What changed in this filing

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Item 2. Management’s Discussion and Analysis

2024-10-31 compared with 2024-07-29 · 200 added, 196 removed, 1364 unchanged (23% of the section changed)

11 unchanged sentences

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

(3) 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 (0.08%), and 1.35% for the three months ended June 30, 2024 and 2023, respectively, and 4.01% and (5.79%) for the the six months ended June 30, 2024 and 2023, respectively.

(3) 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 0.69%, and (5.04%) for the three months ended September 30, 2024 and 2023, respectively, and 4.62% and (10.88%) for the the nine months ended September 30, 2024 and 2023, respectively.

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

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(7) Excludes dividends on preferred stock.

Net income (loss) was ($8.8) million, which includes $0.7 million attributable to noncontrolling interests, or ($0.09) per average basic common share, for the three months ended June 30, 2024, compared to $161.2 million, which includes ($5.8) million attributable to noncontrolling interests, or $0.27 per average basic common share, for the same period in 2023.

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

Net gains (losses) on derivatives was $430.5 million for the three months ended June 30, 2024 compared to $1.5 billion for the same period in 2023.

Net gains (losses) on investments and other was ($568.7) million for the three months ended June 30, 2024 compared to ($1.3) billion for the same period in 2023.

Net interest income for the three months ended June 30, 2024 was $53.6 million compared to ($32.0) million for the same period in 2023.

Net servicing income for the three months ended June 30, 2024 was $107.9 million compared to $74.9 million for the same period in 2023.

Net income (loss) was $82.4 million, which includes $15.9 million attributable to noncontrolling interests, or $0.05 per average basic common share, for the three months ended September 30, 2024, compared to ($569.1) million, which includes ($6.9) million attributable to noncontrolling interests, or ($1.21) per average basic common share, for the same period in 2023.

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

Net gains (losses) on investments and other was $1.7 billion for the three months ended September 30, 2024 compared to ($2.7) billion for the same period in 2023.

Net interest income for the three months ended September 30, 2024 was $13.4 million compared to ($45.3) million for the same period in 2023.

Net servicing income for the three months ended September 30, 2024 was $109.6 million compared to $88.0 million for the same period in 2023.

Net gains (losses) on derivatives was ($1.8) billion for the three months ended September 30, 2024 compared to $2.1 billion for the same period in 2023.

Net income (loss) was $538.7 million, which includes $18.8 million attributable to noncontrolling interests, or $0.80 per average basic common share, for the nine months ended September 30, 2024 compared to ($1.2) billion, which includes ($7.8) million attributable to noncontrolling interests, or ($2.73) per average basic common share, for the same period in 2023.

Net gains (losses) on investments and other was $160.8 million for the nine months ended September 30, 2024 compared to ($4.0) billion for the same period in 2023.

Net interest income for the nine months ended September 30, 2024 was $60.5 million compared to ($57.8) million for the same period in 2023.

Net servicing income for the nine months ended September 30, 2024 was $320.4 million compared to $239.3 million for the same period in 2023.

Net gains on derivatives for the nine months ended September 30, 2024 was $53.6 million compared to $2.7 billion 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.

Net income (loss) was $456.3 million, which includes $2.9 million attributable to noncontrolling interests, or $0.76 per average basic common share, for the six months ended June 30, 2024 compared to ($678.1) million, which includes ($0.9) million attributable to noncontrolling interests, or ($1.51) 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, net interest income and net servicing income, partially offset by an unfavorable change in net gains (losses) on investments and other.

Net gains on derivatives for the six months ended June 30, 2024 was $1.8 billion compared to $574.6 million for the same period in 2023.

Net interest income for the six months ended June 30, 2024 was $47.1 million compared to ($12.5) million for the same period in 2023.

Net servicing income for the six months ended June 30, 2024 was $210.8 million compared to $151.3 million for the same period in 2023.

Net gains (losses) on investments and other was ($1.6) billion for the six months ended June 30, 2024 compared to ($1.3) billion for the same period in 2023.

Earnings available for distribution were $377.1 million, or $0.68 per average common share, for the three months ended June 30, 2024 compared to $389.5 million, or $0.72 per average common share, for the same period in 2023.

The change in earnings available for distribution during the three months ended June 30, 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, resulting from purchasing assets higher up in the coupon stack, lower premium amortization expense, excluding PAA, and higher net servicing income.

Earnings available for distribution were $735.1 million, or $1.32 per average common share, for the six months ended June 30, 2024, compared to $816.6 million, or $1.52 per average common share, for the same period in 2023.

The change in earnings available for distribution during the six months ended June 30, 2024, compared to the same period in 2023, was primarily due

Earnings available for distribution were $382.5 million, or $0.66 per average common share, for the three months ended September 30, 2024 compared to $362.0 million, or $0.66 per average common share, for the same period in 2023.

The change in earnings available for distribution during the three months ended September 30, 2024, compared to the same period in 2023, was primarily due to higher coupon income, resulting from higher residential mortgage loan and reverse repurchase agreement balances and purchasing securities higher up in the coupon stack, and higher net servicing income.

This change was partially offset by 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.

Earnings available for distribution were $1.1 billion, or $1.98 per average common share, for the nine months ended September 30, 2024, compared to $1.2 billion, or $2.18 per average common share, for the same period in 2023.

The change in earnings available for distribution during the nine months ended September 30, 2024, compared to the same period in 2023, was

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

to higher interest expense from an increase in average borrowing rates and average interest bearing liabilities, an unfavorable change in the net interest component of interest rate swaps, and a decline in TBA dollar roll income on reduced balances and specialness.

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, resulting from increased residential mortgage loan balances, purchasing securities higher up in the coupon stack, lower premium amortization expense, excluding PAA, and higher net servicing income.

Non-GAAP Financial Measures

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

For the Three Months Ended June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2024 2023 2024 2023

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(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 $298.4 million and $425.3 million for the three months ended June 30, 2024 and 2023, respectively, and $628.5 million and $811.0 million for the six months ended June 30, 2024 and 2023, respectively.

The net interest component of interest rate swaps totaled $317.5 million and $394.7 million for the three months ended September 30, 2024 and 2023, respectively, and $946.0 million and $1.2 billion for the nine months ended September 30, 2024 and 2023, respectively.

(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).

1 unchanged sentence

(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 and $0.5 million for the three months ended June 30, 2024 and 2023, respectively, and $0 and $1.5 million for the six months ended June 30, 2024 and 2023, respectively.

CMBX coupon income totaled $0 and $0 for the three months ended September 30, 2024 and 2023, respectively, and $0 and $1.5 million for the nine months ended September 30, 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.

(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 (0.08%), and 1.35% for the three months ended June 30, 2024 and 2023, respectively, and 4.01% and (5.79%) for the the six months ended June 30, 2024 and 2023, respectively.

(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 0.69%, and (5.04%) for the three months ended September 30, 2024 and 2023, respectively, and 4.62% and (10.88%) for the the nine months ended September 30, 2024 and 2023, respectively.

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

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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 June 30,

For the Six Months Ended June 30,

For the Three Months Ended September 30,

For the Nine Months Ended September 30,

2024 2023 2024 2023

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Management’s Discussion and Analysis

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.

Our economic leverage ratio is computed as the sum of recourse debt, cost basis of TBA 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.

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

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Economic leverage ratio reconciliation

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Plus / (Less):

Cost basis of TBA and CMBX derivatives

Cost basis of TBA derivatives

3,333,873 1,965,117

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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:

June 30, 2024 June 30, 2023

September 30, 2024 September 30, 2023

Economic capital ratio reconciliation

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For the three months ended (dollars in thousands)

June 30, 2024 $ 1,177,325 $ (7,306) $ 1,170,019

June 30, 2023 $ 921,494 $ (11,923) $ 909,571

For the six months ended

June 30, 2024 $ 2,271,813 $ (10,319) $ 2,261,494

June 30, 2023 $ 1,739,744 $ (11,432) $ 1,728,312

September 30, 2024 $ 1,229,341 $ 21,365 $ 1,250,706

September 30, 2023 $ 1,001,485 $ (6,062) $ 995,423

For the nine months ended

September 30, 2024 $ 3,501,154 $ 11,046 $ 3,512,200

September 30, 2023 $ 2,741,229 $ (17,494) $ 2,723,735

* Represents a non-GAAP financial measure.

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For the three months ended (dollars in thousands)

June 30, 2024 $ 1,123,767 $ (317,297) $ 806,470 $ 53,558 $ (317,297) $ 370,855 $ (7,306) $ 363,549

June 30, 2023 $ 953,457 $ (425,293) $ 528,164 $ (31,963) $ (425,293) $ 393,330 $ (11,923) $ 381,407

For the six months ended

June 30, 2024 $ 2,224,706 $ (647,446) $ 1,577,260 $ 47,107 $ (647,446) $ 694,553 $ (10,319) $ 684,234

June 30, 2023 $ 1,752,244 $ (810,999) $ 941,245 $ (12,500) $ (810,999) $ 798,499 $ (11,432) $ 787,067

September 30, 2024 $ 1,215,940 $ (333,696) $ 882,244 $ 13,401 $ (333,696) $ 347,097 $ 21,365 $ 368,462

September 30, 2023 $ 1,046,819 $ (394,677) $ 652,142 $ (45,334) $ (394,677) $ 349,343 $ (6,062) $ 343,281

For the nine months ended

September 30, 2024 $ 3,440,646 $ (981,142) $ 2,459,504 $ 60,508 $ (981,142) $ 1,041,650 $ 11,046 $ 1,052,696

September 30, 2023 $ 2,799,063 $ (1,205,676) $ 1,593,387 $ (57,834) $ (1,205,676) $ 1,147,842 $ (17,494) $ 1,130,348

* Represents a non-GAAP financial measure.

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For the three months ended

June 30, 2024 7.4 % 8.5 %

June 30, 2023 7.0 % 8.6 %

For the six months ended

June 30, 2024 6.7 % 8.5 %

June 30, 2023 6.3 % 8.6 %

(1) For the three and six months ended June 30, 2024 and 2023, respectively.

(2) At June 30, 2024 and 2023, respectively.

September 30, 2024 7.6 % 11.9 %

September 30, 2023 7.3 % 7.1 %

For the nine months ended

September 30, 2024 7.0 % 11.9 %

September 30, 2023 6.6 % 7.1 %

(1) For the three and nine months ended September 30, 2024 and 2023, respectively.

(2) At September 30, 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

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For the three months ended (dollars in thousands)

June 30, 2024 $ 91,008,934 $ 1,170,019 5.14 % $ 81,901,233 $ 806,470 3.90 % 363,549 1.24 %

June 30, 2023 $ 86,254,955 $ 909,571 4.22 % $ 75,424,564 528,164 2.77 % 381,407 1.45 %

For the six months ended

June 30, 2024 $ 90,373,830 $ 2,261,494 5.00 % $ 81,291,672 $ 1,577,260 3.84 % 684,234 1.16 %

June 30, 2023 $ 84,449,977 $ 1,728,312 4.09 % $ 73,030,098 $ 941,245 2.56 % 787,067 1.53 %

September 30, 2024 $ 95,379,071 $ 1,250,706 5.25 % $ 87,819,655 $ 882,244 3.93 % $ 368,462 1.32 %

September 30, 2023 $ 89,300,922 $ 995,423 4.46 % $ 77,780,989 $ 652,142 3.28 % $ 343,281 1.18 %

For the nine months ended

September 30, 2024 $ 92,042,244 $ 3,512,200 5.09 % $ 83,467,666 $ 2,459,504 3.87 % $ 1,052,696 1.22 %

September 30, 2023 $ 86,066,958 $ 2,723,735 4.22 % $ 74,613,728 $ 1,593,387 2.82 % $ 1,130,348 1.40 %

* Represents a non-GAAP financial measure.

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For the three months ended (dollars in thousands)

June 30, 2024 $ 1,170,019 486 (806,470) $ 364,035 $ 91,008,934 998,990 $ 92,007,924 1.58 %

June 30, 2023 $ 909,571 1,734 (528,164) $ 383,141 $ 86,254,955 6,303,202 $ 92,558,157 1.66 %

For the six months ended

June 30, 2024 $ 2,261,494 1,861 (1,577,260) $ 686,095 $ 90,373,830 574,290 $ 90,948,120 1.51 %

June 30, 2023 $ 1,728,312 19,917 (941,245) $ 806,984 $ 84,449,977 10,126,544 $ 94,576,521 1.71 %

September 30, 2024 $ 1,250,706 (1,132) (882,244) $ 367,330 $ 95,379,071 973,713 $ 96,352,784 1.52 %

September 30, 2023 $ 995,423 (1,016) (652,142) $ 342,265 $ 89,300,922 2,960,081 $ 92,261,003 1.48 %

For the nine months ended

September 30, 2024 $ 3,512,200 729 (2,459,504) $ 1,053,425 $ 92,042,244 707,431 $ 92,749,675 1.51 %

September 30, 2023 $ 2,723,735 18,901 (1,593,387) $ 1,149,249 $ 86,066,958 7,737,723 $ 93,804,681 1.63 %

* Represents a non-GAAP financial measure.

1 unchanged sentence

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

CMBX coupon income totaled $0 and $0.5 million for the three months ended June 30, 2024 and 2023, respectively.

CMBX coupon income totaled $0 and $1.5 million for the six months ended June 30, 2024 and 2023, respectively.

CMBX coupon income totaled $0 and $0 for the three months ended September 30, 2024 and 2023, respectively.

CMBX coupon income totaled $0 and $1.5 million for the nine months ended September 30, 2024 and 2023, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

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For the three months ended

June 30, 2024 $ 81,901,233 $ 79,739,332 $ 806,470 3.90 % 5.33 % 5.29 % 0.04 % (1.43 %) (1.39 %)

June 30, 2023 $ 75,424,564 $ 71,919,189 $ 528,164 2.77 % 5.04 % 5.13 % (0.09 %) (2.27 %) (2.36 %)

For the six months ended

June 30, 2024 $ 81,291,672 $ 79,739,332 $ 1,577,260 3.84 % 5.33 % 5.25 % 0.08 % (1.49 %) (1.41 %)

June 30, 2023 $ 73,030,098 $ 71,919,189 $ 941,245 2.56 % 4.83 % 5.03 % (0.20 %) (2.27 %) (2.47 %)

September 30, 2024 $ 87,819,655 $ 85,529,919 $ 882,244 3.93 % 5.22 % 4.82 % 0.40 % (1.29 %) (0.89 %)

September 30, 2023 $ 77,780,989 $ 75,466,110 $ 652,142 3.28 % 5.29 % 5.44 % (0.15 %) (2.01 %) (2.16 %)

For the nine months ended

September 30, 2024 $ 83,467,666 $ 85,529,919 $ 2,459,504 3.87 % 5.29 % 5.10 % 0.19 % (1.42 %) (1.23 %)

September 30, 2023 $ 74,613,728 $ 75,466,110 $ 1,593,387 2.82 % 4.98 % 5.17 % (0.19 %) (2.16 %) (2.35 %)

* Represents a non-GAAP financial measure.

3 unchanged sentences

Net interest on variation margin related to interest rate swaps was previously and is currently included in the Net interest component of interest rate swaps in the Company's Consolidated Statement of Comprehensive Income (Loss) for all periods presented.

Economic interest expense increased by $278.3 million for the three months ended June 30, 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 $298.4 million for the three months ended June 30, 2024, compared to $425.3 million for the same period in 2023.

Economic interest expense increased by $636.0 million for the six months ended June 30, 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 $628.5 million for the six months ended June 30, 2024 compared to $811.0 million for the same period in 2023.

Economic interest expense increased by $230.1 million for the three months ended September 30, 2024, compared to the same period in 2023, primarily due to higher interest expense on securitized debt and repurchase agreements reflecting higher borrowing rates and higher average interest bearing liabilities, as well as the reduction in the net interest component of interest rate swaps, which was $317.5 million for the three months ended September 30, 2024, compared to $394.7 million for the same period in 2023.

Economic interest expense increased by $866.1 million for the nine months ended September 30, 2024 compared to the same period in 2023, primarily due to higher interest expense on securitized debt and repurchase agreements reflecting higher borrowing rates and higher average interest bearing liabilities as well as the reduction in the net interest component of interest rate swaps, which was $946.0 million for the nine months ended September 30, 2024 compared to $1.2 billion 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.

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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 June 30, 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.

At September 30, 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.

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Other Income (Loss)

For the Three Months Ended June 30, 2024 and 2023

For the Three Months Ended September 30, 2024 and 2023

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments was ($336.0) million for the three months ended June 30, 2024, compared to ($610.4) million for the same period in 2023.

For the three months ended June 30, 2024, we disposed of Residential Securities with a carrying value of $5.2 billion for an aggregate net gain (loss) of ($375.0) million.

Net gains (losses) on disposal of investments was ($169.1) million for the three months ended September 30, 2024, compared to ($616.5) million for the same period in 2023.

For the three months ended September 30, 2024, we disposed of Residential Securities with a carrying value of $2.8 billion for an aggregate net gain (loss) of ($8.3) million.

For the same period in 2023, we disposed of Residential Securities, with a carrying value of $6.9 billion for an aggregate net gain (loss) of ($602.6) million.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($232.8) million for the three months ended June 30, 2024, compared to ($698.6) million for the same period in 2023, primarily due to favorable changes in unrealized gains (losses) on Agency MBS of $498.0 million and securitized residential whole loans of consolidated VIEs of $172.6 million, partially offset by unfavorable changes in residential securitized debt of consolidated VIEs of ($125.7) million, U.S.

Treasury securities sold, not yet purchased of ($44.9) million, and MSR of ($28.2) million.

Realized gains (losses) on U.S.

Treasury securities sold, not yet purchased was ($117.1) million for the three months ended September 30, 2024, compared to $0 for the same period in 2023.

Net unrealized gains (losses) on instruments measured at fair value through earnings was $1.9 billion for the three months ended September 30, 2024, compared to ($2.1) billion for the same period in 2023, primarily due to favorable changes in unrealized gains (losses) on Agency MBS of $3.8 billion, securitized residential whole loans of consolidated VIEs of $953.6 million, residential credit securities of $61.6 million, U.S.

Treasury securities sold, not yet purchased of $29.1 million, and residential whole loans of $23.3 million, partially offset by unfavorable changes in residential securitized debt of consolidated VIEs of ($725.3) million, MSR of ($114.2) million, and CRT securities of ($19.4) million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the three months ended June 30, 2024 was $414.6 million compared to $1.3 billion for the same period in 2023, primarily attributable to unfavorable changes in unrealized and realized gains (losses) on interest rate swaps and net interest component of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $97.5 million for the three months ended June 30, 2024, compared to $841.7 million for the same period in 2023.

Realized gains (losses) on termination of interest rate swaps was $18.7 million for the three months ended June 30, 2024, compared to $48.1 million for the same period in 2023, which reflected our termination of fixed-rate payer and receiver interest rate swaps with notional amounts of $410.0 million and $3.0 billion, compared to notional amounts of $820.8 million of fixed-rate payer interest rate swaps for the same period in 2023.

Net interest component on interest rate swaps was $298.4 million for the three months ended June 30, 2024, compared to $425.3 million for the same period in 2023.

Net gains (losses) on other derivatives was $15.9 million for the three months ended June 30, 2024, compared to $160.2 million for the same period in 2023.

The change in net gains (losses) on other derivatives was primarily due to unfavorable changes in net gains (losses) on futures, which was $2.3 million for the three months ended June 30, 2024, compared to $171.2 million for the same period in 2023, and net gains (losses) on interest rate swaptions, which was $11.5 million for the three months ended June 30, 2024, compared to $53.4 million for the same period in 2023, partially offset by a favorable change in net gains (losses) on TBA derivatives, which was ($0.3) million for the three months ended June 30, 2024, compared to ($61.5) million for the same period in 2023.

Net gains (losses) on interest rate swaps for the three months ended September 30, 2024 was ($1.4) billion compared to $1.9 billion for the same period in 2023, primarily attributable to unfavorable changes in unrealized gains (losses) on interest rate swaps, realized gains (losses) on interest rate swaps and net interest component of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was ($1.6) billion for the three months ended September 30, 2024, compared to $1.5 billion for the same period in 2023.

Realized gains (losses) on termination of interest rate swaps was ($94.0) million for the three months ended September 30, 2024, compared to $16.4 million for the same period in 2023, which reflected our termination of fixed-rate payer interest rate swaps with notional amounts of $5.1 billion, compared to notional amounts of $1.1 billion and $300.0 million of fixed-rate payer and receiver interest rate swaps for the same period in 2023.

Net interest component on interest rate swaps was $317.5 million for the three months ended September 30, 2024, compared to $394.7 million for the same period in 2023.

Net gains (losses) on other derivatives was ($395.0) million for the three months ended September 30, 2024, compared to $240.8 million for the same period in 2023.

The change in net gains (losses) on other derivatives was primarily due to unfavorable changes in net gains (losses) on futures, which was ($291.5) million for the three months ended September 30, 2024, compared to $441.0 million for the same period in 2023, and net gains (losses) on interest rate swaptions, which was ($135.0) million for the three months ended September 30, 2024, compared to ($78.9) million for the same period in 2023, partially offset by a favorable change in net gains (losses) on TBA derivatives, which was $22.4 million for the three months ended September 30, 2024, compared to ($123.7) million for the same period in 2023.

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

1 unchanged sentence

Given the nature of certain components of this line item, balances may fluctuate from period to period.

Other, net for the three months ended June 30, 2024 was $24.8 million compared to $9.1 million for the same period in 2023, primarily attributable to an increase in interest on custodial balances and decrease in asset write-downs, partially offset by an increase in securitization related costs and MSR financing expenses.

For the Six Months Ended June 30, 2024 and 2023

Other, net for the three months ended September 30, 2024 was $27.4 million compared to $26.3 million for the same period in 2023, primarily attributable to an increase in interest on custodial balances and decrease in asset write-downs, partially offset by an increase in securitization related costs and MSR financing expenses.

For the Nine Months Ended September 30, 2024 and 2023

Net Gains (Losses) on Investments and Other

Net gains (losses) on disposal of investments and other was ($881.9) million for the six months ended June 30, 2024 compared to ($1.1) billion for the same period in 2023.

For the six months ended June 30, 2024, we disposed of Residential Securities with a carrying value of $13.3 billion for an aggregate net gain (loss) of ($813.2) million.

For the same period in 2023, we disposed of Residential Securities with a carrying value of $13.6 billion for an aggregate net gain (loss) of ($1.1) billion.

Net unrealized gains (losses) on instruments measured at fair value through earnings was ($680.9) million for the six months ended June 30, 2024 compared to ($175.2) million for the same period in 2023, primarily due to unfavorable changes in unrealized gains (losses) on Agency MBS of ($600.9) million, securitized residential whole loans of consolidated VIEs of ($122.3) million, residential whole loans of ($59.1) million, and mortgage servicing rights of ($16.9) million, partially offset by

Net gains (losses) on disposal of investments and other was ($1.1) billion for the nine months ended September 30, 2024 compared to ($1.7) billion for the same period in 2023.

For the nine months ended September 30, 2024, we disposed of Residential Securities with a carrying value of $16.0 billion for an aggregate net gain (loss) of ($821.5) million.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

favorable changes on securitized debt of consolidated VIEs of $172.2 million, U.S.

Treasury securities sold, not yet purchased of $88.4 million, and participations issued of $29.3 million.

period in 2023, we disposed of Residential Securities with a carrying value of $20.5 billion for an aggregate net gain (loss) of ($1.7) billion.

Realized gains (losses) on U.S.

Treasury securities sold, not yet purchased was ($126.0) million for the nine months ended September 30, 2024, compared to $0 for the same period in 2023.

Net unrealized gains (losses) on instruments measured at fair value through earnings was $1.2 billion for the nine months ended September 30, 2024 compared to ($2.3) billion for the same period in 2023, primarily due to favorable changes on Agency MBS of $3.2 billion, securitized residential whole loans of consolidated VIEs of $831.3 million, U.S.

Treasury securities sold, not yet purchased of $117.5 million, non-Agency MBS of $109.7 million, and participations issued of $24.3 million partially offset by unfavorable changes in unrealized gains (losses) on securitized debt of consolidated VIEs of ($553.1) million, mortgage servicing rights of ($131.1) million, CRT securities of ($56.9) million, and residential whole loans of ($35.7) million.

Net Gains (Losses) on Derivatives

Net gains (losses) on interest rate swaps for the six months ended June 30, 2024 was $1.6 billion compared to $598.8 million for the same period in 2023, attributable to favorable changes in unrealized gains (losses) on interest rate swaps and realized gains (losses) on termination of interest rate swaps, partially offset by the change in the net interest component of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was $998.4 million for the six months ended June 30, 2024 compared to ($114.6) million for the same period in 2023.

Realized gains (losses) on termination of interest rate swaps was ($2.5) million for the six months ended June 30, 2024, compared to ($97.7) million for the same period in 2023, which reflected our termination of fixed-rate payer and receiver interest rate swaps with notional amounts of $2.7 billion and $3.3 billion, compared to fixed-rate payer and receiver interest rate swaps with notional amounts of $3.1 billion and $6.3 billion for the same period in 2023.

Net interest component on interest rate swaps was $628.5 million for the six months ended June 30, 2024 compared to $811.0 million for the same period in 2023.

Net gains (losses) on other derivatives was $183.2 million for the six months ended June 30, 2024 compared to ($24.2) million for the same period in 2023.

The change in net gains (losses) on other derivatives was primarily due to favorable changes in net gains (losses) on futures, which was $139.4 million for the six months ended June 30, 2024 compared to ($25.3) million for the same period in 2023, and net gains (losses) on interest rate swaptions, which was $42.2 million for the six months ended June 30, 2024 compared to $9.7 million for the same period in 2023.

Other, net for the six months ended June 30, 2024 was $48.2 million compared to $24.6 million for the same period in 2023, primarily attributable to an increase in interest on custodial balances and decrease in asset write-downs, partially offset by an increase in securitization related costs and MSR financing expenses.

Net gains (losses) on interest rate swaps for the nine months ended September 30, 2024 was $265.4 million compared to $2.5 billion for the same period in 2023, attributable to unfavorable changes in unrealized gains (losses) on interest rate swaps, the change in the net interest component of interest rate swaps and realized gains (losses) on termination of interest rate swaps.

Unrealized gains (losses) on interest rate swaps was ($584.1) million for the nine months ended September 30, 2024 compared to $1.4 billion for the same period in 2023.

Net interest component on interest rate swaps was $946.0 million for the nine months ended September 30, 2024 compared to $1.2 billion for the same period in 2023.

Realized gains (losses) on termination of interest rate swaps was ($96.5) million for the nine months ended September 30, 2024, compared to ($81.3) million for the same period in 2023, which reflected our termination of fixed-rate payer and receiver interest rate swaps with notional amounts of $7.7 billion and $3.3 billion, compared to fixed-rate payer and receiver interest rate swaps with notional amounts of $4.2 billion and $6.6 billion for the same period in 2023.

Net gains (losses) on other derivatives was ($211.7) million for the nine months ended September 30, 2024 compared to $216.6 million for the same period in 2023.

The change in net gains (losses) on other derivatives was primarily due to unfavorable changes in net gains (losses) on futures, which was ($152.1) million for the nine months ended September 30, 2024 compared to $415.7 million for the same period in 2023, and net gains (losses) on interest rate swaptions, which was ($92.8) million for the nine months ended September 30, 2024 compared to ($69.2) million for the same period in 2023, partially offset by a favorable change in TBA derivatives, which was $28.3 million for the nine months ended September 30, 2024 compared to ($123.7) million for the same period in 2023.

Other, net for the nine months ended September 30, 2024 was $75.6 million compared to $50.9 million for the same period in 2023, primarily attributable to an increase in interest on custodial balances and decrease in asset write-downs, partially offset by an increase in securitization related costs and MSR financing expenses.

General and Administrative Expenses

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For the three months ended (dollars in thousands)

June 30, 2024 $ 44,891 0.19 % 1.58 %

June 30, 2023 $ 42,915 0.19 % 1.44 %

For the six months ended

June 30, 2024 $ 83,461 0.18 % 1.47 %

June 30, 2023 $ 83,743 0.19 % 1.43 %

G&A expenses were $44.9 million for the three months ended June 30, 2024, an increase of $2.0 million compared to the same period in 2023.

The change in the period was primarily due to an increase in compensation, partially offset by lower expenses related to technology and professional fees.

G&A expenses were $83.5 million for the six months ended June 30, 2024, a decrease of $0.3 million compared to the same period in 2023.

The change in the period was primarily due to lower professional fees and expenses related to technology, equipment, and insurance, partially offset by an increase in compensation.

September 30, 2024 $ 43,921 0.18 % 1.48 %

September 30, 2023 $ 39,909 0.18 % 1.41 %

For the nine months ended

September 30, 2024 $ 127,382 0.18 % 1.46 %

September 30, 2023 $ 123,652 0.19 % 1.44 %

G&A expenses were $43.9 million for the three months ended September 30, 2024, an increase of $4.0 million compared to the same period in 2023.

The change in the period was primarily due to an increase in compensation expense, partially offset by lower expenses related to technology and professional fees.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

G&A expenses were $127.4 million for the nine months ended September 30, 2024, an increase of $3.7 million compared to the same period in 2023.

The change in the period was primarily due to an increase in compensation expense, partially offset by lower expenses related to technology and professional fees.

Return on Average Equity

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For the three months ended

June 30, 2024 12.37 % 3.79 % (14.47 %) (1.58 %) (0.42 %) (0.31 %)

June 30, 2023 13.22 % 2.52 % (8.40 %) (1.44 %) (0.48 %) 5.42 %

For the six months ended

June 30, 2024 11.89 % 3.71 % (5.91 %) (1.47 %) (0.19 %) 8.03 %

June 30, 2023 13.62 % 2.58 % (25.91 %) (1.43 %) (0.43 %) (11.57 %)

September 30, 2024 11.12 % 3.68 % (10.76 %) (1.48 %) 0.21 % 2.77 %

September 30, 2023 12.39 % 3.12 % (33.84 %) (1.41 %) (0.44 %) (20.18 %)

For the nine months ended

September 30, 2024 11.51 % 3.66 % (7.49 %) (1.46 %) (0.06 %) 6.16 %

September 30, 2023 13.35 % 2.78 % (28.76 %) (1.44 %) (0.44 %) (14.51 %)

(1) Economic net interest income includes the net interest component of interest rate swaps and net interest on initial margin related to interest rate swaps, which is reported in Other, net in the Company’s Consolidated Statement of Comprehensive Income (Loss).

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

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

(dollars in thousands)

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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.

The fair value of these securities being less than amortized cost at June 30, 2024 is solely due to market conditions and not the quality of the assets.

The fair value of these securities being less than amortized cost at September 30, 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.

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Financial Condition

Total assets were $93.7 billion and $93.2 billion at June 30, 2024 and December 31, 2023, respectively.

The change was primarily due to increases in securitized residential whole loans of consolidated VIEs of $4.6 billion, mortgage servicing rights of $663.4 million, residential whole loans of $195.1 million, and cash and cash equivalents of $175.0 million, partially offset by decreases in securities of $2.6 billion, receivables for unsettled trades of $2.4 billion and principal and interest receivable of $305.6 million.

Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at June 30, 2024:

Total assets were $101.5 billion and $93.2 billion at September 30, 2024 and December 31, 2023, respectively.

The change was primarily due to increases in securitized residential whole loans of consolidated VIEs of $7.7 billion, securities of $2.1 billion, mortgage servicing rights of $570.9 million, and cash and cash equivalents of $148.0 million, partially offset by decreases in

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Agency MBS MSR Residential Credit (1)

Commercial Total

receivables for unsettled trades of $1.9 billion and principal and interest receivable of $161.7 million.

Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at September 30, 2024.

Agency MBS Residential Credit (1)

Assets (dollars in thousands)

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7.9:1 9.9:1 0.2:1 6.9:1

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

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

(2) Derivatives include TBA contracts under Agency MBS.

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Residential Securities

Substantially all of our Agency MBS at June 30, 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.

Substantially all of our Agency MBS at September 30, 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.

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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 June 30, 2024 and December 31, 2023, we had in our Consolidated Statements of Financial Condition a total of $1.3 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 $2.2 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 June 30, 2024 and 2023 was 7.4% and 7.0%, respectively.

The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of June 30, 2024 and 2023 was 8.5% and 8.6%, respectively.

At September 30, 2024 and December 31, 2023, we had in our Consolidated Statements of Financial Condition a total of $1.3 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 $2.4 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 September 30, 2024 and 2023 was 7.6% and 7.3%, respectively.

The weighted average projected long-term prepayment speed on our Agency MBS portfolio as of September 30, 2024 and 2023 was 11.9% and 7.1%, respectively.

Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period.

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Management’s Discussion and Analysis

The following table presents our Residential Securities that were carried at fair value at June 30, 2024 and December 31, 2023.

June 30, 2024 December 31, 2023

The following table presents our Residential Securities that were carried at fair value at September 30, 2024 and December 31, 2023.

September 30, 2024 December 31, 2023

Estimated Fair Value

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Total Residential Securities $ 71,593,936 $ 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 June 30, 2024 and December 31, 2023.

June 30, 2024 December 31, 2023

September 30, 2024 December 31, 2023

Residential Securities (1)

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Weighted average coupon rate 0.49 % 0.43 %

Weighted average yield NM NM

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Weighted average yield 0.03 % NM

(1) Excludes interest-only MBS.

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NM Not meaningful.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

The following tables summarize certain characteristics of our Residential Credit portfolio at June 30, 2024.

The following tables summarize certain characteristics of our Residential Credit portfolio at September 30, 2024.

Payment Structure Investment Characteristics (1)

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Contractual Obligations

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at June 30, 2024.

The following table summarizes the effect on our liquidity and cash flows from contractual obligations at September 30, 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 June 30, 2024, the interest rate swaps had a net fair value of $1.5 million.

At September 30, 2024, the interest rate swaps had a net fair value of ($56.2) million.

Year One to Three

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Total $ 65,609,720 $ 2,829,015 $ 2,101,509 $ 52,060,817 $ 122,601,061

(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at June 30, 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 six months ended June 30, 2024, we received $3.1 billion from principal repayments and $14.9 billion in cash from disposal of Securities.

During the six months ended June 30, 2023, we received $3.0 billion from principal repayments and $12.5 billion in cash from disposal of Securities.

(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at September 30, 2024.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

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 nine months ended September 30, 2024, we received $4.9 billion from principal repayments and $17.3 billion in cash from disposal of Securities.

During the nine months ended September 30, 2023, we received $4.7 billion from principal repayments and $18.7 billion in cash from disposal of Securities.

Commitments and Contractual Obligations with Unconsolidated Entities

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Stockholders’ Equity

The following table provides a summary of total stockholders’ equity at June 30, 2024 and December 31, 2023:

June 30, 2024 December 31, 2023

The following table provides a summary of total stockholders’ equity at September 30, 2024 and December 31, 2023:

September 30, 2024 December 31, 2023

Stockholders’ equity (dollars in thousands)

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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 and six months ended June 30, 2024 and 2023, no shares were purchased under the Current Share Repurchase Program or 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 “Share Repurchase Program”).

During the three and nine months ended September 30, 2024 and 2023, no shares were purchased under the 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.

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, 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”).

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, we offered and sold shares of

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

During the three and six months ended June 30, 2024, under the at-the-market sales program, we 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, we issued 25.3 million shares for proceeds of $562.7 million, net of commissions and fees.

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, we 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, we 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, we 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, we 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.

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

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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.

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.

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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 June 30, 2024 and December 31, 2023 was 7.1:1 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 5.8:1 and 5.7:1, at June 30, 2024 and December 31, 2023, respectively.

Our GAAP capital ratio at June 30, 2024 and December 31, 2023 was 12.0% 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 14.2% and 14.0% at June 30, 2024 and December 31, 2023, respectively.

Our GAAP leverage ratio at September 30, 2024 and December 31, 2023 was 6.9:1 and 6.8:1, respectively.

Our economic leverage ratio, which is computed as the sum of Recourse Debt, cost basis of TBA derivatives outstanding, and net forward purchases (sales) of investments divided by total equity was 5.7:1 and 5.7:1, at September 30, 2024 and December 31, 2023, respectively.

Our GAAP capital ratio at September 30, 2024 and December 31, 2023 was 12.4% 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 September 30, 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.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Risk Management

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

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Risk Appetite

21 unchanged sentences

The full Board has overall responsibility for ESG oversight, and the Corporate Responsibility Committee meets jointly with other Committees from time to time in order to review areas of shared responsibility.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

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

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

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

Description of Risks

22 unchanged sentences

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.

(“Arcola”), other secured financing, debt issued by securitization vehicles, mortgages,

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

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.

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

At June 30, 2024 and December 31, 2023, the weighted average days to maturity was 36 days and 44 days, respectively.

ANNALY CAPITAL MANAGEMENT, INC.

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Management’s Discussion and Analysis

At September 30, 2024 and December 31, 2023, the weighted average days to maturity was 34 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.

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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 June 30, 2024, we had total financial assets and cash pledged against existing liabilities of $65.3 billion.

We remain active and flexible in our liquidity structure.

At September 30, 2024, we had total financial assets and cash pledged against existing liabilities of $68.7 billion.

The weighted average haircut was approximately 3% 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 June 30, 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 June 30, 2024.

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 September 30, 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 September 30, 2024.

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

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For the three months ended (dollars in thousands)

September 30, 2024 $ 67,092,629 $ 64,310,276 $ 3,041,120 $ —

June 30, 2024 63,043,218 60,787,994 2,322,479 —

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

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

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.

The following table provides information on our repurchase agreements and other secured financing by maturity date at June 30, 2024.

The weighted average remaining maturity on our repurchase agreements and other secured financing was 40 days at June 30, 2024:

June 30, 2024

The following table provides information on our repurchase agreements and other secured financing by maturity date at September 30, 2024.

The weighted average remaining maturity on our repurchase agreements and other secured financing was 36 days at September 30, 2024:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

September 30, 2024

Principal Balance Weighted Average Rate % of Total

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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.

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

The following table presents our outstanding debt balances and associated weighted average rates and days to maturity at June 30, 2024:

In order to increase financing optionality for our Onslow Bay platform we closed a new warehouse facility and expanded an existing facility.

Both facilities include expanded product offerings with a committed component for residential whole loans.

The following table presents our outstanding debt balances and associated weighted average rates and days to maturity at September 30, 2024:

Weighted Average Rate

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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 June 30, 2024:

The following table also provides the carrying amount of our encumbered and unencumbered financial assets at September 30, 2024:

Encumbered Assets Unencumbered Assets Total

15 unchanged sentences

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

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

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

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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 June 30, 2024:

ANNALY CAPITAL MANAGEMENT, INC.

AND SUBSIDIARIES

Management’s Discussion and Analysis

The following table presents our liquid assets as a percentage of total assets at September 30, 2024:

Carrying Value (1)

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

The assets listed in this table include $65.3 billion of assets that have been pledged as collateral against existing liabilities at June 30, 2024.

The assets listed in this table include $68.7 billion of assets that have been pledged as collateral against existing liabilities at September 30, 2024.

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

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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 June 30, 2024 could vary substantially based on actual prepayment experience.

The interest rate sensitivity of our assets and liabilities in the following table at September 30, 2024 could vary substantially based on actual prepayment experience.

ANNALY CAPITAL MANAGEMENT, INC.

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The results assume no management actions in response to the rate or spread changes.

The following table presents estimates at June 30, 2024.

The following table presents estimates at September 30, 2024.

Actual results could differ materially from these estimates.

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Additionally, ALCO has oversight of our credit risk exposure.

Our portfolio composition, based on balance sheet values, at June 30, 2024 and December 31, 2023 was as follows:

June 30, 2024 December 31, 2023

Our portfolio composition, based on balance sheet values, at September 30, 2024 and December 31, 2023 was as follows:

September 30, 2024 December 31, 2023

Agency mortgage-backed securities 70.7 % 75.9 %

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Additionally, ALCO has oversight of our counterparty exposure.

The following table summarizes our exposure to counterparties by geography at June 30, 2024:

The following table summarizes our exposure to counterparties by geography at September 30, 2024:

Number of Counterparties Secured Financing (1)

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Europe 9 12,533,116 (17,469) 785,439

Asia (non-Japan) 1 405,932 — 11,779

Japan 4 4,140,384 — 436,191

31 unchanged sentences

The Cybersecurity Committee regularly meets to discuss both routine oversight of cybersecurity processes, policies and procedures and management of any cyber-specific events, including escalation to the ERC, the executive leadership team and/or the Board, as appropriate.

The Cybersecurity Committee includes representatives from Operational Risk Management, Information Technology, Legal, Mortgage Operations and Internal Control.

The Cybersecurity Committee includes representatives from Operational Risk Management, Information Technology, Legal, Mortgage Operations and Internal Controls.

Certain members of the Cybersecurity Committee have relevant qualifications such as extensive work experience implementing data security measures, developing cybersecurity policies and procedures and assessing, managing and reporting cybersecurity risk.

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Accordingly, in conjunction with our legal department, we closely monitor our compliance with Section 3(c)(5)(C) of the Investment Company Act within our risk management program.

Compliance with Section 3(c)(5)(C) of the Investment Company Act is monitored by the FRDC under the oversight of the ERC.

Compliance with Section 3(c)(5)(C) of the Investment Company Act is monitored by the FRDC.

Critical Accounting Estimates

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All internal fair values are compared to external pricing sources and/or dealer quotes to determine reasonableness.

Additionally, securities used as collateral for repurchase agreements are priced daily by counterparties to ensure sufficient collateralization, providing additional verification of our internal pricing.

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Management’s Discussion and Analysis

Sensitivity of Estimates to Change:

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Refer to the interest rate sensitivity and interest rate shock analysis and discussions within this Item 2 for further information.

Revenue Recognition

ANNALY CAPITAL MANAGEMENT, INC.

1 unchanged sentence

Management’s Discussion and Analysis

Revenue Recognition

Interest income from coupon payments is accrued based on the outstanding principal amounts of the Residential Securities and their contractual terms.

85 unchanged sentences

The more convex a security is, the more its duration will change with interest rate changes.

Corporate Debt

Non-government debt instruments issued by corporations.

Long-term corporate debt can be issued as bonds or loans.

One of two entities in a transaction.

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Refers to Residential Securities, U.S.

Treasury securities, reverse repurchase agreements, commercial real estate debt and preferred equity interests, residential mortgage loans and corporate debt.

Treasury securities, reverse repurchase agreements, commercial real estate debt and residential mortgage loans.

Average interest earning assets is based on daily balances.

119 unchanged sentences

By contrast, the economic borrower’s obligation to repay non-recourse debt is limited to the value of the pledged collateral.

Recourse debt consists of repurchase agreements, other secured financing and U.S Treasury securities sold, not yet purchased.

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 this measure.

89 unchanged sentences

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis