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Item 1. Financial Statements

2024-07-29 compared with 2024-05-02 · 266 added, 1178 removed, 759 unchanged (66% of the section changed)

Financial Statements

2024 and December 31, 2023, respectively.

During the three months ended March 31, 2024 and 2023, the Company recorded $ 86.0 million and ($ 211.9 ) 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).

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.

The Company incurred $ 5.3 million and $ 2.7 million of costs during the three months ended June 30, 2024 and 2023, respectively, and $ 9.1 million and $ 4.0 million of costs during the six months ended June 30, 2024 and 2023, 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 $ 16.9 billion and $ 12.6 billion at June 30, 2024 and December 31, 2023, respectively.

During the three months ended June 30, 2024 and 2023, the Company recorded $ 4.8 million and $ 130.5 million, respectively, and $ 90.8 million and ($ 81.4 ) million during the six months ended June 30, 2024 and 2023, 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.

3 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, 2024 and December 31, 2023, the Company had outstanding participating interests in residential mortgage loans of $ 1.2 billion and $ 1.1 billion, respectively.

As of June 30, 2024 and December 31, 2023, the Company had outstanding participating interests in residential mortgage loans of $ 1.1 billion and $ 1.1 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.

21 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, 2024 and December 31, 2023, ($ 3.2 ) billion and ($ 2.4 ) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.

At June 30, 2024 and December 31,

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

2023, ($ 3.3 ) billion and ($ 2.4 ) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.

Initial margin is reported in Cash and cash equivalents in the Consolidated Statements of Financial Condition.

Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk.

22 unchanged sentences

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 following table summarizes fair value information about the Company’s derivative assets and liabilities at March 31, 2024 and December 31, 2023:

Derivatives Instruments March 31, 2024 December 31, 2023

The following table summarizes fair value information about the Company’s derivative assets and liabilities at June 30, 2024 and December 31, 2023:

Derivatives Instruments June 30, 2024 December 31, 2023

Assets (dollars in thousands)

8 unchanged sentences

Futures contracts 81,730 179,835

69,565 179,835

Purchase commitments 1,592 339

Total derivative liabilities $ 100,829 $ 302,295

(1) As of March 31, 2024, includes $ 1.3 million of SOFR futures options.

(2) As of March 31, 2024, includes $ 26.8 million of SOFR futures options.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

The following tables summarize certain characteristics of the Company’s interest rate swaps at March 31, 2024 and December 31, 2023:

March 31, 2024

The following tables summarize certain characteristics of the Company’s interest rate swaps at June 30, 2024 and December 31, 2023:

June 30, 2024

Maturity Current Notional (1)

18 unchanged sentences

Total / Weighted average $ 58,829,554 3.04 % 5.31 % 5.36

(1) As of March 31, 2024, 7 % and 93 % of the Company’s interest rate swaps were linked to the Federal funds rate and the SOFR, respectively.

(1) As of June 30, 2024, 6 % and 94 % of the Company’s interest rate swaps were linked to the Federal funds rate and the SOFR, respectively.

As of December 31, 2023, 6 % and 94 % of the Company’s interest rate swaps were linked to the Federal funds rate and the SOFR, respectively.

(2) As of March 31, 2024, notional amount includes $ 1.2 billion of forward starting pay fixed swaps.

There were no forward starting swaps at December 31, 2023.

(2) 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 tables summarize certain characteristics of the Company’s swaptions at March 31, 2024 and December 31, 2023:

March 31, 2024

The following tables summarize certain characteristics of the Company’s swaptions at June 30, 2024 and December 31, 2023:

June 30, 2024

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

1 unchanged sentence

Long pay $ 1,250,000 2.21 % SOFR 7.19 2.15

Long receive $ 500,000 1.65 % SOFR 10.05 0.50

December 31, 2023

6 unchanged sentences

Financial Statements

The following tables summarize certain characteristics of the Company’s TBA derivatives at March 31, 2024 and December 31, 2023:

March 31, 2024

The following tables summarize certain characteristics of the Company’s TBA derivatives at June 30, 2024 and December 31, 2023:

June 30, 2024

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

9 unchanged sentences

Net TBA derivatives $ ( 503,000 ) $ ( 555,221 ) $ ( 573,602 ) $ ( 18,381 )

The following tables summarize certain characteristics of the Company’s futures derivatives at March 31, 2024 and December 31, 2023:

March 31, 2024

The following tables summarize certain characteristics of the Company’s futures derivatives at June 30, 2024 and December 31, 2023:

June 30, 2024

Notional - Long

3 unchanged sentences

(dollars in thousands)

Treasury futures - 2 year

$ — $ ( 1,981,400 ) 1.93

2-year swap equivalent SOFR contracts $ 2,790,000 $ — 1.97

Treasury futures - 2 year

19 unchanged sentences

Financial Statements

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 March 31, 2024 and December 31, 2023, respectively.

March 31, 2024

June 30, 2024

Amounts Eligible for Offset

5 unchanged sentences

Futures contracts, at fair value 1,723 ( 1,723 ) — —

8,636 ( 8,636 ) — —

Purchase commitments 6,640 — — 6,640

2 unchanged sentences

Futures contracts, at fair value 81,730 ( 1,723 ) ( 80,007 ) —

69,565 ( 8,636 ) ( 60,929 ) —

Purchase commitments 1,592 — — 1,592

(1) As of March 31, 2024, includes $ 1.3 million of SOFR futures options.

(2) As of March 31, 2024, includes $ 26.8 million of SOFR futures options.

December 31, 2023

16 unchanged sentences

For the three months ended (dollars in thousands)

March 31, 2024 $ 330,149 $ ( 21,237 ) $ 900,902

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

June 30, 2024 $ 298,372 $ 18,721 $ 97,484

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

For the six months ended

June 30, 2024 $ 628,521 $ ( 2,516 ) $ 998,386

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

(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, 2024

Three Months Ended June 30, 2024

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

4 unchanged sentences

Purchase commitments — 2,360 2,360

(1) For the three months ended March 31, 2024, includes $ 1.2 million of unrealized gain and $ 0.0 million of realized gain related to SOFR futures options.

Three Months Ended March 31, 2023

(1) For the three months ended June 30, 2024, includes ($ 1.2 ) million of unrealized loss and ($ 6.8 ) million of realized loss related to SOFR futures options.

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

Futures 118,332 ( 314,878 ) ( 196,546 )

( 242,013 ) 413,240 171,227

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

1 unchanged sentence

Total $ 160,182

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.

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

Six Months Ended June 30, 2024

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 $ ( 24,868 ) $ 30,829 $ 5,961

Net interest rate swaptions ( 12,331 ) 54,488 42,157

39,547 99,827 139,374

Purchase commitments — ( 4,252 ) ( 4,252 )

Total $ 183,240

(1) For the six months ended June 30, 2024, includes ($ 6.8 ) million of realized loss related to SOFR futures options.

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 )

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, includes ($ 18.8 ) million of unrealized loss related to SOFR futures options.

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 net asset position at March 31, 2024.

The aggregate fair value of all derivative instruments with the aforementioned features were in a net asset position at June 30, 2024.

FAIR VALUE MEASUREMENTS

4 unchanged sentences

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:

Financial assets and liabilities recorded at fair value in 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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value.

15 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.

6 unchanged sentences

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 as of March 31, 2024 and December 31, 2023.

The following tables present the estimated fair values of financial instruments and MSR measured at fair value on a recurring basis as of June 30, 2024 and December 31, 2023.

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, 2024

June 30, 2024

Level 1 Level 2 Level 3 Total

18 unchanged sentences

Total liabilities $ 2,056,332 $ 16,995,835 $ — $ 19,052,167

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

December 31, 2023

21 unchanged sentences

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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

inputs vary depending on the nature of the instrument being measured at fair value.

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.

11 unchanged sentences

Range (Weighted Average) (2)

March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023

Discount rate 5.3 % - 12.4 % ( 8.4 %)

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, 2024 and December 31, 2023.

March 31, 2024 December 31, 2023

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, 2024 and December 31, 2023.

June 30, 2024 December 31, 2023

Value Carrying

8 unchanged sentences

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, 2024.

The following table presents the activity of finite lived intangible assets for the six months ended June 30, 2024.

Intangible Assets, net

2 unchanged sentences

amortization expense ( 1,345 )

Ending balance March 31, 2024

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Ending balance June 30, 2024

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 $ 59.0 billion and $ 62.2 billion of repurchase agreements with weighted average remaining maturities of 43 days and 44 days and weighted average rates of 5.55 % and 5.70 % at March 31, 2024 and December 31, 2023, respectively.

In connection with its residential mortgage loans, the Company has select arrangements with counterparties to enter into repurchase agreements for $ 2.7 billion with remaining capacity of $ 1.9 billion at March 31, 2024.

At March 31, 2024 and December 31, 2023, the repurchase agreements had the following remaining maturities and collateral types:

March 31, 2024

The Company had outstanding $ 60.8 billion and $ 62.2 billion of repurchase agreements with weighted average remaining maturities of 36 days and 44 days and weighted average rates of 5.59 % and 5.70 % at June 30, 2024 and December 31, 2023, respectively.

In connection with its residential mortgage loans, the Company has select arrangements with counterparties to enter into repurchase agreements for $ 2.9 billion with remaining capacity of $ 1.9 billion at June 30, 2024.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

At June 30, 2024 and December 31, 2023, the repurchase agreements had the following remaining maturities and collateral types:

June 30, 2024

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

25 unchanged sentences

Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial Condition.

(1) Less than 1 % of repurchase agreements had a remaining maturity over 1 year at March 31, 2024.

(1) Less than 1 % of repurchase agreements had a remaining maturity over 1 year at June 30, 2024.

No repurchase agreements had a remaining maturity over 1 year at December 31, 2023.

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, 2024 and December 31, 2023.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

March 31, 2024 December 31, 2023

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

June 30, 2024 December 31, 2023

Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements

3 unchanged sentences

Netted amounts $ — $ 60,787,994 $ — $ 62,201,543

The fair value of collateral received in connection with reverse repurchase agreements as of March 31, 2024 was $ 2.4 billion, of which the Company sold $ 2.1 billion.

The fair value of collateral received in connection with reverse repurchase agreements as of June 30, 2024 was $ 2.0 billion, of which the Company sold $ 2.0 billion.

The fair value of collateral received in connection with reverse repurchase agreements as of December 31, 2023 was $ 2.3 billion, of which the Company sold $ 2.1 billion.

1 unchanged sentence

Treasury securities sold, not yet purchased.

Other Secured Financing - As of March 31, 2024, the Company had $ 1.3 billion in total committed credit facilities to finance a portion of its MSR portfolio.

Outstanding borrowings under this facility as of March 31, 2024 totaled $ 600.0 million with maturities ranging between ten months to two years .

The weighted average interest rate of the borrowings was 8.07 % as of March 31, 2024.

Other Secured Financing - As of June 30, 2024, the Company had $ 1.3 billion in total committed credit facilities to finance a portion of its MSR portfolio.

Outstanding borrowings under this facility as of June 30, 2024 totaled $ 600.0 million with maturities ranging between seven months to one year .

The weighted average interest rate of the borrowings was 8.07 % as of

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

June 30, 2024.

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, 2023.

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 $ 64.3 billion and $ 275.5 million, respectively, at March 31, 2024 and $ 68.2 billion and $ 279.5 million, respectively, at December 31, 2023.

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 $ 65.8 billion and $ 293.3 million, respectively, at June 30, 2024 and $ 68.2 billion and $ 279.5 million, respectively, at December 31, 2023.

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, 2024 and December 31, 2023.

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at June 30, 2024 and December 31, 2023.

Shares authorized Shares issued and outstanding

March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 Par Value

June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 Par Value

1,468,250,000 1,468,250,000 501,018,415 500,080,287 $ 0.01

2 unchanged sentences

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

During the three months ended March 31, 2024 and 2023, no shares were repurchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

During the three and six months ended June 30, 2024 and 2023, no shares were repurchased 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, 2024, no shares were issued under the at-the-market sales program;

however, the Company incurred costs to maintain the effectiveness of 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 and six months ended June 30, 2024, under the at-the-market sales program, the Company issued 0.6 million shares for proceeds of $ 11.3 million, net of commissions and fees.

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.

(B) Preferred Stock

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at June 30, 2024 and December 31, 2023.

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.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

(B) Preferred Stock

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at March 31, 2024 and December 31, 2023.

Shares Authorized Shares Issued And Outstanding Carrying Value Contractual Rate Earliest Redemption Date (1)

Effective Date of Floating Rate Dividend Period Floating Annual Rate (2)

March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023 March 31, 2024 December 31, 2023

June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023 June 30, 2024 December 31, 2023

Fixed-to-floating rate

6 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, 2024, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

Through June 30, 2024, 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.

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, 2024.

No shares were repurchased with respect to the Preferred Stock Repurchase Program during the three and six months ended June 30, 2024.

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

For the Three Months Ended

March 31, 2024 March 31, 2023

For the Three Months Ended For the Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

(dollars in thousands, except per share data)

3 unchanged sentences

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

Date of distributions paid to common stockholders after period end April 30, 2024 April 28, 2023

Date of distributions paid to common stockholders after period end July 31, 2024 July 28, 2023 July 31, 2024 July 28, 2023

Dividends declared to series F preferred stockholders $ 19,002 $ 18,274 $ 38,087 $ 35,776

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

1 unchanged sentence

The following table summarizes the interest income recognition methodology for Residential Securities:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Interest Income Methodology

10 unchanged sentences

Prime jumbo (2)

(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).

(1) Changes in fair value are recognized in Other comprehensive income (loss) in 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 in 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 in 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 table presents the components of the Company’s interest income and interest expense for the three months ended March 31, 2024 and 2023.

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, 2024 and 2023.

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

2024 2023 2024 2023

Interest income (dollars in thousands)

4 unchanged sentences

Commercial investment portfolio (1) (2)

2,441 8,310 5,995 18,197

Reverse repurchase agreements 31,390 7,593 62,796 11,878

13 unchanged sentences

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, 2024 and 2023.

For the Three Months Ended

March 31, 2024 March 31, 2023

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, 2024 and 2023.

For the Three Months Ended For the Six Months Ended

June 30, 2024 June 30, 2023 June 30, 2024 June 30, 2023

(dollars in thousands, except per share data)

10 unchanged sentences

Diluted $ ( 0.09 ) $ 0.27 $ 0.76 $ ( 1.51 )

The computations of diluted net income (loss) per share available (related) to common share for the three months ended March 31, 2024 and 2023 excludes 1.5 million and 1.7 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, 2024, 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, 2024 excludes 2.7 million and 0 , respectively, and for the three and six months ended June 30, 2023 excludes 1.3 million and 1.8 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, 2024, 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.

8 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, 2024 and December 31, 2023.

Thus, no accruals for penalties and interest were deemed necessary at June 30, 2024 and December 31, 2023.

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, 2024 and 2023, the Company recorded ($ 0.9 ) million and $ 11.0 million, respectively, of income tax expense (benefit) attributable to its TRSs.

During the three and six months ended June 30, 2024, the Company recorded $ 11.9 million and $ 11.0 million, respectively, of income tax expense 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.

The Company’s federal, state and local tax returns from 2020 and forward remain open for examination.

The Company operates in three reportable segments further described in the Description of Business Note.

ANNALY CAPITAL MANAGEMENT, INC.

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Financial Statements

reflected in Other income (loss), and allocations between segments related to investment balances, which are presented net of associated financings in Total Assets.

The Company operates in three reportable segments further described in the Description of Business Note.

The accounting policies applied to the segments are the same as those described in the summary of significant accounting policies, with the exception of allocations between segments related to net interest income and other comprehensive income (loss), which are reflected in Other income (loss), and allocations between segments related to investment balances, which are presented net of associated financings in Total Assets.

These allocations are made to reflect the economic hedging relationship between investments within different operating segments.

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Comprehensive income is the measure of segment profit or loss that is determined in accordance with the measurement principles used in measuring the corresponding amounts in the consolidated financial statements and is a key determinant of the Company’s economic return (computed as the change in stockholders’ equity attributable to common shareholders plus common stock dividends declared divided by the prior period’s stockholders’ equity attributable to common shareholders), a measure which is used by the CODM to evaluate segment results and is one of the factors considered in determining capital allocation among the segments.

The following tables present the reportable operating segments related to the Company’s results of operations for the three months ended March 31, 2024 and 2023:

Three Months Ended March 31, 2024

The following tables present the reportable operating segments related to the Company’s results of operations for the three and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, 2024

Agency Resi-credit MSR Corporate & Other Consolidated

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Financial Statements

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Agency Resi-credit MSR Corporate & Other Consolidated

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Total assets $ 70,775,689 $ 15,822,726 $ 2,252,578 $ 479,484 $ 89,330,477

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Six Months Ended June 30, 2024

Agency Resi-credit MSR Corporate & Other Consolidated

(dollars in thousands)

Interest income $ 1,603,265 $ 662,553 $ — $ 5,995 $ 2,271,813

Interest expense 1,677,095 543,678 — 3,933 2,224,706

Net interest income ( 73,830 ) 118,875 — 2,062 47,107

Servicing and related income — — 235,599 — 235,599

Servicing and related expense — — 24,833 — 24,833

Net servicing income — — 210,766 — 210,766

Other income (loss) 116,042 153,823 21,454 1,598 292,917

Total general and administrative expenses 31,450 25,822 17,101 9,088 83,461

Income (loss) before income taxes 10,762 246,876 215,119 ( 5,428 ) 467,329

Income taxes 725 ( 1,703 ) 12,069 ( 103 ) 10,988

Net income (loss) 10,037 248,579 203,050 ( 5,325 ) 456,341

Net income (loss) attributable to noncontrolling interest — 2,932 — — 2,932

Net income (loss) attributable to Annaly 10,037 245,647 203,050 ( 5,325 ) 453,409

Dividends on preferred stock — — — 74,219 74,219

Net income (loss) available (related) to common stockholders 10,037 245,647 203,050 ( 79,544 ) 379,190

Unrealized gains (losses) on available-for-sale securities ( 336,112 ) — — — ( 336,112 )

Reclassification adjustment for net (gains) losses included in net income (loss) 514,585 — — — 514,585

Other comprehensive income (loss) 178,473 — — — 178,473

Comprehensive income (loss) 188,510 248,579 203,050 ( 5,325 ) 634,814

Comprehensive income (loss) attributable to noncontrolling interests — 2,932 — — 2,932

Comprehensive income (loss) attributable to Annaly $ 188,510 $ 245,647 $ 203,050 $ ( 5,325 ) $ 631,882

Noncash investing and financing activities:

Receivable for unsettled trades 311,349 — 9,310 — 320,659

Payable for unsettled trades 1,041,278 — 54,993 — 1,096,271

Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment 178,473 — — — 178,473

Dividends declared, not yet paid — — — 325,662 325,662

Total assets $ 66,660,065 $ 23,462,284 $ 3,326,780 $ 219,448 $ 93,668,577

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Six Months Ended June 30, 2023

Agency Resi-credit MSR Corporate & Other Consolidated

(dollars in thousands)

Interest income $ 1,301,892 $ 419,655 $ — $ 18,197 $ 1,739,744

Interest expense 1,430,164 310,740 — 11,340 1,752,244

Net interest income ( 128,272 ) 108,915 — 6,857 ( 12,500 )

Servicing and related income — — 168,063 — 168,063

Servicing and related expense — — 16,810 — 16,810

Net servicing income — — 151,253 — 151,253

Other income (loss) ( 886,798 ) 104,413 83,184 ( 8,640 ) ( 707,841 )

Total general and administrative expenses 29,825 24,562 14,553 14,803 83,743

Income (loss) before income taxes ( 1,044,895 ) 188,766 219,884 ( 16,586 ) ( 652,831 )

Income taxes 486 8,049 16,848 ( 73 ) 25,310

Net income (loss) ( 1,045,381 ) 180,717 203,036 ( 16,513 ) ( 678,141 )

Net income (loss) attributable to noncontrolling interest — ( 918 ) — — ( 918 )

Net income (loss) attributable to Annaly ( 1,045,381 ) 181,635 203,036 ( 16,513 ) ( 677,223 )

Dividends on preferred stock — — — 67,641 67,641

Net income (loss) available (related) to common stockholders ( 1,045,381 ) 181,635 203,036 ( 84,154 ) ( 744,864 )

Unrealized gains (losses) on available-for-sale securities 381,329 — — — 381,329

Reclassification adjustment for net (gains) losses included in net income (loss) 945,036 — — — 945,036

Other comprehensive income (loss) 1,326,365 — — — 1,326,365

Comprehensive income (loss) 280,984 180,717 203,036 ( 16,513 ) 648,224

Comprehensive income (loss) attributable to noncontrolling interests — ( 918 ) — — ( 918 )

Comprehensive income (loss) attributable to Annaly $ 280,984 $ 181,635 $ 203,036 $ ( 16,513 ) $ 649,142

Noncash investing and financing activities:

Receivable for unsettled trades 780,458 4,857 1,994 133 787,442

Payable for unsettled trades 4,295,056 10 36,249 — 4,331,315

Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment 1,326,365 — — — 1,326,365

Dividends declared, not yet paid — — — 321,031 321,031

Total assets $ 70,775,689 $ 15,822,726 $ 2,252,578 $ 479,484 $ 89,330,477

RISK MANAGEMENT

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LEASE COMMITMENTS AND CONTINGENCIES

The Company’s operating leases are primarily comprised of corporate office leases with remaining lease terms of approximately two years and four years .

The Company’s operating leases are primarily comprised of corporate office leases with remaining lease terms of approximately one year and four years .

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.

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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, 2024 and 2023 was $ 0.8 million and $ 0.8 million, respectively.

Supplemental information related to leases as of and for the three months ended March 31, 2024 was as follows:

Operating Leases Classification March 31, 2024

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

The lease cost for the three and six months ended June 30, 2024 and 2023 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, 2024 was as follows:

Operating Leases Classification June 30, 2024

Assets (dollars in thousands)

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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, 2024 and December 31, 2023.

There were no material contingencies at June 30, 2024 and December 31, 2023.

SUBSEQUENT EVENTS

In April 2024, the Company completed and closed two securitizations of residential mortgage loans:

In July 2024, the Company completed and closed two securitizations of residential mortgage loans:

OBX 2024-NQM10, with a face value of $ 482.5 million, and OBX 2024-NQM11, with a face value of $ 603.0 million.

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Business Environment

The first quarter 2024 was characterized by a gradual move higher in interest rates, which nonetheless remained largely rangebound due to several offsetting factors.

On the one hand, U.S.

economic growth and the labor market remained stronger than widely expected by market participants in the quarter.

In addition, inflation accelerated relative to a slower run rate in the second half of 2023.

These changes led markets to significantly reduce the number of expected interest rate cuts by the Federal Reserve (“the Fed”) and delayed the timing of the first cut.

At the beginning of 2024, markets had penciled in the equivalent of more than six 25 basis point cuts to the Federal Funds Target Rate starting this spring.

However, current expectations have been pared back to less than two such cuts starting in the second half of the year.

On the other hand, demand for fixed income securities has strengthened of late, with the largest quarterly inflows into mutual funds and electronically traded funds (“ETFs”) in more than two years.

Meanwhile, banks increased their security holdings in the first quarter as well after having net sold securities for much of last year.

On balance, the strong fund inflows and the improved bank demand broadened the investor base, particularly for Agency MBS, a welcome development after two years of elevated supply and more concentrated demand to money managers and foreign investors.

Annaly’s portfolio performed well in the first quarter, as our diversified housing finance strategy delivered a 4.8% positive economic return in the quarter, with all three businesses contributing to the positive economic return.

Moreover, these results were generated at the lowest economic leverage in several years at 5.6x, while generating earnings available for distribution of $0.64 per share.

Turning to Annaly’s individual business lines, Agency MBS spreads tightened modestly, by up to five basis points, led by production coupons, as interest rate volatility declined from recently elevated levels.

With respect to portfolio activity, we continued to gravitate the Agency MBS portfolio up in coupon, with the weighted-average portfolio coupon increasing marginally to 4.69% at the end of the quarter.

We once again invested in high-quality specified pool securities in production coupons that provide the widest nominal mortgage spreads and, as evidenced by the price action in the first quarter, some of the best economic returns in a rangebound interest rate environment.

These production coupons also stand to benefit from potential spread tightening should interest rate volatility continue to decline or the yield curve steepens.

Despite the positive longer-term outlook, the Agency MBS performance has been challenging in recent weeks given the strength in economic data and a delay in the potential start of Fed rate cuts.

Finally, our aggregate portfolio performance was helped by incremental excess returns in our Agency CMBS portfolio as well as our increased allocation of interest rate swaps in the hedge portfolio, which benefited from wider swap spreads.

Annaly’s Residential Credit business continued to grow its portfolio and benefited from meaningful spread tightening in the first quarter, as positive sentiment towards credit assets and sound housing fundamentals supported the sector.

The growth in the portfolio was sponsored by our wholly-owned subsidiary Onslow Bay Financial LLC’s (“Onslow Bay”) strategy of whole loan purchases, non-qualified mortgage (“Non-QM”) securitizations, and retention of part of the resulting MBS.

Meanwhile, given the tighter spreads in the sector, we opportunistically reduced segments of our third-party securities portfolio during the quarter.

The Onslow Bay (“OBX”) correspondent channel had another record quarter, registering $3.7 billion in rate locks during the quarter.

The correspondent channel settled $2.4 billion of loans in the first quarter, leaving the OBX pipeline with roughly $2 billion in locks at quarter end and continued strong momentum into the spring selling season.

Supported by strong origination volumes, we benefited from supportive capital markets by pricing eight securitizations totaling $3.8 billion since the beginning of 2024.

MSR transactional volumes remained elevated in the first quarter given challenging originator profitability while demand and pricing remained firm.

Despite elevated supply, we remained selective and disciplined, adding no bulk packages during the quarter, but committing to purchase one package after quarter end.

The second quarter of 2024 saw modest changes in interest rates in the aggregate, but the quarterly change belies elevated interest rate volatility and Agency mortgage-backed security (“MBS”) spread widening during the quarter.

Strong economic data led markets to reduce expectations for 2024 Federal Reserve (“Fed”) rate cuts in April, before concerns about higher yields faded given weaker labor market data and moderation in inflation readings in May and June.

Volatility remained elevated, nonetheless, as unexpected election results, most notably from the surprise French parliamentary elections, weighed on markets.

Of note, although markets will be influenced by the upcoming U.S.

presidential election, the slowdown in the U.S.

labor market, combined with more muted inflation prints, point to rising conviction that the Fed will begin to lower interest rates in the second half of the year.

The prospects of easing monetary policy should boost demand for fixed income securities, creating a supportive backdrop for our businesses in general and improving demand for Agency MBS in particular.

Given the environment, Annaly’s portfolio delivered a 0.9% positive economic return in the quarter, once again demonstrating our ability to deliver strong returns with prudent economic leverage, which stood at 5.8x, while generating earnings available for distribution of $0.68 per share.

We tactically reduced our Agency MBS portfolio early in the quarter as we navigated higher rates and wider MBS spreads.

Portfolio holdings ultimately ended the quarter $1.4 billion higher in market value, as we added back exposure in the second half of the quarter.

Similar to earlier quarters, we favored higher coupon prepayment protected collateral with durable cash flows, which we believe offer the best risk-adjusted returns across a number of interest rate market environments.

As a result of our trading activity, the average net coupon on the Agency portfolio increased by 30 basis points to 4.87 percent in the first two quarters.

We continue to have a positive outlook on the sector, as Agency MBS spreads remain above long-term averages, offering attractive risk adjusted returns at conservative leverage levels.

The sector has seen improvements in the supply-demand picture, as supply has so far been running below expectations, while demand has broadened relative to last year to include banks.

Declines in interest rate volatility and a steepening in the yield curve should support the sector in coming months.

In our Residential Credit business, securities holdings declined modestly during the quarter as we sold third-party securities to take advantage of relatively tight credit spreads while increasing our exposure to Agency MBS.

Residential credit spreads traded largely rangebound throughout the quarter, as the market remains supported by robust fundamentals.

Housing market activity remains well below historical averages and home price gains have been robust nationally, but we are monitoring increased regional disparities and the strength of the consumer, particularly if the labor market softens further.

We continued to focus our efforts on our Onslow Bay correspondent channel, which experienced record growth during the quarter as we locked $4.1 billion and settled $2.8 billion of expanded prime loans.

In the first six months of 2024, our correspondent channel activity already exceeded activity for all of 2023, while our pipeline continues to exhibit strong credit characteristics.

Our MSR portfolio increased modestly quarter-over-quarter, driven by settlements of earlier purchases and an increase in valuations given the rise in mortgage rates during the quarter.

The fundamental performance of the portfolio continues to outpace our earlier expectations as prepayment speeds remain muted, serious delinquencies remain low, and elevated escrow deposit float income help attract investors to the sector and boost valuations.

Of note, the record supply of bulk offerings over the last few years appears to be normalizing as originators see improving gain on sale margins and have reduced operating costs.

As bulk supply slows, focus has shifted on enhancing our flow and recapture capabilities to acquire newly originated MSR from our network of strategic partners.

Earnings available for distribution, economic leverage, and economic return are non-GAAP financial measures.

Refer to "Non-GAAP Financial Measures" for additional information, including a reconciliation to its most directly comparable GAAP results.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

We remain confident that we have constructed one of the highest quality conventional MSR portfolios in the market over the last two years, characterized by our industry leading 3.1% note rate and strong credit quality (757 FICO, 69% loan-to-value).

Fundamental performance of the MSR portfolio has continued to outpace our initial expectations with the portfolio realizing a 3-month annualized prepayment speed of 3.0%, rising float income given increased escrow balances due to tax and insurance increases, and minimal borrower delinquencies.

All of these factors have contributed to our MSR portfolio exhibiting highly stable cash flows with a double-digit return profile.

Earnings available for distribution, economic leverage, and economic return are non-GAAP financial measures.

Refer to "Non-GAAP Financial Measures" for additional information, including a reconciliation to its most directly comparable GAAP results.

Economic Environment

real economic growth remained firm in the first quarter, although it slowed from the robust pace seen in the second half of 2023, as gross domestic product rose 1.6% on a seasonally adjusted annualized rate.

Consumer spending remains strong due to solid spending in services to start the year.

However, goods consumption is modestly weaker as surveys of consumer sentiment appear less optimistic.

Savings as a share of personal income declined to 3.6% in February, suggesting current consumer spending cannot be sustained with income growth and may weaken going forward.

Investment activity appears more mixed with the increase in non-residential structure spending coming to an end, while residential investment currently tracks stronger than in the second half of 2023, due in part to strong housing starts and new home sales.

Meanwhile, the supply and demand for labor has continued to move into better balance, leading to stronger-than-expected employment data in the first quarter.

According to the Bureau of Labor Statistics, seasonally adjusted total non-farm payroll employment rose at a stronger rate than the prior quarter, with a monthly average 276,000 workers added in the first quarter compared to an average 212,000 workers in the fourth quarter of 2023.

The unemployment rate ended the quarter at 3.8%, only modestly higher than 3.7% for the fourth quarter.

This is due to the increase in individuals seeking employment, likely driven in part by higher immigration rates, as seen in the rising labor force participation rate from 62.5% in December to 62.7% in March.

At the same time, wage growth, as measured by the year-over-year change in Average Hourly Earnings, fell from 4.3% in the fourth quarter to 4.1% in the first quarter.

This marks the slowest year-over-year wage gain since June 2021.

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 and progress on disinflationary measures has been mixed.

Total PCE prices over the 12 months ended in March rose to 2.7% compared to the 2.6% recorded by the same metric in January, while core PCE inflation, which excludes volatile food and energy prices, fell from 2.9% in January to 2.8% in March.

Price pressures continued to be driven by the service sector, with an increase in car and medical care services, as well as little change in the still-elevated shelter sector.

The lack of progress on inflation in the first quarter has raised concerns about a persistent stickiness of inflation above 2%.

While forecasts continue to see further moderation in coming months, the strong labor market and healthy state of the economy suggest risks of reacceleration remain.

real economic growth improved in the second quarter relative to the first, as gross domestic product rose 2.8% on a seasonally adjusted annualized rate (“SAAR”).

Despite the sound quarterly growth rate, consumer spending is moderating in 2024, rising 1.9% SAAR in the first six months of the year, somewhat less than the 3.1% SAAR expansion in the second half of 2023.

Consumers appear to be increasingly cautious as elevated short-term interest rates, lower excess savings than immediately after the pandemic, low savings rates, a slowing labor market, and declining confidence appear to weigh on spending behavior.

Investment activity appears to have been robust during the quarter outside of the residential sector, though forward-looking surveys do not appear to suggest this is a sustained increase in investment activity.

The supply and demand for labor has continued to move into better balance.

According to the Bureau of Labor Statistics, seasonally adjusted total non-farm payroll employment rose 177,000 workers in the second quarter, well below the 276,000 workers added per month in the first quarter of 2024.

The unemployment rate ended the quarter at 4.1%, the highest monthly reading since the fourth quarter of 2021 as more people entered the labor force, which expanded 114,000 individuals during the quarter, but ultimately were unable to find employment.

At the same time, wage growth, as measured by the year-over-year change in Average Hourly Earnings, rose to 4.7% from 4.2% in the first quarter.

Total PCE prices over the 12 months ended in June rose to 2.5% compared to the 2.7% recorded by the same metric in March, while core PCE inflation, which excludes volatile food and energy prices, fell from 2.8% in March to 2.6% in June.

Price pressures eased in several services, including transportation and recreation services, as airline fares and live event pricing pressures eased somewhat.

The most positive inflation development, however, was a slowdown in the pace of shelter inflation predominantly in June, which suggests a further slowdown in the aggregate inflation could continue given the large importance of shelter inflation and the lagged, slow-moving methodology used to incorporate shelter inflation into the headline index.

The Fed conducts monetary policy with a dual mandate:

full employment and price stability.

Given the progress on inflation at the end of 2023, the Federal Reserve Open Market Committee (“FOMC”) has kept the target range for the Federal Funds rate unchanged at the restrictive level of 5.25% - 5.50% since July 2023.

The Federal Reserve Chair Jerome Powell has stated that the policy rate is at or near its peak in the Fed’s tightening cycle and signaled easier monetary policy over the course of 2024.

Forecasts from the FOMC meeting in March show the median forecast of the FOMC expects three 25 basis point interest rate cuts this year.

However, the recent lack of inflation progress has raised meaningful doubt over when and how much easing can be expected.

The FOMC has committed to a data-dependent policy approach and recent data has confirmed that it may take longer than expected for the FOMC to confirm easing is appropriate.

Meanwhile, regarding the FOMC’s balance sheet policy, the decline in their securities portfolio, which started in 2022, continued uninterrupted throughout the first quarter.

The FOMC has signaled a willingness to slow this decline fairly soon in order to reduce the risk of financial market stress, particularly in front-end money markets.

The stronger-than-expected economic data, increase in market-based inflation expectations, and repricing of the Fed rate policy path drove interest rates across the U.S Treasury yield curve higher during the first quarter.

However, the move was gradual and interest rate volatility moved lower relative to the second half of last year.

The Federal Reserve Open Market Committee (“FOMC”) has kept the target range for the Federal Funds rate unchanged at the restrictive level of 5.25% - 5.50% since July 2023.

The Fed Chair Jerome Powell has stated that the policy rate is at its peak in the Fed’s tightening cycle.

The FOMC has committed to a data-dependent policy approach and recent economic data of softer inflation and labor market data have suggested that interest rate cuts could commence in the second half of 2024.

Forecasts from the FOMC meeting in June show the median forecast of the FOMC expects just one 25 basis point interest rate cut this year, though interest rate markets expect slightly more than two such cuts.

Meanwhile, regarding the FOMC’s balance sheet policy, the decline in their securities portfolio, which started in 2022, continued throughout the second quarter, though the FOMC has slowed the pace of decline in the Treasury portfolio from $60 billion per month to $25 billion per month to limit risks of financial market stress, particularly in front-end money markets.

Interest rate levels rose during the second quarter, however, the move was gradual and interest rate volatility moved lower relative to the second half of last year.

The 10-year U.S.

Treasury rate increased from 3.88% on December 29, 2023 to 4.20% on March 31, 2024.

Higher rates but lower volatility allowed the mortgage basis, or the spread between the 30-year Agency MBS coupon and 10-year U.S.

Treasury rate, to widen only slightly from 137 basis points at the end of 2023 to 140 basis points at the end of the first quarter.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Treasury rate increased from 4.20% on March 31 to 4.40% on June 30, 2024.

Higher rates and continued above-average interest rate volatility led the mortgage basis, or the spread between the 30-year Agency MBS coupon and 10-year U.S.

Treasury rate, to widen modestly from 140 basis points to 147 basis points over the same period.

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

March 31, 2024 December 31, 2023 March 31, 2023

June 30, 2024 December 31, 2023 June 30, 2023

30-Year mortgage current coupon 5.87% 5.25% 5.63%

4 unchanged sentences

6-Month 5.26% 5.15% 5.37%

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

Results of Operations

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Net Income (Loss) Summary

The following table presents financial information related to our results of operations as of and for the three months ended March 31, 2024 and 2023.

As of and for the Three Months Ended March 31,

The following table presents financial information related to our results of operations as of and for the three and six months ended June 30, 2024 and 2023.

As of and for the Three Months Ended June 30,

As of and for the Six Months Ended June 30,

2024 2023 2024 2023

(dollars in thousands, except per share data)

25 unchanged sentences

GAAP leverage at period-end (1)

7.1:1 6.1:1 7.1:1 6.1:1

GAAP capital ratio at period-end (2)

12.0 % 13.3 % 12.0 % 13.3 %

Annualized return on average total assets 2.01 % (3.98 %)

Annualized return on average equity 16.29 % (28.84 %)

Annualized return (loss) on average total assets (0.04 %) 0.73 % 0.98 % (1.58 %)

Annualized return (loss) on average equity (3)

(0.31 %) 5.42 % 8.03 % (11.57 %)

Net interest margin (4)

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Economic leverage at period-end (1)

5.8:1 5.8:1 5.8:1 5.8:1

Economic capital ratio at period-end (2)

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AND SUBSIDIARIES

Management’s Discussion and Analysis

* Represents a non-GAAP financial measure.

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

(1) GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued and U.S.

Treasury securities sold, not yet purchased divided by total equity.

Economic leverage is computed as the sum of recourse debt, cost basis of to-be-announced (“TBA”) and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity.

Recourse debt consists of repurchase agreements, other secured financing, and U.S.

Treasury securities sold, not yet purchased.

Debt issued by securitization vehicles and participations issued are non-recourse to us and are excluded from economic leverage.

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

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

Total economic assets include the implied market value of TBA derivatives and net of debt issued by securitization vehicles.

(3) Net interest margin represents our interest income less interest expense divided by the average interest earning assets.

Net interest margin does not include net interest component of interest rate swaps.

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

(4) Average yield on interest earning assets represents annualized interest income divided by average interest earning assets.

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

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

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

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

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

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

(6) Excludes dividends on preferred stock.

(7) Annualized GAAP return (loss) on average equity annualizes realized and unrealized gains and (losses) which may not be indicative of full year performance, unannualized GAAP return (loss) on average equity is 4.07%, and (7.21%) for the three months ended March 31, 2024 and 2023, respectively.

Net income (loss) was $465.2 million, which includes $2.3 million attributable to noncontrolling interests, or $0.85 per average basic common share, for the three months ended March 31, 2024, compared to ($839.3) million, which includes $4.9 million attributable to noncontrolling interests, or ($1.79) per average basic common share, for the same period in 2023.

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

Net gains (losses) on derivatives was $1.4 billion for the three months ended March 31, 2024 compared to ($0.9) billion for the same period in 2023.

Net servicing income for the three months ended March 31, 2024 was $102.9 million compared to $76.4 million for the same period in 2023.

Net gains (losses) on investments and other was ($1.0) billion for the three months ended March 31, 2024 compared to $1.7 million for the same period in 2023.

Net interest income for the three months ended March 31, 2024 was ($6.5) million compared to $19.5 million for the same period in 2023.

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

Earnings available for distribution were $358.0 million, or $0.64 per average common share, for the three months ended March 31, 2024, compared to $427.1 million, or $0.81 per average common share, for the same period in 2023.

The change in earnings available for distribution during the three months ended March 31, 2024, compared to the same period in 2023, was primarily due to higher interest expense from an increase in average borrowing rates and average interest bearing liabilities, and an unfavorable change in the net interest component of interest rate swaps.

This change was partially offset by higher coupon income and lower premium amortization expense, excluding PAA, resulting from purchasing assets with lower premium to par, as we rotated up in the coupon stack, partially offset by higher prepayment speed projections, and higher net servicing income.

Non-GAAP Financial Measures

To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide the following non-GAAP financial measures:

• earnings available for distribution (“EAD”);

• earnings available for distribution attributable to common stockholders;

• earnings available for distribution per average common share;

• annualized EAD return on average equity;

• economic leverage;

• economic capital ratio;

• interest income (excluding PAA);

• economic interest expense;

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• economic net interest income (excluding PAA);

• average yield on interest earning assets (excluding PAA);

• average economic cost of interest bearing liabilities;

• net interest margin (excluding PAA);

• net interest spread (excluding PAA).

These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with GAAP.

While intended to offer a fuller understanding of our results and operations, non-GAAP financial measures also have limitations.

For example, we may calculate our non-GAAP metrics, such as earnings available for distribution, or the PAA, differently than our peers making comparative analysis difficult.

Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which we will amortize the remaining unamortized premium.

Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results.

These non-GAAP measures provide additional detail 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.

Additional information pertaining to our use of these non-GAAP financial measures, including discussion of how each such measure may be useful to investors, and reconciliations to their most directly comparable GAAP results are provided below.

Earnings Available for Distribution, Earnings Available for Distribution Attributable to Common Stockholders, Earnings Available for Distribution Per Average Common Share and Annualized EAD Return on Average Equity

Our principal business objective is to generate net income for distribution to our stockholders and optimize our returns through prudent management of our diversified investment strategies.

We generate net income by earning a net interest spread on our investment portfolio, which is a function of interest income from our investment portfolio less financing, hedging and operating costs.

Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss) (excluding amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items), and excludes (g) the PAA representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities, is used by management and, we believe, used by analysts and investors to measure our progress in achieving our principal business objective.

We seek to fulfill our principal business objective through a variety of factors including portfolio construction, the degree of market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of our capital allocation policy and risk governance framework.

We believe these non-GAAP measures provide management and investors with additional details regarding our underlying operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive income (loss), and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to provide additional transparency into the operating performance of our portfolio.

In addition, EAD serves as a useful indicator for investors in evaluating our performance and ability to pay dividends.

Annualized EAD return on average equity, which is calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional detail on the earnings available for distribution generated by our invested equity capital.

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

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Management’s Discussion and Analysis

For the Three Months Ended March 31,

(dollars in thousands, except per share data)

GAAP net income (loss) $ 465,174 $ (839,328)

Adjustments to exclude reported realized and unrealized (gains) losses

Net (gains) losses on investments and other (1)

994,120 (1,712)

Net (gains) losses on derivatives (2)

(1,046,995) 1,286,458

Loan loss provision (reversal) — (219)

Other adjustments

Amortization of intangibles 673 758

Non-EAD (income) loss allocated to equity method investments (3)

Transaction expenses and non-recurring items (4)

Income tax effect of non-EAD income (loss) items (2,918) 8,278

TBA dollar roll income and CMBX coupon income (5)

MSR amortization (6)

(50,621) (43,423)

EAD attributable to noncontrolling interests (3,786) (3,470)

Premium amortization adjustment cost (benefit) (3,013) 491

Earnings available for distribution *

357,962 427,130

Dividends on preferred stock 37,061 31,875

Earnings available for distribution attributable to common stockholders *

$ 320,901 $ 395,255

GAAP net income (loss) per average common share $ 0.85 $ (1.79)

Earnings available for distribution per average common share *

$ 0.64 $ 0.81

Annualized GAAP return (loss) on average equity (7)

16.29 % (28.84 %)

Annualized EAD return on average equity *

12.63 % 14.82 %

* Represents a non-GAAP financial measure.

Refer to the disclosure within this section above for additional information on non-GAAP financial measures.

(1) Includes write-downs or recoveries which are reported in Other, net in the Company's Consolidated Statement of Comprehensive Income (Loss).

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

The net interest component of interest rate swaps totaled $330.1 million and $385.7 million for the three months ended March 31, 2024 and 2023.

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

(4) Represents costs incurred in connection with securitizations of residential whole loans.

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

CMBX coupon income totaled $0.0 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.

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

From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency MBS.

A TBA contract is an agreement to purchase or sell, for future delivery, an Agency MBS with a specified issuer, term and coupon.

A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are simultaneously bought and sold.

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

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

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

Accordingly, TBA dollar roll income generally represents the economic equivalent of the net interest income earned on the underlying Agency MBS less an implied financing cost.

TBA dollar roll transactions are accounted for under GAAP as a series of derivatives transactions.

The fair value of TBA derivatives is based on methods similar to those used to value Agency MBS.

We record TBA derivatives at fair value on our Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on

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Management’s Discussion and Analysis

derivatives in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives.

TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different settlement dates multiplied by the notional amount of the TBA contract.

Although accounted for as derivatives, TBA dollar rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency MBS (interest income less an implied cost of financing).

TBA dollar roll income is reported as a component of Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities of a particular rating and vintage.

The CMBX index allows investors to take a long position (referred to as selling protection) or short position (referred to as purchasing protection) on the respective basket of commercial mortgage-backed securities and is structured as a “pay-as-you-go” contract whereby the protection seller receives and the protection buyer pays a standardized running coupon on the contracted notional amount.

Additionally, the protection seller is obligated to pay to the protection buyer the amount of principal losses and/or coupon shortfalls on the underlying commercial mortgage-backed securities as they occur.

We report income (expense) on CMBX positions in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

The coupon payments received or paid on CMBX positions is equivalent to interest income (expense) and therefore included in earnings available for distribution.

Premium Amortization Expense

In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency MBS, excluding interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the calculation of the effective yield.

We recalculate the effective yield as differences between anticipated and actual prepayments occur.

Using third party models 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.

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.

Our GAAP metrics include the unadjusted impact of amortization and accretion associated with this method.

Certain of our non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term Constant Prepayment Rate (“CPR”).

The following table illustrates the impact of the PAA on premium amortization expense for our Residential Securities portfolio for the periods presented:

For the Three Months Ended March 31,

(dollars in thousands)

Premium amortization expense $ 26,732 $ 56,534

PAA cost (benefit) (3,013) 491

Premium amortization expense (excluding PAA) $ 29,745 $ 56,043

Economic Leverage and Economic Capital Ratios

We use capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between the yield on our assets and the cost of our borrowings and hedging activities.

Our capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns for our stockholders while maintaining appropriate liquidity to support our business and meet our financial obligations under periods of market stress.

To maintain our desired capital profile, we utilize a mix of debt and equity funding.

Debt funding may include the use of repurchase agreements, loans, securitizations, participations issued, lines of credit, asset backed lending facilities, corporate bond issuance, convertible bonds or other liabilities.

Equity capital primarily consists of common and preferred stock.

Our economic leverage ratio is computed as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity.

Recourse debt consists of repurchase agreements,

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Management’s Discussion and Analysis

other secured financing, and U.S Treasury securities sold, not yet purchased.

Debt issued by securitization vehicles and participations issued are non-recourse to us and are excluded from economic leverage.

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

March 31, 2024 March 31, 2023

Economic leverage ratio reconciliation

(dollars in thousands)

Repurchase agreements

$ 58,975,232 $ 60,993,018

Other secured financing

600,000 250,000

Debt issued by securitization vehicles

13,690,967 8,805,911

Participations issued

1,161,323 673,431

Treasury securities sold, not yet purchased 2,077,404 —

Total GAAP debt

$ 76,504,926 $ 70,722,360

Less Non-Recourse Debt:

Debt issued by securitization vehicles

$ (13,690,967) $ (8,805,911)

Participations issued

(1,161,323) (673,431)

Total recourse debt $ 61,652,636 $ 61,243,018

Plus / (Less):

Cost basis of TBA and CMBX derivatives

1,136,788 12,241,647

Payable for unsettled trades 2,556,798 3,259,034

Receivable for unsettled trades (941,366) (679,096)

Economic debt *

$ 64,404,856 $ 76,064,603

$ 11,496,113 $ 11,909,033

Economic leverage ratio *

* Represents a non-GAAP financial measure.

Refer to the disclosure within this section above for additional information on non-GAAP financial measures.

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

March 31, 2024 March 31, 2023

Economic capital ratio reconciliation

(dollars in thousands)

Total GAAP assets

$ 91,483,546 $ 86,832,017

Gross unrealized gains on TBA derivatives (1)

(7,220) (167,065)

Debt issued by securitization vehicles

(13,690,967) (8,805,911)

Implied market value of TBA derivatives

1,133,305 12,020,810

Total economic assets *

$ 78,918,664 $ 89,879,851

$ 11,496,113 $ 11,909,033

Economic capital ratio (2) *

* Represents a non-GAAP financial measure.

Refer to the disclosure within this section above for additional information on non-GAAP financial measures.

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

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

Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)

Interest income (excluding PAA) represents interest income excluding the effect of the premium amortization adjustment, and serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA), which are discussed below.

We believe this measure provides management and investors with additional detail to enhance their understanding of our operating results and trends by excluding the component of premium amortization expense representing the cumulative effect of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency MBS (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio.

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

We use interest rate swaps to manage our exposure to changing interest rates on repurchase agreements by economically hedging

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Management’s Discussion and Analysis

cash flows associated with these borrowings.

Accordingly, adding the net interest component of interest rate swaps to interest expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with additional information about the cost of our financing strategy.

We may use market agreed coupon (“MAC”) interest rate swaps in which we may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-market nature of such interest rate swap.

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

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

The following tables present a reconciliation of GAAP interest income and GAAP interest expense to non-GAAP interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA), respectively, for the periods presented:

Interest Income (excluding PAA)

GAAP Interest Income PAA Cost

(Benefit) Interest Income (excluding PAA) *

For the three months ended (dollars in thousands)

March 31, 2024 $ 1,094,488 $ (3,013) $ 1,091,475

March 31, 2023 $ 818,250 $ 491 $ 818,741

* Represents a non-GAAP financial measure.

Refer to disclosures within this section above for additional information on non-GAAP financial measures.

Economic Interest Expense and Economic Net Interest Income (excluding PAA)

Net Interest Component of Interest Rate Swaps Economic Interest

Net Interest Component

of Interest Rate Swaps

(Benefit) Economic Net Interest Income (excluding PAA) *

For the three months ended (dollars in thousands)

March 31, 2024 $ 1,100,939 $ (330,149) $ 770,790 $ (6,451) $ (330,149) $ 323,698 $ (3,013) $ 320,685

March 31, 2023 $ 798,787 $ (385,706) $ 413,081 $ 19,463 $ (385,706) $ 405,169 $ 491 $ 405,660

* Represents a non-GAAP financial measure.

Refer to disclosures within this section above for additional information on non-GAAP financial measures.

Experienced and Projected Long-Term CPR

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

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

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

Experienced CPR (1)

Projected Long-term CPR (2)

For the three months ended

March 31, 2024 6.0 % 8.9 %

March 31, 2023 5.5 % 8.4 %

(1) For the three months ended March 31, 2024 and 2023, respectively.

(2) At March 31, 2024 and 2023, respectively.

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

Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances, provide management with additional measures of our profitability that management relies upon in monitoring the performance of the business.

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Management’s Discussion and Analysis

Disclosure of these measures, which are presented below, provides investors with additional detail regarding how management evaluates our performance.

Net Interest Spread (excluding PAA)

Average Interest Earning

Interest Income (excluding PAA) *

Average Yield on Interest Earning Assets (excluding PAA) *

Average Interest Bearing Liabilities (2)

Economic Interest Expense * (2)

Average Economic Cost of Interest Bearing Liabilities * (2)

Economic Net Interest Income (excluding PAA) *

Net Interest Spread (excluding PAA) *

For the three months ended (dollars in thousands)

March 31, 2024 $ 89,738,726 $ 1,091,475 4.87 % $ 80,682,111 $ 770,790 3.78 % 320,685 1.09 %

March 31, 2023 $ 82,644,998 $ 818,741 3.96 % $ 70,635,632 413,081 2.34 % 405,660 1.62 %

* Represents a non-GAAP financial measure.

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

(1) Based on amortized cost.

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

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

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

Net Interest Margin (excluding PAA)

Interest Income (excluding PAA) *

TBA Dollar Roll and CMBX Coupon Income (1)

Economic Interest Expense * Subtotal Average Interest Earnings Assets Average TBA Contract and CMBX Balances Subtotal Net Interest Margin (excluding PAA) *

For the three months ended (dollars in thousands)

March 31, 2024 $ 1,091,475 1,375 (770,790) $ 322,060 $ 89,738,726 149,590 $ 89,888,316 1.43 %

March 31, 2023 $ 818,741 18,183 (413,081) $ 423,843 $ 82,644,998 13,949,884 $ 96,594,882 1.76 %

* Represents a non-GAAP financial measure.

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

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

CMBX coupon income totaled $0.0 million and $1.1 million for the three months ended March 31, 2024 and 2023, respectively.

Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities

Typically, our largest expense is the cost of interest bearing liabilities and the net interest component of interest rate swaps.

The following table shows our average interest bearing liabilities and average economic cost of interest bearing liabilities as compared to average one-month and average six-month SOFR for the periods presented.

Average Economic Cost of Interest Bearing Liabilities

Interest Bearing

Liabilities Interest Bearing Liabilities at

Period End Economic

Expense * (1)

Average Economic

Liabilities *

Term SOFR Average

One-Month Term SOFR

Month Term SOFR Average Economic Cost

Average Six-Month Term SOFR

For the three months ended

March 31, 2024 $ 80,682,111 $ 75,904,926 $ 770,790 3.78 % 5.33 % 5.21 % 0.12 % (1.55 %) (1.43 %)

March 31, 2023 $ 70,635,632 $ 70,472,360 $ 413,081 2.34 % 4.61 % 4.92 % (0.31 %) (2.27 %) (2.58 %)

* Represents a non-GAAP financial measure.

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

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

Economic interest expense increased by $357.7 million for the three months ended March 31, 2024, compared to the same period in 2023, primarily due to higher interest expense on repurchase agreements reflecting higher borrowing rates, higher average interest bearing liabilities, and the reduction in the net interest component of interest rate swaps, which was $330.1 million for the three months ended March 31, 2024, compared to $385.7 million for the same period in 2023.

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

Our borrowings at period end are a snapshot of our borrowings as of a date, and this number may differ from average borrowings over the period for a number of reasons.

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

As a result, depending on

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Management’s Discussion and Analysis

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

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

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

Additionally, these numbers may differ during periods when we conduct equity capital raises, as in certain instances we may purchase additional assets and increase leverage in anticipation of an equity capital raise.

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

At March 31, 2024 and December 31, 2023, the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, and MSR.

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

However, we limit our borrowings, and thus our potential asset growth, in order to maintain unused borrowing capacity and maintain the liquidity and strength of our balance sheet.

Other Income (Loss)

For the Three Months Ended March 31, 2024 and 2023

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments was ($545.9) million for the three months ended March 31, 2024, compared to ($521.6) million for the same period in 2023.

For the three months ended March 31, 2024, we disposed of Residential Securities with a carrying value of $8.1 billion for an aggregate net gain (loss) of ($438.2) million.

For the same period in 2023, we disposed of Residential Securities, with a carrying value of $5.2 billion for an aggregate net gain (loss) of ($521.8) million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($448.2) million for the three months ended March 31, 2024, compared to $523.3 million for the same period in 2023, primarily due to unfavorable changes in unrealized gains (losses) on Agency MBS of ($1.1) billion, securitized residential whole loans of consolidated VIEs of ($294.8) million, and residential whole loans of ($50.4) million, partially offset by favorable changes in residential securitized debt of consolidated VIEs of $297.9 million, U.S.

Treasury securities sold, not yet purchased of $133.3 million, and participations issued of $25.0 million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the three months ended March 31, 2024 was $1.2 billion compared to ($716.4) million for the same period in 2023, primarily attributable to favorable changes in unrealized gains (losses) on interest rate swaps, partially offset by unfavorable changes in the net interest component of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $900.9 million for the three months ended March 31, 2024, compared to ($956.3) million for the same period in 2023, which reflected a flatter forward rate curve compared to a steeper declining forward rate curve in the prior period.

Realized gains (losses) on termination of interest rate swaps was ($21.2) million for the three months ended March 31, 2024, compared to ($145.8) million for the same period in 2023, which reflected our termination of interest rate swaps with a notional amount of $2.5 billion, compared to $8.6 billion for the same period in 2023.

Net interest component on interest rate swaps was $330.1 million for the three months ended March 31, 2024, compared to $385.7 million for the same period in 2023.

Net gains (losses) on other derivatives was $167.3 million for the three months ended March 31, 2024, compared to ($184.4) million for the same period in 2023.

The change in net gains (losses) on other derivatives was primarily due to a favorable change in net gains (losses) on futures, which was $137.0 million for the three months ended March 31, 2024, compared to ($196.5) million for the same period in 2023, and net gains (losses) on interest rate swaptions, which was $30.6 million for the three months ended March 31, 2024, compared to ($43.7) million for the same period in 2023, partially offset by an unfavorable change in net gains (losses) on TBA derivatives, which was $6.3 million for the three months ended March 31, 2024, compared to $61.5 million for the same period in 2023.

Other, net includes brokerage and commission fees, due diligence costs, securitization expenses, and interest on custodial balances.

We also report in Other, net items whose amounts, either individually or in the aggregate, would not, in the opinion of management, be meaningful to readers of the financial statements.

Given the nature of certain components of this line item,

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Management’s Discussion and Analysis

balances may fluctuate from period to period.

Other, net for the three months ended March 31, 2024 was $23.4 million compared to $15.5 million for the same period in 2023, primarily attributable to an increase in interest on custodial balances, partially offset by an increase in securitization related costs.

General and Administrative Expenses

General and administrative (“G&A”) expenses consist of compensation and other expenses.

The following table shows our total G&A expenses as compared to average total assets and average equity for the periods presented.

G&A Expenses and Operating Expense Ratios

Expenses Total G&A Expenses/Average Assets Total G&A Expenses/Average Equity

For the three months ended (dollars in thousands)

March 31, 2024 $ 38,570 0.17 % 1.35 %

March 31, 2023 $ 40,828 0.19 % 1.40 %

G&A expenses were $38.6 million for the three months ended March 31, 2024, a decrease of $2.3 million compared to the same period in 2023.

The change in each period was primarily due to a decrease in compensation, in addition to lower expenses related to technology, equipment, and insurance.

Return on Average Equity

The following table shows the components of our annualized return on average equity for the periods presented.

Components of Annualized Return on Average Equity

Economic Net Interest Income/ Average Equity (1)

Net Servicing Income/Average Equity Other Income (Loss)/Average Equity (2)

G&A Expenses/ Average Equity Income

Taxes/ Average Equity Return on

Average Equity

For the three months ended

March 31, 2024 11.34 % 3.60 % 2.67 % (1.35 %) 0.03 % 16.29 %

March 31, 2023 13.92 % 2.63 % (43.61 %) (1.40 %) (0.38 %) (28.84 %)

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

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

Unrealized Gains and Losses - Available-for-Sale Investments

The unrealized fluctuations in market values of our available-for-sale Agency MBS, for which the fair value option is not elected, do not impact our GAAP net income (loss) but rather are reflected on our balance sheet by changing the carrying value of the asset and stockholders’ equity under accumulated other comprehensive income (loss).

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

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

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

March 31, 2024 December 31, 2023

(dollars in thousands)

Unrealized gain $ 4,364 $ 5,051

Unrealized loss (1,286,282) (1,340,451)

Accumulated other comprehensive income (loss) $ (1,281,918) $ (1,335,400)

Unrealized changes in the estimated fair value of available-for-sale investments may have a direct effect on our potential earnings and dividends:

positive changes will increase our equity base and allow us to increase our borrowing capacity while negative changes tend to reduce borrowing capacity.

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

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Management’s Discussion and Analysis

The fair value of these securities being less than amortized cost at March 31, 2024 is solely due to market conditions and not the quality of the assets.

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

The investments do not require an allowance for credit losses because we currently have the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that we will be required to sell the investments before recovery of the amortized cost bases, which may be maturity.

Also, we are guaranteed payment of the principal and interest amounts of the securities by the respective issuing Agency.

Financial Condition

Total assets were $91.5 billion and $93.2 billion at March 31, 2024 and December 31, 2023, respectively.

The change was primarily due to decreases in Agency MBS of $2.8 billion, receivables for unsettled trades of $1.8 billion, and principal and interest receivable of $355.4 million, partially offset by increases in securitized residential whole loans of consolidated VIEs of $2.3 billion, mortgage servicing rights of $529.1 million, and cash and cash equivalents of $253.2 million.

Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at March 31, 2024:

Agency MBS MSR Residential Credit (1)

Commercial Total

Assets (dollars in thousands)

Fair value $ 63,542,230 $ 2,651,279 $ 21,137,904 $ 153,128 $ 87,484,541

Implied market value of derivatives (2)

1,133,305 — — — 1,133,305

Repurchase agreements 54,822,067 — 4,016,945 136,220 58,975,232

Implied cost basis of derivatives (2)

1,136,788 — — — 1,136,788

Other secured financing — 600,000 — — 600,000

Debt issued by securitization vehicles — — 13,690,967 — 13,690,967

Participations issued — — 1,161,323 — 1,161,323

Treasury securities sold, not yet purchased 2,016,104 (1,374) 62,665 9 2,077,404

Net forward purchases 1,523,322 97,110 (5,000) — 1,615,432

Net other assets / liabilities 1,523,109 388,057 163,170 61,077 2,135,413

Net equity allocated $ 6,700,363 $ 2,343,600 $ 2,374,174 $ 77,976 $ 11,496,113

Net equity allocated (%) 59 % 20 % 20 % 1 % 100 %

Debt/net equity ratio (3)

8.2:1 0.3:1 7.9:1 1.7:1 6.7:1

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

(2) Derivatives include TBA contracts under Agency MBS.

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

Residential Securities

Substantially all of our Agency MBS at March 31, 2024 and December 31, 2023 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties.

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

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

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

At March 31, 2024 and December 31, 2023, we had on our Consolidated Statements of Financial Condition a total of $1.4 billion and $1.4 billion, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities acquired at a price below principal value) and a total of $2.3 billion and $2.4 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities acquired at a price above principal value).

The weighted average experienced prepayment speed on our Agency MBS portfolio for the three months ended March 31, 2024 and 2023 was 6.0% and 5.5%, respectively.

The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of March 31, 2024 and 2023 was 8.9% and 8.4%, respectively.

Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-

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Management’s Discussion and Analysis

backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period.

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

The following table presents our Residential Securities that were carried at fair value at March 31, 2024 and December 31, 2023.

March 31, 2024 December 31, 2023

Estimated Fair Value

Fixed-rate pass-through $ 59,472,835 $ 62,198,941

Adjustable-rate pass-through 185,133 191,489

CMO 79,370 82,972

Interest-only 237,992 264,005

Multifamily 3,539,373 3,544,528

Reverse mortgages 27,527 26,853

Total agency securities $ 63,542,230 $ 66,308,788

Residential credit

Credit risk transfer $ 871,421 $ 974,059

Alt-A 141,989 150,235

Prime 81,870 180,647

Subprime 236,212 235,605

NPL/RPL 1,223,396 1,197,555

Prime jumbo (>= 2010 vintage) 250,443 344,232

Total residential credit securities $ 2,805,331 $ 3,082,333

Total Residential Securities $ 66,347,561 $ 69,391,121

The following table summarizes certain characteristics of our Residential Securities (excluding interest-only mortgage-backed securities) and interest-only mortgage-backed securities at March 31, 2024 and December 31, 2023.

March 31, 2024 December 31, 2023

Residential Securities (1)

(dollars in thousands)

Principal amount $ 67,645,661 $ 70,078,626

Net premium (17,607) 63,902

Amortized cost 67,628,054 70,142,528

Amortized cost / principal amount 99.97 % 100.09 %

Carrying value 65,633,485 68,701,769

Carrying value / principal amount 97.03 % 98.04 %

Weighted average coupon rate 4.78 % 4.68 %

Weighted average yield 4.76 % 4.64 %

Adjustable-rate Residential Securities (1)

Principal amount $ 1,087,948 $ 1,206,700

Weighted average coupon rate 8.84 % 8.79 %

Weighted average yield 8.08 % 8.09 %

Weighted average term to next adjustment (2)

7 Months 8 Months

Weighted average lifetime cap (3)

9.34 % 9.34 %

Principal amount at period end as % of total residential securities 1.61 % 1.72 %

Fixed-rate Residential Securities (1)

Principal amount $ 66,557,713 $ 68,871,926

Weighted average coupon rate 4.72 % 4.61 %

Weighted average yield 4.71 % 4.58 %

Principal amount at period end as % of total residential securities 98.39 % 98.28 %

Interest-only Residential Securities

Notional amount $ 29,307,674 $ 25,918,105

Net premium 891,988 865,467

Amortized cost 891,988 865,467

Amortized cost / notional amount 3.04 % 3.34 %

Carrying value 714,076 689,352

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Management’s Discussion and Analysis

Carrying value / notional amount 2.44 % 2.66 %

Weighted average coupon rate 0.41 % 0.43 %

Weighted average yield NM NM

(1) Excludes interest-only MBS.

(2) Excludes non-Agency MBS and CRT securities.

(3) Excludes non-Agency MBS and CRT securities as this attribute is not applicable to these asset classes.

NM Not meaningful.

The following tables summarize certain characteristics of our Residential Credit portfolio at March 31, 2024.

Payment Structure Investment Characteristics (1)

Product Estimated Fair Value Senior Subordinate Coupon Credit Enhancement 60+

Delinquencies 3M VPR (2)

(dollars in thousands)

Credit risk transfer $ 871,421 $ — $ 871,421 9.73 % 1.68 % 0.85 % 4.55 %

Alt-A 141,989 — 141,989 6.98 % 9.61 % 2.70 % 10.42 %

Prime 81,870 20,773 61,097 3.68 % 4.38 % 0.64 % 4.44 %

Subprime 236,212 68,452 167,760 7.25 % 23.46 % 10.32 % 9.16 %

Re-performing loan securitizations 788,569 449,383 339,186 5.49 % 28.13 % 17.90 % 3.95 %

Non-performing loan securitizations 434,827 388,764 46,063 5.19 % 39.58 % 65.80 % 7.29 %

Prime jumbo (>=2010 vintage) 250,443 75,796 174,647 4.88 % 2.40 % 0.53 % 3.88 %

Total/weighted average $ 2,805,331 $ 1,003,168 $ 1,802,163 6.84 % 18.02 % 17.05 % 5.47 %

(1) Investment characteristics exclude the impact of interest-only securities.

(2) Represents the 3 month voluntary prepayment rate (“VPR”).

Product ARM Fixed Floater Interest-Only Estimated Fair Value

(dollars in thousands)

Credit risk transfer $ — $ — $ 871,421 $ — $ 871,421

Alt-A 1,169 140,820 — — 141,989

Prime — 67,606 — 14,264 81,870

Subprime — 214,907 21,216 89 236,212

Re-performing loan securitizations — 788,569 — — 788,569

Non-performing loan securitizations — 434,827 — — 434,827

Prime jumbo (>=2010 vintage) — 154,008 20,639 75,796 250,443

Total $ 1,169 $ 1,800,737 $ 913,276 $ 90,149 $ 2,805,331

Contractual Obligations

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at March 31, 2024.

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

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

At March 31, 2024, the interest rate swaps had a net fair value of $25.9 million.

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Management’s Discussion and Analysis

Year One to Three

Years Three to Five

Years More than

Five Years Total

(dollars in thousands)

Repurchase agreements $ 58,796,170 $ 179,062 $ — $ — $ 58,975,232

Interest expense on repurchase agreements (1)

389,005 14,312 — — 403,317

Other secured financing 225,000 375,000 — — 600,000

Interest expense on other secured financing (1)

46,233 21,114 — — 67,347

Debt issued by securitization vehicles (principal) — — — 14,801,428 14,801,428

Interest expense on debt issued by securitization vehicles 700,973 1,401,946 1,401,946 21,073,493 24,578,358

Participations issued (principal) — — — 1,134,210 1,134,210

Interest expense on participations issued 85,664 171,327 171,327 2,124,450 2,552,768

Long-term operating lease obligations 4,109 2,449 224 — 6,782

Total $ 60,247,154 $ 2,165,210 $ 1,573,497 $ 39,133,581 $ 103,119,442

(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at March 31, 2024.

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

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

During the three months ended March 31, 2024, we received $1.4 billion from principal repayments and $9.5 billion in cash from disposal of Securities.

During the three months ended March 31, 2023, we received $1.3 billion from principal repayments and $4.7 billion in cash from disposal of Securities.

Commitments and Contractual Obligations with Unconsolidated Entities

We do not have any commitments or contractual obligations arising from arrangements with unconsolidated entities that have or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations, liquidity, cash requirements or capital resources.

Capital Management

Maintaining a strong balance sheet that can support the business even in times of economic stress and market volatility is of critical importance to our business strategy.

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

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

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

The major risks impacting capital are liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk and compliance, regulatory and legal risk.

For further discussion of the risks we are subject to, please see Part I, Item 1A.

“Risk Factors” in 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.

Capital requirements are based on maintaining levels above approved thresholds, ensuring the quality of our capital appropriately reflects our asset mix, market and funding structure.

In the event we fall short of our internal thresholds, we will consider appropriate actions which may include asset sales, changes in asset mix, reductions in asset purchases or originations, issuance of capital or other capital enhancing or risk reduction strategies.

Stockholders’ Equity

The following table provides a summary of total stockholders’ equity at March 31, 2024 and December 31, 2023:

March 31, 2024 December 31, 2023

Stockholders’ equity (dollars in thousands)

6.95% Series F fixed-to-floating rate cumulative redeemable preferred stock 696,910 696,910

6.50% Series G fixed-to-floating rate cumulative redeemable preferred stock 411,335 411,335

6.75% Series I fixed-to-floating rate cumulative redeemable preferred stock 428,324 428,324

Common stock 5,004 5,001

Additional paid-in capital 23,673,687 23,672,391

Accumulated other comprehensive income (loss) (1,281,918) (1,335,400)

Accumulated deficit (12,523,809) (12,622,768)

Total stockholders’ equity $ 11,409,533 $ 11,255,793

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Management’s Discussion and Analysis

Capital Stock

In December 2020, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding common shares, which expired on December 31, 2021 (the “Prior Share Repurchase Program”).

In January 2022, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock through December 31, 2024 (the “Current Share Repurchase Program”).

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

During the three months ended March 31, 2024 and 2023, no shares were purchased under the Current Share Repurchase Program or Prior Share Repurchase Program.

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

1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, and Amendment No.

2 to the Amended and Restated Distribution Agency Agreements on November 3, 2022, collectively, the “Sales Agreements”) with each of Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co.

LLC, Keefe, Bruyette & Woods, Inc., J.P.

Morgan Securities LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”).

Pursuant to the Sales Agreements, we may offer and sell shares of 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”).

No shares were issued under the at-the-market sales program during the three months ended March 31, 2024.

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

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

Preferred Stock

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

Under the terms of the plan, we are authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of our 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”), (ii) 17,000,000 shares of our 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of our 6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and together with Series F Preferred Stock and Series G Preferred Stock, the “Preferred Stock”).

The aggregate liquidation value of the Preferred Stock that may be repurchased by us pursuant to the Preferred Stock Repurchase Program, as of November 3, 2022, was approximately $1.6 billion.

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

No shares were repurchased with respect to the Preferred Stock Repurchase Program during the three months ended March 31, 2024.

Purchases made pursuant to the Preferred Stock Repurchase Program will be made in either the open market or in privately negotiated transactions from time to time as permitted by securities laws and other legal requirements.

The timing, manner, price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market conditions, stock price, applicable legal requirements and other factors.

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

Leverage and Capital

We believe that it is prudent to maintain conservative GAAP leverage ratios and economic leverage ratios as there may be continued volatility in the mortgage and credit markets.

Our capital policy governs our capital and leverage position including setting limits.

Based on the guidelines, we generally expect to maintain an economic leverage ratio of less than 10:1.

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

Our GAAP leverage ratio at March 31, 2024 and December 31, 2023 was 6.7:1 and 6.8:1, respectively.

Our economic leverage ratio, which is computed as the sum of Recourse Debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity was 5.6:1 and 5.7:1, at March 31, 2024 and December 31, 2023,

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Management’s Discussion and Analysis

respectively.

Our GAAP capital ratio at March 31, 2024 and December 31, 2023 was 12.6% and 12.2%, respectively.

Our economic capital ratio, which represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives and net of debt issued by securitization vehicles), was 14.6% and 14.0% at March 31, 2024 and December 31, 2023, respectively.

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

Refer to the “Non-GAAP Financial Measures” section for additional information, including reconciliations to their most directly comparable GAAP results.

Risk Management

We are subject to a variety of risks in the ordinary conduct of our business.

The effective management of these risks is of critical importance to the overall success of Annaly.

The objective of our risk management framework is to identify, measure and monitor these risks.

Our risk management framework is intended to facilitate a holistic, enterprise-wide view of risk.

We believe we have built a strong and collaborative risk management culture throughout Annaly focused on awareness which supports appropriate understanding and management of our key risks.

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

Risk Appetite

We maintain a firm-wide risk appetite statement which defines the types and levels of risk we are willing to take in order to achieve our business objectives, and reflects our risk management philosophy.

We engage in risk activities based on our core expertise that aim to enhance value for our stockholders.

Our activities focus on income generation and capital preservation through proactive portfolio management, supported by a conservative liquidity and leverage posture.

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

Risk Parameter Description

Portfolio Composition We will maintain a portfolio comprised of target assets approved by our Board and in accordance with our capital allocation policy.

Leverage We generally expect to maintain an economic leverage ratio no greater than 10:1 considerate of our overall capital allocation framework.

Liquidity Risk We will seek to maintain an unencumbered asset portfolio sufficient to meet our liquidity needs under adverse market conditions.

Interest Rate Risk We will seek to manage interest rate risk to protect the portfolio from adverse rate movements utilizing derivative instruments targeting both income and capital preservation.

Credit Risk We will seek to manage credit risk by making investments which conform to our specific investment policy parameters and optimize risk-adjusted returns.

Capital Preservation We will seek to protect our capital base through disciplined risk management practices.

Operational Risk We will seek to limit impacts to our business through disciplined operational risk management practices addressing areas including but not limited to, management of key third party relationships (i.e.

originators, sub-servicers), human capital management, cybersecurity and technology related matters, business continuity and financial reporting risk.

Compliance, Regulatory and Legal We will seek to comply with regulatory requirements needed to maintain our REIT status and our exemption from registration under the Investment Company Act and the licenses and approvals of our regulated and licensed subsidiaries.

Risk management begins with our Board, through the review and oversight of the risk management framework, and executive management, through the ongoing formulation of risk management practices and related execution in managing risk.

The Board exercises its oversight of risk management primarily through the Risk Committee and Audit Committee with support from the other Board Committees.

The Risk Committee is responsible for oversight of our risk governance structure, risk management (operational and market risk) and risk assessment guidelines and policies and our risk appetite.

The Audit Committee is responsible for oversight of the quality and integrity of our accounting, internal controls and financial reporting practices, including independent auditor selection, evaluation and review, and oversight of the internal audit function.

The Risk Committee and the Audit Committee jointly oversee practices and policies related to cybersecurity and receive regular reports from management throughout the year on cybersecurity and related risks.

The Management Development and Compensation Committee is responsible for oversight of risk related to our compensation policies and practices and other human capital matters such as succession and culture.

The Nominating/Corporate Governance Committee assists the Board in its oversight of

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Management’s Discussion and Analysis

our corporate governance framework and the annual self-evaluation of the Board, and the Corporate Responsibility Committee assists the Board in its oversight of any matters that may present reputational or environmental, social, and governance (“ESG”) risk to us.

The Corporate Responsibility Committee shares oversight of specific ESG-related matters with other Board Committees and meets jointly with the Management Development and Compensation Committee on the Company's human capital management and culture and with the Risk Committee on ESG-related regulatory and policy risks.

Risk assessment and risk management are the responsibility of our management.

A series of management committees has oversight or decision-making responsibilities for risk management activities.

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

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

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

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

Audit Services is an independent function with reporting lines to the Audit Committee.

Audit Services is responsible for performing our internal audit activities, which includes independently assessing and validating key controls within the risk management framework.

Our compliance group is responsible for oversight of our regulatory compliance.

Our Chief Compliance Officer has reporting lines to the Audit Committee.

Description of Risks

We are subject to a variety of risks due to the business we operate.

Risk categories are an important component of a robust enterprise-wide risk management framework.

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

Risk Description

Liquidity and Funding Risk Risk to earnings, capital or business resulting from our inability to meet our obligations when they come due without incurring unacceptable losses because of inability to liquidate assets or obtain adequate funding.

Investment/Market Risk Risk to earnings, capital or business resulting in the decline in value of our assets or an increase in the costs of financing caused by changes in market variables, such as interest rates, which affect the values of investment securities and other investment instruments.

Credit Risk Risk to earnings, capital or business resulting from an obligor’s failure to meet the terms of any contract or otherwise failure to perform as agreed.

This risk is present in lending and investing activities.

Counterparty Risk Risk to earnings, capital or business resulting from a counterparty’s failure to meet the terms of any contract or otherwise failure to perform as agreed.

This risk is present in funding, hedging and investing activities.

Operational Risk Risk to earnings, capital, reputation or business arising from inadequate or failed internal processes or systems (including business continuity planning), human factors or external events.

This risk also applies to our use of proprietary and third party models, software vendors and data providers, and oversight of third party service providers such as sub-servicers, due diligence firms etc.

Compliance, Regulatory and Legal Risk Risk to earnings, capital, reputation or conduct of business arising from violations of, or nonconformance with internal and external applicable rules and regulations, losses resulting from lawsuits or adverse judgments, or from changes in the regulatory environment that may impact our business model.

Liquidity and Funding Risk Management

Our liquidity and funding risk management strategy is designed to ensure the availability of sufficient resources to support our business and meet our financial obligations under both normal and adverse market and business environments.

Our liquidity and funding risk management practices consist of the following primary elements:

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Management’s Discussion and Analysis

Element Description

Funding Availability of diverse and stable sources of funds.

Excess Liquidity Excess liquidity primarily in the form of unencumbered assets and cash.

Maturity Profile Diversity and tenor of liabilities and modest use of leverage.

Stress Testing Scenario modeling to measure the resiliency of our liquidity position.

Liquidity Management Policies Comprehensive policies including monitoring, risk limits and an escalation protocol.

Our primary financing sources are repurchase agreements provided through counterparty arrangements and through our wholly-owned subsidiary, Arcola Securities, Inc.

(“Arcola”), other secured financing, debt issued by securitization vehicles, mortgages, credit facilities, note sales and various forms of equity.

We maintain excess liquidity by holding unencumbered liquid assets that could be either used to collateralize additional borrowings or sold.

We seek to conservatively manage our repurchase agreement funding position through a variety of methods including diversity, breadth and depth of counterparties and maintaining a staggered maturity profile.

Arcola provides direct access to third party funding as a FINRA member broker-dealer.

Arcola borrows funds through the General Collateral Finance Repo service offered by the FICC, with FICC acting as the central counterparty.

In addition, Arcola may borrow funds through direct repurchase agreements.

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

At March 31, 2024 and December 31, 2023, the weighted average days to maturity was 43 days and 44 days, respectively.

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

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

We have continued to diversify our financing profile adding new non-mark-to-market facilities and financing options under existing facilities for our Residential Credit operating segment.

The non-mark-to-market facilities have margin call features that adjust on factors other than the changes in the market value of pledged collateral.

We remain active and flexible in our liquidity structure to market developments.

At March 31, 2024, we had total financial assets and cash pledged against existing liabilities of $63.8 billion.

The weighted average haircut was approximately 4% on repurchase agreements.

The quality and character of the Residential Securities that we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at March 31, 2024, compared to the same period in 2023, and our counterparties did not materially alter any requirements, including required haircuts, related to the col lateral we pledge under repurchase agreements and interest rate swaps during the three months ended March 31, 2024.

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

Repurchase Agreements Reverse Repurchase Agreements

Average Daily

Amount Outstanding Ending Amount Outstanding Average Daily

Amount Outstanding Ending Amount Outstanding

For the three months ended (dollars in thousands)

March 31, 2024 $ 64,027,388 $ 58,975,232 $ 2,323,485 $ —

December 31, 2023 61,924,576 62,201,543 1,340,204 —

September 30, 2023 66,020,036 64,693,821 257,097 —

June 30, 2023 64,591,463 61,637,600 600,968 —

March 31, 2023 60,477,833 60,993,018 371,429 —

December 31, 2022 59,946,810 59,512,597 102,025 —

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

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

March 31, 2022 53,961,689 52,626,503 39,535 —

Our committed facility warehouse lines provide financing for our MSR portfolio for liquidity purposes.

We maintain a conservative approach to these facilities, generally over-collateralizing the lines against margin calls.

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Management’s Discussion and Analysis

The following table provides information on our repurchase agreements and other secured financing by maturity date at March 31, 2024.

The weighted average remaining maturity on our repurchase agreements and other secured financing was 48 days at March 31, 2024:

March 31, 2024

Principal Balance Weighted Average Rate % of Total

(dollars in thousands)

1 day $ 17,647,809 5.48 % 29.6 %

2 to 29 days 10,995,185 5.64 % 18.5 %

30 to 59 days 19,964,545 5.51 % 33.5 %

60 to 89 days 6,864,342 5.57 % 11.5 %

90 to 119 days — — % — %

Over 119 days (1)

4,103,351 6.18 % 6.9 %

Total $ 59,575,232 5.58 % 100.0 %

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

We also finance our investments in residential mortgage loans through the issuance of securitization transactions sponsored by our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) under the Onslow Bay private-label securitization program.

In order to increase financing optionality for our Onslow Bay platform we closed a new warehouse facility that includes expanded product offerings with a non-mark-to-market component for residential whole loans and a new non-mark-to-market two-year facility for OBX retained securities.

The following table presents our outstanding debt balances and associated weighted average rates and days to maturity at March 31, 2024:

Weighted Average Rate

Principal Balance As of Period End For the Quarter Weighted Average

Days to Maturity (1)

(dollars in thousands)

Repurchase agreements $ 58,975,232 5.55 % 5.55 % 43

Other secured financing 600,000 8.08 % 8.07 % 500

Debt issued by securitization vehicles (2)

14,801,428 4.74 % 4.72 % 12,623

Participations issued (2)

1,134,210 7.55 % 7.32 % 10,877

Total indebtedness $ 75,510,870

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

(2) Non-recourse to Annaly.

Excess Liquidity

Our primary source of liquidity is the availability of unencumbered assets which may be provided as collateral to support additional funding needs.

We target minimum thresholds of available, unencumbered assets to maintain excess liquidity.

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

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

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

The following table also provides the carrying amount of our encumbered and unencumbered financial assets at March 31, 2024:

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Management’s Discussion and Analysis

Encumbered Assets Unencumbered Assets Total

Financial assets (dollars in thousands)

Cash and cash equivalents $ 1,367,057 $ 298,313 $ 1,665,370

Investments, at carrying value (1)

Agency mortgage-backed securities 58,841,494 3,237,776 62,079,270

Credit risk transfer securities 853,419 18,002 871,421

Non-agency mortgage-backed securities 1,754,832 179,078 1,933,910

Commercial mortgage-backed securities 153,128 — 153,128

Residential mortgage loans (2)

17,573,364 759,209 18,332,573

MSR 1,857,834 793,445 2,651,279

Other assets (3)

— 55,904 55,904

Total financial assets $ 82,401,128 $ 5,341,727 $ 87,742,855

(1) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the Consolidated Statements of Financial Condition.

(2) Includes assets transferred or pledged to securitization vehicles.

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

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

These are held as the primary means of liquidity risk mitigation.

The composition of our liquid assets is also considered and is subject to certain parameters.

The composition is monitored for concentration risk, including in respect of our deposits of our cash and cash equivalents, and asset type.

We believe the assets we consider liquid can be readily converted into cash, through liquidation or by being used as collateral in financing arrangements (including as additional collateral to support existing financial arrangements).

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

The following table presents our liquid assets as a percentage of total assets at March 31, 2024:

Carrying Value (1)

Liquid assets (dollars in thousands)

Cash and cash equivalents $ 1,665,370

Residential Securities (2)

Commercial mortgage-backed securities 153,128

Residential mortgage loans (3)

Total liquid assets $ 69,420,833

Percentage of liquid assets to carrying amount of encumbered and unencumbered financial assets (4)

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

The assets listed in this table include $63.8 billion of assets that have been pledged as collateral against existing liabilities at March 31, 2024.

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

(2) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the Consolidated Statements of Financial Condition.

(3) Excludes securitized residential mortgage loans transferred or pledged to consolidated VIEs carried at fair value of $15.6 billion.

(4) Denominator is computed based on the carrying amount of encumbered and unencumbered financial assets, excluding assets transferred or pledged to securitization vehicles, of $15.6 billion.

Maturity Profile

We consider the profile of our assets, liabilities and derivatives when managing both liquidity risk as well as investment/market risk employing a measurement of both the maturity gap and interest rate sensitivity gap.

We determine the amount of liquid assets that are required to be held by monitoring several liquidity metrics.

We utilize several modeling techniques to analyze our current and potential obligations including the expected cash flows from our assets, liabilities and derivatives.

The following table illustrates the expected final maturities and cash flows of our assets, liabilities and derivatives.

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

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

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

With respect to each maturity bucket, our maturity gap is considered negative when the amount of maturing liabilities exceeds the amount of maturing assets.

A negative gap increases our liquidity risk as we must enter into future liabilities.

Our interest rate sensitivity gap is the difference between interest earning assets and interest bearing liabilities maturing or re-pricing within a given time period.

Unlike the calculation of maturity gap, interest rate sensitivity gap includes the effect of our interest rate swaps.

A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of

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Management’s Discussion and Analysis

interest-rate sensitive liabilities.

A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets.

During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income.

During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely.

Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if assets and liabilities were perfectly matched in each maturity category.

The amount of assets and liabilities utilized to compute our interest rate sensitivity gap was determined in accordance with the contractual terms of the assets and liabilities, except that adjustable-rate loans and securities are included in the period in which their interest rates are first scheduled to adjust and not in the period in which they mature.

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

The interest rate sensitivity of our assets and liabilities in the following table at March 31, 2024 could vary substantially based on actual prepayment experience.

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

Financial assets (dollars in thousands)

Cash and cash equivalents $ 1,665,370 $ — $ — $ — $ 1,665,370

Agency mortgage-backed securities (principal) — 29 105,289 64,757,812 64,863,130

Residential credit risk transfer securities (principal) — — 38,939 776,540 815,479

Non-agency mortgage-backed securities (principal) 19,649 136,588 789,695 1,021,120 1,967,052

Commercial mortgage-backed securities (principal) — 88,863 64,355 — 153,218

Total securities 19,649 225,480 998,278 66,555,472 67,798,879

Residential mortgage loans (principal) — — — 2,652,639 2,652,639

Total loans — — — 2,652,639 2,652,639

Assets transferred or pledged to securitization vehicles (principal) — — — 16,712,352 16,712,352

Total financial assets - maturity 1,685,019 225,480 998,278 85,920,463 88,829,240

Effect of utilizing reset dates (1)

17,760,119 505,962 220,736 (18,486,817) —

Total financial assets - interest rate sensitive $ 19,445,138 $ 731,442 $ 1,219,014 $ 67,433,646 $ 88,829,240

Financial liabilities

Repurchase agreements $ 55,471,881 $ 3,324,289 $ 179,062 $ — $ 58,975,232

Debt issued by securitization vehicles (principal)

— — — 14,801,428 14,801,428

Participations issued (principal) — — — 1,134,210 1,134,210

Treasury securities sold, not yet purchased 2,077,404 — — — 2,077,404

Total financial liabilities - maturity 57,549,285 3,324,289 179,062 15,935,638 76,988,274

Effect of utilizing reset dates (1)(2)

(49,815,073) 3,308,763 10,828,637 35,677,673 —

Total financial liabilities - interest rate sensitive $ 7,734,212 $ 6,633,052 $ 11,007,699 $ 51,613,311 $ 76,988,274

Maturity gap $ (55,864,266) $ (3,098,809) $ 819,216 $ 69,984,825 $ 11,840,966

Cumulative maturity gap $ (55,864,266) $ (58,963,075) $ (58,143,859) $ 11,840,966

Interest rate sensitivity gap $ 11,710,926 $ (5,901,610) $ (9,788,685) $ 15,820,335 $ 11,840,966

Cumulative rate sensitivity gap $ 11,710,926 $ 5,809,316 $ (3,979,369) $ 11,840,966

(1) Maturity gap utilizes stated maturities, or prepayment expectations for assets that exhibit prepayment characteristics, while interest rate sensitivity gap utilizes reset dates, if applicable.

(2) Includes effect of interest rate swaps.

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

Stress Testing

We utilize liquidity stress testing to ensure we have sufficient liquidity under a variety of scenarios and stresses.

These stress tests assist with the management of our pool of liquid assets and influence our current and future funding plans.

The stresses applied include market-wide and firm-specific stresses.

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Management’s Discussion and Analysis

Liquidity Management Policies

We utilize a comprehensive liquidity policy structure to inform our liquidity risk management practices including monitoring and measurement, along with well-defined key risk indicators.

Both quantitative and qualitative targets are utilized to measure the ongoing stability and condition of the liquidity position, and include the level and composition of unencumbered assets, as well as the sustainability of the funding composition under stress conditions.

We also monitor early warning metrics designed to measure the quality and depth of liquidity sources based upon both company-specific and market conditions.

The metrics assist in assessing our liquidity conditions and are integrated into our escalation protocol.

Investment/Market Risk Management

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

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

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

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

In the case of interest rate swaps, we utilize contracts linked to SOFR but may also enter into interest rate swaps where the floating leg is linked to the overnight index swap rate or another index.

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

MAC interest rate swaps offer price transparency, flexibility and more efficient portfolio administration through compression which is the process of reducing the number of unique interest rate swap contracts and replacing them with fewer contracts containing market defined terms.

Our portfolio and the value of our portfolio, including derivatives, may be adversely affected as a result of changing interest rates and spreads.

We simulate a wide variety of interest rate scenarios in evaluating our risk.

Scenarios are run to capture our sensitivity to changes in interest rates, spreads and the shape of the yield curve.

We also consider the assumptions affecting our analysis such as those related to prepayments.

In addition to predefined interest rate scenarios, we utilize Value-at-Risk measures to estimate potential losses in the portfolio over various time horizons utilizing various confidence levels.

The following tables estimate the potential changes in economic net interest income over a twelve month period and the immediate effect on our portfolio market value (inclusive of derivative instruments), should interest rates instantaneously increase or decrease by 25, 50 or 75 basis points, and the effect of portfolio market value if mortgage option-adjusted spreads instantaneously increase or decrease by 5, 15 or 25 basis points (assuming shocks are parallel and instantaneous).

All changes to income and portfolio market value are measured as percentage changes from the projected net interest income and portfolio value at the base interest rate scenario.

The net interest income simulations incorporate the interest expense effect of rate resets on liabilities and derivatives as well as the amortization expense and reinvestment of principal based on the prepayments on our securities, which varies based on the level of rates.

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

The following table presents estimates at March 31, 2024.

Actual results could differ materially from these estimates.

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Management’s Discussion and Analysis

Change in Interest Rate (1)

Estimated Percentage Change in Portfolio Value (2)

Estimated Change as a

% on NAV (2)(3)

Projected Percentage Change in Economic Net Interest Income (4)

-75 Basis points (0.2%) (1.4%) 5.4%

-50 Basis points —% (0.3%) 4.0%

-25 Basis points —% 0.2% 2.2%

+25 Basis points (0.1%) (0.7%) (2.6%)

+50 Basis points (0.2%) (1.9%) (5.5%)

+75 Basis points (0.4%) (3.4%) (8.7%)

MBS Spread Shock (1)

Estimated Change in

Portfolio Market Value (2)

Estimated Change as a

% on NAV (2)(3)

-25 Basis points 1.3% 9.8%

-15 Basis points 0.8% 5.9%

-5 Basis points 0.3% 1.9%

+5 Basis points (0.2%) (1.9%)

+15 Basis points (0.7%) (5.8%)

+25 Basis points (1.2%) (9.6%)

(1) Interest rate and MBS spread sensitivity are based on results from third party models in conjunction with inputs from our internal investment professionals.

Actual results could differ materially from these estimates.

(2) Scenarios include securities, residential mortgage loans, MSR and derivative instruments.

(3) NAV represents book value of equity.

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

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

Credit Risk Management

Key risk parameters have been established to specify our credit risk appetite.

We seek to manage credit risk by making investments which conform to the firm’s specific investment policy parameters and optimize risk-return attributes.

While we do not expect to encounter credit risk in our Agency mortgage-backed securities, we face credit risk on the non-Agency mortgage-backed securities and CRT securities in our portfolio.

In addition, we are also exposed to credit risk on residential mortgage loans and commercial real estate investments.

MSR values may also be impacted through reduced servicing fees and higher costs to service the underlying mortgage loans due to borrower performance.

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

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

In the case of residential mortgage loans and MSR, we may engage a third party to perform due diligence on a sample of loans that we believe sufficiently represents the entire pool.

Once an investment is made, our ongoing surveillance process includes regular reviews, analysis and oversight of investments by our investment personnel and appropriate committee.

We review credit and other risks of loss associated with each investment.

Our management monitors the overall portfolio risk and determines estimates of provision for loss.

Additionally, ALCO has oversight of our credit risk exposure.

Our portfolio composition, based on balance sheet values, at March 31, 2024 and December 31, 2023 was as follows:

March 31, 2024 December 31, 2023

Agency mortgage-backed securities 72.6 % 75.9 %

Credit risk transfer securities 1.0 % 1.1 %

Non-agency mortgage-backed securities 2.2 % 2.4 %

Residential mortgage loans (1)

21.0 % 17.9 %

Mortgage servicing rights 3.0 % 2.4 %

Commercial real estate 0.2 % 0.3 %

(1) Includes assets transferred or pledged to securitization vehicles.

Counterparty Risk Management

Our use of repurchase and derivative agreements and trading activities create exposure to counterparty risk relating to potential losses that could be recognized if the counterparties to these agreements fail to perform their obligations under the contracts.

In the event of default by a counterparty, we could have difficulty obtaining our assets pledged as collateral.

A significant portion of our investments are financed with repurchase agreements by pledging our Residential Securities as collateral to the applicable lender.

The collateral we pledge generally exceeds the amount of the borrowings under each agreement.

If the counterparty to the repurchase agreement defaults on its obligations and we are not able to recover our pledged asset, we are at

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Management’s Discussion and Analysis

risk of losing the over-collateralization or haircut.

The amount of this exposure is the difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest receivable on such collateral.

We also use interest rate swaps and other derivatives to manage interest rate risk.

Under these agreements, we pledge securities and cash as collateral or settle variation margin payments as part of a margin arrangement.

If a counterparty were to default on its obligations, we would be exposed to a loss to a derivative counterparty to the extent that the amount of our securities or cash pledged exceeded the unrealized loss on the associated derivative and we were not able to recover the excess collateral.

Additionally, we would be exposed to a loss to a derivative counterparty to the extent that our unrealized gains on derivative instruments exceeded the amount of the counterparty’s securities or cash pledged to us.

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

Additionally, ALCO has oversight of our counterparty exposure.

The following table summarizes our exposure to counterparties by geography at March 31, 2024:

Number of Counterparties Secured Financing (1)

Interest Rate Swaps at Fair Value Exposure (2)

Geography (dollars in thousands)

North America 22 $ 45,016,841 $ (1,205) $ 3,181,873

Europe 9 10,379,178 27,070 819,906

Asia (non-Japan) 1 416,439 — 16,491

Japan 4 3,762,774 — 339,727

Total 36 $ 59,575,232 $ 25,865 $ 4,357,997

(1) Includes repurchase agreements and other secured financing.

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

Operational Risk Management

We are subject to operational risk in each of our business and support functions.

Operational risk may arise from internal or external sources including human error, fraud, systems issues, process change, vendors, business interruptions and other external events.

We manage operational risk through a variety of tools including processes, policies and procedures that cover topics such as business continuity, personal conduct, cybersecurity and vendor management.

Other tools include Risk and Control Self Assessment (“RCSA”) testing, including disaster recovery/testing;

systems controls, including access controls;

training, including phishing exercises and cybersecurity awareness training;

and monitoring, which includes the use of key risk indicators.

Our Operational Risk Management team conducts a disaster recovery exercise on an annual basis and periodically conducts other operational risk tabletop exercises.

Employee-level lines of defense against operational risk include proper segregation of incompatible duties, activity-level internal controls over financial reporting, the empowerment of business units to identify and mitigate operational risk sources, testing by our internal audit staff, and our overall governance framework.

Operational Risk Management responsibilities are overseen by the ERC.

The ERC is responsible for supporting the Operating Committee in the implementation, ongoing monitoring, and evaluation of the effectiveness of the enterprise-wide risk management framework.

This oversight authority includes review of the strategies, processes, policies, and practices established by management to identify, assess, measure, and manage enterprise-wide risk.

Cybersecurity is part of our enterprise-wide risk management framework.

Processes for assessing, identifying and managing cybersecurity risks include cybersecurity risk assessments, use of key risk indicators, vendor cybersecurity risk management, employee training, including phishing exercises and cybersecurity awareness training, penetration testing, evaluation of cybersecurity insurance and periodic engagements by our internal audit department, which determines whether our cybersecurity program and information security practices align with relevant parts of the National Institute of Standards and Technology (“NIST”) framework.

We periodically engage penetration testing companies and law firms to assist in these processes.

When we do so, we hire reputable companies, limit their access to only information necessary for the specific purpose and maintain security controls around confidential information, including personally identifiable information.

We also maintain a Cybersecurity Incident Response Plan (“Response Plan”) with processes to identify, contain, mitigate and escalate cybersecurity incidents, utilizing cross-functional expertise and external resources as needed.

We conduct periodic tabletop exercises to test our Response Plan and our reaction to various business disruption events, and the results of these tabletop exercises are reported to the Cybersecurity Committee and the ERC.

We also have processes in place to oversee and identify material risks from cybersecurity threats associated with our use of third party service providers upon which we depend on to perform various business processes related to our operations,

ANNALY CAPITAL MANAGEMENT, INC.

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

What changed 10-Q

Item 1. Financial Statements