What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2023-08-03 compared with 2023-05-04 · 397 added, 210 removed, 955 unchanged (39% of the section changed)

42 unchanged sentences

FINANCIAL INSTRUMENTS

The following table presents characteristics for certain of the Company’s financial instruments at March 31, 2023 and December 31, 2022.

The following table presents characteristics for certain of the Company’s financial instruments at June 30, 2023 and December 31, 2022.

Financial Instruments (1)

Balance Sheet Line Item Type / Form Measurement Basis March 31, 2023 December 31, 2022

Balance Sheet Line Item Type / Form Measurement Basis June 30, 2023 December 31, 2022

Assets (dollars in thousands)

24 unchanged sentences

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 three months ended March 31, 2023, $ 386.7 million of unrealized gains (losses) on Agency mortgage-backed securities were reported in Net gains (losses) on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss).

During the three and six months ended June 30, 2023, ($ 744.7 ) million and $ 358.0 million, respectively, of unrealized gains (losses) on Agency mortgage-backed securities were reported in Net gains (losses) on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss).

The Company has also elected the fair value option for CRT securities, interest only securities, Non-Agency and commercial mortgage-backed securities in order to simplify the accounting.

20 unchanged sentences

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 three months ended March 31, 2023:

Agency Securities Residential Credit Securities Commercial Securities Total

The following represents a rollforward of the activity for the Company’s securities for the six months ended June 30, 2023:

Securities Residential Credit Securities Commercial

Securities Total

(dollars in thousands)

6 unchanged sentences

Fair value adjustment 999,496 86,787 9,458 1,095,741

Ending balance March 31, 2023

Ending balance June 30, 2023

$ 67,764,264 $ 3,072,507 $ 365,690 $ 71,202,461

2 unchanged sentences

Financial Statements

The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that were carried at their fair value at March 31, 2023 and December 31, 2022:

March 31, 2023

The following tables present the Company’s securities portfolio that were carried at their fair value at June 30, 2023 and December 31, 2022:

June 30, 2023

Notional Remaining Premium Remaining Discount Amortized

49 unchanged sentences

Total securities $ 86,183,782 $ 2,943,297 $ ( 1,110,917 ) $ 70,669,855 $ 83,143 $ ( 4,963,091 ) $ 65,789,907

(1) Principal/Notional amount includes $ 8.8 billion and $ 8.4 billion of Agency Multifamily interest-only securities as of March 31, 2023 and December 31, 2022, respectively.

(2) Principal/Notional amount includes $ 0.6 billion and $ 1.7 billion of Prime interest-only securities as of March 31, 2023 and December 31, 2022, respectively.

(3) Principal/Notional amount includes $ 7.8 billion and $ 5.5 billion of Prime Jumbo interest-only securities as of March 31, 2023 and December 31, 2022, respectively.

(1) Principal/Notional amount includes $ 10.0 billion and $ 8.4 billion of Agency Multifamily interest-only securities as of June 30, 2023 and December 31, 2022, respectively.

(2) Principal/Notional amount includes $ 0.6 billion and $ 1.7 billion of Prime interest-only securities as of June 30, 2023 and December 31, 2022, respectively.

(3) Principal/Notional amount includes $ 8.1 billion and $ 5.5 billion of Prime Jumbo interest-only securities as of June 30, 2023 and December 31, 2022, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

The following table presents the Company’s Agency mortgage-backed securities portfolio by issuing Agency at June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

Investment Type (dollars in thousands)

4 unchanged sentences

Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.

The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at March 31, 2023 and December 31, 2022, according to their estimated weighted average life classifications:

March 31, 2023 December 31, 2022

The following table summarizes the Company’s Residential Securities at June 30, 2023 and December 31, 2022, according to their estimated weighted average life classifications:

June 30, 2023 December 31, 2022

Estimated Fair Value Amortized

6 unchanged sentences

Total $ 70,836,771 $ 74,612,279 $ 65,263,598 $ 70,125,761

The estimated weighted average lives of the Residential Securities at March 31, 2023 and December 31, 2022 in the table above are based upon projected principal prepayment rates.

The estimated weighted average lives of the Residential Securities at June 30, 2023 and December 31, 2022 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 March 31, 2023 and December 31, 2022.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Estimated Fair Value (1)

12 unchanged sentences

An impairment has not been recognized in earnings related to these investments because the decline in value is not related to credit quality, the Company currently has not made a decision to sell the securities nor is it more likely than not that the securities will be required to be sold before recovery.

During the three months ended March 31, 2023 and 2022, the Company disposed of $ 5.2 billion and $ 2.8 billion of Residential Securities, respectively.

The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the three months ended March 31, 2023 and 2022.

Gross Realized Gains Gross Realized Losses Net Realized Gains (Losses)

For the three months ended (dollars in thousands)

March 31, 2023 $ 4,269 $ ( 526,117 ) $ ( 521,848 )

March 31, 2022 $ 1,565 $ ( 146,056 ) $ ( 144,491 )

During the three and six months ended June 30, 2023, the Company disposed of $ 8.4 billion and $ 13.6 billion of Residential Securities, respectively.

During the three and six months ended June 30, 2022, the Company disposed of $ 6.6 billion and $ 9.4 billion of Residential Securities, respectively.

The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the three and six months ended June 30, 2023 and 2022, which is included in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

Gross Realized Gains Gross Realized Losses Net Realized Gains (Losses)

For the three months ended (dollars in thousands)

June 30, 2023 $ 9,496 $ ( 608,732 ) $ ( 599,236 )

June 30, 2022 $ 27,263 $ ( 684,560 ) $ ( 657,297 )

For the six months ended

June 30, 2023 $ 13,765 $ ( 1,134,849 ) $ ( 1,121,084 )

June 30, 2022 $ 28,828 $ ( 830,615 ) $ ( 801,787 )

The Company invests in residential loans.

3 unchanged sentences

Otherwise, loans held for investment are carried at cost less impairment and loans held for sale are accounted for at the lower of cost or fair value.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of March 31, 2023 and December 31, 2022, the Company rep orted $ 1.6 billion and $ 1.8 billion, respectively, of loans for which the fair value option was elected.

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of June 30, 2023 and December 31, 2022, the Company rep orted $ 1.2 billion and $ 1.8 billion, respectively, of loans for which the fair value option was elected.

If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale.

2 unchanged sentences

The Company determines the fair value of loans held for sale on an individual loan basis.

The carrying value of the Company’s residential loans held for sale was $ 1.2 million and $ 1.3 million at March 31, 2023 and December 31, 2022, respectively.

The carrying value of the Company’s residential loans held for sale was $ 1.1 million and $ 1.3 million at June 30, 2023 and December 31, 2022, 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 $ 0.2 million and ($ 0.6 ) million for the three months ended March 31, 2023 and 2022, 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 three months ended March 31, 2023:

The Company recorded net loan loss (provisions) reversals of $ 0.0 million and $ 26.9 million for the three months ended June 30, 2023 and 2022, respectively, and $ 0.2 million and $ 26.3 million for the six months ended June 30, 2023 and 2022, respectively.

(dollars in thousands)

6 unchanged sentences

(Amortization) / accretion ( 3,772 )

Ending balance March 31, 2023

(1) Includes transfer of residential loans to securitization vehicles with a carrying value of $ 1.1 billion during the three months ended March 31, 2023.

Ending balance June 30, 2023

(1) Includes transfer of residential loans to securitization vehicles with a carrying value of $ 2.5 billion during the six months ended June 30, 2023.

The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans.

4 unchanged sentences

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.

Pursuant to the Company’s custodial

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

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 March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

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.

In addition, a complete credit file for the related mortgage and borrower must be delivered to the subsidiary prior to the date of purchase.

June 30, 2023 December 31, 2022

(dollars in thousands)

1 unchanged sentence

Unpaid principal balance $ 13,743,613 $ 12,247,346

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 for these investments, excluding loan warehouse facilities:

For the Three Months Ended

March 31, 2023 March 31, 2022

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022 for these investments, excluding loan warehouse facilities:

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(dollars in thousands)

6 unchanged sentences

(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (loss).

The following table provides the geographic concentrations based on the unpaid principal balances at March 31, 2023 and December 31, 2022 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

The following table provides the geographic concentrations based on the unpaid principal balances at June 30, 2023 and December 31, 2022 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:

Geographic Concentrations of Residential Mortgage Loans

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Property location % of Balance Property location % of Balance

5 unchanged sentences

Total 100.0 % 100.0 %

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

Portfolio Weighted

11 unchanged sentences

68 % 5 % - 100 %

At March 31, 2023 and December 31, 2022, approximately 11 % of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.

At June 30, 2023 and December 31, 2022, approximately 11 % 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 both March

The Company has elected to apply the fair value option to this lending facility in order to simplify the accounting

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

31, 2023 and December 31, 2022, the fair value and carrying value of this warehouse facility was approximately $ 0.0 million and reported as Loans, net in the Consolidated Statements of Financial Condition.

As of March 31, 2023, the lending facility was not on nonaccrual status nor past due.

and keep the accounting consistent with other residential credit financial instruments with similar characteristics.

At both June 30, 2023 and December 31, 2022, there were no outstanding balances on this warehouse facility.

Corporate Debt

12 unchanged sentences

Cash flows received for Interests in MSR are recorded in Other, net in the Consolidated Statements of Comprehensive Income (Loss).

The following tables present activity related to MSR and Interests in MSR for the three months ended March 31, 2023 and 2022:

Mortgage Servicing Rights Three Months Ended

March 31, 2023 March 31, 2022

The following tables present activity related to MSR and Interests in MSR for the three and six months ended June 30, 2023 and 2022:

Mortgage Servicing Rights Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(dollars in thousands)

2 unchanged sentences

177,521 262,960 214,151 683,983

Sales — ( 9,065 ) — ( 9,075 )

Change in fair value due to:

5 unchanged sentences

(2) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.

Interests in MSR Three Months Ended

March 31, 2023 March 31, 2022

Interests in MSR Three Months Ended Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(dollars in thousands)

1 unchanged sentence

Purchases (1)

— ( 53 ) — 4,860

Gain (loss) included in net income — ( 1,978 ) — 9,446

Ending balance March 31, 2023

Ending balance $ — $ 83,622 $ — $ 83,622

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

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

ANNALY CAPITAL MANAGEMENT, INC.

2 unchanged sentences

VARIABLE INTEREST ENTITIES

The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $ 1.1 billion at March 31, 2023.

The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $ 1.2 billion at June 30, 2023.

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

21 unchanged sentences

OBX 2023-NQM2 February 2023 $ 420,650

As of March 31, 2023 and December 31, 2022, a total carrying value of $ 8.8 billion and $ 7.7 billion, respectively, of bonds were held by third parties and the Company retained $ 1.1 billion and $ 1.0 billion, respectively, of MBS, which were eliminated in consolidation.

OBX 2023-NQM3 April 2023 $ 407,525

OBX 2023-NQM4 May 2023 $ 394,291

OBX 2023-INV1 May 2023 $ 314,839

OBX 2023-NQM5 June 2023 $ 390,271

As of June 30, 2023 and December 31, 2022, a total carrying value of $ 9.8 billion and $ 7.7 billion, respectively, of bonds were held by third parties and the Company retained $ 1.2 billion and $ 1.0 billion, respectively, of MBS, which were eliminated in consolidation.

The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be potentially significant to these VIEs.

1 unchanged sentence

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

The Company incurred $ 1.4 million and $ 3.4 million of costs during the three months ended March 31, 2023 and 2022, respectively, in connection with these securitizations that were expensed as incurred.

The contractual principal amount of the OBX Trusts’ debt held by third parties was $ 9.9 billion and $ 9.0 billion at March 31, 2023 and December 31, 2022, respectively.

During the three months ended March 31, 2023 and 2022, the Company recorded ($ 211.9 ) million and $ 298.1 million, respectively, of unrealized gains (losses) on debt held by third parties issued by OBX Trusts, 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.

The Company incurred $ 2.7 million and $ 1.8 million of costs during the three months ended June 30, 2023 and 2022, respectively, and $ 4.0 million and $ 5.1 million of costs during the six months ended June 30, 2023 and 2022, respectively, in connection with these securitizations that were expensed as incurred.

The contractual principal amount of the OBX Trusts’ debt held by third parties was $ 11.0 billion and $ 9.0 billion at June 30, 2023 and December 31, 2022, respectively.

During the three months ended June 30, 2023 and 2022, the Company recorded $ 130.5 million and $ 395.9 million, respectively, and ($ 81.4 ) million and $ 694.0 million during the six months ended June 30, 2023 and 2022 of unrealized gains (losses) on debt held by third parties issued by OBX Trusts, which is reported in Net gains (losses) on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

Credit Facility VIEs

11 unchanged sentences

Refer to 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 March 31, 2023 and December 31, 2022 are as follows:

March 31, 2023 December 31, 2022

The statements of financial condition of the Company’s VIEs, excluding the multifamily securitization, credit facility VIEs and OBX Trusts as the transfers of loans or securities did not meet the criteria to be accounted for as sales, that are reflected in the Company’s Consolidated Statements of Financial Condition at June 30, 2023 and December 31, 2022 are as follows:

June 30, 2023 December 31, 2022

Assets (dollars in thousands)

21 unchanged sentences

The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the entity.

As of March 31, 2023 and December 31, 2022, the Company had outstanding participating interests in residential mortgage loans of $ 673.4 million and $ 800.8 million, respectively.

As of June 30, 2023 and December 31, 2022, the Company had outstanding participating interests in residential mortgage loans of $ 492.3 million and $ 800.8 million, 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.

6 unchanged sentences

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.

Treasury and Secured Overnight Financing Rate (“SOFR”) 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.

1 unchanged sentence

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.

Treasury 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.

12 unchanged sentences

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 March 31, 2023 and December 31, 2022, ($ 2.3 ) billion and ($ 3.2 ) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.

At June 30, 2023 and December 31, 2022, ($ 3.1 ) billion and ($ 3.2 ) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.

ANNALY CAPITAL MANAGEMENT, INC.

3 unchanged sentences

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.

The Company may have outstanding interest rate swap agreements where the floating leg is linked to the London Interbank Offered Rate (“LIBOR”), SOFR, the overnight index swap rate or another index.

Interest rate swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”).

25 unchanged sentences

Financial Statements

The table below summarizes fair value information about the Company’s derivative assets and liabilities at March 31, 2023 and December 31, 2022:

Derivatives Instruments March 31, 2023 December 31, 2022

The table below summarizes fair value information about the Company’s derivative assets and liabilities at June 30, 2023 and December 31, 2022:

Derivatives Instruments June 30, 2023 December 31, 2022

Assets (dollars in thousands)

8 unchanged sentences

Futures contracts (1)

37,049 11,919

Purchase commitments 3,328 460

Credit derivatives (2)

19,486 13,799

Total derivative liabilities $ 156,182 $ 204,172

(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $ 385.0 million and $ 420.0 million at March 31, 2023 and December 31, 2022, respectively, plus any coupon shortfalls on the underlying tranche.

As of March 31, 2023 the credit derivative tranches referencing the basket of bonds had AAA ratings and as of December 31, 2022 the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA .

The following table summarizes certain characteristics of the Company’s interest rate swaps at March 31, 2023 and December 31, 2022:

March 31, 2023

(1) As of June 30, 2023, this includes $ 36.4 million of SOFR futures options.

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

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

The following tables summarize certain characteristics of the Company’s interest rate swaps at June 30, 2023 and December 31, 2022:

June 30, 2023

Maturity Current Notional (1)(2)

18 unchanged sentences

Total / Weighted average $ 52,277,300 1.74 % 4.28 % 5.25

(1) As of March 31, 2023, 13 %, 19 % and 68 % 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, 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.

(2) There were no forward starting swaps at March 31, 2023 and December 31, 2022.

(3) At March 31, 2023 and December 31, 2022, 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.

(1) As of June 30, 2023, 12 %, 12 % and 76 % of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the SOFR, respectively.

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 SOFR, respectively.

(2) As of June 30, 2023, notional amount includes $ 734.0 million of forward starting pay fixed swaps.

There were no forward starting swaps at December 31, 2022.

(3) 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.

2 unchanged sentences

Financial Statements

The following table summarizes certain characteristics of the Company’s swaptions at March 31, 2023 and December 31, 2022:

March 31, 2023

The following tables summarize certain characteristics of the Company’s swaptions at June 30, 2023 and December 31, 2022:

June 30, 2023

Current Underlying Notional Weighted Average Underlying Fixed Rate Weighted Average Underlying Floating Rate Weighted Average Underlying Years to Maturity Weighted Average Months to Expiration

7 unchanged sentences

Long receive $ 750,000 1.57 % 3M LIBOR 11.07 12.82

The following table summarizes certain characteristics of the Company’s TBA derivatives at March 31, 2023 and December 31, 2022:

March 31, 2023

The following tables summarize certain characteristics of the Company’s TBA derivatives at June 30, 2023 and December 31, 2022:

June 30, 2023

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

1 unchanged sentence

Purchase contracts $ 5,649,000 $ 5,537,076 $ 5,519,589 $ ( 17,487 )

Sale contracts ( 1,915,000 ) ( 1,911,633 ) ( 1,891,873 ) 19,760

Net TBA derivatives $ 3,734,000 $ 3,625,443 $ 3,627,716 $ 2,273

4 unchanged sentences

Net TBA derivatives $ 10,545,000 $ 10,630,890 $ 10,578,676 $ ( 52,214 )

The following table summarizes certain characteristics of the Company’s futures derivatives at March 31, 2023 and December 31, 2022:

March 31, 2023

The following tables summarize certain characteristics of the Company’s futures derivatives at June 30, 2023 and December 31, 2022:

June 30, 2023

Notional - Long

28 unchanged sentences

Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty.

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in our Consolidated Statements of Financial Condition at March 31, 2023 and December 31, 2022, respectively.

March 31, 2023

June 30, 2023

Amounts Eligible for Offset

9 unchanged sentences

Futures contracts, at fair value (1)

37,049 ( 24,822 ) ( 12,227 ) —

Purchase commitments 3,328 — — 3,328

Credit derivatives 19,486 — ( 14,046 ) 5,440

December 31, 2022

12 unchanged sentences

Credit derivatives 13,799 — ( 9,291 ) 4,508

(1) As of June 30, 2023, this includes $ 36.4 million of SOFR futures options.

The effect of interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss) is as follows:

4 unchanged sentences

For the three months ended (dollars in thousands)

March 31, 2023 $ 385,706 $ ( 145,819 ) $ ( 956,272 )

March 31, 2022 $ ( 62,541 ) $ — $ 1,323,439

June 30, 2023 $ 425,293 $ 48,148 $ 841,702

June 30, 2022 $ 992 $ ( 16 ) $ 897,537

For the six months ended

June 30, 2023 $ 810,999 $ ( 97,671 ) $ ( 114,570 )

June 30, 2022 $ ( 61,549 ) $ ( 16 ) $ 2,220,976

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

3 unchanged sentences

The effect of other derivative contracts in the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

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

2 unchanged sentences

Net interest rate swaptions — 53,413 53,413

( 242,013 ) 413,240 171,227

Purchase commitments — ( 3,444 ) ( 3,444 )

Credit derivatives ( 17,970 ) 18,468 498

(1) For the three months ended June 30, 2023, this includes $ 18.8 million of unrealized loss related to SOFR futures options.

Three Months Ended June 30, 2022

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

(dollars in thousands)

Net TBA derivatives $ ( 1,064,242 ) $ 280,992 $ ( 783,250 )

Net interest rate swaptions — 119,436 119,436

Futures 1,167,524 ( 380,436 ) 787,088

1 unchanged sentence

Credit derivatives 374 ( 9,189 ) ( 8,815 )

Total $ 117,130

Six Months Ended June 30, 2023

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

(dollars in thousands)

Net TBA derivatives $ ( 54,488 ) $ 54,487 $ ( 1 )

Net interest rate swaptions 2,323 7,415 9,738

( 123,681 ) 98,362 ( 25,319 )

Three Months Ended March 31, 2022

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

Purchase commitments — ( 2,581 ) ( 2,581 )

Credit derivatives ( 19,282 ) 13,260 ( 6,022 )

Total $ ( 24,185 )

(1) For the six months ended June 30, 2023, this includes $ 18.8 million of unrealized loss related to SOFR futures options.

Six Months Ended June 30, 2022

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

(dollars in thousands)

5 unchanged sentences

Total $ 498,260

Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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 liability position at March 31, 2023 of $ 161.8 million, which represents the maximum amount the Company would be required to pay upon termination.

This amount is fully collateralized.

The aggregate fair value of all derivative instruments with the aforementioned features were in a net asset position at June 30, 2023.

FAIR VALUE MEASUREMENTS

5 unchanged sentences

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:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets.

16 unchanged sentences

Consequently, commercial real estate debt investments carried at fair value are classified as Level 2.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

8 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

March 31, 2023

June 30, 2023

Level 1 Level 2 Level 3 Total

17 unchanged sentences

Total liabilities $ 37,049 $ 10,400,722 $ — $ 10,437,771

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2022

21 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

measurements are described below.

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.

10 unchanged sentences

Range (Weighted Average) (2)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Discount rate 7.6 % - 10.2 % ( 8.8 %)

8 unchanged sentences

(2) Weighted average discount rate computed based on the fair value of MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR.

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at March 31, 2023 and December 31, 2022.

March 31, 2023 December 31, 2022

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at June 30, 2023 and December 31, 2022.

June 30, 2023 December 31, 2022

Value Carrying

4 unchanged sentences

Long term other secured financing is valued using Level 2 inputs.

GOODWILL AND INTANGIBLE ASSETS

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 March 31, 2023 and December 31, 2022, there was no goodwill balance.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

INTANGIBLE ASSETS

Intangible assets, net

1 unchanged sentence

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 three months ended March 31, 2023.

The following table presents the activity of finite lived intangible assets for the six months ended June 30, 2023.

Intangible Assets, net

2 unchanged sentences

amortization expense ( 1,516 )

Ending balance March 31, 2023

Ending balance June 30, 2023

SECURED FINANCING

6 unchanged sentences

The Company reports cash flows on repurchase agreements as financing activities and cash flows on reverse repurchase agreements as investing activities in the Consolidated Statements of Cash Flows.

The Company had outstanding $ 61.0 billion and $ 59.5 billion of repurchase agreements with weighted average remaining maturities of 59 days and 27 days at March 31, 2023 and December 31, 2022, respectively.

In connection with its residential mortgage loans, the Company has select arrangements with counterparties to enter into repurchase agreements for $ 2.0 billion with remaining capacity of $ 1.3 billion at March 31, 2023.

At March 31, 2023 and December 31, 2022, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates:

March 31, 2023

The Company had outstanding $ 61.6 billion and $ 59.5 billion of repurchase agreements with weighted average remaining maturities of 44 days and 27 days at June 30, 2023 and December 31, 2022, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

At June 30, 2023 and December 31, 2022, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates:

June 30, 2023

Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Residential Mortgage Loans Commercial Mortgage-Backed Securities Total Repurchase Agreements Weighted Average Rate

8 unchanged sentences

Total $ 57,918,976 $ 624,573 $ 2,256,646 $ 513,093 $ 324,312 $ 61,637,600 5.29 %

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2022

9 unchanged sentences

Total $ 55,855,293 $ 468,695 $ 2,013,261 $ 718,600 $ 456,748 $ 59,512,597 4.29 %

(1) No repurchase agreements had a remaining maturity over 1 year at March 31, 2023.

(1) No repurchase agreements had a remaining maturity over 1 year at June 30, 2023.

No repurchase agreements had a remaining maturity over 1 year at December 31, 2022.

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 March 31, 2023 and December 31, 2022.

Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements

3 unchanged sentences

Netted amounts $ — $ 61,637,600 $ — $ 59,512,597

Other Secured Financing - As of March 31, 2023, the Company had $ 750 million in total committed credit facilities to finance a portion of its MSR portfolio.

Outstanding borrowings under this facility as of March 31, 2023 totaled $ 250.0 million with maturities ranging between one to three years .

The weighted average interest rate of the borrowings was 7.54 % as of March 31, 2023.

Other Secured Financing - As of June 30, 2023, the Company had $ 750 million in total committed credit facilities to finance a portion of its MSR portfolio.

Outstanding borrowings under this facility as of June 30, 2023 totaled $ 500.0 million with maturities ranging between one to three years .

The weighted average interest rate of the borrowings was 7.92 % as of June 30, 2023.

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, 2022.

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 $ 64.0 billion and $ 235.8 million, respectively, at March 31, 2023 and $ 62.2 billion and $ 226.4 million, respectively, at December 31, 2022.

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 $ 64.8 billion and $ 249.5 million, respectively, at June 30, 2023 and $ 62.2 billion and $ 226.4 million, respectively, at December 31, 2022.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

CAPITAL STOCK

(A) Common Stock

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at March 31, 2023 and December 31, 2022.

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at June 30, 2023 and December 31, 2022.

Shares authorized Shares issued and outstanding

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 Par Value

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022 Par Value

1,468,250,000 2,936,500,000 493,893,288 468,309,810 $ 0.01

1 unchanged sentence

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

replaced the Prior Share Repurchase Program.

During the three months ended March 31, 2023 and 2022, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

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

During the three and six months ended June 30, 2023 and 2022, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

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

4 unchanged sentences

Pursuant to the Sales Agreements, the Company may offer and sell shares of its common stock, having an aggregate offering price of up to $ 1.5 billion, from time to time through any of the Sales Agents (the “at-the-market sales program”).

During the three months ended March 31, 2023, under the at-the-market sales program, the Company issued 25.3 million shares for proceeds of $ 562.7 million, net of commissions and fees.

During the three months ended March 31, 2022, under the at-the-market sales program, the Company issued 0.2 million shares, as retroactively adjusted to reflect the effects of the Reverse Stock Split, for proceeds of $ 6.2 million, net of commissions and fees.

During the three months ended June 30, 2022, the Company closed the public offering of an original issuance of 25 million shares of common stock for proceeds of $ 645.0 million before deducting offering expenses.

In connection with the offering, the Company granted the underwriters a thirty-day option to purchase up to an additional 3.75 million shares of common stock, which the underwriters exercised in full, resulting in an additional $ 96.8 million in proceeds before deducting offering expenses.

During the six months ended June 30, 2023, under the at-the-market sales program, the Company issued 25.3 million shares for proceeds of $ 562.7 million, net of commissions and fees.

During the three and six months ended June 30, 2022, under the at-the-market sales program, the Company issued 8.3 million shares for proceeds of $ 214.9 million, and 8.4 million shares for proceeds of $ 221.1 million, respectively, each net of commissions and fees.

The 2022 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 March 31, 2023 and December 31, 2022.

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at June 30, 2023 and December 31, 2022.

In the event of a liquidation or dissolution of the Company, the Company’s then outstanding preferred stock takes precedence over the Company’s common stock with respect to payment of dividends and the distribution of assets.

1 unchanged sentence

Date At Which Dividend Rate Becomes Floating Floating Annual Rate

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Fixed-to-floating rate

5 unchanged sentences

Each series of preferred stock has a par value of $ 0.01 per share and a liquidation and redemption price of $ 25.00 , plus accrued and unpaid dividends through their redemption date.

Through March 31, 2023, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

Through June 30, 2023, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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.

3 unchanged sentences

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

No shares were repurchased with respect to the Preferred Stock Repurchase Program during the three months ended March 31, 2023.

No shares were repurchased with respect to the Preferred Stock Repurchase Program during the three and six months ended June 30, 2023.

The following table provides a summary of the Company’s dividend distribution activity for the periods presented:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

For the Three Months Ended

March 31, 2023 March 31, 2022

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(dollars in thousands, except per share data)

3 unchanged sentences

Distributions paid per common share after period end $ 0.65 $ 0.88 $ 0.65 $ 0.88

Date of distributions paid to common stockholders after period end April 28, 2023 April 29, 2022

Date of distributions paid to common stockholders after period end July 28, 2023 July 29, 2022 July 28, 2023 July 29, 2022

Dividends declared to series F preferred stockholders $ 18,274 $ 12,510 $ 35,776 $ 25,020

4 unchanged sentences

Dividends declared per share of series I preferred stock $ 0.422 $ 0.422 $ 0.844 $ 0.844

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

INTEREST INCOME AND INTEREST EXPENSE

17 unchanged sentences

(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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

The following presents the components of the Company’s interest income and interest expense for the three months ended March 31, 2023 and 2022.

For the Three Months Ended March 31,

The following table presents the components of the Company’s interest income and interest expense for the three and six months ended June 30, 2023 and 2022.

For the Three Months Ended June 30, For the Six Months Ended June 30,

2023 2022 2023 2022

Interest income (dollars in thousands)

4 unchanged sentences

Commercial investment portfolio (1) (2)

8,310 26,575 18,197 63,858

Reverse repurchase agreements 7,593 220 11,878 226

9 unchanged sentences

(2) Includes commercial real estate debt and preferred equity and corporate debt.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

NET INCOME (LOSS) PER COMMON SHARE

The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income (loss) per share for the three months ended March 31, 2023 and 2022.

For the Three Months Ended

March 31, 2023 March 31, 2022

The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income (loss) per share for the three and six months ended June 30, 2023 and 2022.

For the Three Months Ended For the Six Months Ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(dollars in thousands, except per share data)

10 unchanged sentences

Diluted $ 0.27 $ 2.20 $ ( 1.51 ) $ 7.59

The computations of diluted net income (loss) per share available (related) to common share for the the three months ended March 31, 2023 and 2022 excludes 1.7 million and 0.6 million, respectively, of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.

For the three months ended March 31, 2023, the Company was qualified to be taxed as a REIT under Code Sections 856 through 860.

The computations of diluted net income (loss) per share available (related) to common share for the three and six months ended June 30, 2023 excludes 1.3 million and 1.8 million, respectively, and for the three and six months ended June 30, 2022 excludes 0.8 million and 0.7 million, respectively, of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.

For the three months ended June 30, 2023, 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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

generate and its stockholder composition.

It is generally the Company’s policy to distribute 100 % of its REIT taxable income.

6 unchanged sentences

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 March 31, 2023 and December 31, 2022.

Thus, no accruals for penalties and interest were deemed necessary at June 30, 2023 and December 31, 2022.

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.

1 unchanged sentence

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

During the three months ended March 31, 2023 and 2022, the Company recorded $ 11.0 million and $ 26.5 million, respectively, of income tax expense (benefit) attributable to its TRSs.

During the three and six months ended June 30, 2023, the Company recorded $ 14.3 million and $ 25.3 million, respectively, of income tax expense attributable to its TRSs.

During the three and six months ended June 30, 2022, the Company recorded $ 23.4 million and $ 50.0 million, respectively, of income tax expense attributable to its TRSs.

The Company’s federal, state and local tax returns from 2019 and forward remain open for examination.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

RISK MANAGEMENT

16 unchanged sentences

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

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

For mortgage loan servicers and sub-servicers, 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.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

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

LEASE COMMITMENTS AND CONTINGENCIES

3 unchanged sentences

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

The lease cost for the three months ended March 31, 2023 and 2022 was $ 0.8 million and $ 0.8 million, respectively.

Supplemental information related to leases as of and for the three months ended March 31, 2023 was as follows:

Operating Leases Classification March 31, 2023

The lease cost for the three and six months ended June 30, 2023 and 2022 was $ 0.8 million and $ 1.6 million, and $ 0.8 million and $ 1.6 million, respectively.

Supplemental information related to leases as of and for the six months ended June 30, 2023 was as follows:

Operating Leases Classification June 30, 2023

Assets (dollars in thousands)

19 unchanged sentences

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 March 31, 2023 and December 31, 2022.

There were no material contingencies at June 30, 2023 and December 31, 2022.

SUBSEQUENT EVENTS

In April 2023, the Company completed and closed the securitization of residential mortgage loans, OBX 2023-NQM3, with a face value of $ 407.5 million.

In July 2023, the Company completed and closed the securitization of residential mortgage loans, OBX 2023-NQM6, with a face value of $ 400.5 million.

The securitization represents financing transactions which provided non-recourse financing to the Company collateralized by residential mortgage loans purchased by the Company.

In April 2023, the Company closed a new $ 250 million credit facility for the Company’s residential mortgage loans.

ANNALY CAPITAL MANAGEMENT, INC.

102 unchanged sentences

Business Environment

The first three months of 2023 represented another volatile quarter in which initial economic optimism about a slowdown in inflation and a more stable interest rate outlook ultimately faded given banking sector turbulence.

The Silicon Valley Bank-induced turmoil led to questions about the outlook for the banking system, the economy, and monetary policy.

Moreover, it increased bond market volatility, resulting in some of the highest levels of realized and implied fixed income volatility since the Great Financial Crisis.

Outside of the banking sector, U.S.

economic data has proven relatively resilient, with the labor market still recording 345,000 jobs per month this quarter and U.S.

inflation readings staying above the Federal Reserve’s target measure.

Although inflation has slowed, the improvement has been slower than initially anticipated as strong service sector inflation remains supported by sound wage growth.

However, we anticipate the Federal Reserve is likely close to the end of its hiking cycle and will enter a period of a prolonged hold in short-term interest rates as economic data suggests a slowdown in activity.

A pause in Federal Reserve rate hikes should lower interest rate volatility going forward all else equal, though other risk events – most notably the potential Congressional failure to raise the debt ceiling in time – remain on the horizon.

Agency MBS performance diverged meaningfully each month in the first quarter given the interest and spread volatility.

In January 2023, MBS spreads tightened significantly, driven by the decline in implied volatility and strong inflows into fixed income funds.

Mortgage spreads began to widen in February, however, as interest rates rose amid renewed inflation fears.

This ultimately gave way to more meaningful cheapening in March as volatility spiked on the news of both Silicon Valley Bank and Signature Bank entering Federal Deposit Insurance Corporation (“FDIC”) receivership.

In total, mortgage option-adjusted spreads widened approximately 5-15 basis points across coupons during the quarter.

We grew our Agency MBS portfolio modestly in this environment commensurate with the accretive equity raised early in the quarter while maintaining appropriate leverage.

We continued our strategy of moving exposure from lower coupons into intermediate and higher coupons.

At quarter end, only 5% of our portfolio was in 2.5% coupons or lower, down from 34% a year ago.

As a result of this shift, the portfolio was better protected from the spread widening that occurred in lower coupons due to the FDIC receivership portfolio sales.

Additionally, over 50% of our portfolio is in what we would define as intermediate coupons, 3.5% through 4.5%, which remain more insulated from potential bank sales while also avoiding the supply pressure of production coupons.

This dynamic drove investors to shift into these coupons, driving marginally positive hedged performance across this portion of our portfolio, despite headline MBS spreads widening over the quarter.

The management of our interest rate exposure also helped navigate the historic volatility experienced in March.

Over seven consecutive days starting March 9, 2023, the 2-year Treasury note moved in excess of 20 basis points per day.

Throughout this period, our portfolio was well-positioned and we were able to replace maturing swaps at attractive levels.

In addition, we

economy remains on solid footing demonstrated by healthy gains in the labor market and economic growth consistent with the prior quarter as the regional banking stress has abated.

Banks have largely been able to retain deposits and the main implication of the turbulence has been the overhang of assets from the Silicon Valley Bank and Signature Bank receiverships that need to be absorbed by private market participants.

The Federal Deposit Insurance Corporation (“FDIC”) began selling assets in the second quarter, which weighed on Agency MBS for parts of the quarter, but money manager demand and transparency on the disposition process have already helped the market digest a substantial portion of the $114 billion in assets.

Inflation remained elevated through most of the quarter.

However, data began to signal a more pronounced slowdown in June as lower used-car prices, an improvement in shelter inflation, and a seemingly more price sensitive consumer have begun to put downward pressure on prices.

Economic data during the quarter suggests that the likelihood of a “soft landing” has increased and that the Federal Reserve (“Fed”) will hold interest rates higher for longer, particularly if the labor market continues to demonstrate resilience.

We believe that the Fed has reached peak interest rate levels for the cycle after the 25 basis points increase at the Federal Open Market Committee (“FOMC”) meeting in July, but upside surprises in inflation readings may lead to an additional hike this year.

The housing market has continued to perform well, having experienced five consecutive months of national home price increases according to Zillow.

Recent momentum has turned positive even in previously hard-hit areas, as the top 50 metro areas all experienced positive month-over-month home price appreciation in June, with year-to-date national home prices now up 4.7%.

Many market participants were projecting meaningful home price declines with the assumption that elevated mortgage rates and low affordability would translate to reduced housing demand.

Although transactional activity has declined, the market has been supported by historically low available-for-sale inventory as existing borrowers with low mortgage rates are unwilling to move given the potential increase in payments.

Total active inventory was down approximately 10% from last year and is currently 45% below June 2019 levels.

The current balance of supply and demand in the housing market and resilient home prices are positive for both our Residential Credit and MSR portfolios as existing borrowers retain and build more equity.

Given the challenging supply and demand picture in the Agency MBS market in the early part of the quarter, we proactively reduced our exposure with our portfolio declining by roughly $5 billion in notional value in the quarter.

This tactical shift proved to be beneficial as spreads reached their quarterly peak in late May and it afforded us flexibility to opportunistically deploy capital across our businesses amidst the volatility.

In June, after the U.S.

Congress resolved the debt ceiling and the banking sector recovered, risk-on sentiment reemerged and Agency MBS experienced broad-based outperformance, ultimately driving spreads modestly tighter for the quarter.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

We continued to rotate our portfolio positioning into higher coupons, which provide the most attractive nominal spreads while reducing our holdings of seasoned intermediate coupons and 15-year MBS.

As a result, the average coupon on our portfolio shifted modestly higher to 4.3%.

We nonetheless remained disciplined in managing our convexity profile through collateral selection.

We also took advantage of softer specific payups to replace over $8 billion TBAs with specified pools during the quarter.

In addition to their favorable prepayment profile, specified pools provide incremental carry relative to TBAs in the current environment.

Meanwhile, the notional value of our hedges declined in line with our assets, keeping our hedge ratio relatively unchanged during the quarter.

We maintained a slight flattening bias throughout the quarter as 2s/10s in Treasuries reached negative 100 basis points but have shifted to balanced curve positioning given the extreme inversion in the yield curve.

The diversity of our assets allows us to be opportunistic in our rates exposure as the market stays highly sensitive to incoming data.

Residential credit spreads tightened during the quarter, resulting in a flatter credit curve given a supportive backdrop of limited net issuance, resiliency in the housing market, and a strong consumer.

Benchmark CRT spreads with a below investment grade credit rating tightened 95 basis points on the quarter, while production coupon non-qualified mortgage (“Non-QM”) whole loan spreads were approximately 75 basis points tighter, reflecting a declining cost of funds in the securitization market.

Annaly’s portfolio ended the quarter at $4.9 billion in market value, down approximately $300 million quarter-over-quarter given our increased pace of securitization activity.

Whole loan purchases remained healthy, increasing 16% relative to the first quarter, with approximately $750 million of whole loans settled.

We securitized $1.5 billion in loans in the second quarter through our OBX platform, generating $162 million of retained assets across our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) and our joint venture.

After pricing our latest Non-QM securitization in July, our aggregate year-to-date securitization volume totals over $3 billion across eight transactions.

Our securitization activity has been supported by our correspondent channel, which continues to gain momentum despite a challenging landscape for mortgage origination.

Our second quarter loan lock volume of $1.5 billion was our largest since inception and the channel accounted for roughly 85% of our total whole loan settlements.

We have maintained a disciplined credit focus as demonstrated by the current pipeline having a roughly 750 weighted average FICO, a 68% weighted average loan-to-value ratio as well as limited layered risk.

Finally, we grew our MSR portfolio by approximately $350 million during the quarter through the purchase of four bulk packages.

Including $126 million market value of unsettled commitments, the portfolio now stands at just over $2 billion in market value and $150 billion in unpaid principal balance.

The portfolio exhibited another quarter of slow prepayment speeds, prepaying approximately 4 CPR.

Delinquencies were roughly unchanged and remained minimal.

Our strategy of acquiring low note rate, high credit quality MSR continued to deliver predictable cash flows with attractive risk-adjusted returns.

MSR trading volumes were strong in the second quarter as market participants efficiently absorbed high levels of bulk supply, a dynamic that we expect to persist for the foreseeable future.

Despite elevated supply, pricing has held firm and MSR valuations improved driven by the rise in rates, modest spread tightening, and muted prepayment speeds.

Economic Environment

economic activity remained resilient to tighter financial conditions in the second quarter as gross domestic product rose 2.4% on a seasonally adjusted annualized rate.

Measures of consumption have moderated from the strong pace seen at the beginning of the year, as spending on services has stabilized and spending on goods has slowed.

However, consumer confidence remains high, in large part due to the ongoing strength of the labor market and healthy state of household balance sheets.

Additionally, the housing sector has rebounded somewhat, with new home sales and construction manufacturing rising in the quarter, helped by fiscal measures such as the CHIPS Act.

The effect of the resumption of student debt payments on disposable income and tighter lending standards from the U.S.

regional banking sector are potential headwinds to growth in the near term.

We believe the U.S.

labor market is softening at the margin but remains strong.

According to the Bureau of Labor Statistics, seasonally adjusted total non-farm payroll employment rose at a slower rate in the second quarter than the prior quarter, with a monthly average 244,000 workers added in the second quarter of 2023 compared to an average 312,000 workers in the first quarter.

Additionally, the unemployment rate ended the quarter at 3.6%, slightly higher than the historically low level of 3.4% reached in January.

Labor demand remains high, with job openings, as measured by the Bureau of Labor Statistics, increasing by 1.6 million openings in the quarter and still significantly elevated from pre-COVID averages.

Meanwhile, wage growth, as measured by the year-over-year change in private sector average hourly earnings, increased to 4.4% in June compared to 4.3% in March.

Inflation readings, as measured by the year-over-year changes in the Personal Consumption Expenditure Chain Price Index (“PCE”), remain above the Fed’s 2% inflation target.

However, signs of slowing inflation have increased as the headline PCE measure has eased to 3.0% year-over-year in June compared to 4.2% in March.

The more stable core PCE measure, which excludes volatile food and energy prices, registered a 4.1% year-over-year increase, also notably lower than the 4.6% in March.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Inflation pressures remain a major challenge for the United States and the broader global economy as price increases have moderated more slowly than previously expected.

While forecasts continue to see further moderation in coming months, the degree of the slowdown remains uncertain.

The FOMC conducts monetary policy with a dual mandate:

to ensure full employment and stable prices.

The FOMC has aggressively tightened monetary policy to ensure it meets its mandate, although the pace of tightening has slowed in recent months to provide time to assess incoming data and the lagged effects of tightening thus far.

Therefore, the FOMC raised the Federal Funds Target Rate by 25 basis points to the 5.0% - 5.25% range during the second quarter, relative to 50 bps the prior quarter.

Regarding its balance sheet, the FOMC continues to decline at a pace of $95 billion per month across U.S.

Treasuries and Agency MBS.

During the second quarter of 2023, the 10-year U.S.

Treasury rate increased from 3.47% on March 31, 2023 to 3.84% on June 30, 2023.

Interest rate volatility remained meaningfully elevated during the quarter, as seen in the 2-year U.S.

Treasury rate that moved within a 148 basis point range.

The mortgage basis, or the spread between the 30-year Agency MBS coupon and 10-year U.S.

Treasury rate, remained historically wide and closed the quarter at 179 basis points given continued tightening in monetary policy, elevated financial market volatility, and reduced investor demand for Agency MBS.

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

June 30, 2023 December 31, 2022 June 30, 2022

30-Year mortgage current coupon 5.63% 5.39% 4.38%

Mortgage basis 179 bps 152 bps 137 bps

Treasury rate 3.84% 3.87% 3.01%

1-Month 5.22% 4.39% 1.79%

6-Month 5.76% 5.14% 2.94%

OIS SOFR Swaps

1-Month 5.14% 4.36% 1.68%

6-Month 5.37% 4.80% 2.59%

London Interbank Offered Rate (“LIBOR”) Transition

All LIBOR tenors relevant to us either are no longer published or are no longer representative.

All of our LIBOR-linked instruments have fallen back, or will fall back upon the next scheduled reset date, to a non-LIBOR-based index, either by their contractual terms, pursuant to U.S.

federal legislation, through clearinghouse action, or otherwise.

Income Tax Reform

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

federal income tax laws applicable to corporations.

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

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

In the event the application of the CMT were to be imposed on our TRSs, we do not expect a material impact to our operations as it would simply affect the timing of the payment of income taxes already accrued.

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Results of Operations

The results of our operations are affected by various factors, many of which are beyond our control.

Certain of such risks and uncertainties are described herein (see “Special Note Regarding Forward-Looking Statements” above) and in Part I, Item 1A.

“Risk Factors” of our most recent Annual Report on Form 10-K and in Part II, Item 1A.

“Risk Factors” in this Quarterly Report on Form 10-Q.

This Management Discussion and Analysis section contains analysis and discussion of financial results computed in accordance with U.S.

generally accepted accounting principles (“GAAP”) and non-GAAP measurements.

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide non-GAAP financial measures to enhance investor understanding of our period-over-period operating performance and business trends, as well as for assessing our performance versus that of industry peers.

Refer to the “Non-GAAP Financial Measures” section for additional information.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Net Income (Loss) Summary

The following table presents financial information related to our results of operations as of and for the three and six months ended June 30, 2023 and 2022.

As of and for the Three Months Ended June 30,

As of and for the Six Months Ended June 30,

2023 2022 2023 2022

(dollars in thousands, except per share data)

Interest income $ 921,494 $ 645,615 $ 1,739,744 $ 1,301,465

Interest expense 953,457 170,475 1,752,244 245,397

Net interest income (31,963) 475,140 (12,500) 1,056,068

Servicing and related income 83,790 55,685 168,063 90,400

Servicing and related expense 8,930 5,949 16,810 9,706

Net servicing income 74,860 49,736 151,253 80,694

Other income (loss) 175,482 397,899 (707,841) 1,882,219

Total general and administrative expenses 42,915 36,038 83,743 81,802

Income (loss) before income taxes 175,464 886,737 (652,831) 2,937,179

Income taxes 14,277 23,420 25,310 49,968

Net income (loss) 161,187 863,317 (678,141) 2,887,211

Net income (loss) attributable to noncontrolling interests (5,846) (3,379) (918) (1,740)

Net income (loss) attributable to Annaly 167,033 866,696 (677,223) 2,888,951

Dividends on preferred stock 35,766 26,883 67,641 53,766

Net income (loss) available (related) to common stockholders $ 131,267 $ 839,813 $ (744,864) $ 2,835,185

Net income (loss) per share available (related) to common stockholders

Basic $ 0.27 $ 2.21 $ (1.51) $ 7.60

Diluted $ 0.27 $ 2.20 $ (1.51) $ 7.59

Weighted average number of common shares outstanding

Basic 494,165,256 380,609,192 491,939,177 373,017,228

Diluted 494,358,982 380,898,750 491,939,177 373,313,723

Other information

Investment portfolio at period-end $ 85,694,096 $ 71,009,570 $ 85,694,096 $ 71,009,570

Average total assets $ 88,081,247 $ 74,911,192 $ 86,004,402 $ 75,528,816

Average equity $ 11,898,189 $ 11,284,335 $ 11,721,935 $ 11,921,332

GAAP leverage at period-end (1)

6.1:1 5.4:1 6.1:1 5.4:1

GAAP capital ratio at period-end (2)

13.3 % 15.1 % 13.3 % 15.1 %

Annualized return on average total assets 0.73 % 4.61 % (1.58 %) 7.65 %

Annualized return on average equity 5.42 % 30.60 % (11.57 %) 48.44 %

Net interest margin (3)

(0.15 %) 2.64 % (0.03 %) 2.92 %

Average yield on interest earning assets (4)

4.27 % 3.58 % 4.12 % 3.60 %

Average GAAP cost of interest bearing liabilities (5)

5.00 % 1.12 % 4.77 % 0.80 %

Net interest spread (0.73 %) 2.46 % (0.65 %) 2.80 %

Weighted average experienced CPR for the period 7.0 % 14.9 % 6.3 % 15.8 %

Weighted average projected long-term CPR at period-end 8.6 % 7.7 % 8.6 % 7.7 %

Common stock book value per share $ 20.73 $ 23.59 $ 20.73 $ 23.59

Non-GAAP metrics *

Interest income (excluding PAA) $ 909,571 $ 518,094 $ 1,728,312 $ 994,428

Economic interest expense (5)

$ 528,164 $ 169,483 $ 941,245 $ 306,946

Economic net interest income (excluding PAA) $ 381,407 $ 348,611 $ 787,067 $ 687,482

Premium amortization adjustment cost (benefit) $ (11,923) $ (127,521) $ (11,432) $ (307,037)

Earnings available for distribution (6)

$ 389,475 $ 490,802 $ 816,605 $ 921,433

Earnings available for distribution per average common share $ 0.72 $ 1.22 $ 1.52 $ 2.33

Annualized EAD return on average equity (excluding PAA) 13.22 % 17.49 % 14.06 % 15.52 %

Economic leverage at period-end (1)

5.8:1 6.6:1 5.8:1 6.6:1

Economic capital ratio at period-end (2)

14.3 % 13.0 % 14.3 % 13.0 %

Net interest margin (excluding PAA) (3)

1.66 % 2.20 % 1.71 % 2.12 %

Average yield on interest earning assets (excluding PAA) (4)

4.22 % 2.87 % 4.09 % 2.75 %

Average economic cost of interest bearing liabilities (5)

2.77 % 1.11 % 2.56 % 1.00 %

Net interest spread (excluding PAA) 1.45 % 1.76 % 1.53 % 1.75 %

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

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

What changed 10-Q

Item 1. Financial Statements