ANNALY CAPITAL MANAGEMENT INC 10-K

ITEM 9A. CONTROLS AND PROCEDURES Our management, including our Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO), reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act) as of the end of the period covered by this report. Based on that review and evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed, (1) were effective in ensuring that information required to be disclosed by Annaly in reports it files or submits under the Securities Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure and (2) were effective in ensuring that information required to be disclosed by Annaly in reports it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. There have been no changes in our internal controls over financial reporting that occurred during the three months ended December 31, 2022 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. Management’s Annual Report On Internal Control Over Financial Reporting Management of Annaly is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act. Our internal control over financial reporting is a process designed by, or under the supervision of, Annaly’s CEO and CFO and effected by the Annaly’s board of directors, management and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that: • pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of Annaly; • provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of Annaly are being made only in accordance with authorizations of management and directors of Annaly; and • provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of Annaly’s assets that could have a material effect on the consolidated financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. As a result, even systems determined to be effective can provide only reasonable assurance regarding the preparation and presentation of financial statements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the 90 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. Annaly’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2022. In making this assessment, the Company’s management used criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission’s (“COSO”) Internal Control-Integrated Framework (2013). Based on the Annaly’s management’s evaluation under the framework in Internal Control—Integrated Framework (2013), Annaly’s management concluded that its internal control over financial reporting was effective as of December 31, 2022. Annaly’s independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on Annaly’s internal control over financial reporting, which is included herein. 91 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Annaly Capital Management, Inc. Opinion on Internal Control Over Financial Reporting We have audited Annaly Capital Management, Inc. and Subsidiaries’ internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Annaly Capital Management, Inc. and Subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on the COSO criteria. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated statements of financial condition as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and our report dated February 16, 2023 expressed an unqualified opinion thereon. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP New York, NY February 16, 2023 92 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES ITEM 9B. OTHER INFORMATION None. ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS Not applicable. 93 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES PART III ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE The information required by Item 10 as to our directors is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022. The information regarding our executive officers required by Item 10 appears in Part I of this Form 10-K. The information required by Item 10 as to our compliance with Section 16(a) of the Securities Exchange Act of 1934 is incorporated by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022. We have adopted a Code of Business Conduct and Ethics within the meaning of Item 406(b) of Regulation S-K. This Code of Business Conduct and Ethics applies to our principal executive officer, principal financial officer and principal accounting officer. This Code of Business Conduct and Ethics is publicly available on our website at www.annaly.com. We intend to satisfy the disclosure requirements regarding amendments to, or waivers from, certain provisions of this Code of Business Conduct and Ethics by posting on our website. The information regarding certain matters pertaining to our corporate governance required by Item 407(c)(3), (d)(4) and (d)(5) of Regulation S-K is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after December 31, 2022. ITEM 11. EXECUTIVE COMPENSATION The information required by Item 11 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS Equity Compensation Plan Information On May 20, 2020, at our 2020 Annual Meeting of Stockholders, our stockholders approved the 2020 Equity Incentive Plan. The 2020 Equity Incentive Plan authorizes us to grant options, stock appreciation rights, dividend equivalent rights, or other share-based awards, including restricted shares up to an aggregate of 31,250,000 shares, subject to adjustments for any awards that were outstanding under our 2010 Equity Incentive Plan (the “Prior Incentive Plan,” together with the 2020 Equity Incentive Plan, the “Incentive Plans”) on the effective date of the 2020 Equity Incentive Plan and subsequently expire, terminate, or are surrendered or forfeited. Since the adoption of the 2020 Equity Incentive Plan, no further awards have been made under the Prior Incentive Plan, although existing awards remained effective. The following table provides information as of December 31, 2022 concerning shares of our common stock authorized for issuance under the Incentive Plans. (a) (b) (c) Plan Category Number of securities to be issued upon exercise of outstanding options, warrants and rights Weighted-average exercise price of outstanding options, warrants and rights Number of securities remaining available for future issuance under the Incentive Plans (excluding securities in column ‘a’) Equity compensation plans approved by security holders — $ — 29,447,507 Equity compensation plans not approved by security holders — — — Total — $ — 29,447,507 Information with respect to security ownership of certain beneficial owners and management is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022. 94 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE The information required by Item 13 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022. ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES The information required by Item 14 is incorporated herein by reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2022. 95 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES PART IV ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES (a) Documents filed as part of this report: 1. Financial Statements. See Index to Financial Statements below. 2. Schedules to Financial Statements. See Index to Financial Statements below All financial statement schedules not included have been omitted because they are either inapplicable or the information required is provided in our Financial Statements and Notes thereto. 3. Exhibits. See Exhibit Index below. EXHIBIT INDEX Exhibit Number Exhibit Description 3.1 Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-32913) filed August 5, 1997). 3.2 Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-3 (Registration Statement 333-74618) filed June 12, 2002). 3.3 Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed August 3, 2006). 3.4 Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.4 of the Registrant’s Quarterly Report on Form 10-Q filed May 7, 2008). 3.5 Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed June 23, 2011). 3.6 Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed May 23, 2019). 3.7 Articles of Amendment to the Articles of Incorporation of the Registration (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed September 23, 2022). 3.8 Articles of Amendment to the Articles of Incorporation of the Registration (incorporated by reference to Exhibit 3.2 of the Registrant's Current Report on Form 8-K filed September 23, 2022). 3.9 Articles Supplementary designating the Registrant’s 6% Series B Cumulative Convertible Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on 8-K filed April 10, 2006). 3.10 Articles Supplementary designating the Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed May 16, 2012). 3.11 Articles Supplementary designating the Registrant’s 7.50% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed September 13, 2012). 3.12 Articles Supplementary designating the Registrant’s 7.625% Series E Cumulative Redeemable Preferred Stock, liquidation preference $25.00 (incorporated by reference to Exhibit 3.12 to the Registrant’s Registration Statement on Form 8-A filed July 12, 2016). 3.13 Articles Supplementary reclassifying the Registrant’s 6% Series B Cumulative Convertible Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.13 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017). 3.14 Articles Supplementary designating the Registrant’s 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.14 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017). 96 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES 3.15 Articles Supplementary reclassifying and designating (1) 7,412,500 authorized but unissued shares of the Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares of undesignated Common Stock; (2) 650,000 authorized but unissued shares of the Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of undesignated Common Stock; and (3) 3,400,000 authorized but unissued shares of the Registrant’s 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of undesignated Common Stock. (incorporated by reference to Exhibit 3.15 of the Registrant’s Quarterly Report on Form 10-Q filed November 3, 2017). 3.16 Articles Supplementary designating Annaly’s 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.16 to the Registrant’s Registration Statement on Form 8-A filed January 10, 2018). 3.17 Articles Supplementary reclassifying and designating (i) 11,500,000 authorized but unissued shares of the Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares of Registrant’s undesignated common stock and (ii) 5,000,000 authorized but unissued shares of Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of Registrant’s undesignated common stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Quarterly Report on Form 10-Q filed August 3, 2018). 3.18 Form of Articles Supplementary designating Annaly’s 8.125% Series H Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.17 to the Registrant’s Registration Statement on Form 8-A filed September 7, 2018). 3.19 Articles Supplementary reclassifying and designating 2,200,000 authorized but unissued shares of the Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares of undesignated Common Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed June 3, 2019). 3.20 Articles Supplementary designating Annaly’s 6.750% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.20 to the Registrant’s Registration Statement on Form 8-A filed June 26, 2019). 3.21 Articles Supplementary reclassifying and designating 7,000,000 authorized but unissued shares of Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of Registrant’s undesignated common stock (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed July 22, 2019). 3.22 Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland effective on January 4, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed January 5, 2021). 3.23 Amended and Restated Bylaws of the Registrant, December 8 , 2022 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed December 9 , 2022). 4.1 Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-32913) filed September 17, 1997). 4.2 Specimen Preferred Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-3 (Registration No. 333-74618) filed on December 5, 2001). 4.3 Specimen Series F Preferred Stock Certificate (incorporated by reference to Exhibit 4.8 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017). 4.4 Specimen Series G Preferred Stock Certificate (incorporated by reference to Exhibit 4.9 to the Registrant’s Registration Statement on Form 8-A filed January 10, 2018). 4.5 Specimen Series I Preferred Stock Certificate (incorporated by reference to Exhibit 4.7 to the Registrant’s Registration Statement on Form 8-A filed June 26, 2019). 4.6 Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed February 12, 2010). 4.7 Indenture, dated as of February 1, 2019, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.7 to the Registrant’s Current Report on Form S-3 filed February 1, 2019). 4.8 Supplemental Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed February 12, 2010). 4.9 Second Supplemental Indenture, dated as of May 14, 2012, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form 8-K filed May 14, 2012). 97 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES 4.10 Description of Securities. † 10.1 Form of Master Repurchase Agreement (incorporated by reference to Exhibit 10.7 to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-32913) filed August 5, 1997). 10.2 Registrant’s 2010 Equity Incentive Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed June 1, 2010).* 10.3 Registrant’s Deferred Compensation Plan for Directors (incorporated by reference to Exhibit 10.5 to the Registrant’s Annual Report on Form 10-K filed February 23, 2017).* 10.4 Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed March 20, 2017). 10.5 2020 Equity Incentive Plan (incorporated herein by reference to Annex A to the Registrant’s proxy statement dated April 8, 2020).* 10.6 Form of Deferred Stock Unit Award for Directors (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed May 21, 2020).* 10.7 Annaly Capital Management, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to the Registrant’s Current Report on Form 8-K filed July 1, 2020).* 10.8 Form of 2020 Performance Stock Unit Award (incorporated by reference to Exhibit 10.2 to the Registrant’s Current Report on Form 8-K filed July 1, 2020).* 10.9 Form of 2020 Restricted Stock Unit Award (incorporated by reference to Exhibit 10.3 to the Registrant’s Current Report on Form 8-K filed July 1, 2020).* 10.10 Form of 2022 Performance Stock Unit Award (incorporated by reference to Exhibit 10.10 to the Registrant’s Annual Report on Form 10-K filed February 18, 2022.* 10.11 Form of 2022 Restricted Stock Unit Award (inc or porated by reference to Ex hibit 10.11 to the Registrant ’ s Annual R eport on Form 10-K filed Febr uary 18, 2022. * 10.12 Form of 2023 Performance Stock Unit Award.*† 10.13 Form of 2023 Restrictive Stock Unit Award.*† 21.1 Subsidiaries of Registrant. † 23.1 Consent of Ernst & Young LLP. † 31.1 Certification of David L. Finkelstein, Chief Executive Officer and President (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. † 31.2 Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. † 32.1 Certification of David L. Finkelstein, Chief Executive Officer and President (Principal Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. † 32.2 Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. † 101.INS XBRL The instance document does not appear in the interactive data file because its Extensible Business Reporting Language (XBRL) tags are embedded within the Inline XBRL document. The following documents are formatted in Inline XBRL: (i) Consolidated Statements of Financial Condition at December 31, 2022 and 2021; (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended December 31, 2022, 2021 and 2020; (iii) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2022, 2021 and 2020; (iv) Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020; and (v) Notes to Consolidated Financial Statements. 101.SCH XBRL Taxonomy Extension Schema Document † 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document † 101.DEF XBRL Additional Taxonomy Extension Definition Linkbase Document Created† 101.LAB XBRL Taxonomy Extension Label Linkbase Document † 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document † 104 The cover page for the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2022 (formatted in Inline XBRL and contained in Exhibit 101). * Exhibit Numbers 10.2, 10.3, 10.5, 10.6, 10.7, 98 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES 10.8, 10.9, 10.10, 10.11 are management contracts or compensatory plans required to be filed as Exhibits to this Form 10-K. † Submitted electronically herewith. 99 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES ITEM 16. FORM 10-K SUMMARY None. 100 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Page Report of Independent Registered Public Accounting Firm (PCAOB ID: 42 ) F- 1 Consolidated Financial Statements as of December 31, 2022 and 2021 and for the Years Ended December 31, 2022, 2021 and 2020 Consolidated Statements of Financial Condition F- 3 Consolidated Statements of Comprehensive Income (Loss) F- 4 Consolidated Statements of Stockholders’ Equity F- 5 Consolidated Statements of Cash Flows F- 6 Notes To Consolidated Financial Statements Note 1. Description of Business F- 7 Note 2. Basis of Presentation F- 7 Note 3. Significant Accounting Policies F- 8 Note 4. Financial Instruments F- 11 Note 5. Securities F- 11 Note 6. Loans F- 15 Note 7. Mortgage Servicing Rights F- 17 Note 8. Variable Interest Entities F- 18 Note 9. S ale of Commercial Real Estate Business F- 20 Note 10. Sale of Middle Market Lending Portfolio F- 20 Note 1 1 . Derivative Instruments F- 21 Note 1 2 . Fair Value Measurements F- 26 Note 1 3 . Goodwill and Intangible Assets F- 29 Note 1 4 . Secured Financing F- 29 Note 15. Capital Stock F- 31 Note 16. Long-Term Stock Incentive Plan F- 32 Note 1 7 . Interest Income and Interest Expense F- 33 Note 1 8 . Net Income (Loss) Per Common Share F- 34 Note 1 9 . Income Taxes F- 34 Note 20 . Risk Management F- 35 Note 21. Related Party Transactions F- 35 Note 2 2 . Lease Commitments and Con tingencies F- 36 Note 23. Subsequent Events F- 37 101 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Annaly Capital Management, Inc. Opinion on the Financial Statements We have audited the accompanying consolidated statements of financial condition of Annaly Capital Management, Inc. and Subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 16, 2023 expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. F-1 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Valuation of mortgage servicing rights Description of the Matter The Company invests in servicing related assets comprised of mortgage servicing rights (“MSR”) totaling $1.7 billion as of December 31, 2022 as included in Note 7 to the consolidated financial statements. The Company records MSR at fair value on a recurring basis with changes in fair value recognized in the statement of comprehensive income (loss). These fair value estimates are based on valuation techniques used to estimate future cash flows that incorporate significant unobservable assumptions, which include discount rates, prepayment rates and servicing costs. Auditing the valuation of MSR is complex and required the use of a specialist due to the high degree of judgement in the assumptions made by management which are unobservable in nature. Additionally, selecting and applying audit procedures to address the estimation uncertainty involves auditor subjectivity and industry-specific knowledge of MSR, including the current market conditions considered by a market participant. How We Addressed the Matter in Our Audit We obtained an understanding, evaluated and tested the Company’s processes and the design and operating effectiveness of internal controls addressing the valuation of MSR, comprising management’s governance over the functionality of the discounted cash flow model utilized to estimate fair value; management’s review of the completeness and accuracy of the significant assumptions used in the discounted cash flow model (i.e., discount rates, prepayment rates and servicing costs); management’s comparison of the assumptions used to independent third-party data; and management’s evaluation of the internal fair value mark to third-party independent valuation firms’ ranges, as well as their evaluation of the competence and objectivity of those third-party independent valuation firms, to assess the reasonableness of the fair values developed by the Company. To test the valuation of MSR, our audit procedures included, among others, evaluating the Company’s valuation techniques used to estimate future cash flows, validating the accuracy and completeness of model objective inputs by agreeing these inputs to the Company’s underlying records and third-party data, evaluating the Company’s model, and testing the assumptions used by management by comparing them to current industry, market and economic trends. We involved our valuation specialists to assist in our evaluation of the Company’s valuation techniques and the assumptions used by management, and to independently develop a range of fair values for the MSR. We compared the assumptions made by management and management’s estimate of fair value to the assumptions and fair value ranges developed by management’s valuation specialists and our independent ranges to assess management’s estimates of fair value. We also assessed the competence and objectivity of management’s independent valuation firms engaged to evaluate the reasonableness of the fair values developed by the Company. /s/ Ernst & Young LLP We have served as the Company’s auditor since 2012. New York, NY February 16, 2023 F-2 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share data) December 31, December 31, 2022 2021 Assets Cash and cash equivalents (includes pledged assets of $ 1,424,160 and $ 1,222,505 , respectively) (1) $ 1,576,714 $ 1,342,090 Securities (includes pledged assets of $ 60,660,121 and $ 56,675,447 , respectively) (2) 65,789,907 63,655,674 Loans, net (includes pledged assets of $ 1,653,464 and $ 2,462,776 , respectively) (3) 1,809,832 4,242,043 Mortgage servicing rights (includes pledged assets of $ 684,703 and $ — , respectively) 1,748,209 544,562 Interests in MSR — 69,316 Assets transferred or pledged to securitization vehicles 9,121,912 6,086,308 Assets of disposal group held for sale — 194,138 Derivative assets 342,064 170,370 Receivable for unsettled trades 575,091 2,656 Principal and interest receivable 637,301 234,983 Goodwill and intangible assets, net 16,679 24,241 Other assets 233,003 197,683 Total assets $ 81,850,712 $ 76,764,064 Liabilities and stockholders’ equity Liabilities Repurchase agreements $ 59,512,597 $ 54,769,643 Other secured financing 250,000 903,255 Debt issued by securitization vehicles 7,744,160 5,155,633 Participations issued 800,849 1,049,066 Liabilities of disposal group held for sale — 154,956 Derivative liabilities 204,172 881,537 Payable for unsettled trades 1,157,846 147,908 Interest payable 325,280 91,176 Dividends payable 412,113 321,142 Other liabilities 74,269 94,423 Total liabilities 70,481,286 63,568,739 Stockholders’ equity Preferred stock, par value $ 0.01 per share, 63,500,000 authorized, issued and outstanding, respectively 1,536,569 1,536,569 Common stock, par value $ 0.01 per share, 2,936,500,000 and 2,936,500,000 authorized, respectively, 468,309,810 and 364,934,065 issued and outstanding, respectively 4,683 3,649 Additional paid-in capital 22,981,320 20,324,780 Accumulated other comprehensive income (loss) ( 3,708,896 ) 958,410 Accumulated deficit ( 9,543,233 ) ( 9,653,582 ) Total stockholders’ equity 11,270,443 13,169,826 Noncontrolling interests 98,983 25,499 Total equity 11,369,426 13,195,325 Total liabilities and equity $ 81,850,712 $ 76,764,064 (1) Includes cash of consolidated Variable Interest Entities (“VIEs”) of $ 2.2 million and $ 16.2 million at December 31, 2022 and 2021, respectively. (2) Excludes $ 0.0 million and $ 44.2 million at December 31, 2022 and 2021, respectively, of agency mortgage-backed securities, $ 1.0 billion and $ 350.4 million at December 31, 2022 and 2021, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. (3) Includes $ 1.3 million and $ 2.3 million of residential mortgage loans held for sale at December 31, 2022 and 2021, respectively. See notes to consolidated financial statements. F-3 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) For The Years Ended December 31, 2022 2021 2020 Net interest income Interest income $ 2,778,887 $ 1,983,036 $ 2,229,625 Interest expense 1,309,735 249,243 899,112 Net interest income 1,469,152 1,733,793 1,330,513 Net servicing income Servicing and related income 246,926 69,018 94,190 Servicing and related expense 25,145 12,202 26,437 Net servicing income 221,781 56,816 67,753 Other income (loss) Net gains (losses) on investments and other ( 4,602,456 ) 120,958 358,489 Net gains (losses) on derivatives 4,859,174 807,730 ( 2,273,732 ) Loan loss (provision) reversal 20,660 145,066 ( 147,581 ) Business divestiture-related gains (losses) ( 40,258 ) ( 278,559 ) — Other, net 6,667 1,165 ( 31,442 ) Total other income (loss) 243,787 796,360 ( 2,094,266 ) General and administrative expenses Compensation and management fee 112,703 118,451 131,685 Other general and administrative expenses 50,026 67,563 90,510 Total general and administrative expenses 162,729 186,014 222,195 Income (loss) before income taxes 1,771,991 2,400,955 ( 918,195 ) Income taxes 45,571 4,675 ( 28,423 ) Net income (loss) 1,726,420 2,396,280 ( 889,772 ) Net income (loss) attributable to noncontrolling interests 1,095 6,384 1,391 Net income (loss) attributable to Annaly 1,725,325 2,389,896 ( 891,163 ) Dividends on preferred stock 110,623 107,532 142,036 Net income (loss) available (related) to common stockholders $ 1,614,702 $ 2,282,364 $ ( 1,033,199 ) Net income (loss) per share available (related) to common stockholders Basic $ 3.93 $ 6.40 $ ( 2.92 ) Diluted $ 3.92 $ 6.39 $ ( 2.92 ) Weighted average number of common shares outstanding Basic 411,348,484 356,856,520 353,664,860 Diluted 411,621,758 357,142,251 353,664,860 Other comprehensive income (loss) Net income (loss) $ 1,726,420 $ 2,396,280 $ ( 889,772 ) Unrealized gains (losses) on available-for-sale securities ( 8,204,542 ) ( 2,419,618 ) 2,012,878 Reclassification adjustment for net (gains) losses included in net income (loss) 3,537,236 3,693 ( 776,734 ) Other comprehensive income (loss) ( 4,667,306 ) ( 2,415,925 ) 1,236,144 Comprehensive income (loss) ( 2,940,886 ) ( 19,645 ) 346,372 Comprehensive income (loss) attributable to noncontrolling interests 1,095 6,384 1,391 Comprehensive income (loss) attributable to Annaly ( 2,941,981 ) ( 26,029 ) 344,981 Dividends on preferred stock 110,623 107,532 142,036 Comprehensive income (loss) attributable to common stockholders $ ( 3,052,604 ) $ ( 133,561 ) $ 202,945 See notes to consolidated financial statements. F-4 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands) For The Years Ended December 31, 2022 2021 2020 Preferred stock Beginning of period $ 1,536,569 $ 1,536,569 $ 1,982,026 Redemption — — ( 445,457 ) End of period $ 1,536,569 $ 1,536,569 $ 1,536,569 Common stock Beginning of period $ 3,649 $ 3,496 $ 3,575 Issuance 1,031 152 — Buyback of common stock — — ( 80 ) Stock-based award activity 3 1 — Direct purchase and dividend reinvestment — — 1 End of period $ 4,683 $ 3,649 $ 3,496 Additional paid-in capital Beginning of period $ 20,324,780 $ 19,761,304 $ 19,977,649 Issuance 2,634,969 552,063 ( 93 ) Buyback of common stock — — ( 209,338 ) Stock-based award activity 21,571 11,413 6,452 Redemption of preferred stock — — ( 14,543 ) Direct purchase and dividend reinvestment — — 1,177 End of period $ 22,981,320 $ 20,324,780 $ 19,761,304 Accumulated other comprehensive income (loss) Beginning of period $ 958,410 $ 3,374,335 $ 2,138,191 Unrealized gains (losses) on available-for-sale securities ( 8,204,542 ) ( 2,419,618 ) 2,012,878 Reclassification adjustment for net gains (losses) included in net income (loss) 3,537,236 3,693 ( 776,734 ) End of period $ ( 3,708,896 ) $ 958,410 $ 3,374,335 Accumulated deficit Beginning of period - unadjusted $ ( 9,653,582 ) $ ( 10,667,388 ) $ ( 8,309,424 ) Cumulative effect of change in accounting principle for credit losses — — ( 39,641 ) Beginning of period - adjusted ( 9,653,582 ) ( 10,667,388 ) ( 8,349,065 ) Net income (loss) attributable to Annaly 1,725,325 2,389,896 ( 891,163 ) Dividends declared on preferred stock (1) ( 110,623 ) ( 107,532 ) ( 142,036 ) Dividends and dividend equivalents declared on common stock and stock-based awards (1) ( 1,504,353 ) ( 1,268,558 ) ( 1,285,124 ) End of period $ ( 9,543,233 ) $ ( 9,653,582 ) $ ( 10,667,388 ) Total stockholder’s equity $ 11,270,443 $ 13,169,826 $ 14,008,316 Noncontrolling interests Beginning of period $ 25,499 $ 13,480 $ 4,327 Net income (loss) attributable to noncontrolling interests 1,095 6,384 1,391 Equity contributions from (distributions to) noncontrolling interests 72,389 5,635 7,762 End of period $ 98,983 $ 25,499 $ 13,480 Total equity $ 11,369,426 $ 13,195,325 $ 14,021,796 (1) Refer to the “Capital Stock” Note for dividends per share for each class of shares. See notes to consolidated financial statements. F-5 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) For The Years Ended December 31, 2022 2021 2020 Cash flows from operating activities Net income (loss) $ 1,726,420 $ 2,396,280 $ ( 889,772 ) Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities Amortization of premiums and discounts of investments, net 87,154 784,110 1,371,178 Amortization of securitized debt premiums and discounts and deferred financing costs ( 4,733 ) ( 6,620 ) ( 11,576 ) Depreciation, amortization and other noncash expenses 20,506 24,636 41,357 Net (gains) losses on investments and derivatives 109,443 ( 1,204,830 ) 1,707,366 Business divestiture-related (gains) losses 40,258 278,559 — Income (loss) from unconsolidated joint ventures ( 11,454 ) 12,181 7,072 Loan loss provision (reversal) ( 20,660 ) ( 145,066 ) 147,581 Payments on purchases of loans held for sale — ( 51,403 ) ( 147,833 ) Proceeds from sales and repayments of loans held for sale 4,597 90,020 168,716 Net receipts (payments) on derivatives 3,643,954 932,867 ( 1,958,131 ) Net change in Other assets ( 11,437 ) 31,044 249,778 Interest receivable ( 403,613 ) 32,926 159,320 Interest payable 233,753 ( 99,590 ) ( 285,219 ) Other liabilities ( 41,777 ) 1,725 ( 31,870 ) Net cash provided by (used in) operating activities 5,372,411 3,076,839 527,967 Cash flows from investing activities Payments on purchases of securities ( 45,474,466 ) ( 22,344,751 ) ( 32,676,856 ) Proceeds from sales of securities 25,055,929 11,670,321 52,639,778 Principal payments on securities 9,541,036 18,742,951 19,571,476 Payments on purchases and origination of loans ( 6,137,067 ) ( 7,715,200 ) ( 2,257,314 ) Proceeds from sales of loans 1,930,367 1,213,745 624,026 Principal payments on loans 1,562,308 2,610,912 2,222,500 Payments on purchases of MSR ( 1,009,349 ) ( 473,035 ) — Proceeds from sales of MSR 9,085 82,175 72,160 Payments on purchases of interests in MSR ( 4,913 ) ( 65,107 ) — Investments in real estate — ( 2,329 ) ( 7,450 ) Proceeds from sales of real estate — 53,910 149,600 Proceeds from reverse repurchase agreements 24,500,024 16,734,313 58,800,000 Payments on reverse repurchase agreements ( 24,500,024 ) ( 16,734,313 ) ( 58,800,000 ) Distributions in excess of cumulative earnings from unconsolidated joint ventures — 290 7,590 Proceeds from sale of equity securities — 6,957 — Cash acquired (paid) in asset acquisition — — 6,264 Net proceeds from business divestiture — 1,118,440 — Net cash provided by (used in) investing activities ( 14,527,070 ) 4,899,279 40,351,774 Cash flows from financing activities Proceeds from repurchase agreements and other secured financing 3,571,043,066 2,288,704,788 2,776,331,362 Payments on repurchase agreements and other secured financing ( 3,566,953,367 ) ( 2,298,775,005 ) ( 2,816,805,618 ) Proceeds from issuances of securitized debt 5,473,311 3,719,027 2,385,374 Principal payments on securitized debt ( 1,234,090 ) ( 1,716,196 ) ( 1,238,962 ) Payments on purchases of securitized debt ( 8,495 ) — — Payment of deferred financing cost — ( 9,279 ) ( 553 ) Net proceeds from stock offerings, direct purchases and dividend reinvestments 2,636,000 552,215 1,175 Redemptions of preferred stock — — ( 460,000 ) Proceeds from participations issued 1,908,204 1,847,821 38,741 Payments on repurchases of participations issued ( 1,973,666 ) ( 818,575 ) — Principal payments on participations issued ( 50,712 ) ( 23,374 ) — Net principal receipts (payments) on mortgages payable — ( 2,237 ) ( 60,980 ) Net contributions (distributions) from (to) noncontrolling interests 72,389 5,635 7,762 Net payments on share repurchase — — ( 209,418 ) Settlement of stock-based awards in satisfaction of withholding tax requirements ( 4,108 ) ( 2,830 ) — Dividends paid ( 1,519,249 ) ( 1,359,721 ) ( 1,475,650 ) Net cash provided by (used in) financing activities 9,389,283 ( 7,877,731 ) ( 41,486,767 ) Net (decrease) increase in cash and cash equivalents 234,624 98,387 ( 607,026 ) Cash and cash equivalents including cash pledged as collateral, beginning of period 1,342,090 1,243,703 1,850,729 Cash and cash equivalents including cash pledged as collateral, end of period $ 1,576,714 $ 1,342,090 $ 1,243,703 Supplemental disclosure of cash flow information Interest received $ 2,459,012 $ 2,701,381 $ 3,681,826 Dividends received $ — $ 51 $ 4,643 Interest paid (excluding interest paid on interest rate swaps) $ 866,829 $ 269,244 $ 1,166,977 Net interest received (paid) on interest rate swaps $ 15,621 $ ( 340,738 ) $ 296,621 Taxes received (paid) $ ( 492 ) $ ( 3,797 ) $ 1,515 Noncash investing and financing activities Receivable for unsettled trades $ 575,091 $ 2,656 $ 15,912 Payable for unsettled trades $ 1,157,846 $ 147,908 $ 884,069 Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment $ ( 4,667,306 ) $ ( 2,415,925 ) $ 1,236,144 Dividends declared, not yet paid $ 412,113 $ 321,142 $ 307,613 Derecognition of assets of consolidated VIEs $ 424,005 $ 3,075,961 $ 1,222,221 Derecognition of securitized debt of consolidated VIEs $ 391,928 $ 2,506,799 $ 1,141,311 Derecognition of mortgages payable $ — $ 314,485 $ — See notes to consolidated financial statements. F-6 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED December 31, 2022, 2021 and 2020 ________________________________________________________________________________________________________________________________ 1. DESCRIPTION OF BUSINESS Annaly Capital Management, Inc. (the “Company” or “Annaly”) is a Maryland corporation that commenced operations on February 18, 1997. The Company is a leading diversified capital manager with investment strategies across mortgage finance. The Company owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, credit risk transfer (“CRT”) securities, other securities representing interests in or obligations backed by pools of mortgage loans, residential mortgage loans and mortgage servicing rights (“MSR”). The Company’s principal business objective is to generate net income for distribution to its stockholders and optimize its returns through prudent management of its diversified investment strategies. The Company is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”). Prior to the closing of the Internalization (as defined in “Related Party Transactions” Note) on June 30, 2020, the Company was externally managed by Annaly Management Company LLC (the “Former Manager”). The Company’s three investment groups are primarily comprised of the following: Investment Groups Description Annaly Agency Group Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the Agency market, including Agency commercial mortgage-backed securities. Annaly Residential Credit Group Invests primarily in non-Agency residential whole loans and securitized products within the residential and commercial markets. Annaly Mortgage Servicing Rights Group Invests in MSR, which provide the right to service residential mortgage loans in exchange for a portion of the interest payments made on the loans. In April 2022, the Company announced that it had entered into a definitive agreement to sell substantially all of the assets that comprise the Annaly Middle Market Lending (“MML”) portfolio, including assets held on balance sheet as well as assets managed for third parties. The vast majority of these assets were legally transferred at the end of the third quarter of 2022 and the remaining assets were transferred by the end of the fourth quarter of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction. In March 2021, the Company announced that it had entered into a definitive agreement to sell and exit its Commercial Real Estate (“CRE”) business. During the year ended December 31, 2021, the platform and the significant majority of the assets were transferred with the remaining assets transferred by the end of the year ended December 31, 2022. Refer to the “Sale of Commercial Real Estate Business” Note for additional information. 2. BASIS OF PRESENTATION The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”). The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported balance sheet amounts and/or disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates. Certain line items in the Company’s Consolidated Statements of Cash Flows were aggregated to simplify presentation. Prior periods have been adjusted to conform to the current presentation. Beginning with the quarter ended March 31, 2022, in light of the continued growth of its mortgage servicing rights portfolio the Company enhanced its financial disclosures by separately reporting servicing income and servicing expense in its Consolidated Statements of Comprehensive Income (Loss). Servicing income and servicing expense were previously included within Other income (loss). As a result of this change, prior periods have been adjusted to conform to the current presentation. In addition, beginning with the quarter ended March 31, 2022, the Company consolidated certain line items in its Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation. Amounts previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined F-7 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements into a single line item titled Net gains (losses) on derivatives. Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings are combined into a single line item titled Net gains (losses) on investments and other. As a result of these changes, prior periods have been adjusted to conform to the current presentation. Reverse Stock Split On September 8, 2022, the Company announced that its Board had unanimously approved a reverse stock split of the Company’s common stock at a ratio of 1-for-4 (the “Reverse Stock Split”). The Reverse Stock Split was effective following the close of business on September 23, 2022 (the “Effective Time”). Accordingly, at the Effective Time, every four issued and outstanding shares of the Company’s common stock were converted into one share of the Company’s common stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares. The par value per share of the Company’s common stock remained unchanged at $ 0.01 per share after the Reverse Stock Split. Accordingly, for all historical periods presented, an amount equal to the par value of the reduced number of shares resulting from the Reverse Stock Split was reclassified from Common stock to Additional paid in capital in the Company’s Consolidated Statements of Financial Condition. All references made to share or per share amounts in the accompanying consolidated financial statements and applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split. 3. SIGNIFICANT ACCOUNTING POLICIES The Company’s significant accounting policies are described below or are included elsewhere in these notes to the consolidated financial statements. Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and transactions have been eliminated in consolidation. Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE. Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE. The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities” Note for further information. Equity Method Investments - For entities that are not consolidated, but where the Company has significant influence over the operating or financial decisions of the entity, the Company accounts for the investment under the equity method of accounting. In accordance with the equity method of accounting, the Company will recognize its share of earnings or losses of the investee in the period in which they are reported by the investee. The Company also considers whether there are any indicators of other-than-temporary impairment of joint ventures accounted for under the equity method. These investments are included in Other assets with income or loss included in Other, net. Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost, which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $ 1.4 billion and $ 1.2 billion at December 31, 2022 and December 31, 2021, respectively. Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to elect the FVO in order to simplify the accounting treatment for certain financial instruments. Items for which the FVO has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). For F-8 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements additional information regarding financial instruments for which the Company has elected the FVO see the table in the “Financial Instruments” Note. Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to estimate the fair value of certain financial instruments. Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they meet the offsetting criteria. Please see below and refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements. Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative Instruments” Note for further discussion. Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a model. Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date. Compensation expense for awards with market conditions is recognized irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards. Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities” Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not received is recognized as Interest receivable on the Consolidated Statements of Financial Condition. Interest income is presented as a separate line item on the Consolidated Statements of Comprehensive Income (Loss). Refer to the “Interest Income and Interest Expense” Note for further discussion. For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation of the effective yield. The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period. Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to yield made on a prospective basis. Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss). If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued. For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt, interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time and there is a sustained period of repayment performance by the borrower. Refer to the “Interest Income and Interest Expense” Note for further discussion on interest. F-9 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements The Company has made an accounting policy election not to measure an allowance for loans losses for accrued interest receivable. If interest receivable is deemed to be uncollectible or not collected within 90 days of its contractual due date for commercial loans or 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income. Any interest written off that is recovered is recognized as interest income. Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income. Income Taxes – The Company has elected to be taxed as a REIT and intends to comply with the provisions of the Code, with respect thereto. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. The Company and certain of its direct and indirect subsidiaries have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRSs”). As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon its taxable income. Refer to the “Income Taxes” Note for further discussion on income taxes. Recent Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). There were no recent ASUs that are expected to have a significant impact on the Company's consolidated financial statements when adopted or had a significant impact on the Company's consolidated financial statements upon adoption. F-10 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 4. FINANCIAL INSTRUMENTS The following table presents characteristics for certain of the Company’s financial instruments at December 31, 2022 and 2021. Financial Instruments (1) Balance Sheet Line Item Type / Form Measurement Basis December 31, 2022 December 31, 2021 Assets (dollars in thousands) Securities Agency mortgage-backed securities (2) Fair value, with unrealized gains (losses) through other comprehensive income $ 34,528,515 $ 59,939,383 Securities Agency mortgage-backed securities (3) Fair value, with unrealized gains (losses) through earnings 27,746,380 586,222 Securities Residential credit risk transfer securities Fair value, with unrealized gains (losses) through earnings 997,557 936,228 Securities Non-agency mortgage-backed securities Fair value, with unrealized gains (losses) through earnings 1,991,146 1,663,336 Securities Commercial real estate debt investments - CMBS Fair value, with unrealized gains (losses) through earnings 508,406 521,440 Securities Commercial real estate debt investments - credit risk transfer securities Fair value, with unrealized gains (losses) through earnings 17,903 9,065 Total securities 65,789,907 63,655,674 Loans, net Residential mortgage loans Fair value, with unrealized gains (losses) through earnings 1,809,832 2,272,072 Loans, net Residential mortgage loan warehouse facility Fair value, with unrealized gains (losses) through earnings — 980 Loans, net Corporate debt, held for investment Amortized cost — 1,968,991 Total loans, net 1,809,832 4,242,043 Interests in MSR Interest in net servicing cash flows Fair value, with unrealized gains (losses) through earnings — 69,316 Assets transferred or pledged to securitization vehicles Agency mortgage-backed securities Fair value, with unrealized gains (losses) through other comprehensive income — 589,873 Assets transferred or pledged to securitization vehicles Residential mortgage loans Fair value, with unrealized gains (losses) through earnings 9,121,912 5,496,435 Total assets transferred or pledged to securitization vehicles 9,121,912 6,086,308 Liabilities Repurchase agreements Repurchase agreements Amortized cost 59,512,597 54,769,643 Other secured financing Loans Amortized cost 250,000 903,255 Debt issued by securitization vehicles Securities Fair value, with unrealized gains (losses) through earnings 7,744,160 5,155,633 Participations issued Participations issued Fair value, with unrealized gains (losses) through earnings 800,849 1,049,066 (1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at cost. Interests in MSR are considered financial assets whereas directly held MSR are servicing assets or obligations. (2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities purchased prior to July 1, 2022. (3) Includes interest-only securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities. 5. SECURITIES The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed securities. All of the debt securities are classified as available-for-sale. Available-for-sale debt securities are carried at fair value, with changes in fair value recognized in other comprehensive income, unless the fair value option is elected in which case changes in fair value are recognized in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Effective July 1, 2022, the Company elected the fair value option for any newly purchased Agency mortgage-backed securities in order to simplify the accounting for these securities. Agency mortgage-backed securities purchased prior to July 1, 2022, are still classified as available-for-sale with changes in fair value recognized in other comprehensive income. During the year ended December 31, 2022, ($665.6) million of unrealized gains (losses) on Agency mortgage-backed securities purchased on or after July 1, 2022, were reported in Net gains (losses) on investments and other in the Company’s Consolidated Statements of Comprehensive Income (Loss). Transactions for regular-way securities are recorded on trade date, including to-be-announced (“TBA”) securities that meet the regular-way securities scope exception from F-11 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements derivative accounting. Gains and losses on disposals of securities are recorded on trade date based on the specific identification method. Impairment – Management evaluates available-for-sale securities where the fair value option has not been elected and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the security. Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss) as a securities loss provision and reflected as an allowance for credit losses on securities on the Consolidated Statements of Financial Condition, while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss). For the year ended December 31, 2021, the Company recognized a $ 0.4 million impairment on a commercial mortgage-backed security that it intended to sell. There was no impairment recognized for the years ended December 31, 2022 and 2020. When the fair value of a held-to-maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire cost basis of the security. Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”). Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis. TBA securities without intent to accept delivery (“TBA derivatives”) are accounted for as derivatives as discussed in the “Derivative Instruments” Note. CRT Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit risk from Fannie Mae and Freddie Mac to private investors. Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those issued in prime loan, prime jumbo loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations. Agency mortgage-backed securities, non-Agency mortgage-backed securities and residential CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio. Commercial Mortgage-Backed Securities (“Commercial Securities”) - The Company invests in Commercial Securities such as conduit, credit CMBS, single-asset single borrower and collateralized loan obligations. The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the year ended December 31, 2022: Agency Securities Residential Credit Securities Commercial Securities Total (dollars in thousands) Beginning balance January 1, 2022 $ 60,525,605 $ 2,599,564 $ 530,505 $ 63,655,674 Purchases 44,470,550 1,728,916 262,634 46,462,100 Sales and transfers ( 28,360,527 ) ( 573,571 ) ( 247,935 ) ( 29,182,033 ) Principal paydowns ( 8,942,437 ) ( 520,743 ) ( 4,375 ) ( 9,467,555 ) (Amortization) / accretion ( 53,880 ) 7,403 827 ( 45,650 ) Fair value adjustment ( 5,364,416 ) ( 252,866 ) ( 15,347 ) ( 5,632,629 ) Ending balance December 31, 2022 $ 62,274,895 $ 2,988,703 $ 526,309 $ 65,789,907 F-12 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that were carried at their fair value at December 31, 2022 and 2021: December 31, 2022 Principal / Notional Remaining Premium Remaining Discount Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Agency (dollars in thousands) Fixed-rate pass-through $ 63,232,479 $ 2,105,813 $ ( 1,003,225 ) $ 64,335,067 $ 62,060 $ ( 4,367,369 ) $ 60,029,758 Adjustable-rate pass-through 232,028 17,065 ( 85 ) 249,008 2,138 ( 16,759 ) 234,387 CMO 101,543 1,781 — 103,324 — ( 13,714 ) 89,610 Interest-only 1,824,339 438,295 — 438,295 153 ( 220,371 ) 218,077 Multifamily (1) 9,801,375 311,785 ( 1,021 ) 1,750,737 7,588 ( 84,160 ) 1,674,165 Reverse mortgages 28,478 3,379 — 31,857 — ( 2,959 ) 28,898 Total agency securities $ 75,220,242 $ 2,878,118 $ ( 1,004,331 ) $ 66,908,288 $ 71,939 $ ( 4,705,332 ) $ 62,274,895 Residential credit Credit risk transfer (2) $ 1,013,368 $ 6,790 $ ( 4,828 ) $ 1,015,330 $ 6,629 $ ( 24,402 ) $ 997,557 Alt-A 111,009 9 ( 5,048 ) 105,970 — ( 14,754 ) 91,216 Prime (3) 1,946,186 19,496 ( 17,375 ) 240,694 1,528 ( 44,352 ) 197,870 Subprime 202,304 — ( 32,188 ) 170,116 1,275 ( 15,078 ) 156,313 NPL/RPL 1,426,616 1,624 ( 15,500 ) 1,412,740 87 ( 95,673 ) 1,317,154 Prime jumbo (>=2010 vintage) (4) 5,717,558 37,260 ( 29,242 ) 272,623 1,685 ( 45,715 ) 228,593 Total residential credit securities $ 10,417,041 $ 65,179 $ ( 104,181 ) $ 3,217,473 $ 11,204 $ ( 239,974 ) $ 2,988,703 Total residential securities $ 85,637,283 $ 2,943,297 $ ( 1,108,512 ) $ 70,125,761 $ 83,143 $ ( 4,945,306 ) $ 65,263,598 Commercial Commercial securities $ 546,499 — $ ( 2,405 ) $ 544,094 $ — $ ( 17,785 ) $ 526,309 Total securities $ 86,183,782 $ 2,943,297 $ ( 1,110,917 ) $ 70,669,855 $ 83,143 $ ( 4,963,091 ) $ 65,789,907 December 31, 2021 Principal / Notional Remaining Premium Remaining Discount Amortized Cost Unrealized Gains Unrealized Losses Estimated Fair Value Agency (dollars in thousands) Fixed-rate pass-through $ 54,432,252 $ 3,008,185 $ ( 18,314 ) $ 57,422,123 $ 1,349,125 $ ( 474,643 ) $ 58,296,605 Adjustable-rate pass-through 305,211 1,965 ( 2,124 ) 305,052 16,223 ( 2 ) 321,273 CMO 114,533 1,888 — 116,421 5,277 — 121,698 Interest-only 1,912,415 456,683 — 456,683 428 ( 163,197 ) 293,914 Multifamily (1) 5,671,138 273,553 — 1,453,946 15,330 ( 16,563 ) 1,452,713 Reverse mortgages 36,807 3,550 — 40,357 — ( 955 ) 39,402 Total agency investments $ 62,472,356 $ 3,745,824 $ ( 20,438 ) $ 59,794,582 $ 1,386,383 $ ( 655,360 ) $ 60,525,605 Residential credit Credit risk transfer (2) $ 924,101 $ 8,754 $ ( 1,176 ) $ 927,555 $ 9,641 $ ( 968 ) $ 936,228 Alt-A 83,213 31 ( 17,133 ) 66,111 3,627 ( 251 ) 69,487 Prime (3) 323,062 9,841 ( 14,757 ) 268,117 10,853 ( 3,529 ) 275,441 Subprime 170,671 349 ( 16,111 ) 154,909 8,285 ( 118 ) 163,076 NPL/RPL 987,415 950 ( 1,698 ) 986,667 2,739 ( 5,968 ) 983,438 Prime jumbo (>=2010 vintage) (4) 299,783 5,680 ( 6,410 ) 172,598 4,272 ( 4,976 ) 171,894 Total residential credit securities $ 2,788,245 $ 25,605 $ ( 57,285 ) $ 2,575,957 $ 39,417 $ ( 15,810 ) $ 2,599,564 Total residential securities $ 65,260,601 $ 3,771,429 $ ( 77,723 ) $ 62,370,539 $ 1,425,800 $ ( 671,170 ) $ 63,125,169 Commercial Commercial securities $ 533,071 $ — $ ( 127 ) $ 532,944 $ 165 $ ( 2,604 ) $ 530,505 Total securities $ 65,793,672 $ 3,771,429 $ ( 77,850 ) $ 62,903,483 $ 1,425,965 $ ( 673,774 ) $ 63,655,674 (1) Principal/Notional amount includes $ 8.4 billion and $ 4.5 billion of Agency Multifamly interest-only securities as of December 31, 2022 and December 31, 2021, respectively. (2) Principal/Notional amount includes $ 0.0 million and $ 4.1 million of a CRT interest-only security as of December 31, 2022 and December 31, 2021, respectively. (3) Principal/Notional amount includes $ 1.7 billion and $ 50.0 million of Prime interest-only securities as of December 31, 2022 and December 31, 2021, respectively. (4) Principal/Notional amount includes $ 5.5 billion and $ 126.5 million of Prime Jumbo interest-only securities as of December 31, 2022 and December 31, 2021, respectively. F-13 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Investment Type (dollars in thousands) Fannie Mae $ 54,043,015 $ 48,404,991 Freddie Mac 8,174,080 10,880,033 Ginnie Mae 57,800 1,240,581 Total $ 62,274,895 $ 60,525,605 Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages. The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at December 31, 2022 and 2021, according to their estimated weighted average life classifications: December 31, 2022 December 31, 2021 Estimated Fair Value Amortized Cost Estimated Fair Value Amortized Cost Estimated weighted average life (dollars in thousands) Less than one year $ 247,921 $ 264,637 $ 253,129 $ 250,689 Greater than one year through five years 3,002,471 3,206,250 16,155,017 15,766,307 Greater than five years through ten years 55,593,990 59,658,578 45,470,212 45,102,607 Greater than ten years 6,419,216 6,996,296 1,246,811 1,250,936 Total $ 65,263,598 $ 70,125,761 $ 63,125,169 $ 62,370,539 The estimated weighted average lives of the Residential Securities at December 31, 2022 and 2021 in the table above are based upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or shorter than projected. The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at December 31, 2022 and 2021. December 31, 2022 December 31, 2021 Estimated Fair Value (1) Gross Unrealized Losses (1) Number of Securities (1) Estimated Fair Value (1) Gross Unrealized Losses (1) Number of Securities (1) (dollars in thousands) Less than 12 months $ 33,061,267 $ ( 3,448,120 ) 2,481 $ 22,828,156 $ ( 475,064 ) 571 12 Months or more 1,260,378 ( 266,686 ) 129 383,815 ( 10,960 ) 19 Total $ 34,321,645 $ ( 3,714,806 ) 2,610 $ 23,211,971 $ ( 486,024 ) 590 (1) Excludes interest-only mortgage-backed securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities. The decline in value of these securities is solely due to market conditions and not the quality of the assets. Substantially all of the Agency mortgage-backed securities have an actual or implied credit rating that is the same as that of the U.S. government. An impairment has not been recognized in earnings related to these investments because the decline in value is not related to credit quality, the Company currently has not made a decision to sell the securities nor is it more likely than not that the securities will be required to be sold before recovery. During the years ended December 31, 2022 and 2021, the Company disposed of $ 28.9 billion and $ 11.5 billion, respectively, of Residential Securities. The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the years ended December 31, 2022 and 2021, which is included in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Gross Realized Gains Gross Realized Losses Net Realized Gains (Losses) For the year ended (dollars in thousands) December 31, 2022 $ 66,587 $ ( 3,663,446 ) $ ( 3,596,859 ) December 31, 2021 $ 102,567 $ ( 105,646 ) $ ( 3,079 ) F-14 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 6. LOANS The Company invests in residential loans. Loans are classified as either held for investment or held for sale. Loans are eligible to be accounted for under the fair value option. If loans are elected under the fair value option, they are carried at fair value with changes in fair value recognized in earnings. Otherwise, loans held for investment are carried at cost less impairment and loans held for sale are accounted for at the lower of cost or fair value. Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of December 31, 2022 and 2021, the Company reported $ 1.8 billion and $ 2.3 billion, respectively, of loans for which the fair value option was elected. If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale. If loans are held for sale and the fair value option was not elected, they are accounted for at the lower of cost or fair value. Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company determines the fair value of loans held for sale on an individual loan basis. The carrying value of the Company’s residential loans held for sale was $ 1.3 million and $ 2.3 million at December 31, 2022 and 2021, respectively. Allowance for Losses – Prior to the sale of its corporate debt and commercial loan portfolios, the Company evaluated the need for a loss reserve on each of its loans classified as held-for investment and carried at amortized cost based upon estimated current expected credit losses. The Company recorded net loan loss (provisions) reversals of $ 20.7 million, $ 145.1 million and ($ 147.6 ) million for the years ended December 31, 2022, 2021 and 2020, respectively. As of December 31, 2022 and 2021, the Company’s loan loss allowance was $ 0 and $ 27.9 million, respectively. The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, for the year ended December 31, 2022: Residential Corporate Debt Total (dollars in thousands) Beginning balance January 1, 2022 $ 2,272,072 $ 1,968,991 $ 4,241,063 Purchases / originations 5,983,775 185,269 6,169,044 Sales and transfers (1) ( 6,106,109 ) ( 1,902,444 ) ( 8,008,553 ) Principal payments ( 111,589 ) ( 231,190 ) ( 342,779 ) Gains / (losses) (2) ( 220,130 ) ( 23,320 ) ( 243,450 ) (Amortization) / accretion ( 8,187 ) 2,694 ( 5,493 ) Ending balance December 31, 2022 $ 1,809,832 $ — $ 1,809,832 (1) Includes securitizations, syndications, transfers to securitization vehicles and corporate debt transfers to assets of disposal group held for sale and other assets. Includes transfer of residential loans to securitization vehicles with a carrying value of $ 6.1 billion during the year ended December 31, 2022. (2) Includes loan loss allowances. Residential The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts. The mortgage loans are secured by first liens on primarily one-to-four family residential properties. A subsidiary of the Company has engaged a third party to act as its custodian, agent and bailee for the purposes of receiving and holding certain documents, instruments and papers related to the residential mortgage loans it purchases. Pursuant to the Company’s custodial agreement, the custodian segregates and maintains continuous custody of all documents constituting the mortgage file with respect to each mortgage loan owned by the subsidiary in secure and fire resistant facilities and in a manner consistent with the standard of care employed by prudent mortgage loan document custodians. At or prior to the funding of any residential mortgage loan, the related seller, pursuant to the terms of our mortgage loan purchase agreement, must deliver to the custodian, the mortgage loan documents including the mortgage note, the mortgage and other related loan documents. In addition, a complete credit file for the related mortgage and borrower must be delivered to the subsidiary prior to the date of purchase. F-15 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles and excluding loan warehouse facilities, at December 31, 2022 and 2021: December 31, 2022 December 31, 2021 (dollars in thousands) Fair value $ 10,931,744 $ 7,768,507 Unpaid principal balance $ 12,247,346 $ 7,535,855 The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for December 31, 2022 and 2021 for these investments, excluding loan warehouse facilities: For the Years Ended December 31, 2022 December 31, 2021 (dollars in thousands) Interest income $ 410,195 $ 182,325 Net gains (losses) on disposal of investments (1) ( 12,842 ) ( 37,212 ) Net unrealized gains (losses) on instruments measured at fair value through earnings (1) ( 1,420,645 ) 19,545 Total included in net income (loss) $ ( 1,023,292 ) $ 164,658 (1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (loss). The following table provides the geographic concentrations based on the unpaid principal balances at December 31, 2022 and 2021 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles: Geographic Concentrations of Residential Mortgage Loans December 31, 2022 December 31, 2021 Property location % of Balance Property location % of Balance California 44.8 % California 50.2 % New York 10.3 % New York 10.9 % Florida 8.3 % Florida 6.1 % Texas 5.1 % All other (none individually greater than 5%) 32.8 % All other (none individually greater than 5%) 31.5 % Total 100.0 % 100.0 % The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at December 31, 2022 and 2021: December 31, 2022 December 31, 2021 Portfolio Range Portfolio Weighted Average Portfolio Range Portfolio Weighted Average (dollars in thousands) Unpaid principal balance $ 3 - $ 4,396 $ 489 $ 1 - $ 4,382 $ 513 Interest rate 2.00 % - 15.00 % 4.61 % 0.75 % - 9.24 % 4.04 % Maturity 7/1/2029 - 1/1/2063 10/6/2051 7/1/2029 - 12/1/2061 12/22/2050 FICO score at loan origination 588 - 831 759 604 - 831 762 Loan-to-value ratio at loan origination 5 % - 100 % 68 % 8 % - 103 % 66 % At December 31, 2022 and 2021, approximately 11 % and 16 %, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate. The Company participates in an arrangement that provides a residential mortgage loan warehouse facility to a third-party originator. The Company has elected to apply the fair value option to this lending facility in order to simplify the accounting and keep the accounting consistent with other residential credit financial instruments with similar characteristics. At December 31, 2022 and December 31, 2021, the fair value and carrying value of this warehouse facility was approximately $ 0.0 million and $ 1.0 million, respectively, and reported as Loans, net in the Consolidated Statements of Financial Condition. As of December 31, 2022, the lending facility was not on nonaccrual status nor past due. F-16 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Commercial As of December 31, 2021, commercial real estate loans were reported in Assets of disposal group held for sale in the Consolidated Statements of Financial Condition and classified as held for sale. Refer to the “Sale of Commercial Real Estate Business” Note for additional information on the transaction. Corporate Debt In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the “MML Portfolio”), to Ares Capital Management LLC (“Ares”). The vast majority of these assets were legally transferred to Ares at the end of the third quarter and the remaining assets were transferred by the end of the fourth quarter of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction. 7. MORTGAGE SERVICING RIGHTS MSR represent the rights and obligations associated with servicing pools of residential mortgage loans. The Company and its subsidiaries do not originate or directly service residential mortgage loans. Rather, these activities are carried out by duly licensed subservicers who perform substantially all servicing functions for the loans underlying the MSR. The Company generally intends to hold the MSR as investments and elected to account for all of its investments in MSR at fair value. As such, they are recognized at fair value on the accompanying Consolidated Statements of Financial Condition with changes in the estimated fair value presented as a component of Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Interests in MSR represent agreements to purchase all, or a component of, net servicing cash flows. A third party acted as a master servicer for the loans providing the net servicing cash flows represented by the Interests in MSR. The Company accounts for its Interests in MSR at fair value with change in fair value presented in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Cash flows received for Interests in MSR are recorded in Other, net in the Consolidated Statements of Comprehensive Income (Loss). The following table presents activity related to MSR and Interests in MSR for the years ended December 31, 2022 and 2021: Mortgage Servicing Rights December 31, 2022 December 31, 2021 (dollars in thousands) Fair value, beginning of period $ 544,562 $ 100,895 Purchases (1) 1,009,351 468,196 Transfers (2) 82,650 — Sales ( 9,084 ) ( 82,176 ) Change in fair value due to Changes in valuation inputs or assumptions (3) 205,463 120,879 Other changes, including realization of expected cash flows ( 84,733 ) ( 63,232 ) Fair value, end of period $ 1,748,209 $ 544,562 (1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable. (2) Transfers from Interests in MSR - Refer to the “Variable Interest Entities” Note for additional information. (3) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates. Interests in MSR December 31, 2022 December 31, 2021 (dollars in thousands) Beginning balance $ 69,316 $ — Purchases (1) 4,860 65,107 Transfers (2) ( 82,650 ) — Gain (loss) included in net income 8,474 4,209 Ending balance December 31, 2022 $ — $ 69,316 (1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable. (2) Transfers to MSR - Refer to the “Variable Interest Entities” Note for additional information F-17 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 8. VARIABLE INTEREST ENTITIES The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $ 1.0 billion at December 31, 2022. Assets of the VIEs may only be used to settle obligations of the VIEs. Creditors of the VIEs have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the VIEs. No gains or losses were recognized upon consolidation of existing VIEs. Interest income and expense are recognized using the effective interest method. Multifamily Securitization In March 2020, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-off balance of $ 0.5 billion and retained interest-only securities with a notional balance of $ 0.5 billion. At the inception of this arrangement, the Company determined that it was the primary beneficiary based upon its involvement in the design of this VIE and through the retention of a significant variable interest in the VIE. The Company elected the fair value option for the financial liabilities of this VIE in order to simplify the accounting; however, the financial assets were not eligible for the fair value option as it was not elected at purchase. During the year ended December 31, 2022, the Company deconsolidated the 2020 multifamily VIE since it sold all of its interest-only securities and no longer retains a significant variable interest in the entity. As a result of the deconsolidation of this VIE, the Company derecognized approximately $ 424.0 million of securities and approximately $ 391.9 million of debt issued by securitization vehicles and recognized a realized gain of $ 33.4 million, which is included in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Residential Securitizations The Company also invests in residential mortgage-backed securities issued by entities that are VIEs because they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties. The Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other commitments to these VIEs. See the “Securities” Note for further information on Residential Securities. OBX Trusts Residential securitizations are issued by entities generally referred to collectively as the “OBX Trusts.” These securitizations represent financing transactions which provide non-recourse financing to the Company that are collateralized by residential mortgage loans purchased by the Company. Residential securitizations closed during the year are included in the table below. Securitization Date of Closing Face Value at Closing (dollars in thousands) OBX 2022-NQM1 January 2022 $ 556,696 OBX 2022-INV1 January 2022 $ 377,275 OBX 2022-INV2 February 2022 $ 466,686 OBX 2022-NQM2 February 2022 $ 439,421 OBX 2022-INV3 March 2022 $ 330,823 OBX 2022-NQM3 March 2022 $ 315,843 OBX 2022-NQM4 May 2022 $ 457,285 OBX 2022-J1 May 2022 $ 389,334 OBX 2022-NQM5 June 2022 $ 390,775 OBX 2022-INV4 June 2022 $ 335,900 OBX 2022-NQM6 June 2022 $ 387,913 OBX 2022-J2 August 2022 $ 305,969 OBX 2022-NQM7 August 2022 $ 358,931 OBX 2022-NQM8 September 2022 $ 397,470 OBX 2022-INV5 November 2022 $ 326,226 OBX 2022-NQM9 December 2022 $ 359,380 As of December 31, 2022 and 2021, a total carrying value of $ 7.7 billion and $ 4.6 billion, respectively, of bonds were held by third parties and the Company retained $ 1.0 billion and $ 780.8 million, respectively, of mortgage-backed securities, which were eliminated in consolidation. The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that F-18 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements could be potentially significant to these VIEs. The Company has elected the fair value option for the financial assets and liabilities of these VIEs. Effective August 1, 2022, upon initial consolidation of new securitization entities, the Company elected to apply the measurement alternative for consolidated collateralized financing entities in order to simplify the accounting and valuation processes. The liabilities of these securitization entities are deemed to be more observable and are used to measure the fair value of the assets. During the years ended December 31, 2022 and 2021, the Company incurred $ 7.6 million and $ 5.6 million, respectively, of costs in connection with these securitizations that were expensed as incurred. The contractual principal amount of the OBX Trusts’ debt held by third parties was $ 9.0 billion and $ 4.6 billion at December 31, 2022 and 2021, respectively. During the years ended December 31, 2022 and 2021, the Company recorded $ 1.2 billion and ($ 69.4 ) million, respectively, of unrealized gains (losses) on debt held by third parties, which is reported in Net gains (losses) on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss). Although the residential mortgage loans have been sold for bankruptcy and state law purposes, the transfers of the residential mortgage loans to the OBX Trusts did not qualify for sale accounting and are reflected as intercompany secured borrowings that are eliminated upon consolidation. Credit Facility VIEs In connection with the sale of all of the assets that comprise the MML Portfolio, the credit facilities which provided financing for the Company’s corporate debt were paid-off and terminated during the year ended December 31, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction. MSR VIEs The Company owns variable interests in an entity that invests in MSR and has structured its operations, funding and capitalization into pools of assets and liabilities, each referred to as a “silo.” Owners of variable interests in a given silo are entitled to all of the returns and subjected to the risk of loss on the investments and operations of that silo and have no substantive recourse to the assets of any other silo. While the Company previously held 100 % of the voting interests in this entity, in August 2017, the Company sold 100 % of such interests, and entered into an agreement with the entity’s affiliated portfolio manager giving the Company the power over the silo in which it owns all of the beneficial interests. As a result, the Company is considered to be the primary beneficiary and consolidates this silo. The Company owned variable interests in entities that invested in Interests in MSR. These entities were VIEs because they did not have sufficient equity at risk to finance their activities and the Company was the primary beneficiary because it had power to remove the decision makers with or without cause and held substantially all of the variable interests in the entities. During the quarter ended September 30, 2022, the Company terminated its contracts previously classified as Interests in MSR on its Consolidated Statements of Financial Condition and purchased the underlying mortgage servicing rights. As a result, consolidated VIEs holding the Interests in MSR and related assets and liabilities were liquidated. No gain or loss was recognized upon deconsolidation. The underlying MSR were initially recognized at fair value and subsequent changes in fair value are recognized in earnings. See the “Mortgage Servicing Rights” Note and “Fair Value Measurements” Note for further information regarding MSR. The statements of financial condition of the Company’s VIEs, excluding the multifamily securitization, credit facility VIEs and OBX Trusts as the transfers of loans or securities did not meet the criteria to be accounted for as sales, that are reflected in the Company’s Consolidated Statements of Financial Condition at December 31, 2022 and 2021 are as follows: December 31, 2022 MSR VIE Assets (dollars in thousands) Cash and cash equivalents $ 2,239 Loans 1,293 Mortgage servicing rights 27 Other assets 1,238 Total assets $ 4,797 Liabilities Payable for unsettled trades $ 2,152 Other liabilities 1,409 Total liabilities $ 3,561 F-19 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements December 31, 2021 MSR VIE Assets (dollars in thousands) Cash and cash equivalents $ 16,187 Loans 2,347 Mortgage servicing rights 7,254 Interests in MSR 69,316 Other assets 10,406 Total assets $ 105,510 Liabilities Payable for unsettled trades $ 1,911 Other liabilities 14,582 Total liabilities $ 16,493 Corporate Debt Funds The Company managed parallel funds investing in senior secured first and second lien corporate loans (the “Fund Entities”). The Fund Entities were considered VIEs because the investors did not have substantive liquidation, kick-out or participating rights. The fees that the Company earned were not considered variable interests of the VIE. The Company was not the primary beneficiary of the Fund Entities and therefore did not consolidate the Fund Entities. The corporate loans in the Fund Entities were assets managed for third parties and were part of the MML Portfolio transferred to Ares during the three months ended June 30, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction. Residential Credit Fund The Company manages a fund investing in participations in residential mortgage loans. The residential credit fund is deemed to be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not considered equity at risk. The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the entity. As of December 31, 2022 and 2021 the Company had outstanding participating interests in residential mortgage loans of $ 0.8 billion and $ 1.0 billion, respectively. These transfers do not meet the criteria for sale accounting and are accounted for as secured borrowings, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations issued in the Consolidated Statements of Financial Condition. The Company elected to fair value the participations issued through earnings to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings. 9. SALE OF COMMERCIAL REAL ESTATE BUSINESS On March 25, 2021, the Company entered into a definitive agreement to sell substantially all of the assets that comprise its CRE business to Slate Asset Management L.P. and Slate Grocery REIT (together, “Slate”) for $ 2.33 billion. The transaction included equity interests, loan assets and associated liabilities, and CMBS (other than commercial CRTs). The Company also sold nearly all of the remaining CRE business assets that were not included in the transaction with Slate. Certain employees who primarily supported the CRE business joined Slate in connection with the sale. In connection with the execution of the definitive agreement to sell the CRE business, during the year ended December 31, 2021, the Company performed an assessment of goodwill, which was related to the Company’s 2013 acquisition of CreXus Investment Corp., and recognized an impairment of $ 71.8 million. During the year ended December 31, 2021, the Company reported Business divestiture-related gains (losses) of ($ 262.0 ) million, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill impairment as well as valuation adjustments resulting from classifying the CRE assets as held for sale and estimated transaction costs. As of December 31, 2022, the assets held for sale and the associated liabilities were transferred to Slate. 10. SALE OF MIDDLE MARKET LENDING PORTFOLIO In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by the MML business operated by the Company, as well as assets managed for third parties (collectively, the “MML Portfolio”), to Ares Capital Management LLC (“Ares”) for $ 2.4 billion. The Company’s loans, having an unpaid principal balance of $ 1.9 billion, were transferred to Ares for cash proceeds of $ 1.9 billion and a realized gain of $ 20.4 million was recorded during the year ended December 31, 2022. As of December 31, 2022, all loans were transferred to Ares. F-20 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 11. DERIVATIVE INSTRUMENTS Derivative instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA derivatives, options on TBA securities (“MBS options”), U.S. Treasury and Eurodollar futures contracts and certain forward purchase commitments. The Company may also enter into other types of mortgage derivatives such as interest-only securities, credit derivatives referencing the commercial mortgage-backed securities index and synthetic total return swaps. In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps, swaptions and futures contracts. The Company may also enter into TBA derivatives, MBS options and U.S. Treasury or Eurodollar futures contracts, certain forward purchase commitments and credit derivatives to economically hedge its exposure to market risks. The purpose of using derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders. These derivatives are subject to changes in market values resulting from changes in interest rates, volatility, Agency mortgage-backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives also creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative transactions, the amount of which may vary based on the market value and terms of the derivative contract. In the case of market agreed coupon (“MAC”) interest rate swaps, the Company may make or receive a payment at the time of entering into such interest rate swaps, which represents fair value of these swaps, to compensate for the out of market nature of such interest rate swaps. Subsequent changes in fair value from inception of these interest rate swaps are reflected within Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). Similar to other interest rate swaps, the Company may have to pledge cash or assets as collateral for the MAC interest rate swap transactions. In the event of a default by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in accordance with the terms of the derivative contracts. Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. In accordance with a clearing organization’s rulebook, the Company presents the fair value of centrally cleared interest rate swaps net of variation margin pledged or received under such transactions. At December 31, 2022 and 2021, ($ 3.2 ) billion and ($ 0.4 ) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value. Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk. In particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. The Company may have outstanding interest rate swap agreements where the floating leg is linked to the London Interbank Offered Rate (“LIBOR”), the overnight index swap rate or another index. Interest rate swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”). Uncleared interest rate swaps are fair valued using internal pricing models and compared to the counterparty market values. Centrally cleared interest rate swaps, including MAC interest rate swaps, are generally fair valued using the DCO’s market values. If an interest rate swap is terminated, the realized gain (loss) on the interest rate swap would be equal to the difference between the cash received or paid and fair value. Swaptions – Swaptions are purchased or sold to mitigate the potential impact of increases or decreases in interest rates. Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The Company’s swaptions are not centrally cleared. The premium paid or received for swaptions is reported as an asset or liability in the Consolidated Statements of Financial Condition. If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium received or paid. If the Company sells or exercises a swaption, the realized gain (loss) on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid. The fair value of swaptions are estimated using internal pricing models and compared to the counterparty market values. TBA Dollar Rolls – TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities. MBS Options – MBS options are generally options on TBA contracts, which help manage mortgage market risks and volatility while providing the potential to enhance returns. MBS options are over-the-counter traded instruments and those written on current-coupon mortgage-backed securities are typically the most liquid. MBS options are measured at fair value using internal pricing models and compared to the counterparty market values. F-21 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Futures Contracts – Futures contracts are derivatives that track the prices of specific assets or benchmark rates. Short sales of futures contracts help to mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains margin accounts which are settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing. Forward Purchase Commitments – The Company may enter into forward purchase commitments with counterparties whereby the Company commits to purchasing residential mortgage loans at a particular price, provided the residential mortgage loans close with the counterparties. The counterparties are required to deliver the committed loans on a “best efforts” basis. Credit Derivatives – The Company may enter into credit derivatives referencing a commercial mortgage-backed securities index, such as the CMBX index, and synthetic total return swaps. The table below summarizes fair value information about the Company’s derivative assets and liabilities at December 31, 2022 and 2021: Derivatives Instruments December 31, 2022 December 31, 2021 Assets (dollars in thousands) Interest rate swaps $ 33,006 $ — Interest rate swaptions 256,991 105,710 TBA derivatives 17,056 52,693 Futures contracts 33,179 9,028 Purchase commitments 1,832 1,779 Credit derivatives (1) — 1,160 Total derivative assets $ 342,064 $ 170,370 Liabilities Interest rate swaps $ 108,724 $ 747,036 TBA derivatives 69,270 3,916 Futures contracts 11,919 129,134 Purchase commitments 460 870 Credit derivatives (1) 13,799 581 Total derivative liabilities $ 204,172 $ 881,537 (1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $ 420.0 million and $ 400.0 million at December 31, 2022 and December 31, 2021, respectively, plus any coupon shortfalls on the underlying tranche. As of December 31, 2022 and 2021, the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA. F-22 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements The following table summarizes certain characteristics of the Company’s interest rate swaps at December 31, 2022 and 2021: December 31, 2022 Maturity Current Notional (1)(2) Weighted Average Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity (3) (dollars in thousands) 0 - 3 years $ 26,355,700 0.88 % 4.33 % 0.75 3 - 6 years 1,120,400 2.53 % 3.95 % 4.07 6 - 10 years 22,492,200 2.54 % 4.24 % 8.76 Greater than 10 years 2,309,000 3.49 % 4.26 % 22.93 Total / Weighted average $ 52,277,300 1.74 % 4.28 % 5.25 December 31, 2021 Maturity Current Notional (1)(2) Weighted Average Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity (3) (dollars in thousands) 0 - 3 years $ 32,709,300 0.25 % 0.06 % 1.10 3 - 6 years 2,780,000 0.21 % 0.07 % 3.46 6 - 10 years 9,118,000 1.43 % 0.13 % 9.05 Greater than 10 years 1,300,000 4.04 % 0.11 % 18.70 Total / Weighted average $ 45,907,300 0.59 % 0.08 % 3.32 (1) As of December 31, 2022, 17 %, 23 % and 60 % of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. As of December 31, 2021, 18 %, 53 % and 29 % of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. (2) There were no forward starting swaps at December 31, 2022 and December 31, 2021. (3) At December 31, 2022 and December 31, 2021, the weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed. The following table summarizes certain characteristics of the Company’s swaptions at December 31, 2022 and 2021: December 31, 2022 Current Underlying Notional Weighted Average Underlying Fixed Rate Weighted Average Underlying Floating Rate Weighted Average Underlying Years to Maturity Weighted Average Months to Expiration (dollars in thousands) Long pay $ 2,500,000 2.02 % 3M LIBOR 8.19 14.28 Long receive $ 750,000 1.57 % 3M LIBOR 11.07 12.82 December 31, 2021 Current Underlying Notional Weighted Average Underlying Fixed Rate Weighted Average Underlying Floating Rate Weighted Average Underlying Years to Maturity Weighted Average Months to Expiration (dollars in thousands) Long pay $ 4,050,000 2.00 % 3M LIBOR 9.65 19.50 Long receive $ 2,000,000 1.47 % 3M LIBOR 10.95 11.38 The following table summarizes certain characteristics of the Company’s TBA derivatives at December 31, 2022 and 2021: December 31, 2022 Purchase and sale contracts for derivative TBAs Notional Implied Cost Basis Implied Market Value Net Carrying Value (dollars in thousands) Purchase contracts $ 10,589,000 $ 10,675,739 $ 10,623,350 $ ( 52,389 ) Sale contracts ( 44,000 ) ( 44,849 ) ( 44,674 ) 175 Net TBA derivatives $ 10,545,000 $ 10,630,890 $ 10,578,676 $ ( 52,214 ) December 31, 2021 Purchase and sale contracts for derivative TBAs Notional Implied Cost Basis Implied Market Value Net Carrying Value (dollars in thousands) Purchase contracts $ 20,133,000 $ 20,289,856 $ 20,338,633 $ 48,777 F-23 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements The following table summarizes certain characteristics of the Company’s futures derivatives at December 31, 2022 and 2021: December 31, 2022 Notional - Long Positions Notional - Short Positions Weighted Average Years to Maturity (dollars in thousands) U.S. Treasury futures - 2 year $ — $ ( 8,518,400 ) 1.96 U.S. Treasury futures - 5 year — ( 5,803,400 ) 4.37 U.S. Treasury futures - 10 year and greater — ( 6,866,900 ) 8.15 Total $ — $ ( 21,188,700 ) 4.63 December 31, 2021 Notional - Long Positions Notional - Short Positions Weighted Average Years to Maturity (dollars in thousands) U.S. Treasury futures - 2 year $ — $ ( 7,509,200 ) 1.96 U.S. Treasury futures - 5 year — ( 5,644,900 ) 4.38 U.S. Treasury futures - 10 year and greater — ( 9,381,000 ) 6.84 Total $ — $ ( 22,535,100 ) 4.60 The Company presents derivative contracts on a gross basis in the Consolidated Statements of Financial Condition. Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty. The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in the Company’s Consolidated Statements of Financial Condition at December 31, 2022 and 2021, respectively. December 31, 2022 Amounts Eligible for Offset Gross Amounts Financial Instruments Cash Collateral Net Amounts Assets (dollars in thousands) Interest rate swaps, at fair value $ 33,006 $ ( 24,625 ) $ — $ 8,381 Interest rate swaptions, at fair value 256,991 — — 256,991 TBA derivatives, at fair value 17,056 ( 16,875 ) — 181 Futures contracts, at fair value 33,179 ( 2,414 ) — 30,765 Purchase commitments 1,832 — — 1,832 Liabilities Interest rate swaps, at fair value $ 108,724 $ ( 24,625 ) $ ( 1,251 ) $ 82,848 TBA derivatives, at fair value 69,270 ( 16,875 ) — 52,395 Futures contracts, at fair value 11,919 ( 2,414 ) ( 9,505 ) — Purchase commitments 460 — — 460 Credit derivatives 13,799 — ( 9,291 ) 4,508 December 31, 2021 Amounts Eligible for Offset Gross Amounts Financial Instruments Cash Collateral Net Amounts Assets (dollars in thousands) Interest rate swaptions, at fair value $ 105,710 $ — $ — $ 105,710 TBA derivatives, at fair value 52,693 ( 3,876 ) — 48,817 Futures contracts, at fair value 9,028 ( 9,028 ) — — Purchase commitments 1,779 — — 1,779 Credit derivatives 1,160 ( 516 ) — 644 Liabilities Interest rate swaps, at fair value $ 747,036 $ — $ ( 77,607 ) $ 669,429 TBA derivatives, at fair value 3,916 ( 3,876 ) ( 40 ) — Futures contracts, at fair value 129,134 ( 9,028 ) ( 120,106 ) — Purchase commitments 870 — — 870 Credit derivatives 581 ( 516 ) ( 65 ) — F-24 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements The effect of interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss) is as follows: Location on Consolidated Statements of Comprehensive Income (Loss) Net Interest Component of Interest Rate Swaps (1) Realized Gains (Losses) on Termination of Interest Rate Swaps (1) Unrealized Gains (Losses) on Interest Rate Swaps (1) For the years ended (dollars in thousands) December 31, 2022 $ 366,161 $ ( 266,427 ) $ 3,480,708 December 31, 2021 $ ( 276,142 ) $ ( 1,236,349 ) $ 2,198,486 December 31, 2020 $ ( 207,877 ) $ ( 1,917,628 ) $ ( 904,532 ) (1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). The effect of other derivative contracts in the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows: Year Ended December 31, 2022 Derivative Instruments Realized Gain (Loss) Unrealized Gain (Loss) Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives and Financial Instruments (dollars in thousands) Net TBA derivatives $ ( 2,729,866 ) $ ( 100,990 ) $ ( 2,830,856 ) Net interest rate swaptions ( 43,124 ) 195,084 151,960 Futures 3,825,072 141,366 3,966,438 Purchase commitments — 460 460 Credit derivatives 3,657 ( 12,927 ) ( 9,270 ) Total $ 1,278,732 Year Ended December 31, 2021 Derivative Instruments Realized Gain (Loss) Unrealized Gain (Loss) Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives and Financial Instruments (dollars in thousands) Net TBA derivatives $ ( 354,410 ) $ ( 47,332 ) $ ( 401,742 ) Net interest rate swaptions ( 78,431 ) 2,387 ( 76,044 ) Futures 683,534 ( 101,199 ) 582,335 Purchase commitments — 860 860 Credit derivatives 8,234 6,931 15,165 Total $ 120,574 Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange. Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the applicable agreement has a right to terminate the agreement in accordance with its provisions. The aggregate fair value of all derivative instruments with the aforementioned features were in a net asset position at December 31, 2022. F-25 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 12. FAIR VALUE MEASUREMENTS The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR that are accounted for at fair value. The fair value of a financial instrument and MSR is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP requires classification of financial instruments and MSR into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instrument and MSR fall within different levels of the hierarchy, the categorization is based on the lowest priority input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value on the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows: Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets. Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value. The Company designates its securities as trading, available-for-sale or held-to-maturity depending upon the type of security and the Company’s intent and ability to hold such security to maturity. Securities classified as available-for-sale and trading are reported at fair value on a recurring basis. The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the three-level fair value hierarchy, with the observability of inputs determining the appropriate level. Futures contracts are valued using quoted prices for identical instruments in active markets and are classified as Level 1. Residential Securities, interest rate swaps, swaptions and other derivatives are valued using quoted prices or internally estimated prices for similar assets using internal models. The Company incorporates common market pricing methods, including a spread measurement to the Treasury curve as well as underlying characteristics of the particular security including coupon, prepayment speeds, periodic and life caps, rate reset period and expected life of the security in its estimates of fair value. Fair value estimates for residential mortgage loans are generated by a discounted cash flow model and are primarily based on observable market-based inputs including discount rates, prepayment speeds, delinquency levels, and credit losses. Management reviews and indirectly corroborates its estimates of the fair value derived using internal models by comparing its results to independent prices provided by dealers in the securities and/or third party pricing services. Certain liquid asset classes, such as Agency fixed-rate pass-throughs, may be priced using independent sources such as quoted prices for TBA securities. Residential Securities, residential mortgage loans, interest rate swap and swaption markets, TBA derivatives and MBS options are considered to be active markets such that participants transact with sufficient frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of the Residential Securities, residential mortgage loans, interest rate swaps, swaptions, TBA derivatives and MBS options markets and the similarity of the Company’s securities to those actively traded enable the Company to observe quoted prices in the market and utilize those prices as a basis for formulating fair value measurements. Consequently, the Company has classified Residential Securities, residential mortgage loans, interest rate swaps, swaptions, TBA derivatives and MBS options as Level 2 inputs in the fair value hierarchy. The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying collateral. Consequently, commercial real estate debt investments carried at fair value are classified as Level 2. For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional information. The Company classifies its investments in MSR and Interests in MSR as Level 3 in the fair value measurements hierarchy. Fair value estimates for these investments are obtained from models, which use significant unobservable inputs in their valuations. These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including discount rates, prepayment rates, delinquency levels and costs to service. Model valuations are then compared to valuations obtained from third party pricing providers. Management reviews the valuations received from third party pricing providers and F-26 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements uses them as a point of comparison to modeled values. The valuation of MSR and Interests in MSR require significant judgment by management and the third party pricing providers. Assumptions used for which there is a lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s financial statements. The following tables present the estimated fair values of financial instruments and MSR measured at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during the periods presented. December 31, 2022 Level 1 Level 2 Level 3 Total Assets (dollars in thousands) Securities Agency mortgage-backed securities $ — $ 62,274,895 $ — $ 62,274,895 Credit risk transfer securities — 997,557 — 997,557 Non-Agency mortgage-backed securities — 1,991,146 — 1,991,146 Commercial mortgage-backed securities — 526,309 — 526,309 Loans Residential mortgage loans — 1,809,832 — 1,809,832 Mortgage servicing rights — — 1,748,209 1,748,209 Assets transferred or pledged to securitization vehicles — 9,121,912 — 9,121,912 Derivative assets Interest rate swaps — 33,006 — 33,006 Other derivatives 33,179 275,879 — 309,058 Total assets $ 33,179 $ 77,030,536 $ 1,748,209 $ 78,811,924 Liabilities Debt issued by securitization vehicles $ — $ 7,744,160 $ — $ 7,744,160 Participations issued — 800,849 — 800,849 Derivative liabilities Interest rate swaps — 108,724 — 108,724 Other derivatives 11,919 83,529 — 95,448 Total liabilities $ 11,919 $ 8,737,262 $ — $ 8,749,181 December 31, 2021 Level 1 Level 2 Level 3 Total Assets (dollars in thousands) Securities Agency mortgage-backed securities $ — $ 60,525,605 $ — $ 60,525,605 Credit risk transfer securities — 936,228 — 936,228 Non-Agency mortgage-backed securities — 1,663,336 — 1,663,336 Commercial mortgage-backed securities — 530,505 — 530,505 Loans Residential mortgage loans — 2,272,072 — 2,272,072 Residential mortgage loan warehouse facility — 980 — 980 Mortgage servicing rights — — 544,562 544,562 Interests in MSR — — 69,316 69,316 Assets transferred or pledged to securitization vehicles — 6,086,308 — 6,086,308 Derivative assets Other derivatives 9,028 161,342 — 170,370 Total assets $ 9,028 $ 72,176,376 $ 613,878 $ 72,799,282 Liabilities Debt issued by securitization vehicles $ — $ 5,155,633 $ — $ 5,155,633 Participations issued — 1,049,066 — 1,049,066 Derivative liabilities Interest rate swaps — 747,036 — 747,036 Other derivatives 129,134 5,367 — 134,501 Total liabilities $ 129,134 $ 6,957,102 $ — $ 7,086,236 F-27 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Qualitative and Quantitative Information about Level 3 Fair Value Measurements The Company considers unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements are described below. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently from changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply. For MSR and Interests in MSR, in general, increases in the discount, prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement. A decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in MSR and Interests in MSR, which in turn could result in a decline in the estimated fair value of MSR and Interests in MSR. Refer to the “Mortgage Servicing Rights” Note for additional information, including rollforwards. The table below presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR and Interests in MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments. December 31, 2022 Unobservable Input (1) / Range (Weighted Average) (2) Discount rate Prepayment rate Delinquency rate Cost to service MSR held directly 8.4 % - 10.7 % ( 9.7 %) 4.8 % - 8.1 % ( 5.4 %) 0.2 % - 4.5 % ( 1.3 %) $ 86 - $ 118 ($ 95 ) December 31, 2021 Unobservable Input (1) / Range (Weighted Average) (2) Discount rate Prepayment rate Delinquency rate Cost to service MSR held directly 3.3 % - 11.1 % ( 7.0 %) 7.3 % - 15.9 % ( 9.4 %) 0.2 % - 2.5 % ( 1.2 %) $ 90 - $ 103 ($ 96 ) Interests in MSR 8.4 % - 8.4 % ( 8.4 %) 5.0 % - 14.4 % ( 9.1 %) 0.0 % - 0.2 % ( 0.1 %) $ 78 - $ 84 ($ 81 ) (1) Represents rates, estimates and assumptions that the Company believes would be used by market participants when valuing these assets. (2) Weighted average discount rate computed based on the fair value of MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR. The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at December 31, 2022 and 2021. December 31, 2022 December 31, 2021 Carrying Value Fair Value Carrying Value Fair Value Financial assets (dollars in thousands) Loans Corporate debt, held for investment $ — $ — $ 1,968,991 $ 1,986,379 Financial liabilities Repurchase agreements $ 59,512,597 $ 59,512,597 $ 54,769,643 $ 54,769,643 Other secured financing 250,000 250,000 903,255 903,255 Corporate debt, held for investment is valued using Level 3 inputs. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information. The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered Level 2 fair value measurements. Long term other secured financing is valued using Level 2 inputs. F-28 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 13. GOODWILL AND INTANGIBLE ASSETS Goodwill The Company’s acquisitions are accounted for using the acquisition method if the acquisition is deemed to be a business. Under the acquisition method, net assets and results of operations of acquired companies are included in the consolidated financial statements from the date of acquisition. The purchase prices are allocated to the assets acquired, including identifiable intangible assets, and the liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. Conversely, any excess of the fair value of the net assets acquired over the purchase price is recognized as a bargain purchase gain. The Company tests goodwill for impairment on an annual basis or more frequently when events or circumstances may make it more likely than not that an impairment has occurred. If a qualitative analysis indicates that there may be an impairment, a quantitative analysis is performed. The quantitative impairment test for goodwill compares the fair value of a reporting unit with its carrying value, including goodwill. If the carrying value of a reporting unit exceeds its fair value, an impairment loss is recognized in amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit. At December 31, 2022 and 2021, there was no goodwill balance. Intangible assets, net Finite life intangible assets are amortized over their expected useful lives. As part of the Company’s management internalization transaction, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired assembled workforce of approximately $ 41.2 million based on the replacement cost of the employee base acquired by the Company. The following table presents the activity of finite lived intangible assets for the year ended December 31, 2022. Intangible Assets, net (dollars in thousands) Beginning balance January 1, 2022 $ 24,241 Impairment ( 4,157 ) Less: amortization expense ( 3,405 ) Ending balance December 31, 2022 $ 16,679 14. SECURED FINANCING Reverse Repurchase and Repurchase Agreements – The Company finances a significant portion of its assets with repurchase agreements. At the inception of each transaction, the Company assessed each of the specified criteria in ASC 860, Transfers and Servicing , and has determined that each of the financing agreements should be treated as a securing financing. The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. To mitigate credit exposure, the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in market value of these securities. Generally, the Company receives or posts collateral with a fair value approximately equal to or greater than the value of the secured financing. Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements meet the criteria to permit netting. The Company reports cash flows on repurchase agreements as financing activities and cash flows on reverse repurchase agreements as investing activities in the Consolidated Statements of Cash Flows. The Company had outstanding $ 59.5 billion and $ 54.8 billion of repurchase agreements with weighted average remaining maturities of 27 days and 52 days at December 31, 2022 and 2021, respectively. The Company has select arrangements with counterparties to enter into repurchase agreements for $ 1.8 billion with remaining capacity of $ 1.1 billion at December 31, 2022. F-29 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements At December 31, 2022 and 2021, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates: December 31, 2022 Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Residential Mortgage Loans Commercial Mortgage-Backed Securities Total Repurchase Agreements Weighted Average Rate (dollars in thousands) 1 day $ — $ — $ — $ — $ — $ — — % 2 to 29 days 30,244,050 193,069 524,432 200,931 263,711 31,426,193 4.27 % 30 to 59 days 21,200,770 149,733 632,673 — 124,390 22,107,566 4.18 % 60 to 89 days 4,410,473 — 782,905 — 68,647 5,262,025 4.59 % 90 to 119 days — 125,893 73,251 168,656 — 367,800 5.82 % Over 119 days (2) — — — 349,013 — 349,013 6.37 % Total $ 55,855,293 $ 468,695 $ 2,013,261 $ 718,600 $ 456,748 $ 59,512,597 4.29 % December 31, 2021 Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Residential Mortgage Loans Commercial Mortgage-Backed Securities (1) Total Repurchase Agreements Weighted Average Rate (dollars in thousands) 1 day $ — $ — $ — $ — $ — $ — — % 2 to 29 days 26,435,408 133,525 246,707 — 197,834 27,013,474 0.14 % 30 to 59 days 9,743,872 38,854 270,377 159,350 — 10,212,453 0.19 % 60 to 89 days 6,021,850 4,071 351,426 — — 6,377,347 0.17 % 90 to 119 days 4,812,345 — 12,573 — — 4,824,918 0.15 % Over 119 days (2) 5,711,448 — 96,283 345,651 188,069 6,341,451 0.27 % Total $ 52,724,923 $ 176,450 $ 977,366 $ 505,001 $ 385,903 $ 54,769,643 0.17 % (1) Includes commercial mortgage-backed securities held for sale. (2) No repurchase agreements had a remaining maturity over 1 year at December 31, 2022 and 2021. The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition at December 31, 2022 and 2021. Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments. December 31, 2022 December 31, 2021 Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements (dollars in thousands) Gross amounts $ — $ 59,512,597 $ — $ 54,769,643 Amounts offset — — — — Netted amounts $ — $ 59,512,597 $ — $ 54,769,643 Other Secured Financing - As of December 31, 2022, the Company had a $ 500 million committed credit facility to finance a portion of its MSR portfolio. Outstanding borrowings under this facility as of December 31, 2022 totaled $ 250.0 million with maturities ranging between one to three years . The weighted average rate of the advances was 7.07 % as of December 31, 2022. Borrowings are reported in Other secured financing in the Company’s Consolidated Statements of Financial Condition. Refer to the “Variable Interest Entities” Note for additional information on the Company’s other secured financing arrangements at December 31, 2021. Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $ 62.2 billion and $ 226.4 million, respectively, at December 31, 2022 and $ 59.2 billion and $ 160.8 million, respectively, at December 31, 2021. F-30 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 15. CAPITAL STOCK (A) Common Stock The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at December 31, 2022 and 2021. Shares authorized Shares issued and outstanding December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Par Value Common stock 2,936,500,000 2,936,500,000 468,309,810 364,934,065 $ 0.01 In December 2020, the Company announced that its Board authorized the repurchase of up to $ 1.5 billion of its outstanding common shares through December 31, 2021 (the “Prior Share Repurchase Program”). In January 2022, the Company announced that its Board authorized the repurchase of up to $ 1.5 billion of its outstanding shares of common stock through December 31, 2024 (the “Current Share Repurchase Program”). The Current Share Repurchase Program replaced the Prior Share Repurchase Program. During the years ended December 31, 2022 and 2021, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program. During the year ended December 31, 2022, the Company closed two public offerings for an aggregate original issuance of 50 million shares of common stock for aggregate proceeds of $ 1.31 billion before deducting offering expenses. In connection with each offering, the Company granted the underwriters a thirty-day option to purchase up to an additional 3.75 million shares of common stock, which the underwriters exercised in full in both instances, resulting in an additional $ 196.5 million in proceeds before deducting offering expenses for the year ended December 31, 2022. 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. On August 6, 2020, the Company entered into separate Amended and Restated Distribution Agency Agreements (as amended by Amendment No. 1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, and Amendment No. 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. LLC, Keefe, Bruyette & Woods, Inc., J.P. Morgan Securities LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”). Pursuant to the Sales Agreements, the Company may offer and sell shares of its common stock, having an aggregate offering price of up to $ 1.5 billion, from time to time through any of the Sales Agents (the “at-the-market sales program”). During the year ended December 31, 2022, under the at-the-market sales program, the Company issued 45.7 million shares for proceeds of $ 1.1 billion, net of commissions and fees. During the year ended December 31, 2021, under the at-the-market sales program, the Company issued 15.2 million shares for proceeds of $ 552.4 million, net of commissions and fees. The foregoing share amounts have been retroactively adjusted to reflect the effects of the Reverse Stock Split. (B) Preferred Stock The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at December 31, 2022 and 2021. In the event of a liquidation or dissolution of the Company, the Company’s then outstanding preferred stock takes precedence over the Company’s common stock with respect to payment of dividends and the distribution of assets. Shares Authorized Shares Issued And Outstanding Carrying Value Contractual Rate Earliest Redemption Date (1) Date At Which Dividend Rate Becomes Floating Floating Annual Rate December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 Fixed-to-floating rate Series F 28,800,000 28,800,000 28,800,000 28,800,000 696,910 696,910 6.95 % 9/30/2022 9/30/2022 3M LIBOR + 4.993 % Series G 17,000,000 17,000,000 17,000,000 17,000,000 411,335 411,335 6.50 % 3/31/2023 3/31/2023 3M LIBOR + 4.172 % Series I 17,700,000 17,700,000 17,700,000 17,700,000 428,324 428,324 6.75 % 6/30/2024 6/30/2024 3M LIBOR + 4.989 % Total 63,500,000 63,500,000 63,500,000 63,500,000 $ 1,536,569 $ 1,536,569 (1) Subject to the Company’s right under limited circumstances to redeem preferred stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change in control of the Company. F-31 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Each series of preferred stock has a par value of $ 0.01 per share and a liquidation and redemption price of $ 25.00 , plus accrued and unpaid dividends through their redemption date. Through December 31, 2022, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock. The Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Fixed-to-Floating Rate Cumulative Preferred Stock and Series I Fixed-to-Floating Rate Cumulative Preferred Stock rank senior to the common stock of the Company. On November 3, 2022, the Company’s Board of Directors approved a repurchase plan for all of its existing outstanding Preferred Stock (as defined below, the “Preferred Stock Repurchase Program”). Under the terms of the plan, the Company is authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of its 6.95 % Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $ 0.01 per share (the “Series F Preferred Stock”), (ii) 17,000,000 shares of its 6.50 % Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $ 0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of its 6.75 % Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $ 0.01 per share (the “Series I Preferred Stock”, and together with Series F Preferred Stock and Series G Preferred Stock, the “Preferred Stock”). The aggregate liquidation value of the Preferred Stock that may be repurchased by the Company pursuant to the Preferred Stock Repurchase Program, as of November 3, 2022, was approximately $ 1.6 billion. The Preferred Stock Repurchase Program became effective on November 3, 2022, and shall expire on December 31, 2024. No shares were repurchased to with respect to the Preferred Stock Repurchase Program during the year ended December 31, 2022. (C) Distributions to Stockholders The following table provides a summary of the Company’s dividend distribution activity for the periods presented: For the Years Ended December 31, 2022 December 31, 2021 (dollars in thousands, except per share data) Dividends and dividend equivalents declared on common stock and share-based awards $ 1,504,353 $ 1,268,558 Distributions declared per common share (1) $ 3.52 $ 3.52 Distributions paid to common stockholders after period end $ 412,113 $ 321,142 Distributions paid per common share after period end $ 0.88 $ 0.88 Date of distributions paid to common stockholders after period end January 31, 2023 January 31, 2022 Dividends declared to series F preferred stockholders $ 53,131 $ 50,040 Dividends declared per share of series F preferred stock (2) $ 1.845 $ 1.738 Dividends declared to series G preferred stockholders $ 27,624 $ 27,624 Dividends declared per share of series G preferred stock (2) $ 1.625 $ 1.625 Dividends declared to series I preferred stockholders $ 29,868 $ 29,868 Dividends declared per share of series I preferred stock (2) $ 1.688 $ 1.688 (1) For the year ended December 31, 2022, 86.5 % and 13.5 % of common stock dividend distributions of $ 3.52 per share was taxable as ordinary income and a return of capital, respectively. For the year ended December 31, 2021, 100 % of common stock dividend distributions of $ 3.49 per share were taxable as a return of capital. (2) For the year ended December 31, 2022, 100 % of the preferred stock dividend distributions per share were taxable as ordinary income. For the year ended December 31, 2021, 100 % of the preferred stock dividend distributions per share were taxable as a return of capital. 16. LONG-TERM STOCK INCENTIVE PLAN Employees, Directors and other service providers of the Company are eligible to participate in the Company’s 2020 Equity Incentive Plan (the “Plan”), which provides for equity-based compensation in the form of stock options, share appreciation rights, dividend equivalent rights, restricted shares, restricted stock units (“RSUs”), and other share-based awards. The Company has the ability to award up to an aggregate of 31,250,000 shares under the terms of the Plan, subject to adjustment for any awards that were outstanding under the Company’s 2010 Equity Incentive Plan (the “Prior Plan”, collectively the “Plans") on the effective date of the Plan and subsequently expire, terminate, or are surrendered or forfeited. No new awards are permitted to be made under the Prior Plan, although existing awards remain effective. Restricted Stock Units The Company grants RSUs (including RSUs subject to performance conditions (“PSUs”)) to employees, which are generally valued based on the closing price of the underlying shares on the date of grant. For RSUs that vest, the underlying shares of common stock are delivered (net of required withholding tax) as outlined in the applicable award agreements. PSUs are subject F-32 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements to the Company’s achievement of specified performance criteria and the number of awards that vest can range from zero to 150 % of the grant amount. Award agreements generally provide that vesting is accelerated in certain circumstances, such as death and disability. Delivery of the underlying shares of common stock, which generally occurs over a three-year period, is conditioned on the grantees satisfying certain vesting and other requirements outlined in the award agreements. The Company recognized equity-based compensation expense of $ 19.4 million for the year ended December 31, 2022. As of December 31, 2022, there was $ 20.9 million of total unrecognized compensation cost related to non-vested share-based compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.85 years. 17. INTEREST INCOME AND INTEREST EXPENSE Refer to the “Significant Accounting Policies” Note for details surrounding the Company’s accounting policy related to net interest income on securities and loans. The following table summarizes the interest income recognition methodology for Residential Securities: Interest Income Methodology Agency Fixed-rate pass-through (1) Effective yield (3) Adjustable-rate pass-through (1) Effective yield (3) Multifamily (1) Contractual Cash Flows CMO (1) Effective yield (3) Reverse mortgages (2) Prospective Interest-only (2) Prospective Residential credit CRT (2) Prospective Alt-A (2) Prospective Prime (2) Prospective Subprime (2) Prospective NPL/RPL (2) Prospective Prime jumbo (2) Prospective (1) Changes in fair value are recognized in Other comprehensive income (loss) on the accompanying Consolidated Statements of Comprehensive Income (Loss) for securities purchased prior to July 1, 2022. Effective July 1, 2022, changes in fair value are recognized in Net gains (losses) on investments and other on the accompanying Consolidated Statements of Comprehensive Income (Loss) for newly purchased securities. (2) Changes in fair value are recognized in Net gains (losses) on investments and other on the accompanying Consolidated Statements of Comprehensive Income (Loss). (3) Effective yield is recalculated for differences between estimated and actual prepayments and the amortized cost is adjusted as if the new effective yield had been applied since inception. The following presents the components of the Company’s interest income and interest expense for the years ended December 31, 2022, 2021 and 2020. For the Years Ended December 31, 2022 2021 2020 Interest income (dollars in thousands) Agency securities (1) $ 2,144,696 $ 1,484,354 $ 1,661,566 Residential credit securities 140,220 78,681 57,394 Residential mortgage loans (1) 410,229 182,359 170,259 Commercial investment portfolio (1) (2) 81,855 237,597 338,763 Reverse repurchase agreements 1,887 45 1,643 Total interest income $ 2,778,887 $ 1,983,036 $ 2,229,625 Interest expense Repurchase agreements 1,026,201 116,974 705,218 Debt issued by securitization vehicles 225,216 93,006 142,602 Participations issued 39,366 12,071 78 Other 18,952 27,192 51,214 Total interest expense 1,309,735 249,243 899,112 Net interest income $ 1,469,152 $ 1,733,793 $ 1,330,513 (1) Includes assets transferred or pledged to securitization vehicles. (2) Includes commercial real estate debt and preferred equity and corporate debt. F-33 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 18. NET INCOME (LOSS) PER COMMON SHARE The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income (loss) per share for the years ended December 31, 2022, 2021 and 2020. For the Years Ended December 31, 2022 December 31, 2021 December 31, 2020 (dollars in thousands, except per share data) Net income (loss) $ 1,726,420 $ 2,396,280 $ ( 889,772 ) Net income (loss) attributable to noncontrolling interests 1,095 6,384 1,391 Net income (loss) attributable to Annaly 1,725,325 2,389,896 ( 891,163 ) Dividends on preferred stock 110,623 107,532 142,036 Net income (loss) available (related) to common stockholders $ 1,614,702 $ 2,282,364 $ ( 1,033,199 ) Weighted average shares of common stock outstanding-basic 411,348,484 356,856,520 353,664,860 Add: Effect of stock awards, if dilutive 273,274 285,731 — Weighted average shares of common stock outstanding-diluted 411,621,758 357,142,251 353,664,860 Net income (loss) per share available (related) to common share Basic $ 3.93 $ 6.40 $ ( 2.92 ) Diluted $ 3.92 $ 6.39 $ ( 2.92 ) The computations of diluted net income (loss) per share available (related) to common share for the years ended December 31, 2022 and 2020 exclude 0.7 million and 1.0 million, respectively, of potentially dilutive restricted stock units and performance stock units because their effect would have been anti-dilutive. 19. INCOME TAXES For the year ended December 31, 2022 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its stockholders and meet certain other requirements that relate to, among other things, assets it may hold, income it may generate and its stockholder composition. It is generally the Company’s policy to distribute 100 % of its REIT taxable income. To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within the next year as permitted by the Code. The Company and certain of its direct and indirect subsidiaries, including Annaly TRS, Inc. and certain subsidiaries of Mountain Merger Sub Corp., have made separate joint elections to treat these subsidiaries as TRSs. As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon their taxable income. The provisions of ASC 740, Income Taxes (“ASC 740”), clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial position. Thus, no accruals for penalties and interest were deemed necessary at December 31, 2022 and 2021. The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status as a REIT and, therefore, the Company generally does not pay income tax in such jurisdictions. The Company may, however, be subject to certain minimum state and local tax filing fees as well as certain excise, franchise or business taxes. The Company’s TRSs are subject to federal, state and local taxes. During the years ended December 31, 2022, 2021 and 2020 the Company recorded $ 45.6 million, $ 4.7 million and ($ 28.4 ) million, respectively, of income tax expense (benefit) attributable to its TRSs. The Company’s federal, state and local tax returns from 2019 and forward remain open for examination. F-34 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 20. RISK MANAGEMENT The primary risks to the Company are capital, liquidity and funding risk, investment/market risk, credit risk and operational risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest earning assets and the interest expense incurred in connection with the interest bearing liabilities, by affecting the spread between the interest earning assets and interest bearing liabilities. Changes in the level of interest rates can also affect the value of the interest earning assets and the Company’s ability to realize gains from the sale of these assets. A decline in the value of the interest earning assets pledged as collateral for borrowings under repurchase agreements and derivative contracts could result in the counterparties demanding additional collateral or liquidating some of the existing collateral to reduce borrowing levels. The Company may seek to mitigate the potential financial impact by entering into interest rate agreements such as interest rate swaps, interest rate swaptions and other hedges. Weakness in the mortgage market, the shape of the yield curve, changes in the expectations for the volatility of future interest rates and deterioration of financial conditions in general may adversely affect the performance and market value of the Company’s investments. This could negatively impact the Company’s book value. Furthermore, if many of the Company’s lenders are unwilling or unable to provide additional financing, the Company could be forced to sell its investments at an inopportune time when prices are depressed. The Company has established policies and procedures for mitigating risks, including conducting scenario and sensitivity analyses and utilizing a range of hedging strategies. The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities, which exclude CRT securities issued by Freddie Mac and Fannie Mae, is guaranteed by those respective agencies and the payment of principal and interest on Ginnie Mae Agency mortgage-backed securities is backed by the full faith and credit of the U.S. government. The Company faces credit risk on the portions of its portfolio which are not guaranteed by the respective Agency or by the full faith and credit of the U.S. government. The Company is exposed to credit risk on commercial mortgage-backed securities, residential mortgage loans, CRT securities, other non-Agency mortgage-backed securities and corporate debt. MSR values may also be adversely impacted by rising borrower delinquencies which would reduce servicing income and increase overall costs to service the underlying mortgage loans. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral and continually assessing the creditworthiness of issuers, borrowers and counterparties, credit rating monitoring and active servicer oversight. The Company depends on third-party service providers to perform various business processes related to its operations, including mortgage loan servicers and sub-servicers. The Company’s vendor management policy establishes procedures for engaging, onboarding and monitoring the performance of third-party vendors. These procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information. 21. RELATED PARTY TRANSACTIONS Closing of the Internalization and Termination of Management Agreement On February 12, 2020, the Company entered into an internalization agreement (the “Internalization Agreement”) with the Former Manager and certain affiliates of the Former Manager. Pursuant to the Internalization Agreement, the Company agreed to acquire all of the outstanding equity interests of the Former Manager and the Former Manager’s direct and indirect parent companies from their respective owners (the “Internalization”) for nominal cash consideration ($ 1.00 ). In connection with the closing of the Internalization, on June 30, 2020, the Company acquired all of the assets and liabilities of the Former Manager (the net effect of which was immaterial in amount), and the Company transitioned from an externally-managed REIT to an internally-managed REIT. At the closing, all employees of the Former Manager became employees of the Company. The parties also terminated the Amended and Restated Management Agreement by and between the Company and the Former Manager (the “Management Agreement”) and therefore the Company no longer pays a management fee to, or reimburses expenses of, the Former Manager. Pursuant to the Internalization Agreement, the Former Manager waived any Acceleration Fee (as defined in the Management Agreement). F-35 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements Prior to the closing of the Internalization, the Former Manager, under the Management Agreement and subject to the supervision and direction of the Board, was responsible for (i) the selection, purchase and sale of assets for the Company’s investment portfolio; (ii) recommending alternative forms of capital raising; (iii) supervising the Company’s financing and hedging activities; and (iv) day to day management functions. The Former Manager also performed such other supervisory and management services and activities relating to the Company’s assets and operations as appropriate. In exchange for the management services, the Company paid the Former Manager a monthly management fee, and the Former Manager was responsible for providing personnel to manage the Company. Prior to the closing of the Internalization, the Company had paid the Former Manager a monthly management fee for its management services in an amount equal to 1/12th of the sum of (i) 1.05% of Stockholders' Equity (as defined in the Management Agreement) up to $ 17.28 billion, and (ii) 0.75 % of Stockholders' Equity (as defined in the Management Agreement) in excess of $ 17.28 billion. The Company did not pay the Former Manager any incentive fees. For the six months ended June 30, 2020, the compensation and management fee computed in accordance with the Management Agreement was $ 77.9 million and reimbursement payments to the former manager was $ 14.2 million. 22. LEASE COMMITMENTS AND CONTINGENCIES The Company’s operating leases are primarily comprised of corporate office leases with a remaining lease terms of approximately three years and five years , respectively. The corporate office leases include options to extend for up to five years , however the extension terms were not included in the operating lease liability calculation. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The lease cost for the year ended December 31, 2022 was $ 3.2 million. Supplemental information related to leases as of and for the year ended December 31, 2022 was as follows: Operating Leases Classification December 31, 2022 Assets (dollars in thousands) Operating lease right-of-use assets Other assets $ 8,872 Liabilities Operating lease liabilities (1) Other liabilities $ 11,265 Lease term and discount rate Weighted average remaining lease term 2.9 years Weighted average discount rate (1) 3.2 % Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 3,872 (1) For the Company’s leases that do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments. The following table provides details related to maturities of lease liabilities: Maturity of Lease Liabilities Years ended December 31, (dollars in thousands) 2023 $ 4,061 2024 4,107 2025 3,149 2026 261 Later years 291 Total lease payments $ 11,869 Less imputed interest 604 Present value of lease liabilities $ 11,265 Contingencies From time to time, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated financial statements. There were no material contingencies at December 31, 2022 and 2021. F-36 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Financial Statements 23. SUBSEQUENT EVENTS In January 2023, the Company completed and closed the securitization of residential mortgage loans, OBX 2023-NQM1, with a face value of $ 405.2 million. The securitization represents financing transactions which provided non-recourse financing to the Company collateralized by residential mortgage loans purchased by the Company. In January 2023, the Company upsized capacity of an existing credit facility by $ 200 million for the Company’s residential mortgage loans. In February 2023, the Company closed a $ 250 million credit facility for Annaly’s MSR platform. F-37 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Date: February 16, 2023 By: /s/ David L. Finkelstein David L. Finkelstein Chief Executive Officer and Chief Investment Officer (Principal Executive Officer) Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the date indicated. Signature Title Date /s/ David L. Finkelstein David L. Finkelstein Chief Executive Officer, Chief Investment Officer, and Director (Principal Executive Officer) February 16, 2023 /s/ Serena Wolfe Serena Wolfe Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) February 16, 2023 /s/ Francine J. Bovich Francine J. Bovich Director February 16, 2023 /s/ Wellington J. Denahan Wellington J. Denahan Director, Vice Chair of the Board February 16, 2023 /s/ Thomas Edward Hamilton Thomas Edward Hamilton Director February 16, 2023 /s/ Kathy Hopinkah Hannan Kathy Hopinkah Hannan Director February 16, 2023 /s/ Michael E. Haylon Michael E. Haylon Director, Chair of the Board February 16, 2023 /s/ Eric A. Reeves Eric A. Reeves Director February 16, 2023 /s/ John H. Schaefer John H. Schaefer Director February 16, 2023 /s/ Glenn A. Votek Glenn A. Votek Director February 16, 2023 /s/ Vicki Williams Vicki Williams Director February 16, 2023 II-1