ANNALY CAPITAL MANAGEMENT INC 10-Q

Item 1. Financial Statements 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 $ 5.0 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. Residential Credit Fund The Company manages a fund investing in participations in residential mortgage loans. The residential credit fund is deemed to be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not considered equity at risk. The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the entity. As of 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 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. 9. DERIVATIVE INSTRUMENTS Derivative instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA derivatives, U.S. Treasury and Secured Overnight Financing Rate (“SOFR”) futures contracts and certain forward purchase commitments. The Company may also enter into other types of mortgage derivatives such as interest-only securities, credit derivatives referencing the commercial mortgage-backed securities index and synthetic total return swaps. In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps, swaptions and futures contracts. The Company may also enter into TBA derivatives, U.S. Treasury futures contracts, certain forward purchase commitments and credit derivatives to economically hedge its exposure to market risks. The purpose of using derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders. These derivatives are subject to changes in market values resulting from changes in interest rates, volatility, Agency mortgage-backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives also creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative transactions, the amount of which may vary based on the market value and terms of the derivative contract. In the case of market agreed coupon (“MAC”) interest rate swaps, the Company may make or receive a payment at the time of entering into such interest rate swaps, which represents fair value of these swaps, to compensate for the out of market nature of such interest rate swaps. Subsequent changes in fair value from inception of these interest rate swaps are reflected within Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). Similar to other interest rate swaps, the Company may have to pledge cash or assets as collateral for the MAC interest rate swap transactions. In the event of a default by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in accordance with the terms of the derivative contracts. 15 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. 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). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. In accordance with a clearing organization’s rulebook, the Company presents the fair value of centrally cleared interest rate swaps net of variation margin pledged or received under such transactions. At 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. Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk. In particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. The Company may have outstanding interest rate swap agreements where the floating leg is linked to the SOFR, the overnight index swap rate or another index. Interest rate swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”). Uncleared interest rate swaps are fair valued using internal pricing models and compared to the counterparty market values. Centrally cleared interest rate swaps, including MAC interest rate swaps, are generally fair valued using the DCO’s market values. If an interest rate swap is terminated, the realized gain (loss) on the interest rate swap would be equal to the difference between the cash received or paid and fair value. Swaptions – Swaptions are purchased or sold to mitigate the potential impact of increases or decreases in interest rates. Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The Company’s swaptions are not centrally cleared. The premium paid or received for swaptions is reported as an asset or liability in the Consolidated Statements of Financial Condition. If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium received or paid. If the Company sells or exercises a swaption, the realized gain (loss) on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid. The fair value of swaptions are estimated using internal pricing models and compared to the counterparty market values. TBA Dollar Rolls – TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities. Futures Contracts – Futures contracts are derivatives that track the prices of specific assets or benchmark rates. Short sales of futures contracts help to mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains margin accounts which are settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing. Forward Purchase Commitments – The Company may enter into forward purchase commitments with counterparties whereby the Company commits to purchasing residential mortgage loans at a particular price, provided the residential mortgage loans close with the counterparties. The counterparties are required to deliver the committed loans on a “best efforts” basis. Credit Derivatives – The Company may enter into credit derivatives referencing a commercial mortgage-backed securities index, such as the CMBX index, and synthetic total return swaps. 16 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. 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) Interest rate swaps $ 3,094 $ 26,344 Interest rate swaptions 13,068 105,883 TBA derivatives 2,869 20,689 Futures contracts 23,256 — Purchase commitments 16,784 9,641 Total derivative assets $ 59,071 $ 162,557 Liabilities Interest rate swaps $ 59,297 $ 83,051 TBA derivatives 8,601 39,070 Futures contracts 32,117 179,835 Purchase commitments 2,613 339 Total derivative liabilities $ 102,628 $ 302,295 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) Weighted Average Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity (2) (dollars in thousands) 0 - 3 years $ 19,961,229 3.33 % 4.95 % 1.05 3 - 6 years 13,510,021 3.10 % 4.94 % 4.62 6 - 10 years 20,114,937 2.77 % 4.95 % 7.97 Greater than 10 years 1,559,384 3.44 % 4.84 % 23.50 Total / Weighted average $ 55,145,571 3.05 % 4.94 % 5.08 December 31, 2023 Maturity Current Notional (1) Weighted Average Pay Rate Weighted Average Receive Rate Weighted Average Years to Maturity (2) (dollars in thousands) 0 - 3 years $ 21,397,358 3.17 % 5.26 % 1.23 3 - 6 years 12,461,799 3.09 % 5.37 % 4.75 6 - 10 years 22,949,150 2.85 % 5.34 % 8.02 Greater than 10 years 2,021,247 3.53 % 5.27 % 22.71 Total / Weighted average $ 58,829,554 3.04 % 5.31 % 5.36 (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. (2) The weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed. 17 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. 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 (dollars in thousands) Long pay $ 250,000 2.40 % SOFR 5.03 0.23 December 31, 2023 Current Underlying Notional Weighted Average Underlying Fixed Rate Weighted Average Underlying Floating Rate Weighted Average Underlying Years to Maturity Weighted Average Months to Expiration (dollars in thousands) Long pay $ 1,250,000 2.21 % SOFR 7.69 8.21 Long receive $ 500,000 1.65 % SOFR 10.30 3.53 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 (dollars in thousands) Purchase contracts $ 3,319,000 $ 3,333,873 $ 3,328,141 $ ( 5,732 ) Net TBA derivatives $ 3,319,000 $ 3,333,873 $ 3,328,141 $ ( 5,732 ) December 31, 2023 Purchase and Sale Contracts for Derivative TBAs Notional Implied Cost Basis Implied Market Value Net Carrying Value (dollars in thousands) Purchase contracts $ 988,000 $ 920,626 $ 915,790 $ ( 4,836 ) Sale contracts ( 1,491,000 ) ( 1,475,847 ) ( 1,489,392 ) ( 13,545 ) Net TBA derivatives $ ( 503,000 ) $ ( 555,221 ) $ ( 573,602 ) $ ( 18,381 ) 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 Positions Notional - Short Positions Weighted Average Years to Maturity (dollars in thousands) U.S. Treasury futures - 2 year $ — $ ( 16,793,200 ) 1.94 U.S. Treasury futures - 5 year 3,346,000 — 4.39 U.S. Treasury futures - 10 year and greater 621,300 ( 2,285,500 ) 12.41 Total $ 3,967,300 $ ( 19,078,700 ) 3.62 December 31, 2023 Notional - Long Positions Notional - Short Positions Weighted Average Years to Maturity (dollars in thousands) U.S. Treasury futures - 2 year $ — $ ( 5,001,400 ) 1.97 U.S. Treasury futures - 10 year and greater — ( 1,733,600 ) 14.26 Total $ — $ ( 6,735,000 ) 5.13 The Company presents derivative contracts on a gross basis in the Consolidated Statements of Financial Condition. Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty. 18 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. 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 September 30, 2024 and December 31, 2023, respectively. September 30, 2024 Amounts Eligible for Offset Gross Amounts Financial Instruments Cash Collateral Net Amounts Assets (dollars in thousands) Interest rate swaps, at fair value $ 3,094 $ — $ — $ 3,094 Interest rate swaptions, at fair value 13,068 — ( 11,100 ) 1,968 TBA derivatives, at fair value 2,869 ( 2,660 ) — 209 Futures contracts, at fair value 23,256 ( 20,305 ) — 2,951 Purchase commitments 16,784 — — 16,784 Liabilities Interest rate swaps, at fair value $ 59,297 $ ( 48,713 ) $ — $ 10,584 TBA derivatives, at fair value 8,601 ( 6,972 ) — 1,629 Futures contracts, at fair value 32,117 ( 20,305 ) ( 11,812 ) — Purchase commitments 2,613 — — 2,613 December 31, 2023 Amounts Eligible for Offset Gross Amounts Financial Instruments Cash Collateral Net Amounts Assets (dollars in thousands) Interest rate swaps, at fair value $ 26,344 $ ( 21,505 ) $ — $ 4,839 Interest rate swaptions, at fair value 105,883 ( 45,930 ) ( 57,320 ) 2,633 TBA derivatives, at fair value 20,689 ( 13,282 ) — 7,407 Purchase commitments 9,641 — — 9,641 Liabilities Interest rate swaps, at fair value $ 83,051 $ ( 72,844 ) $ — $ 10,207 TBA derivatives, at fair value 39,070 ( 34,525 ) — 4,545 Futures contracts, at fair value 179,835 — ( 179,835 ) — Purchase commitments 339 — — 339 The effect of interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss) is as follows: Location on Consolidated Statements of Comprehensive Income (Loss) Net Interest Component of Interest Rate Swaps (1) Realized Gains (Losses) on Termination of Interest Rate Swaps (1) Unrealized Gains (Losses) on Interest Rate Swaps (1) For the three months ended (dollars in thousands) 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). 19 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements The effect of other derivative contracts in the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows: 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) Net TBA derivatives $ 40,561 $ ( 18,181 ) $ 22,380 Net interest rate swaptions ( 21,180 ) ( 113,792 ) ( 134,972 ) Futures ( 362,660 ) 71,146 ( 291,514 ) Purchase commitments — 9,124 9,124 Total $ ( 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) Net TBA derivatives $ ( 81,964 ) $ ( 41,777 ) $ ( 123,741 ) Net interest rate swaptions ( 27,860 ) ( 51,041 ) ( 78,901 ) Futures (1) 309,397 131,578 440,975 Purchase commitments — 2,457 2,457 Total $ 240,790 (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 (dollars in thousands) Net TBA derivatives $ 15,694 $ 12,649 $ 28,343 Net interest rate swaptions ( 33,511 ) ( 59,304 ) ( 92,815 ) Futures (1) ( 323,113 ) 170,973 ( 152,140 ) Purchase commitments — 4,870 4,870 Total $ ( 211,742 ) (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 (dollars in thousands) Net TBA derivatives $ ( 136,452 ) $ 12,710 $ ( 123,742 ) Net interest rate swaptions ( 25,538 ) ( 43,627 ) ( 69,165 ) Futures (1) 185,716 229,940 415,656 Purchase commitments — ( 122 ) ( 122 ) Credit derivatives ( 19,282 ) 13,260 ( 6,022 ) Total $ 216,605 (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. Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange. 20 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements 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 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. 10. FAIR VALUE MEASUREMENTS The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR that are accounted for at fair value. The fair value of a financial instrument and MSR is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP requires classification of financial instruments and MSR into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instrument and MSR fall within different levels of the hierarchy, the categorization is based on the lowest priority input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value in the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows: Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets. Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value. The Company designates its securities as trading, available-for-sale or held-to-maturity depending upon the type of security and the Company’s intent and ability to hold such security to maturity. Securities classified as available-for-sale and trading are reported at fair value on a recurring basis. The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the three-level fair value hierarchy, with the observability of inputs determining the appropriate level. Futures contracts and U.S. Treasury securities are valued using quoted prices for identical instruments in active markets and are classified as Level 1. Residential Securities, interest rate swaps, swaptions and other derivatives are valued using quoted prices or internally estimated prices for similar assets using internal models. The Company incorporates common market pricing methods, including a spread measurement to the Treasury curve as well as underlying characteristics of the particular security including coupon, prepayment speeds, periodic and life caps, rate reset period and expected life of the security in its estimates of fair value. Fair value estimates for residential mortgage loans are generated by a discounted cash flow model and are primarily based on observable market-based inputs including discount rates, prepayment speeds, delinquency levels, and credit losses. Management reviews and indirectly corroborates its estimates of the fair value derived using internal models by comparing its results to independent prices provided by dealers in the securities and/or third party pricing services. Certain liquid asset classes, such as Agency fixed-rate pass-throughs, may be priced using independent sources such as quoted prices for TBA securities. Residential Securities, residential mortgage loans, interest rate swap and swaption markets and TBA derivatives are considered to be active markets such that participants transact with sufficient frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of the Residential Securities, residential mortgage loans, interest rate swaps, swaptions 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. 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 mortgage-backed securities carried at fair value are classified as Level 2. 21 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional information. 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 rates and costs to service. Model valuations are then compared to valuations obtained from third party pricing providers. Management reviews the valuations received from third party pricing providers and uses them as a point of comparison to modeled values. The valuation of MSR requires significant judgment by management and the third party pricing providers. Assumptions used for which there is a lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s financial statements. The following tables present the estimated fair values of financial instruments and MSR measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023. There were no transfers between levels of the fair value hierarchy during the periods presented. September 30, 2024 Level 1 Level 2 Level 3 Total Assets (dollars in thousands) Securities Agency mortgage-backed securities $ — $ 69,150,399 $ — $ 69,150,399 Credit risk transfer securities — 826,841 — 826,841 Non-Agency mortgage-backed securities — 1,616,696 — 1,616,696 Commercial mortgage-backed securities — 106,241 — 106,241 Loans Residential mortgage loans — 2,305,613 — 2,305,613 Mortgage servicing rights — — 2,693,057 2,693,057 Assets transferred or pledged to securitization vehicles — 21,044,007 — 21,044,007 Derivative assets Interest rate swaps — 3,094 — 3,094 Other derivatives 23,256 32,721 — 55,977 Total assets $ 23,256 $ 95,085,612 $ 2,693,057 $ 97,801,925 Liabilities Debt issued by securitization vehicles $ — $ 18,709,118 $ — $ 18,709,118 Participations issued — 467,006 — 467,006 U.S. Treasury securities sold, not yet purchased 2,043,519 — — 2,043,519 Derivative liabilities Interest rate swaps — 59,297 — 59,297 Other derivatives 32,117 11,214 — 43,331 Total liabilities $ 2,075,636 $ 19,246,635 $ — $ 21,322,271 22 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements December 31, 2023 Level 1 Level 2 Level 3 Total Assets (dollars in thousands) Securities Agency mortgage-backed securities $ — $ 66,308,788 $ — $ 66,308,788 Credit risk transfer securities — 974,059 — 974,059 Non-Agency mortgage-backed securities — 2,108,274 — 2,108,274 Commercial mortgage-backed securities — 222,444 — 222,444 Loans Residential mortgage loans — 2,353,084 — 2,353,084 Mortgage servicing rights — — 2,122,196 2,122,196 Assets transferred or pledged to securitization vehicles — 13,307,622 — 13,307,622 Derivative assets Interest rate swaps — 26,344 — 26,344 Other derivatives — 136,213 — 136,213 Total assets $ — $ 85,436,828 $ 2,122,196 $ 87,559,024 Liabilities Debt issued by securitization vehicles $ — $ 11,600,338 $ — $ 11,600,338 Participations issued — 1,103,835 — 1,103,835 U.S. Treasury securities sold, not yet purchased 2,132,751 — — 2,132,751 Derivative liabilities Interest rate swaps — 83,051 — 83,051 Other derivatives 179,835 39,409 — 219,244 Total liabilities $ 2,312,586 $ 12,826,633 $ — $ 15,139,219 Qualitative and Quantitative Information about Level 3 Fair Value Measurements The Company considers unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements are described below. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently from changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply. For MSR, in general, increases in the discount, prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement. A decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in MSR, which in turn could result in a decline in the estimated fair value of MSR. Refer to the “Mortgage Servicing Rights” Note for additional information, including rollforwards. The following table presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments. Unobservable Input (1) Range (Weighted Average) (2) September 30, 2024 December 31, 2023 Discount rate 1.8 % - 11.2 % ( 7.6 %) 7.0 % - 12.0 % ( 8.6 %) Prepayment rate 5.1 % - 31.3 % ( 6.1 %) 4.8 % - 11.0 % ( 5.6 %) Delinquency rate 0.2 % - 4.0 % ( 1.2 %) 0.2 % - 4.2 % ( 1.3 %) Cost to service $ 83 - $ 108 ($ 91 ) $ 84 - $ 111 ($ 94 ) (1) Represents rates, estimates and assumptions that the Company believes would be used by market participants when valuing these assets. (2) Weighted average discount rate computed based on the fair value of MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR. 23 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements 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 Carrying Value Fair Value Carrying Value Fair Value Financial liabilities Repurchase agreements $ 64,310,276 $ 64,310,276 $ 62,201,543 $ 62,201,543 Other secured financing 600,000 600,000 500,000 500,000 The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered Level 2 fair value measurements. Long term other secured financing is valued using Level 2 inputs. 11. INTANGIBLE ASSETS Intangible assets, net Finite life intangible assets are amortized over their expected useful lives. As part of the Company’s management internalization transaction, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired assembled workforce of approximately $ 41.2 million based on the replacement cost of the employee base acquired by the Company. The following table presents the activity of finite lived intangible assets for the nine months ended September 30, 2024. Intangible Assets, net (dollars in thousands) Beginning balance January 1, 2024 $ 12,106 Less: amortization expense ( 2,018 ) Ending balance September 30, 2024 $ 10,088 12. SECURED FINANCING Reverse Repurchase and Repurchase Agreements – The Company finances a significant portion of its assets with repurchase agreements. At the inception of each transaction, the Company assessed each of the specified criteria in ASC 860, Transfers and Servicing , and has determined that each of the financing agreements should be treated as a secured financing. The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. To mitigate credit exposure, the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in market value of these securities. Generally, the Company receives or posts collateral with a fair value approximately equal to or greater than the value of the secured financing. Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements meet the criteria to permit netting. The Company reports cash flows on repurchase agreements as financing activities and cash flows on reverse repurchase agreements as investing activities in the Consolidated Statements of Cash Flows. The Company had outstanding $ 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. 24 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements 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 (dollars in thousands) 1 day $ 24,998,317 $ 175,637 $ 41,503 $ — $ — $ 25,215,457 2 to 29 days 655,425 275,927 846,860 221,231 95,291 2,094,734 30 to 59 days 34,198,599 — 589,802 26,404 — 34,814,805 60 to 89 days 2,594,869 142,486 611,235 452,799 — 3,801,389 90 to 119 days 1,675 47,353 82,050 — — 131,078 Over 119 days (1) — — 364,920 566,773 — 931,693 Total $ 62,448,885 $ 641,403 $ 2,536,370 $ 1,267,207 $ 95,291 $ 66,989,156 Amounts offset in accordance with netting arrangements. ( 2,678,880 ) Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial Condition. $ 64,310,276 December 31, 2023 Agency Mortgage-Backed Securities CRTs Non-Agency Mortgage-Backed Securities Residential Mortgage Loans Commercial Mortgage-Backed Securities Total Repurchase Agreements (dollars in thousands) 1 day $ — $ — $ — $ — $ — $ — 2 to 29 days 33,492,952 555,568 840,400 — 191,276 35,080,196 30 to 59 days 18,090,265 — 528,341 — — 18,618,606 60 to 89 days 6,479,206 139,952 579,611 — — 7,198,769 90 to 119 days — — 39,714 207,592 — 247,306 Over 119 days (1) 2,511,003 — 169,697 644,259 — 3,324,959 Total $ 60,573,426 $ 695,520 $ 2,157,763 $ 851,851 $ 191,276 $ 64,469,836 Amounts offset in accordance with netting arrangements. ( 2,268,293 ) Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial Condition. $ 62,201,543 (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 September 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. September 30, 2024 December 31, 2023 Reverse Repurchase Agreements Repurchase Agreements Reverse Repurchase Agreements Repurchase Agreements (dollars in thousands) Gross amounts $ 2,678,880 $ 66,989,156 $ 2,268,293 $ 64,469,836 Amounts offset ( 2,678,880 ) ( 2,678,880 ) ( 2,268,293 ) ( 2,268,293 ) Netted amounts $ — $ 64,310,276 $ — $ 62,201,543 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. The amount of collateral sold is reported at fair value in the Company’s Consolidated Statements of Financial Condition as U.S. Treasury securities sold, not yet purchased. 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 25 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements 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 $ 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. 13. CAPITAL STOCK (A) Common Stock 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 September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 Par Value Common stock 1,468,250,000 1,468,250,000 558,047,743 500,080,287 $ 0.01 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 “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 “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. LLC, J.P. 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 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. 26 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements Shares Authorized Shares Issued And Outstanding Carrying Value Contractual Rate Earliest Redemption Date (1) Effective Date of Floating Rate Dividend Period Floating Annual Rate (2) September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 September 30, 2024 December 31, 2023 Fixed-to-floating rate Series F 28,800,000 28,800,000 28,800,000 28,800,000 696,910 696,910 6.95 % 9/30/2022 9/30/2022 3M Term SOFR + 4.993 % Series G 17,000,000 17,000,000 17,000,000 17,000,000 411,335 411,335 6.50 % 3/31/2023 3/31/2023 3M Term SOFR + 4.172 % Series I 17,700,000 17,700,000 17,700,000 17,700,000 428,324 428,324 6.75 % 6/30/2024 6/30/2024 3M Term SOFR + 4.989 % Total 63,500,000 63,500,000 63,500,000 63,500,000 $ 1,536,569 $ 1,536,569 (1) Subject to the Company’s right under limited circumstances to redeem preferred stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change in control of the Company. (2) For each series of fixed-to-floating rate cumulative redeemable preferred stock, the floating rate is calculated as 3-month CME Term SOFR (plus a spread adjustment of 0.26161 %) plus the spread specified in the prospectus. 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 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. On November 3, 2022, the Company’s Board of Directors approved a repurchase plan for all of its existing outstanding Preferred Stock (as defined below, the “Preferred Stock Repurchase Program”). Under the terms of the plan, the Company is authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of its 6.95 % Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $ 0.01 per share (the “Series F Preferred Stock”), (ii) 17,000,000 shares of its 6.50 % Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $ 0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of its 6.75 % Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $ 0.01 per share (the “Series I Preferred Stock”, and together with Series F Preferred Stock and Series G Preferred Stock, the “Preferred Stock”). The aggregate liquidation value of the Preferred Stock that may be repurchased by the Company pursuant to the Preferred Stock Repurchase Program, as of November 3, 2022, was approximately $ 1.6 billion. The Preferred Stock Repurchase Program became effective on November 3, 2022, and shall expire on December 31, 2024. No shares were repurchased with respect to the Preferred Stock Repurchase Program during the three and nine months ended September 30, 2024. (C) Distributions to Stockholders The following table provides a summary of the Company’s dividend distribution activity for the periods presented: 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) Dividends and dividend equivalents declared on common stock and share-based awards $ 364,914 $ 323,164 $ 1,019,527 $ 968,111 Distributions declared per common share $ 0.65 $ 0.65 $ 1.95 $ 1.95 Distributions paid to common stockholders after period end $ 362,731 $ 321,629 $ 362,731 $ 321,629 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 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 Dividends declared per share of series F preferred stock $ 0.662 $ 0.658 $ 1.984 $ 1.900 Dividends declared to series G preferred stockholders $ 10,606 $ 10,431 $ 31,804 $ 27,362 Dividends declared per share of series G preferred stock $ 0.624 $ 0.614 $ 1.871 $ 1.610 Dividends declared to series I preferred stockholders $ 11,967 $ 7,467 $ 26,901 $ 22,401 Dividends declared per share of series I preferred stock $ 0.676 $ 0.422 $ 1.520 $ 1.266 27 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements 14. INTEREST INCOME AND INTEREST EXPENSE Refer to the “Significant Accounting Policies” Note for details surrounding the Company’s accounting policy related to net interest income on securities and loans. The following table summarizes the interest income recognition methodology for Residential Securities: Interest Income Methodology Agency Fixed-rate pass-through (1) Effective yield (3) Adjustable-rate pass-through (1) Effective yield (3) Multifamily (1) Contractual Cash Flows CMO (1) Effective yield (3) Reverse mortgages (2) Prospective Interest-only (2) Prospective Residential credit CRT (2) Prospective Alt-A (2) Prospective Prime (2) Prospective Subprime (2) Prospective NPL/RPL (2) Prospective Prime jumbo (2) Prospective (1) Changes in fair value are recognized in Other comprehensive income (loss) in the accompanying Consolidated Statements of Comprehensive Income (Loss) for securities purchased prior to July 1, 2022. Effective July 1, 2022, changes in fair value are recognized in Net gains (losses) on investments and other in the accompanying Consolidated Statements of Comprehensive Income (Loss) for newly purchased securities. (2) Changes in fair value are recognized in Net gains (losses) on investments and other in the accompanying Consolidated Statements of Comprehensive Income (Loss). (3) Effective yield is recalculated for differences between estimated and actual prepayments and the amortized cost is adjusted as if the new effective yield had been applied since inception. The following table presents the components of the Company’s interest income and interest expense for the three 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) Agency securities $ 789,403 $ 753,007 $ 2,331,698 $ 2,043,021 Residential credit securities 49,863 57,229 156,754 167,451 Residential mortgage loans (1) 346,031 181,965 899,867 491,398 Commercial investment portfolio (1) 2,240 5,812 8,235 24,009 Reverse repurchase agreements 41,804 3,472 104,600 15,350 Total interest income $ 1,229,341 $ 1,001,485 $ 3,501,154 $ 2,741,229 Interest expense Repurchase agreements $ 942,780 $ 917,997 $ 2,722,304 $ 2,457,996 Debt issued by securitization vehicles 234,299 116,962 596,128 307,715 Participations issued 17,834 11,860 57,841 33,352 U.S. Treasury securities sold, not yet purchased 21,027 — 64,373 — Total interest expense 1,215,940 1,046,819 3,440,646 2,799,063 Net interest income $ 13,401 $ ( 45,334 ) $ 60,508 $ ( 57,834 ) (1) Includes assets transferred or pledged to securitization vehicles. 28 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements 15. 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 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) Net income (loss) $ 82,351 $ ( 569,084 ) $ 538,692 $ ( 1,247,225 ) Net income (loss) attributable to noncontrolling interests 15,906 ( 6,879 ) 18,838 ( 7,797 ) Net income (loss) attributable to Annaly 66,445 ( 562,205 ) 519,854 ( 1,239,428 ) Dividends on preferred stock 41,628 36,854 115,847 104,495 Net income (loss) available (related) to common stockholders $ 24,817 $ ( 599,059 ) $ 404,007 $ ( 1,343,923 ) Weighted average shares of common stock outstanding-basic 515,729,658 494,330,361 505,800,723 492,744,997 Add: Effect of stock awards, if dilutive 1,102,494 — 817,420 — Weighted average shares of common stock outstanding-diluted 516,832,152 494,330,361 506,618,143 492,744,997 Net income (loss) per share available (related) to common share Basic $ 0.05 $ ( 1.21 ) $ 0.80 $ ( 2.73 ) 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 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. 16. INCOME TAXES 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. To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its stockholders and meet certain other requirements that relate to, among other things, assets it may hold, income it may generate and its stockholder composition. It is generally the Company’s policy to distribute 100 % of its REIT taxable income. To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within the next year as permitted by the Code. The Company and certain of its direct and indirect subsidiaries, including Annaly TRS, Inc. and certain subsidiaries of joint ventures, have made separate joint elections to treat these subsidiaries as TRSs. As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon their taxable income. The provisions of ASC 740, Income Taxes (“ASC 740”), clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial position. Thus, no accruals for penalties and interest were deemed necessary at 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. The Company may, however, be subject to certain minimum state and local tax filing fees as well as certain excise, franchise or business taxes. The Company’s TRSs are subject to federal, state and local taxes. During the 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. 29 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements 17. SEGMENTS The Company operates in three reportable segments further described in the Description of Business Note. The accounting policies applied to the segments are the same as those described in the summary of significant accounting policies, with the exception of allocations between segments related to net interest income and other comprehensive income (loss), which are reflected in Other income (loss), and allocations between segments related to investment balances, which are presented net of associated financings in Total Assets. These allocations are made to reflect the economic hedging relationship between investments within different operating segments. Activities that are not directly attributable or not allocated to any of the three current operating segments (such as investments in commercial mortgage-backed securities, preferred stock dividends and corporate existence costs) are reported under Corporate and Other as reconciling items to the Company’s consolidated financial statements. 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 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 (dollars in thousands) Interest income $ 830,407 $ 396,694 $ — $ 2,240 $ 1,229,341 Interest expense 885,982 328,440 — 1,518 1,215,940 Net interest income ( 55,575 ) 68,254 — 722 13,401 Servicing and related income — — 122,583 — 122,583 Servicing and related expense — — 12,988 — 12,988 Net servicing income — — 109,595 — 109,595 Other income (loss) ( 6,658 ) 36,028 ( 33,967 ) 1,738 ( 2,859 ) Less: Total general and administrative expenses 16,154 13,868 8,876 5,023 43,921 Income (loss) before income taxes ( 78,387 ) 90,414 66,752 ( 2,563 ) 76,216 Income taxes 23 ( 8,263 ) 2,126 ( 21 ) ( 6,135 ) Net income (loss) ( 78,410 ) 98,677 64,626 ( 2,542 ) 82,351 Less: Net income (loss) attributable to noncontrolling interest — 15,906 — — 15,906 Net income (loss) attributable to Annaly ( 78,410 ) 82,771 64,626 ( 2,542 ) 66,445 Dividends on preferred stock — — — 41,628 41,628 Net income (loss) available (related) to common stockholders ( 78,410 ) 82,771 64,626 ( 44,170 ) 24,817 Unrealized gains (losses) on available-for-sale securities 428,955 — — — 428,955 Reclassification adjustment for net (gains) losses included in net income (loss) 15,769 — — — 15,769 Other comprehensive income (loss) 444,724 — — — 444,724 Comprehensive income (loss) 366,314 98,677 64,626 ( 2,542 ) 527,075 Comprehensive income (loss) attributable to noncontrolling interests — 15,906 — — 15,906 Comprehensive income (loss) attributable to Annaly $ 366,314 $ 82,771 $ 64,626 $ ( 2,542 ) $ 511,169 Noncash investing and financing activities: Receivable for unsettled trades 727,124 — 39,217 — 766,341 Payable for unsettled trades 1,811,196 — 74,090 — 1,885,286 Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment 444,724 — — — 444,724 Dividends declared, not yet paid — — — 362,731 362,731 Total assets Total assets $ 71,699,019 $ 26,235,097 $ 3,371,113 $ 210,766 $ 101,515,995 30 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements Three Months Ended September 30, 2023 Agency Resi-credit MSR Corporate & Other Consolidated (dollars in thousands) Interest income $ 756,479 $ 239,194 $ — $ 5,812 $ 1,001,485 Interest expense 849,422 193,271 — 4,126 1,046,819 Net interest income ( 92,943 ) 45,923 — 1,686 ( 45,334 ) Servicing and related income — — 97,620 — 97,620 Servicing and related expense — — 9,623 — 9,623 Net servicing income — — 87,997 — 87,997 Other income (loss) ( 528,640 ) ( 12,974 ) ( 21,870 ) 4,038 ( 559,446 ) Less: Total general and administrative expenses 14,576 12,195 7,657 5,481 39,909 Income (loss) before income taxes ( 636,159 ) 20,754 58,470 243 ( 556,692 ) Income taxes 727 5,985 5,858 ( 178 ) 12,392 Net income (loss) ( 636,886 ) 14,769 52,612 421 ( 569,084 ) Less: Net income (loss) attributable to noncontrolling interest — ( 6,879 ) — — ( 6,879 ) Net income (loss) attributable to Annaly ( 636,886 ) 21,648 52,612 421 ( 562,205 ) Dividends on preferred stock — — — 36,854 36,854 Net income (loss) available (related) to common stockholders ( 636,886 ) 21,648 52,612 ( 36,433 ) ( 599,059 ) Unrealized gains (losses) on available-for-sale securities ( 825,286 ) — — — ( 825,286 ) Reclassification adjustment for net (gains) losses included in net income (loss) 513,041 — — — 513,041 Other comprehensive income (loss) ( 312,245 ) — — — ( 312,245 ) Comprehensive income (loss) ( 949,131 ) 14,769 52,612 421 ( 881,329 ) Comprehensive income (loss) attributable to noncontrolling interests — ( 6,879 ) — — ( 6,879 ) Comprehensive income (loss) attributable to Annaly $ ( 949,131 ) $ 21,648 $ 52,612 $ 421 $ ( 874,450 ) Noncash investing and financing activities: Receivable for unsettled trades 1,039,173 — 8,393 — 1,047,566 Payable for unsettled trades 2,144,692 1,546 38,231 29,850 2,214,319 Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment ( 312,245 ) — — — ( 312,245 ) Dividends declared, not yet paid — — — 321,629 321,629 Total assets Total assets $ 70,047,768 $ 16,616,765 $ 2,647,052 $ 336,838 $ 89,648,423 31 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements Nine Months Ended September 30, 2024 Agency Resi-credit MSR Corporate & Other Consolidated (dollars in thousands) Interest income $ 2,433,672 $ 1,059,247 $ — $ 8,235 $ 3,501,154 Interest expense 2,563,077 872,118 — 5,451 3,440,646 Net interest income ( 129,405 ) 187,129 — 2,784 60,508 Servicing and related income — — 358,182 — 358,182 Servicing and related expense — — 37,821 — 37,821 Net servicing income — — 320,361 — 320,361 Other income (loss) 109,384 189,851 ( 12,513 ) 3,336 290,058 Less: Total general and administrative expenses 47,604 39,690 25,977 14,111 127,382 Income (loss) before income taxes ( 67,625 ) 337,290 281,871 ( 7,991 ) 543,545 Income taxes 748 ( 9,966 ) 14,195 ( 124 ) 4,853 Net income (loss) ( 68,373 ) 347,256 267,676 ( 7,867 ) 538,692 Less: Net income (loss) attributable to noncontrolling interest — 18,838 — — 18,838 Net income (loss) attributable to Annaly ( 68,373 ) 328,418 267,676 ( 7,867 ) 519,854 Dividends on preferred stock — — — 115,847 115,847 Net income (loss) available (related) to common stockholders ( 68,373 ) 328,418 267,676 ( 123,714 ) 404,007 Unrealized gains (losses) on available-for-sale securities 92,843 — — — 92,843 Reclassification adjustment for net (gains) losses included in net income (loss) 530,354 — — — 530,354 Other comprehensive income (loss) 623,197 — — — 623,197 Comprehensive income (loss) 554,824 347,256 267,676 ( 7,867 ) 1,161,889 Comprehensive income (loss) attributable to noncontrolling interests — 18,838 — — 18,838 Comprehensive income (loss) attributable to Annaly $ 554,824 $ 328,418 $ 267,676 $ ( 7,867 ) $ 1,143,051 Noncash investing and financing activities: Receivable for unsettled trades 727,124 — 39,217 — 766,341 Payable for unsettled trades 1,811,196 — 74,090 — 1,885,286 Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment 623,197 — — — 623,197 Dividends declared, not yet paid — — — 362,731 362,731 Total assets Total assets $ 71,699,019 $ 26,235,097 $ 3,371,113 $ 210,766 $ 101,515,995 32 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements Nine Months Ended September 30, 2023 Agency Resi-credit MSR Corporate & Other Consolidated (dollars in thousands) Interest income $ 2,058,371 $ 658,849 $ — $ 24,009 $ 2,741,229 Interest expense 2,279,586 504,011 — 15,466 2,799,063 Net interest income ( 221,215 ) 154,838 — 8,543 ( 57,834 ) Servicing and related income — — 265,683 — 265,683 Servicing and related expense — — 26,433 — 26,433 Net servicing income — — 239,250 — 239,250 Other income (loss) ( 1,415,438 ) 91,439 61,314 ( 4,602 ) ( 1,267,287 ) Less: Total general and administrative expenses 44,401 36,757 22,210 20,284 123,652 Income (loss) before income taxes ( 1,681,054 ) 209,520 278,354 ( 16,343 ) ( 1,209,523 ) Income taxes 1,213 14,034 22,706 ( 251 ) 37,702 Net income (loss) ( 1,682,267 ) 195,486 255,648 ( 16,092 ) ( 1,247,225 ) Less: Net income (loss) attributable to noncontrolling interest — ( 7,797 ) — — ( 7,797 ) Net income (loss) attributable to Annaly ( 1,682,267 ) 203,283 255,648 ( 16,092 ) ( 1,239,428 ) Dividends on preferred stock — — — 104,495 104,495 Net income (loss) available (related) to common stockholders ( 1,682,267 ) 203,283 255,648 ( 120,587 ) ( 1,343,923 ) Unrealized gains (losses) on available-for-sale securities ( 443,957 ) — — — ( 443,957 ) Reclassification adjustment for net (gains) losses included in net income (loss) 1,458,077 — — — 1,458,077 Other comprehensive income (loss) 1,014,120 — — — 1,014,120 Comprehensive income (loss) ( 668,147 ) 195,486 255,648 ( 16,092 ) ( 233,105 ) Comprehensive income (loss) attributable to noncontrolling interests — ( 7,797 ) — — ( 7,797 ) Comprehensive income (loss) attributable to Annaly $ ( 668,147 ) $ 203,283 $ 255,648 $ ( 16,092 ) $ ( 225,308 ) Noncash investing and financing activities: Receivable for unsettled trades 1,039,173 — 8,393 — 1,047,566 Payable for unsettled trades 2,144,692 1,546 38,231 29,850 2,214,319 Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment 1,014,120 — — — 1,014,120 Dividends declared, not yet paid — — — 321,629 321,629 Total assets Total assets $ 70,047,768 $ 16,616,765 $ 2,647,052 $ 336,838 $ 89,648,423 18. RISK MANAGEMENT The primary risks to the Company are liquidity and funding risk, investment/market risk, credit risk and operational risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest earning assets and the interest expense incurred in connection with the interest bearing liabilities, by affecting the spread between the interest earning assets and interest bearing liabilities. Changes in the level of interest rates can also affect the value of the interest earning assets and the Company’s ability to realize gains from the sale of these assets. A decline in the value of the interest earning assets pledged as collateral for borrowings under repurchase agreements and derivative contracts could result in the counterparties demanding additional collateral or liquidating some of the existing collateral to reduce borrowing levels. The Company may seek to mitigate the potential financial impact 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. This could negatively impact the Company’s book value. Furthermore, if many of the Company’s lenders are unwilling or unable to provide additional financing, the Company could be forced to sell its investments at an inopportune time when prices are depressed. The Company has established policies and procedures for mitigating risks, including conducting scenario and sensitivity analyses and utilizing a range of hedging strategies. 33 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities, which exclude CRT securities issued by Freddie Mac and Fannie Mae, is guaranteed by those respective agencies and the payment of principal and interest on Ginnie Mae Agency mortgage-backed securities is backed by the full faith and credit of the U.S. government. The Company faces credit risk on the portions of its portfolio which are not guaranteed by the respective Agency or by the full faith and credit of the U.S. government. The Company is exposed to credit risk on commercial mortgage-backed securities, residential mortgage loans, CRT securities and other non-Agency mortgage-backed securities. MSR values may also be adversely impacted by rising borrower delinquencies which would reduce servicing income and increase overall costs to service the underlying mortgage loans. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral, continually assessing the creditworthiness of issuers, borrowers and counterparties, credit rating monitoring and active servicer oversight. The Company depends on third party service providers to perform various business processes related to its operations, including mortgage loan servicers and sub-servicers. The Company’s vendor management policy establishes procedures for engaging, onboarding and monitoring the performance of third party vendors. For mortgage loan servicers and sub-servicers, these procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information. 19. 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 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. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. 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) Operating lease right-of-use assets Other assets $ 3,660 Liabilities Operating lease liabilities (1) Other liabilities $ 4,585 Lease term and discount rate Weighted average remaining lease term 1.4 years Weighted average discount rate (1) 3.4 % Cash paid for amounts included in the measurement of lease liabilities Operating cash flows from operating leases $ 3,080 (1) For the Company’s leases that do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments. The following table provides details related to maturities of lease liabilities: Maturity of Lease Liabilities Years ending December 31, (dollars in thousands) 2024 (remaining) $ 1,027 2025 3,149 2026 261 2027 269 2028 22 Later years — Total lease payments $ 4,728 Less imputed interest 143 Present value of lease liabilities $ 4,585 34 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 1. Financial Statements Contingencies From time to time, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated financial statements. There were no material contingencies at September 30, 2024 and December 31, 2023. 20. SUBSEQUENT EVENTS 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. 35 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 2. Management’s Discussion and Analysis ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Special Note Regarding Forward-Looking Statements Certain statements contained in this quarterly report, and certain statements contained in our future filings with the Securities and Exchange Commission (the “SEC” or the “Commission”), in our press releases or in our other public or stockholder communications contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms. Such statements include those relating to the Company’s future performance, macro outlook, the interest rate and credit environments, tax reform and future opportunities. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities (“MBS”) and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of the Company’s assets; changes in business conditions and the general economy; the Company’s ability to grow its residential credit business; the Company's ability to grow its mortgage servicing rights business; credit risks related to the Company’s investments in credit risk transfer securities and residential mortgage-backed securities and related residential mortgage credit assets; risks related to investments in mortgage servicing rights; the Company’s ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting the Company’s business; the Company’s ability to maintain its qualification as a REIT for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940; and operational risks or risk management failures by us or critical third parties, including cybersecurity incidents. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our most recent annual report on Form 10-K. All references to “Annaly,” “we,” “us,” or “our” mean Annaly Capital Management, Inc. and all entities owned by us, except where it is made clear that the term means only the parent company. Refer to the section titled “Glossary of Terms” located at the end of this Item 2 for definitions of commonly used terms in this quarterly report on Form 10-Q. 36 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 2. Management’s Discussion and Analysis INDEX TO ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Page Overview 38 Business Environment 38 Economic Environment 39 Results of Operations 40 Net Income (Loss) Summary 41 Non-GAAP Financial Measures 43 Earnings Available for Distribution , Earnings Available for Distribution Attributable to Common Stockholders, Earnings Available for Distribution Per Average Common Share and Annualized EAD Return on Average Equity 43 Premium Amortization Expense 45 Economic Leverage and Economic Capital Ratios 45 Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA) 46 Experienced and Projected Long-term CPR 47 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 48 Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities 49 Other Income (Loss) 50 General and Administrative Expenses 51 Return on Average Equity 52 Unrealized Gains and Losses - Available-for-Sale Investments 52 Financial Condition 52 Residential Securities 53 Contractual Obligations 55 Commitments and Contractual Obligations with Unconsolidated Entities 56 Capital Management 56 Stockholders’ Equity 56 Capital Stock 56 Leverage and Capital 57 Risk Management 58 Risk Appetite 58 Governance 58 Description of Risks 59 Liquidity and Funding Risk Management 59 Funding 59 Excess Liquidity 61 Maturity Profile 62 Stress Testing 63 Liquidity Management Policies 63 Investment/Market Risk Management 64 Credit Risk Management 64 Counterparty Risk Management 65 Operational Risk Management 66 Compliance, Regulatory and Legal Risk Management 67 Critical Accounting Estimates 67 Valuation of Financial Instruments 67 Residential Securities 67 Residential Mortgage Loans 68 MSR 68 Interest Rate Swaps 68 Revenue Recognition 68 Consolidation of Variable Interest Entities 69 Use of Estimates 69 Glossary of Terms 70 37 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 2. Management’s Discussion and Analysis Overview We are a leading diversified capital manager with investment strategies across mortgage finance. Our principal business objective is to generate net income for distribution to our stockholders and optimize our returns through prudent management of our diversified investment strategies. We are an internally-managed Maryland corporation founded in 1997 that has elected to be taxed as a REIT. Our common stock is listed on the New York Stock Exchange under the symbol “NLY.” We use our capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between the yield on our assets and the cost of our borrowings and hedging activities. For a full discussion of our business, refer to the section titled “Business Overview” in our most recent Annual Report on Form 10-K. Business Environment 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, 38 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 2. 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 U.S. 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 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. 39 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 2. Management’s Discussion and Analysis The Fed conducts monetary policy with a dual mandate: full employment and price stability. 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 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: September 30, 2024 December 31, 2023 September 30, 2023 30-Year mortgage current coupon 4.96% 5.25% 6.36% Mortgage basis 118 bps 137 bps 179 bps 10-Year U.S. Treasury rate 3.78% 3.88% 4.57% OIS SOFR Swaps 1-Month 4.86% 5.35% 5.32% 6-Month 4.31% 5.15% 5.45% Results of Operations The results of our operations are affected by various factors, many of which are beyond our control. Certain of such risks and uncertainties are described herein (see “Special Note Regarding Forward-Looking Statements” above) and in Part I, Item 1A. “Risk Factors” of our most recent Annual Report on Form 10-K and in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q. This Management Discussion and Analysis section contains analysis and discussion of financial results computed in accordance with U.S. generally accepted accounting principles (“GAAP”) and non-GAAP measurements. To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide non-GAAP financial measures to enhance investor understanding of our period-over-period operating performance and business trends, as well as for assessing our performance versus that of industry peers. Refer to the “Non-GAAP Financial Measures” section for additional information. 40 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES Item 2. Management’s Discussion and Analysis Net Income (Loss) Summary The following table presents financial information related to our results of operations as of and for the three and 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 (dollars in thousands, except per share data) Interest income $ 1,229,341 $ 1,001,485 $ 3,501,154 $ 2,741,229 Interest expense 1,215,940 1,046,819 3,440,646 2,799,063 Net interest income 13,401 (45,334) 60,508 (57,834) Servicing and related income 122,583 97,620 358,182 265,683 Servicing and related expense 12,988 9,623 37,821 26,433 Net servicing income 109,595 87,997 320,361 239,250 Other income (loss) (2,859) (559,446) 290,058 (1,267,287) Less: Total general and administrative expenses 43,921 39,909 127,382 123,652 Income (loss) before income taxes 76,216 (556,692) 543,545 (1,209,523) Income taxes (6,135) 12,392 4,853 37,702 Net income (loss) 82,351 (569,084) 538,692 (1,247,225) Less: Net income (loss) attributable to noncontrolling interests 15,906 (6,879) 18,838 (7,797) Net income (loss) attributable to Annaly 66,445 (562,205) 519,854 (1,239,428) Less: Dividends on preferred stock 41,628 36,854 115,847 104,495 Net income (loss) available (related) to common stockholders $ 24,817 $ (599,059) $ 404,007 $ (1,343,923) Net income (loss) per share available (related) to common stockholders Basic $ 0.05 $ (1.21) $ 0.80 $ (2.73) Diluted $ 0.05 $ (1.21) $ 0.80 $ (2.73) Weighted average number of common shares outstanding Basic 515,729,658 494,330,361 505,800,723 492,744,997 Diluted 516,832,152 494,330,361 506,618,143 492,744,997 Other information Investment portfolio at period-end $ 97,742,854 $ 85,339,029 $ 97,742,854 $ 85,339,029 Average total assets $ 97,592,286 $ 89,489,450 $ 94,973,839 $ 86,915,407 Average equity $ 11,901,427 $ 11,282,201 $ 11,661,014 $ 11,460,715 GAAP leverage at period-end (1) 6.9:1 7.1:1 6.9:1 7.1:1 GAAP capital ratio at period-end (2) 12.4 % 11.9 % 12.4 % 11.9 % Annualized return (loss) on average total assets 0.34 % (2.54 %) 0.76 % (1.91 %) Annualized return (loss) on average equity (3) 2.77 % (20.18 %) 6.16 % (14.51 %) Net interest margin (4) 0.06 % (0.20 %) 0.09 % (0.09 %) Average yield on interest earning assets (5) 5.16 % 4.49 % 5.07 % 4.25 % Average GAAP cost of interest bearing liabilities (6) 5.42 % 5.27 % 5.42 % 4.95 % Net interest spread (0.26 %) (0.78 %) (0.35 %) (0.70 %) Weighted average experienced CPR for the period 7.6 % 7.3 % 7.0 % 6.6 % Weighted average projected long-term CPR at period-end 11.9 % 7.1 % 11.9 % 7.1 % Common stock book value per share $ 19.54 $ 18.25 $ 19.54 $ 18.25 Non-GAAP metrics * Interest income (excluding PAA) $ 1,250,706 $ 995,423 $ 3,512,200 $ 2,723,735 Economic interest expense (6) $ 882,244 $ 652,142 $ 2,459,504 $ 1,593,387 Economic net interest income (excluding PAA) $ 368,462 $ 343,281 $ 1,052,696 $ 1,130,348 Premium amortization adjustment cost (benefit) $ 21,365 $ (6,062) $ 11,046 $ (17,494) Earnings available for distribution (7) $ 382,509 $ 361,979 $ 1,117,610 $ 1,178,584 Earnings available for distribution per average common share $ 0.66 $ 0.66 $ 1.98 $ 2.18 Annualized EAD return on average equity (excluding PAA) 12.95 % 12.96 % 12.88 % 13.84 % Economic leverage at period-end (1) 5.7:1 6.4:1 5.7:1 6.4:1 Economic capital ratio at period-end (2) 14.6 % 13.1 % 14.6 % 13.1 % Net interest margin (excluding PAA) (4) 1.52 % 1.48 % 1.51 % 1.63 % Average yield on interest earning assets (excluding PAA) (5) 5.25 % 4.46 % 5.09 % 4.22 % Average economic cost of interest bearing liabilities (6) 3.93 % 3.28 % 3.87 % 2.82 % Net interest spread (excluding PAA) 1.32 % 1.18 % 1.22 % 1.40 % 41 ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES