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Item 1. Financial Statements

2024-10-31 compared with 2024-07-29 · 203 added, 178 removed, 847 unchanged (31% of the section changed)

Financial Statements

accounting and valuation processes.

As of September 30, 2024 and December 31, 2023, a total carrying value of $ 18.7 billion and $ 11.6 billion, respectively, of bonds were held by third parties and the Company retained $ 2.1 billion and $ 1.4 billion, respectively, of MBS, which were eliminated in consolidation.

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

Effective August 1, 2022, upon initial consolidation of new securitization entities, the Company elected to apply the measurement alternative for consolidated collateralized financing entities in order to simplify the accounting and valuation processes.

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

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).

The Company incurred $ 5.0 million and $ 1.9 million of costs during the three months ended September 30, 2024 and 2023, respectively, and $ 14.0 million and $ 5.9 million of costs during the nine months ended September 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 $ 19.3 billion and $ 12.6 billion at September 30, 2024 and December 31, 2023, respectively.

During the three months ended September 30, 2024 and 2023, the Company recorded ($ 430.4 ) million and $ 294.9 million, respectively, and ($ 339.6 ) million and $ 213.5 million during the nine months ended September 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 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.

As of September 30, 2024 and December 31, 2023, the Company had outstanding participating interests in residential mortgage loans of $ 0.5 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.

The Company elected to fair value the participations issued through earnings to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings.

The Company elected the fair value option for participations issued with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss) to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings.

DERIVATIVE INSTRUMENTS

14 unchanged sentences

In the event of a default by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in accordance with the terms of the derivative contracts.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss).

3 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 June 30, 2024 and December 31,

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

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.

At September 30, 2024 and December 31, 2023, ($ 1.8 ) 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.

23 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 June 30, 2024 and December 31, 2023:

Derivatives Instruments June 30, 2024 December 31, 2023

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

Derivatives Instruments September 30, 2024 December 31, 2023

Assets (dollars in thousands)

10 unchanged sentences

Total derivative liabilities $ 102,628 $ 302,295

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

June 30, 2024

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

September 30, 2024

Maturity Current Notional (1)

18 unchanged sentences

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

(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.

(1) As of September 30, 2024, 7 % and 93 % 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.

1 unchanged sentence

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 June 30, 2024 and December 31, 2023:

June 30, 2024

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

September 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

6 unchanged sentences

Long receive $ 500,000 1.65 % SOFR 10.30 3.53

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Financial Statements

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

June 30, 2024

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

September 30, 2024

Purchase and Sale Contracts for Derivative TBAs Notional Implied Cost Basis Implied Market Value Net Carrying Value

1 unchanged sentence

Purchase contracts $ 3,319,000 $ 3,333,873 $ 3,328,141 $ ( 5,732 )

Sale contracts ( 733,000 ) ( 673,262 ) ( 671,724 ) 1,538

Net TBA derivatives $ 3,319,000 $ 3,333,873 $ 3,328,141 $ ( 5,732 )

5 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 June 30, 2024 and December 31, 2023:

June 30, 2024

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

September 30, 2024

Notional - Long

3 unchanged sentences

(dollars in thousands)

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

Treasury futures - 2 year

$ — $ ( 16,793,200 ) 1.94

Treasury futures - 5 year

3,346,000 — 4.39

Treasury futures - 10 year and greater

17 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 June 30, 2024 and December 31, 2023, respectively.

June 30, 2024

September 30, 2024

Amounts Eligible for Offset

28 unchanged sentences

For the three months ended (dollars in thousands)

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 )

September 30, 2024 $ 317,483 $ ( 94,016 ) $ ( 1,582,495 )

September 30, 2023 $ 394,677 $ 16,416 $ 1,475,547

For the nine months ended

September 30, 2024 $ 946,004 $ ( 96,532 ) $ ( 584,109 )

September 30, 2023 $ 1,205,676 $ ( 81,255 ) $ 1,360,977

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

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

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

Three Months Ended September 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)

1 unchanged sentence

Net interest rate swaptions ( 21,180 ) ( 113,792 ) ( 134,972 )

48,227 ( 45,882 ) 2,345

Futures ( 362,660 ) 71,146 ( 291,514 )

Purchase commitments — 9,124 9,124

(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

$ ( 394,982 )

Three Months Ended September 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)

3 unchanged sentences

Purchase commitments — 2,457 2,457

Credit derivatives ( 17,970 ) 18,468 498

Total $ 240,790

(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

(1) For the three months ended September 30, 2023, includes $ 13.2 million of unrealized gain and ($ 18.9 ) million of realized loss related to SOFR futures options.

Nine Months Ended September 30, 2024

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

5 unchanged sentences

Total $ ( 211,742 )

(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

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

Nine Months Ended September 30, 2023

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

6 unchanged sentences

Total $ 216,605

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

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

(1) For the nine months ended September 30, 2023, includes ($ 5.6 ) million of unrealized loss and ($ 18.9 ) million of realized loss related to SOFR futures options.

ANNALY CAPITAL MANAGEMENT, INC.

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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 June 30, 2024.

The aggregate fair value of all derivative instruments with the aforementioned features were in a net liability position at September 30, 2024 of $ 42.2 million, which represents the maximum amount the Company would be required to pay upon termination.

This amount is fully collateralized.

FAIR VALUE MEASUREMENTS

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The liquidity of the Residential Securities, residential mortgage loans, interest rate swaps, swaptions and TBA derivatives markets and the similarity of the Company’s securities to those actively traded enable the Company to observe quoted prices in the market and utilize those prices as a basis for formulating fair value measurements.

Consequently, the Company has classified Residential Securities, residential mortgage loans, interest rate swaps, swaptions and TBA derivatives as Level 2 inputs in the fair value hierarchy.

Consequently, the Company has classified Residential Securities, residential mortgage loans, interest rate swaps, swaptions and TBA derivatives as Level 2.

The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying collateral.

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

Consequently, commercial mortgage-backed securities carried at fair value are classified as Level 2.

ANNALY CAPITAL MANAGEMENT, INC.

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

The Company classifies its investments in MSR as Level 3 in the fair value measurements hierarchy.

The Company has classified its investments in MSR as Level 3.

Fair value estimates for these investments are obtained from models, which use significant unobservable inputs in their valuations.

These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including discount rates, prepayment rates, delinquency levels and costs to service.

These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including discount rates, prepayment rates, delinquency rates and costs to service.

Model valuations are then compared to valuations obtained from third party pricing providers.

2 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 June 30, 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 September 30, 2024 and December 31, 2023.

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

June 30, 2024

September 30, 2024

Level 1 Level 2 Level 3 Total

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Range (Weighted Average) (2)

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Discount rate 1.8 % - 11.2 % ( 7.6 %)

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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

The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at September 30, 2024 and December 31, 2023.

September 30, 2024 December 31, 2023

Value Carrying

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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 six months ended June 30, 2024.

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

Intangible Assets, net

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amortization expense ( 2,018 )

Ending balance June 30, 2024

Ending balance September 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 $ 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.

The Company had outstanding $ 64.3 billion and $ 62.2 billion of repurchase agreements with weighted average remaining maturities of 34 days and 44 days and weighted average rates of 5.23 % and 5.70 % at September 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 $ 3.5 billion with remaining capacity of $ 2.2 billion at September 30, 2024.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

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

June 30, 2024

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

September 30, 2024

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

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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 June 30, 2024.

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

September 30, 2024 December 31, 2023

Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements

3 unchanged sentences

Netted amounts $ — $ 64,310,276 $ — $ 62,201,543

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 September 30, 2024 was $ 2.7 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 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

Other Secured Financing - As of September 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 September 30, 2024 totaled $ 600.0 million with maturities ranging between four months to one year .

The weighted average interest rate of the borrowings was

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

June 30, 2024.

8.05 % as of September 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 $ 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.

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 $ 69.3 billion and $ 304.7 million, respectively, at September 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 June 30, 2024 and December 31, 2023.

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

Shares authorized Shares issued and outstanding

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

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

1,468,250,000 1,468,250,000 558,047,743 500,080,287 $ 0.01

In December 2020, the Company announced that its Board of Directors (“Board”) authorized the repurchase of up to $ 1.5 billion of its outstanding common shares through December 31, 2021 (the “Prior Share Repurchase Program”).

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

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

During the 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.

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

During the three and nine months ended September 30, 2024 and 2023, no shares were repurchased under the Share Repurchase Program.

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

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

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

2 to the Amended and Restated Distribution Agency Agreements on November 3, 2022, collectively, the “Prior 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, 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 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.

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

Pursuant to the Prior Sales Agreements, the Company offered and sold shares of its common stock, having an aggregate offering price of up to $ 1.5 billion, from time to time through any of the Prior Sales Agents (the “Prior At-the-Market Sales Program”).

On September 20, 2024, the Company entered into new Distribution Agency Agreements (collectively, the “Sales Agreements”) with each of Barclays Capital Inc., BNP Paribas Securities Corp., BofA Securities, Inc., Citizens JMP Securities, LLC, Goldman Sachs & Co.

Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., Morgan Stanley & Co., LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”), which terminated and replaced the Prior Sales Agreements.

Under the terms of 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 "Current At-the-Market Sales Program" and, together with the Prior At-the-Market Sales Program, the "at-the-market sales program").

During the three and nine months ended September 30, 2024, under the at-the-market sales program, the Company issued 57.0 million and 57.6 million shares for proceeds of $ 1.1 billion and $ 1.2 billion, respectively, each net of commissions and fees.

During the three and nine months ended September 30, 2023, under the at-the-market sales program, the Company issued 0.9 million and 26.2 million shares for proceeds of $ 17.8 million and $ 580.5 million, respectively, each 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.

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at September 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.

4 unchanged sentences

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

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

September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 September 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 June 30, 2024, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

Through September 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 and six months ended June 30, 2024.

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

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

For the Three Months Ended For the Six Months Ended

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

For the Three Months Ended For the Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 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 July 31, 2024 July 28, 2023 July 31, 2024 July 28, 2023

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

Dividends declared to series F preferred stockholders $ 19,055 $ 18,956 $ 57,142 $ 54,732

4 unchanged sentences

Dividends declared per share of series I preferred stock $ 0.676 $ 0.422 $ 1.520 $ 1.266

INTEREST INCOME AND INTEREST EXPENSE

Refer to the “Significant Accounting Policies” Note for details surrounding the Company’s accounting policy related to net interest income on securities and loans.

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

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Financial Statements

INTEREST INCOME AND INTEREST EXPENSE

Refer to the “Significant Accounting Policies” Note for details surrounding the Company’s accounting policy related to net interest income on securities and loans.

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

Interest Income Methodology

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(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 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

The following table presents the components of the Company’s interest income and interest expense for the three and nine months ended September 30, 2024 and 2023.

For the Three Months Ended For the Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

Interest income (dollars in thousands)

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

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

ANNALY CAPITAL MANAGEMENT, INC.

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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 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

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 nine months ended September 30, 2024 and 2023.

For the Three Months Ended For the Nine Months Ended

September 30, 2024 September 30, 2023 September 30, 2024 September 30, 2023

(dollars in thousands, except per share data)

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Diluted $ 0.05 $ ( 1.21 ) $ 0.80 $ ( 2.73 )

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.

The computations of diluted net income (loss) per share available (related) to common share for the three and nine months ended September 30, 2024 excludes 0 and 2 thousand, respectively, and for the three and nine months ended September 30, 2023 excludes 1.9 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 September 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.

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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 June 30, 2024 and December 31, 2023.

Thus, no accruals for penalties and interest were deemed necessary at September 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.

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

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.

During the three and nine months ended September 30, 2024, the Company recorded ($ 6.1 ) million and $ 4.9 million, respectively, of income tax expense/(benefit) attributable to its TRSs.

During the three and nine months ended September 30, 2023, the Company recorded $ 12.4 million and $ 37.7 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.

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The tables below summarize the result of operations and total assets by segment that are provided to the Chief Operating Decision Maker (CODM), which is the Company’s Operating Committee.

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 and six months ended June 30, 2024 and 2023:

Three Months Ended June 30, 2024

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 stockholders plus common stock dividends declared divided by the prior period’s stockholders’ equity attributable to common stockholders), 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 and nine months ended September 30, 2024 and 2023:

Three Months Ended September 30, 2024

Agency Resi-credit MSR Corporate & Other Consolidated

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Financial Statements

Three Months Ended June 30, 2023

Three Months Ended September 30, 2023

Agency Resi-credit MSR Corporate & Other Consolidated

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Financial Statements

Six Months Ended June 30, 2024

Nine Months Ended September 30, 2024

Agency Resi-credit MSR Corporate & Other Consolidated

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Financial Statements

Six Months Ended June 30, 2023

Nine Months Ended September 30, 2023

Agency Resi-credit MSR Corporate & Other Consolidated

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A decline in the value of the interest earning assets pledged as collateral for borrowings under repurchase agreements and derivative contracts could result in the counterparties demanding additional collateral or liquidating some of the existing collateral to reduce borrowing levels.

The Company may seek to mitigate the potential financial impact by entering into interest rate agreements such as interest rate swaps, interest rate swaptions and other hedges.

The Company may seek to mitigate the potential financial impact of these risks by entering into interest rate agreements such as interest rate swaps, interest rate swaptions and other hedges.

Weakness in the mortgage market, the shape of the yield curve, changes in the expectations for the volatility of future interest rates and deterioration of financial conditions in general may adversely affect the performance and market value of the Company’s investments.

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The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms.

The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral and continually assessing the creditworthiness of issuers, borrowers and counterparties, credit rating monitoring and active servicer oversight.

The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral, continually assessing the creditworthiness of issuers, borrowers and counterparties, credit rating monitoring and active servicer oversight.

The Company depends on third party service providers to perform various business processes related to its operations, including mortgage loan servicers and sub-servicers.

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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 one year and four years .

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

The lease cost for the three and nine months ended September 30, 2024 and 2023 was $ 0.8 million and $ 2.5 million, and $ 0.8 million and $ 2.4 million, respectively.

Supplemental information related to leases as of and for the nine months ended September 30, 2024 was as follows:

Operating Leases Classification September 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 June 30, 2024 and December 31, 2023.

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

SUBSEQUENT EVENTS

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.

These securitizations represent financing transactions which provided non-recourse financing to the Company collateralized by residential mortgage loans purchased by the Company.

In October 2024, the Company entered into a $ 300 million facility for financing its MSR investments.

In October 2024, the Company completed and closed the securitization of residential mortgage loans:

OBX 2024-NQM15, with a face value of $ 635.8 million.

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

ANNALY CAPITAL MANAGEMENT, INC.

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Business Environment

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.

Fixed income markets benefited from two positive trends in the third quarter (“Q3 2024”).

The Federal Reserve (the “Fed”) commenced a cycle of lowering the Federal Funds Target Rate to less restrictive levels, while the U.S.

economy generally maintained its strong pace of growth.

Officials lowered the Federal Funds Target Rate by 50 basis points at the September Federal Open Market Committee (“FOMC”) meeting, lowering short-term interest rates for the first time since the July 2023 FOMC meeting.

Fed officials signaled that they intend to ease monetary policy over time as current policy remains restrictive, with the pace and extent of easing dependent on incoming economic data.

The Fed's cutting cycle will be geared at lowering interest rates to levels that promote a healthy, stable labor market while keeping inflation near its 2% target.

Short-term interest rate markets currently price this “neutral rate” at 3.25%, though estimates have varied somewhat in recent weeks.

The change in monetary policy was driven by the labor market, as reduced demand for workers and slower hiring have moved labor supply and demand roughly in balance for the first time in the past three years.

For much of the post-pandemic experience, strong demand for labor had exceeded available supply, leading to higher wage growth and the potential for a negative feedback loop between rising prices and rising wages.

According to the minutes of the September FOMC meeting, Fed officials judged that risks of such a feedback loop appear to have declined.

Inflation continues to normalize with personal consumption expenditures excluding food and energy (“core PCE”) likely to run only slightly above 2% annualized in Q3 2024.

The market's pricing of additional rate cuts has led to a steeper yield curve, increasing the attractiveness of fixed income assets more broadly and Agency MBS in particular.

In addition, interest rate volatility has continued to decline to the lowest levels since the March 2023 regional banking crisis, though it remains meaningfully above pre-pandemic historical average levels.

These developments have been supportive of our diversified business model, as seen in the strong performance delivered in the quarter.

We generated an economic return of 4.9% in Q3 2024 and our earnings available for distribution (“EAD”) exceeded our common dividend.

We achieved these results with continued robust earnings power of our portfolio even with lower economic leverage, which decreased modestly during the quarter to 5.7x.

Our strong performance and the supportive backdrop for our investment strategies allowed us to raise over $1.1 billion of accretive common equity over the quarter through our at-the-market sales program.

The environment to deploy capital remains attractive as the market value of all three of our business lines increased quarter over quarter.

With respect to our portfolio activity during the quarter, in light of the capital raised, our Agency MBS investments grew by over $4 billion notional value with the remaining increase in market value attributable to price appreciation.

Despite the positive fixed income market backdrop, Agency MBS performance was bifurcated across coupons.

Lower coupons benefited from strong money manager demand, while the decline in mortgage rates raised concerns regarding prepayment behavior in higher coupons, leading such coupons to underperform their respective interest rate hedges.

Given this relative performance, we increased our allocation to 5.0% coupons and higher given their attractiveness relative to intermediate and lower coupons.

This represents an extension of our methodical migration up the coupon stack over the last two years with a diligent focus on high-quality pool selection.

For example, 6.0% coupons and higher represent roughly a quarter of our portfolio, though the majority of these higher coupon holdings are held in specified pool form that offer significant protections from higher prepayment speeds.

Our outlook for the Agency MBS sector remains favorable.

Notably, the supply and demand technical factors, often a headwind over the past few years, have continued to improve as net supply is trending lower, likely reaching levels somewhat below 2023 totals.

Meanwhile, fixed income flows have helped improve money manager demand for this year, which is currently running at nearly double the estimated pace from last year.

In addition, appetite from banks and overseas investors should increase as the Fed’s normalization of interest rates, leading the spread between MBS yields and deposit rates to increase and currency hedging costs to decline.

We maintained conservative interest rate exposure throughout the quarter, while benefiting from a position geared towards the steepening of the yield curve that ultimately took place during the quarter.

As interest rate levels declined throughout Q3 2024,

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

we proactively managed our rate exposure, shifting hedges across the yield curve as mortgage durations contracted.

Going forward, we expect continued interest rate volatility driven by the upcoming elections, geopolitical risks and the trajectory of fiscal deficits, which present uncertainty around the terminal level of interest rates.

Meanwhile our Residential Credit portfolio increased approximately $535 million in Q3 2024 to $6.5 billion in economic market value and $2.3 billion of dedicated capital, representing 18% of the firm’s equity.

Growth continued to be driven by our correspondent platform with our residential whole loan and retained Onslow Bay (“OBX”) securitization portfolio.

Capitalizing on firm credit spreads, which moved in roughly a 10 basis point range during the quarter, we closed six securitizations totaling $3.2 billion in unpaid principal balance.

Since the beginning of 2024, we have now priced 18 securitizations totaling $9.4 billion, establishing Onslow Bay as the largest non-bank securitization sponsor in the residential credit market and second largest overall.

The quarter once again produced record volumes across both locks and fundings at $4.4 billion and $2.9 billion, respectively.

Our diligent focus on underwriting sound credit risk and proactive asset management has led to OBX Non-QM securitizations having the lowest delinquencies across the top 10 largest issuers in the market.

The Residential Credit business remains well-positioned given the optionality of our growing correspondent channel and our ability to manufacture high-yielding assets across various spread environments.

We continued to grow our holdings of mortgage servicing rights (“MSR”) to $2.8 billion in market value as we committed to purchase a bulk transaction comprising $125 million in market value, which is expected to settle before year-end 2024.

The mark on the portfolio decreased slightly in the quarter given a relatively sharp 80 basis point decline in the mortgage rate, highlighting the durability of a portfolio whose average refinancing incentive is 300 basis points below current mortgage rates.

Fundamental performance of the portfolio remained strong as the 3-month annualized prepayment speed of the portfolio was 3.9%, serious delinquencies were minimal at 45 basis points, deposit income remains elevated given the shape of the yield curve, and increased competition in the subservicing market has benefited financial participants like us.

On the strategic front as it relates to MSR, our long history of formulating value-add partnerships was again on display this quarter as we announced a sub-servicing partnership with Rocket Mortgage (“Rocket”) in early October.

Our size and the stability of our capital helped develop this relationship and we are pleased to be Rocket’s first Agency MSR subservicing client.

Rocket is expected to begin servicing loans for us as early as December, and this partnership should allow us to benefit from Rocket’s recapture abilities and we expect it to increase our competitiveness in purchasing new MSR.

Similar to our existing sub-servicing agreement, our Rocket agreement allows us to effectively participate in the gain on sale of a loan refinanced by our recapture partners, helping to preserve and protect our portfolio.

Earnings available for distribution and economic leverage 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 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.

real economic growth remained sound in the third quarter, as gross domestic product rose 2.8% on a seasonally adjusted annualized rate (“SAAR”), in line with average growth seen in the first half of this year.

Measures of consumption indicate that rising real household incomes have led consumers to maintain spending power, with consumer spending rising 3.7% SAAR in the third quarter.

However, consumers appear to be increasingly cautious as elevated short-term interest rates, low savings rates, a slowing labor market, and declining confidence appear to weigh on spending behavior going forward.

Nonresidential investment activity appears to have been robust during the quarter, particularly in equipment and intangibles, though residential investment remains muted as the restrictive monetary policy and inclement weather have impacted housing construction.

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.

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 appears to have resumed following the firmer readings 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.

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 186,000 workers added in the third quarter compared to 177,000 workers in the second quarter.

The unemployment rate ended the quarter at 4.1% after reaching 4.3% in July, the highest monthly reading since the fourth quarter of 2021, as more people entered the labor force, 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 4.0% in September compared to 3.8% in June.

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 appears to have resumed following the firmer readings in the early part of the year.

Total PCE prices over the 12 months ended in September fell to 2.1% compared to the 2.4% recorded by the same metric in June, while core PCE inflation, which excludes volatile food and energy prices, rose slightly from 2.6% in June to 2.7% year-over-year in September.

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

Shelter inflation, one of the largest expenses for households and therefore the largest weight in the Consumer Price Index , continues to ease at an uneven pace, with monthly readings during the quarter showing an elevated degree of volatility.

A further slowdown in aggregate inflation is likely to continue, particularly if shelter inflation eases further, as is widely expected.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

The Fed conducts monetary policy with a dual mandate:

full employment and price stability.

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.

Given the significant progress in reducing inflation, participants of the FOMC judged that the risks to achieving their dual mandate were in balance and that it is appropriate to begin to ease the stance of policy.

At the September FOMC meeting, the Committee reduced their target range for the federal funds rate to 4.75 – 5.0% and forecast a further 50 basis points in cuts through the end of the year.

The FOMC concluded that recalibrating the stance of policy closer to their observed neutral rate would help sustain the strength of the economy while continuing to promote progress on inflation.

Meanwhile, regarding the FOMC’s balance sheet policy, the decline in their securities portfolio, which started in 2022, continued throughout the third quarter at a pace of $25 billion per month in Treasury securities and $35 billion per month in MBS.

Interest rate levels fell during the third quarter as market participants priced a downward shift in the Fed’s policy rate path.

The most pronounced shift occurred in short-term rates, leading the Treasury yield curve to steepen.

Measures of interest rate volatility remained high as policy uncertainty in the near term rose notably.

The 10-year U.S.

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.

Treasury rate declined from 4.40% on June 30 to 3.78% on September 30, 2024.

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

Treasury rate, tightened from 147 basis points to 118 basis points over the same period.

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

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

September 30, 2024 December 31, 2023 September 30, 2023

30-Year mortgage current coupon 4.96% 5.25% 6.36%

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6-Month 4.31% 5.15% 5.45%

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 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,

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

As of and for the Three Months Ended September 30,

As of and for the Nine Months Ended September 30,

2024 2023 2024 2023

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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