Average yield on interest earning assets (excluding PAA) is a non-GAAP financial measure that is calculated using annualized interest income (excluding PAA).
+Added: Basis Point (“bp” or “bps”)
One hundredth of one percent, used in expressing differences in interest rates.
36 unchanged sentences
Its goals include the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices and fraud.
−Removed: Commercial Mortgage-Backed Security
+Added: Commercial Mortgage-Backed Security (“CMBS” or “Commercial Securities”)
Securities collateralized by a pool of mortgages on commercial real estate in which all principal and interest from the mortgages flow to certificate holders in a defined sequence or manner.
31 unchanged sentences
Earnings available for distribution (“EAD”) and Earnings available for distribution Per Average Common Share
−Removed: 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) 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.
−Removed: Earnings available for distribution per average common share is calculated by dividing earnings available for distribution by average basic common shares for the period.
+Added: 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.
+Added: 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).
68 unchanged sentences
Management’s Discussion and Analysis
+Added: Interests in MSR
+Added: Represents agreements to purchase all, or a component of, net servicing cash flows.
Interest Rate Risk
29 unchanged sentences
The rate banks charge each other for short-term Eurodollar loans.
−Removed: LIBOR is frequently used as the base for resetting rates on floating-rate securities and the floating-rate legs of interest rate swaps.The United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.
+Added: LIBOR is frequently used as the base for resetting rates on floating-rate securities and the floating-rate legs of interest rate swaps.
+Added: The United Kingdom Financial Conduct Authority, which regulates LIBOR, announced that all LIBOR tenors relevant to us will cease to be published or will no longer be representative after June 30, 2023.
Liquidity Risk
8 unchanged sentences
An interest rate swap contract structure with pre-defined, market agreed terms, developed by SIFMA and ISDA with the purpose of promoting liquidity and simplified administration.
+Added: ANNALY CAPITAL MANAGEMENT, INC.
+Added: AND SUBSIDIARIES
+Added: Management’s Discussion and Analysis
Monetary Policy
2 unchanged sentences
A security representing a direct interest in a pool of mortgage loans.
−Removed: The pass-through issuer or servicer collects the payments on the loans in the pool and “passes
−Removed: ANNALY CAPITAL MANAGEMENT, INC.
−Removed: AND SUBSIDIARIES
−Removed: Management’s Discussion and Analysis
−Removed: through” the principal and interest to the security holders on a pro rata basis.
+Added: The pass-through issuer or servicer collects the payments on the loans in the pool and “passes through” the principal and interest to the security holders on a pro rata basis.
Mortgage Loan
7 unchanged sentences
Net interest margin represents our interest income less interest expense divided by average interest earning assets.
−Removed: 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.
+Added: 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.
−Removed: Net interest spread (excluding PAA) represents the average yield on interest earning assets (excluding PAA) less the average economic cost of interest bearing liabilities.
+Added: 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”)
24 unchanged sentences
A securitization structure where a GSE or other entity “passes” the amount collected from the borrowers every month to the investor, after deducting fees and expenses.
−Removed: A collection of mortgage loans assembled by an originator or master servicer as the basis for a security.
−Removed: In the case of Ginnie Mae, Fannie Mae, or Freddie Mac mortgage pass-through securities, pools are identified by a number assigned by the issuing agency.
ANNALY CAPITAL MANAGEMENT, INC.
1 unchanged sentence
Management’s Discussion and Analysis
+Added: A collection of mortgage loans assembled by an originator or master servicer as the basis for a security.
+Added: In the case of Ginnie Mae, Fannie Mae, or Freddie Mac mortgage pass-through securities, pools are identified by a number assigned by the issuing agency.
The amount by which the price of a security exceeds its principal amount.
7 unchanged sentences
The estimated rate at which mortgage borrowers will pay off the mortgages that underlie an MBS.
−Removed: The indicative interest rate on loans that banks quote to their best commercial customers.
Primary Market
Market for offers or sales of new bonds by the issuer.
+Added: The indicative interest rate on loans that banks quote to their best commercial customers.
Principal and Interest
16 unchanged sentences
For the party on the other end of the transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
+Added: Residential Credit Securities
+Added: Refers to CRT securities and non-Agency mortgage-backed securities.
Residential Securities
23 unchanged sentences
Target Assets
−Removed: Includes Agency mortgage-backed securities, to-be-announced forward contracts, CRT securities, MSR, non-Agency mortgage-backed securities, residential mortgage loans, commercial real estate investments, and corporate debt.
+Added: Includes Agency mortgage-backed securities, to-be-announced forward contracts, CRT securities, MSR, non-Agency mortgage-backed securities, residential mortgage loans, and commercial real estate investments.
Tangible Economic Return
3 unchanged sentences
Annaly and certain of its direct and indirect subsidiaries have made separate joint elections to treat these subsidiaries as TRSs.
−Removed: To-Be-Announced Securities (“TBAs”)
+Added: To-Be-Announced (“TBA”) Securities
A contract for the purchase or sale of a mortgage-backed security to be delivered at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date but does not include a specified pool number and number of pools.
48 unchanged sentences
Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.