R
2023
ANNUAL
REPORT
RR
THE LEADER
ACROSS RESIDENTIAL
MORTGAGE FINANCE
Annaly combines the power of capital together with sound strategy to
best serve our shareholders. With a culture that champions diversity
and talent, we work relentlessly to optimize risk-adjusted returns.
With $11 billion in permanent capital(1), Annaly is a leading source of
private capital for the U.S. housing sector.
Note: Please refer to Glossary for defined terms and “Leader Across Residential Mortgage Finance” in Endnotes section for footnoted information.
FINANCIAL HIGHLIGHTS
3
T O T A L A S S E T S A C R O S S A N N A L Y ’ S
P E R M A N E N T C A P I T A L ( 1 )
D I V E R S E I N V E S T M E N T S T R A T E G I E S ( 2 )
$74.3bn
$11.3bn
T O T A L A S S E T S A V A I L A B L E
T O T A L S H A R E H O L D E R R E T U R N
F O R F I N A N C I N G ( 3 )
$6.2bn
C O M M O N A N D P R E F E R R E D
D I V I D E N D S D E C L A R E D ( 5 )
$25bn+
S I N C E I P O ( 4 )
748%
2 0 2 3 E C O N O M I C R E T U R N
6.0%
A M E R I C A N H O M E S F I N A N C E D ( 6 )
C O M M U N I T Y D E V E L O P M E N T
850k+
P R O J E C T S ( 7 )
25+
Note: Please refer to Glossary for defined terms and “Leader Across Residential Mortgage Finance” in Endnotes section for footnoted information.
2023 ANNUAL REPORT 4
POWER OF ANNALY
The industry leading mREIT with a differentiated investing model
Annaly’s Size, Scale and Diversification
Scale
Diversified
12x
Larger than
Median mREIT by
Market Cap(1)
At 12x the size of the median
mortgage REIT by market cap(1), we
are a leader across the residential
mortgage finance market
$11.3bn
Permanent
Capital(2)
Annaly is able to efficiently diversify
investments across our businesses
through a rigorous shared capital
model and capital allocation process
Operating Efficiency
1.42%
Operating
Expense as
a Percent of
Average Equity
Liquid
Annaly operates a highly
institutionalized platform and benefits
from its scale and efficiency, operating
at lower cost levels than peer averages
$6.2bn
Total Assets
Available for
Financing(3)
Our diversified, lower leveraged
strategy supports enhanced liquidity,
including $6.2bn of total assets
available for financing,(3) including
$3.8bn of cash and unencumbered
Agency MBS
Market Cap ($mm) | Annaly vs. mREIT Peers(1)
Annaly Market Cap: $9.7bn
$10,000
$9,000
$8,000
$7,000
$6,000
$5,000
$4,000
$3,000
$2,000
$1,000
–
RR
Peer Median Market Cap: $826mm
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Note: Please refer to Glossary for defined terms and “Power of Annaly” in Endnotes section for footnoted information.
ANNALY CAPITAL MANAGEMENT, INC.
5
PROVEN RESULTS
Proven over 25 years to be a competitive source of yield for shareholders
Since inception, Annaly has delivered $25bn+ in dividends to shareholders(1)
($ in millions)
$28,000
$24,000
$20,000
$16,000
$12,000
$8,000
$4,000
–
7
9
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0
2
3
2
0
2
Prior Cumulative Dividends Declared
Dividends Declared During Year
Annaly has delivered a total return of 748% since its IPO(2)
1,100%
900%
700%
500%
300%
100%
(100%)
748%
178%
10/10/1997
1/19/2001
4/30/2004
8/10/2007
11/19/2010
2/28/2014
6/9/2017
9/18/2020
12/29/2023
Annaly
Bloomberg Real Estate Investment Trust Mortgage Index
Note: Please refer to Glossary for defined terms and “Proven Results” in Endnotes section for footnoted information.
2023 ANNUAL REPORT 6
PEOPLE FIRST
OUR GREATEST ASSET IS OUR EMPLOYEES – HIGHLY SKILLED INDIVIDUALS WITH
COMPLEMENTARY SETS OF PROFESSIONAL EXPERIENCE ACROSS SECTORS, CREDIT
CYCLES AND FUNCTIONS – WHO COME TO WORK EVERY DAY COMMITTED TO THE LONG-
TERM SUCCESS AND GROWTH OF OUR COMPANY
Our
People
The deep and varied expertise
of our talented professionals
enhances our ability to drive
value for our shareholders
Employee Gender and Racial / Ethnic Diversity
35%
39%
55%
80%
of employees
identify as women
of employees identify as
racially / ethnically diverse
of managers identify as
women or racially /
ethnically diverse
of new hires in 2023 identify
as women or racially /
ethnically diverse
Diversity in Leadership
58%
80%
25%
54%
of Directors
identify as women or
racially / ethnically diverse
of Board Committee Chairs
identify as women or racially /
ethnically diverse
of Executive Officers
identify as women
of Operating Committee members
identify as women or racially /
ethnically diverse
7 out of 12
4 out of 5
1 out of 4
7 out of 13
Note: Board composition and Operating Committee statistics as of April 2024. Employee composition statistics as of December 31, 2023.
ANNALY CAPITAL MANAGEMENT, INC. TABLE OF
CONTENTS
MESSAGE FROM OUR CEO
ANNALY INVESTMENT STRATEGIES
Agency
Residential Credit
Mortgage Servicing Rights
FINANCING, CAPITAL & LIQUIDITY
ONSLOW BAY STRATEGIC MILESTONES
CORPORATE RESPONSIBILITY & GOVERNANCE
Corporate Responsibility & Governance
Board Composition & Shareholder Engagement
Board of Directors
7
8
13
14
15
16
18
19
20
21
22
2023 ANNUAL REPORT 8
MESSAGE FROM
OUR CEO
DEAR FELLOW SHAREHOLDERS,
2023 was a year of definitive progress in Annaly’s
strategic rededication to investing across all aspects
of housing finance. Guided by our disciplined
portfolio and risk management, we delivered a
6.0% economic return to our shareholders despite
substantial market volatility, while also achieving
key milestones that expanded our leadership across
residential mortgage finance.
As I’ve discussed in past letters, Annaly embarked
on a strategic transition to shift our capital
allocation from our flagship Agency MBS business
after I assumed the role of CEO in 2020 towards
investing across housing finance. In turn, we have
built a platform that allocates capital across the
residential mortgage loan – whether through the
rate and convexity component of the loan in Agency
MBS, the credit component in Residential Credit or
the interest payment component in MSR. Following
the accretive dispositions of our Commercial Real
Estate business in 2021 and Middle Market Lending
business in 2022, we successfully redeployed
capital into our Residential Credit and MSR
portfolios, which are now each fully scaled and have
become clear leaders within their respective sectors.
While Agency MBS remains our core strategy,
we believe our three complementary housing
finance businesses support superior risk-
adjusted returns, a strong earnings profile, and
stability across different interest rate and macro
environments.
Their combined presence on our balance sheet
differentiates Annaly with a unique platform
and capital allocation, which has enabled us to
outperform our peer group with respect to economic
return over the last two years(1).
OPERATING ENVIRONMENT
The last few years have proved to be an unusually
difficult environment for fixed income investing,
particularly Agency MBS. The technical picture
has been persistently challenged as the Federal
Reserve’s (the “Fed”) campaign to combat inflation
has led to a historically rapid increase in the Federal
Funds Rate and a notable reduction in the Fed’s
balance sheet. Combined with pronounced volatility
resulting from events including the regional banking
crisis, debt ceiling negotiations, and economic
uncertainty, market fundamentals have remained
bleak and have led to significant disruption across
fixed income sectors.
Agency MBS faced additional headwinds given
the two largest owners of the asset class, the Fed
and banks, reduced their net holdings for much of
last year. This led Agency MBS spreads to widen
meaningfully above historical averages and, at times
such as October 2023, to levels not seen outside of
a crisis environment.
PORTFOLIO PERFORMANCE
Despite this investment landscape, Annaly’s
proactive portfolio management and diversified
capital allocation enabled us to deliver a
strong economic return to shareholders, which
outperformed all of our Agency-focused mREIT
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
ANNALY CAPITAL MANAGEMENT, INC. peers and the Agency MBS index(2). As we were
cognizant of continued elevated volatility entering
2023, we maintained a conservative leverage
and liquidity posture. This deliberate positioning
enabled us to weather bouts of volatility without the
need for forced selling or raising dilutive equity or
expensive debt. Critically, we were able to execute
our strategic goals at an
operating expense ratio of
1.42% – well below our peer
group average(3), highlighting
the scale and efficiency of
our platform.
1.42%
2023 operating
expense ratio
Below are some key highlights from the year for our
three businesses:
Agency MBS: Throughout 2023, we prudently
managed our Agency MBS portfolio with a focus
on rotating into higher coupon securities and
investing in high-quality specified pools in lieu
of TBA securities. Accordingly, our portfolio’s
weighted average coupon increased from 4.0%
to 4.6% throughout the year. We also grew
our fixed rate Agency CMBS position, which
provides us with a high-yielding, stable cashflow
with minimal negative convexity exposure.
Given the evolving interest rate environment,
we maintained a conservative hedge profile,
navigating the year with an average hedge ratio
above 100% and increasing our exposure to
SOFR swaps due to their relative attractiveness
as a hedge vehicle.
Residential Credit: We further established our
position as a preeminent buyer and securitizer of
non-agency residential whole loans throughout
the year. Bolstered by our Onslow Bay whole
loan correspondent channel, our portfolio grew
14% year-over-year with $4.7 billion in whole
loan purchases. While most of this growth
was achieved through our traditional loan
9
products, we also expanded into additional
offerings including Home Equity Lines of Credit
and Closed End Second-Lien Mortgages. We
continue to regularly access the securitization
markets, which provide an attractive source
of non-recourse term financing. We also
maintained our exceptional credit quality with
the lowest D60+ ratio across the top 10 non-QM
issuers(4).
Mortgage Servicing Rights: Our MSR portfolio
had another year of outsized growth with assets
increasing 50% throughout 2023 to end the year
at $2.7 billion. Annaly has now firmly established
itself as a top 10 non-bank servicer, servicing
1.7% of the Agency MBS market(5). We are proud
to have constructed a differentiated portfolio
with one of the lowest weighted average
coupons (3.06%) in the industry(6) supported by
a pristine credit profile (original FICO of 758 and
original LTV of 70%). Crucially, MSR is a natural
hedge to Agency MBS with highly stable cash
flows and is further supported by elevated float
income given current interest rates.
FINANCING, CAPITAL & LIQUIDITY
Annaly’s ardent focus on liquidity, leverage and
risk management has been critical to our ability
to manage through the turbulence of the last few
years and we have prioritized preserving liquidity
and operating at lower leverage in order to protect
our shareholders’ capital. We ended the year with
economic leverage(7) of 5.7x, down from 6.3x at the
end of 2022, and we continue
to maintain significant
liquidity, with $6.2 billion
of total assets available for
financing, including
$3.8 billion in cash and Agency MBS(8). This provides
us with ample dry powder to be opportunistic,
while also staying disciplined in light of a shifting
$6.2 billion
of total assets available for
financing
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
2023 ANNUAL REPORT 10
operating environment.
Throughout the year, we continued to diversify
and expand our financing capabilities, including
strong production from our securitization platform
and expanded financing capacity for our credit
businesses. Our Onslow Bay subsidiary remained a
programmatic issuer of Prime Jumbo & Expanded
Credit MBS, ending the year as the top non-bank
issuer and second largest issuer overall(9). Since
the beginning of 2023, Onslow Bay has issued 19
securitizations totaling $7.7 billion in proceeds(10).
Further, we added $1.3 billion in warehouse capacity
across our Residential
Credit and MSR strategies,
ending the year with
$3.6 billion of total credit
facility financing capacity.
$3.6 billion
total credit facility
financing capacity
One benefit of Annaly’s diversified housing finance
model is that we are able to finance our higher cost,
higher barrier-to-entry credit businesses with lower
cost repurchase market borrowings afforded by
Agency MBS, effectively allowing Annaly to grow
these verticals at lower financing costs than other
market participants.
With the largest balance sheet in the sector and
the most financing tools at our disposal, we are
afforded significant optionality in how we grow
and operate our business – a clear competitive
advantage.
COMMITMENT TO BEST-IN-CLASS
CORPORATE RESPONSIBILITY &
GOVERNANCE
leadership. This past year, we were proud to issue
our fourth annual ESG Report, highlighting our
history of responsible housing finance leadership
and our ongoing efforts to develop and execute our
ESG strategy. We also appointed three new highly
qualified independent directors to our Board in
2023 – adding a breadth of complementary skills
and experiences and underscoring the Board’s goal
of bringing a diverse range of backgrounds and
perspectives to strengthen our industry leading
corporate governance.
OUTLOOK & CONCLUSION
As we begin 2024, our outlook for each of our
three investment strategies is optimistic. While the
macro-economic path forward remains somewhat
uncertain, all indications suggest that that we are
likely entering a phase of less restrictive monetary
policy, in which the Fed is expected to gradually
lower policy rates and slow its balance sheet runoff.
Along with potentially lower interest rate volatility
and a more balanced supply and demand picture,
the technical outlook for Agency MBS looks much
improved entering 2024. Meanwhile, spreads remain
at historically elevated levels, which supports
compelling new money investment returns.
In Residential Credit, with the housing market
continuing to perform above expectations supported
by historically low inventory, we are well-positioned
to continue gaining share in the non-Agency market.
In fact, in March 2024 we completed our largest
securitization ever – a testament to the strong
production from our whole loan correspondent
channel(11). While we expect to continue to grow this
business, we remain committed to keenly focusing
on credit quality.
Core to Annaly’s culture is our long-standing
commitment to corporate responsibility, best-
in-class corporate governance and a culture
that fosters and champions diverse talent and
We are also poised to continue growing our MSR
business given our unique positioning as a preferred
partner to originators. With supply expected to be
robust in light of ongoing capital needs from the
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
ANNALY CAPITAL MANAGEMENT, INC. originator community, we stand ready with ample
liquidity to acquire bulk MSR when accretive to
do so. Further, we recently established strategic
partnerships to acquire flow MSR when attractive
which bolsters our MSR sourcing capabilities.
As always, we are prepared for market turbulence
and deliberate with respect to our posture in order
to protect our shareholders’ capital. Yet, we are
encouraged by the improvements in the operating
environment that we have seen year-to-date and
believe that Annaly’s diversified housing finance
platform will best enable us to continue to deliver
superior shareholder returns going forward.
748%
total stock return
since IPO
Since our inception, Annaly
has delivered a 748% total
stock return – outpacing the
mortgage REIT index and S&P
500 – over a 27-year period
marked by multiple crises and substantial changes
in the mortgage market(12). Importantly, we have
delivered over $25 billion in common and preferred
dividends throughout this period and we are proud
to have been a consistent source of income for our
shareholders(13).
On behalf of the entire Board and executive
leadership team, we are grateful for your continued
support of Annaly and look forward to updating you
on our progress throughout the year.
Sincerely,
David Finkelstein
Chief Executive Officer & Chief Investment Officer
11
David L. Finkelstein is Chief Executive Officer and
Chief Investment Officer of Annaly. Mr. Finkelstein was
elected to serve as a director of Annaly in March 2020.
Mr. Finkelstein has over 25 years of experience in fixed
income investments. Prior to joining Annaly in 2013,
Mr. Finkelstein served for four years as an Officer in
the Markets Group of the Federal Reserve Bank of New
York where he was the primary strategist and policy
advisor for the MBS Purchase Program. Prior to that, Mr.
Finkelstein held senior Agency MBS trading positions
at Salomon Smith Barney, Citigroup Inc. and Barclays
PLC. Mr. Finkelstein is Vice Chair of the Treasury Market
Practices Group sponsored by the Federal Reserve Bank
of New York as well as a member of the Financial Sector
Advisory Council of the Federal Reserve Bank of Dallas.
Mr. Finkelstein received a B.A. in Business Administration
from the University of Washington and a M.B.A. from the
University of Chicago, Booth School of Business. Mr.
Finkelstein also holds the Chartered Financial Analyst®
designation.
Note: Please refer to Glossary for defined terms and “Message from Our CEO” in Endnotes section for footnoted information.
2023 ANNUAL REPORT RR
AT ANNALY,
WE LEAD WITH
PURPOSE
which means being accountable for
how we drive durable value for our
stakeholders
ANNALY INVESTMENT
STRATEGIES
$11.3bn
Permanent Capital(2)
Portfolio Overview(1)
Annaly Agency
Group
Annaly
Residential
Credit Group
)
3
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Annaly Mortgage
Servicing Rights
Group
e
t
a
R
n
a
o
L
>=6.0%
16%
5.5%
13%
5.0%
18%
CRT
17%
Whole
Loans
22%
Prime Jumbo
6%
>4.0%
3%
3.5% to 4.0%
11%
3.0% to 3.5%
26%
13
WE ARE A LEADER ACROSS
THE RESIDENTIAL MORTGAGE
FINANCE MARKET
62%
of Dedicated
Capital(4)
<=3.0%
10%
3.5%
13%
4.0%
16%
4.5%
14%
OBX Retained
24%
20%
of Dedicated
Capital(4)
Prime
3%
Alt A
3%
Subprime
4%
RPL
14%
NPL
7%
<2.5%
9%
2.5% to 3.0%
51%
18%
of Dedicated
Capital(4)
Note: Please refer to Glossary for defined terms and “Annaly Investment Strategies” in Endnotes section for footnoted information.
2023 ANNUAL REPORT
$65.7bn
ASSETS(1)
$7.0bn
DEDICATED CAPITAL(2)
14
AGENCY
The Annaly Agency Group invests in Agency
MBS collateralized by residential mortgages which
are guaranteed by Fannie Mae, Freddie Mac or
Ginnie Mae
Strategic Approach
Annaly’s Agency Portfolio is made up of high quality
and liquid securities, predominantly specified pools,
TBAs and derivatives
Portfolio benefits from in-house proprietary analytics
that identify emerging prepayment trends and a focus
on durable cash flows
Diverse set of investment options within the Agency
market, including Agency CMBS, which provides
complementary duration and return profiles to
Agency MBS
Access to deep and varied financing sources,
including traditional bilateral repo and proprietary
broker-dealer repo
Seasoned team manages interest rate exposure
inherent in Agency MBS through disciplined asset
selection and an array of hedging products
Agency Portfolio Detail
Assets
Hedges(3)
NLY Specified Pools and TBA Holdings, %
Agency Hedging Composition, %
100%
75%
50%
25%
0%
100%
75%
50%
25%
0%
2020
2021
2022
2023
2020
2021
2022
2023
Pools
TBA
Swaps
Swaptions
Treasuries
Note: Please refer to Glossary for defined terms and “Our Investment Strategies | Agency” in Endnotes section for footnoted information.
ANNALY CAPITAL MANAGEMENT, INC. RESIDENTIAL CREDIT
15
$5.7bn
ASSETS(1)
$2.3bn
DEDICATED CAPITAL
The Annaly Residential Credit Group invests in
non-Agency residential mortgage assets within
the securitized product and whole loan markets
Strategic Approach
Programmatic securitization sponsor of new
origination, residential whole loans with fifty-eight
deals comprising $23 billion of issuance completed
since the beginning of 2018(2)
Agile platform that can deploy capital across both the
residential whole loan and the Non-Agency securities
markets
Continued expansion of whole loan sourcing
capabilities through the Onslow Bay correspondent
channel
Whole loan acquisition and securitization program
provides the ability to create proprietary investments
tailored to desired credit preferences with control over
asset selection, counterparties and loss mitigation
Modest use of balance sheet leverage with most
positions term financed through securitization
Annaly Securitization History
OBX Securitization History – UPB Issued ($mm)(2)
Top Prime Jumbo & Expanded
Credit MBS Issuers ($mm)(3)
$7,693
$6,196
19
16
$3,857
10
$2,095
5
$1,846
4
$1,094
3
2018
2019
2020
2021
2022
2023-2024YTD
UPB Issued
Deal Count
18Rank Issuer
2022–2023
16
14
12
10
8
6
4
2
0
1 JP Morgan
2
3 Invictus Capital Partners
4 Goldman Sachs
5
Blue River Mtg. /
Angelo Gordon
6 Angel Oak
7 Lone Star Funds
8 A&D Mortgage
9 MFA Financial
10 Credit Suisse
15,287
11,147
11,021
9,317
5,179
5,128
4,756
4,610
3,949
3,373
Note: Please refer to Glossary for defined terms and “Our Investment Strategies | Residential Credit” in Endnotes section for footnoted information.
2023 ANNUAL REPORT 16
MORTGAGE SERVICING RIGHTS
$2.7bn
ASSETS(1)
$1.9bn
DEDICATED CAPITAL
The Annaly Mortgage Servicing Rights Group
invests in mortgage servicing rights, which
provide the right to service residential loans in
exchange for a portion of the interest payments
made on the loans
Strategic Approach
MSR portfolio complements Annaly’s Agency MBS
strategy by offering an attractive yield while providing a
hedge to mortgage basis volatility and slower discount
prepayment speeds
As an established and scaled servicer, Annaly is well-
positioned for opportunistic and operationally efficient
growth in both the bulk and flow MSR markets
Annaly serves as a strategic partner to originators
given certainty of capital and complementary business
strategy
Strong partnerships with network of subservicers
Portfolio consists of low coupon, high quality
conventional MSR (Fannie and Freddie)(2)
MSR Portfolio Detail
MSR Holdings (Market Value, $mm)
MSR by the Numbers(3)
(Excludes Interests in MSR / MSR of LP Interest)
$2,675
$518
$35
Portfolio Summary
Market Value ($mm)
UPB ($bn)
Loan Count (‘000)
$1,787
$39
$2,122
$1,748
$645
$545
$100
$143
$101
$42
Q4 2020
Q4 2021
Q4 2022
Q4 2023
Interests in MSR / MSR of LP Interest
Unsettled MSR Commitments
MSR
Collateral Characteristics
WAC
Avg Loan Size (‘000)
Orig FICO
Orig LTV
Collateral Performance
1M CPR
3M CPR
D30
D60+
$2,640
$188.3
579
3.06%
$325
758
70%
2.7%
2.9%
0.7%
0.5%
Note: Please refer to Glossary for defined terms and “Our Investment Strategies | Mortgage Servicing Rights” in Endnotes section for footnoted information.
ANNALY CAPITAL MANAGEMENT, INC.
R
18
FINANCING, CAPITAL &
LIQUIDITY
Annaly continued to enhance our leverage and liquidity position throughout the year, while our deep and
diverse financing sources provide us with unique competitive advantages
Total Capitalization (as of December 31, 2023)
2023 Financial Highlights
Agency &
Non-Agency Repo(1)
$63.4 billion
2023 average economic cost of interest-bearing
liabilities of 3.01%(2)
Closed 19 residential whole loan securitizations
totaling $7.7 billion(3) since the start of 2023
In-House
Broker-Dealer
Street
Repo
Direct
Repo
Credit Facilities
/ Warehouse
Financing
Non-Recourse
Term
Financing(4)
Secured Financing
$14.1 billion
Preferred
Equity
Preferred Equity
$1.5 billion
Common
Equity
Common Equity
$9.7 billion
Weighted average days to maturity for repurchase
agreements of 44 days at year end
Total warehouse capacity across both Annaly’s MSR
and Residential Credit businesses of $3.6 billion
Raised $674 million of accretive common equity
throughout 2023(5)
Maintained significant liquidity throughout 2023
given market volatility; remained well-positioned for
opportunistic growth
– Ended the year with a strong liquidity position
of $6.2 billion of total assets available for
financing(6), including cash and unencumbered
Agency MBS of $3.8 billion
Note: Please refer to Glossary for defined terms and “Financing, Capital & Liquidity” in Endnotes section for footnoted information.
ANNALY CAPITAL MANAGEMENT, INC. 19
ONSLOW BAY STRATEGIC MILESTONES
SINCE THE BEGINNING OF 2023
Onslow Bay, Annaly’s wholly owned subsidiary through which we purchase Non-Agency loans, issue
securitizations and own MSR, has firmly established itself as a leader in the Residential Credit and MSR
markets with significant growth in 2023
Residential
Credit
Largest non-bank issuer of Prime Jumbo &
Expanded Credit MBS from 2022 to 2023(1)
Since the beginning of 2023, completed 19 whole
loan securitizations for $7.7 billion in proceeds(2)
Purchased $4.7 billion in whole loans throughout
2023, of which $3.9 billion were acquired through
our correspondent channel
Record year of loan locks in 2023 with $7.6 billion
in lock volume, and each quarter surpassed the
prior quarter
Portfolio continues to exhibit exceptional credit
quality, including:
– Original FICO of 758 and Original LTV of 68%
– Mark-to-market LTV of 60%
Leading Securitizer
#1
Non-Bank Issuer of Prime Jumbo
& Expanded Credit MBS and #2
Issuer Overall from 2022 to 2023(1)
Exceptional Credit Quality
#1
Lowest Delinquencies (D60+)
Amongst Top 10 Non-QM Issuers(3)
Top 10 non-bank servicer, servicing 1.7% of the
Agency MBS market(4)
MSR portfolio grew by nearly 1.5x to $2.7 billion in
assets year-over-year(5)
Mortgage
Servicing
Rights
Fifth largest buyer of bulk MSR in 2023(6)
onboarding over $42 billion of UPB throughout
the year
Attractive portfolio with very low WAC, stable cash
flows and high credit quality collateral
– WAC of 3.06%
– Original FICO of 758 and LTV of 70%
– 3 Month CPR of 2.9%
Scaled Platform
Top 10
Non-Bank Servicer of the Agency
MBS Market(4)
Portfolio Growth
5th
Largest Buyer of Bulk
MSR in 2023(6)
Note: Please refer to Glossary for defined terms and “Onslow Bay Strategic Milestones” in Endnotes section for footnoted information.
2023 ANNUAL REPORT 20
CORPORATE RESPONSIBILITY &
GOVERNANCE
Annaly’s robust commitment to corporate responsibility and sound governance continues
to lead the industry, as evidenced by our achievements and recognitions
Environmental
Social
Climate Risk
Developed an in-house tool that
provides the ability to estimate
exposure to specific climate-related
events in a timely manner and allows
continual monitoring as conditions
warrant
100%
of Annaly’s Scope 1 and Scope 2 GHG
emissions offset with Renewable
Energy Certificates
>50%
of our Operating
Committee,
managers, and
employees
identify as women
or racially/
ethnically diverse
4%
Voluntary turnover
in 2023, nearly
75% lower than
the financial
services sector
average(1)
$330k+
donated to more
than 50 charitable
organizations,
along with over
900 company-
sponsored
volunteer hours
25+
Community
development
projects financed
through a JV
partnership with
Capital Impact
Partners
Governance
58%
of Directors are
women and/or
racially/ethnically
diverse
92%
of Directors are
independent
Political Engagement
and Contribution Policy
Codified our longstanding prohibition
on the use of any corporate funds for
political contributions or expenditures
Milestones & Recognitions
New Independent
Directors
Published 4th
ESG Report
MSCI
ESG Rating
FTSE4Good
Index
Added three highly-
qualified independent
directors to our Board
Published our fourth
ESG Report, highlighting
our continued focus on
developing and executing
our ESG strategy
Received an “A” ESG rating
from MSCI, highlighting
our commitment to
management of financially
relevant ESG risks and
opportunities
Included in the FTSE4Good
Index, an equity index
measuring strong corporate
ESG practices, for the fifth
consecutive year in 2023
Note: Please refer to Glossary for defined terms and “Corporate Responsibility & Governance” in Endnotes section for footnoted information.
ANNALY CAPITAL MANAGEMENT, INC. 21
BOARD COMPOSITION & SHAREHOLDER
ENGAGEMENT EFFORTS
We are committed to having a Board representing diverse backgrounds and a wide
range of professional experiences that we believe benefits the long-term interest of our
shareholders, whom we regularly engage with on corporate responsibility, governance and
strategic matters
Board of Directors
Directors
12
5
Standing
Board Committees
11
Directors are
Independent
Age
<=5 Years
6 Directors
70’s
2 Directors
50’s
7 Directors
Diversity
Men
8 Directors
5.7
Years
58.5
Years
58%
60’s
3 Directors
White
7 Directors
Tenure
>10 Years
2 Directors
6 to 10 Years
4 Directors
Women
4 Directors
Racially/
Ethnically
Diverse
5 Directors
Represents the average
tenure of Directors
Represents the average
age of Directors
of Directors identify as women or
racially/ethnically diverse
We take pride in our
extensive outreach efforts
and are committed to
transparency, enhanced
disclosure and continued
engagement
2023–2024 Global Shareholder Engagement Efforts(1)
Outreach
included
100%
Investor Meeting
Participation
200+
of top 100
institutional investors
investor meetings in 2023, up
more than 50% year-over-year
Note: Please refer to Glossary for defined terms and “Board Composition & Shareholder Engagement Efforts” in Endnotes section for footnoted information.
2023 ANNUAL REPORT 22
BOARD OF DIRECTORS
Annaly’s Board of Directors possess a broad array of complementary skills and experience
DAVID L. FINKELSTEIN
Chief Executive Officer &
Chief Investment Officer
Annaly Capital Management, Inc.
MICHAEL HAYLON
Former Managing Director and
Head of Conning North America
Conning, Inc.
Independent Chair of the Board
Committees
Nominating/Corporate Governance
Risk
FRANCINE J. BOVICH
Former Managing Director
Morgan Stanley Investment Management
Committees
Nominating/Corporate
Governance (Chair)
Management Development &
Compensation
MANON LAROCHE
Former Managing Director, Head of Global
Spread Products Securitized Sales,
North America
Citigroup
Committees
Corporate Responsibility
Risk
ERIC A. REEVES
Founder and Chief Executive Officer
Prospect Park LLC
JOHN H. SCHAEFER
Former President and
Chief Operating Officer
Morgan Stanley Global Wealth Management
Committees
Corporate Responsibility (Chair)
Nominating/Corporate Governance
Risk
Committees
Audit
Management Development &
Compensation
Note: Board composition as of April 2024.
ANNALY CAPITAL MANAGEMENT, INC. 23
THOMAS HAMILTON
Former Strategic Advisor to the Global
Head of Fixed Income, Currencies and
Commodities
Barclays Capital
KATHY HOPINKAH HANNAN
Former National Managing Partner,
Global Lead Partner
KPMG LLP
MARTIN LAGUERRE
Senior Advisor
Warburg Pincus
Committees
Management Development &
Risk (Chair)
Audit
Compensation
Committees
Management Development &
Audit (Chair)
Compensation
Nominating/Corporate Governance
Committees
Audit
Corporate Responsibility
GLENN A. VOTEK
Former Chief Financial Officer
Annaly Capital Management, Inc.
SCOTT WEDE
Former Global Head of Securitized Products
and Municipal Finance
Barclays Capital
VICKI WILLIAMS
Chief Human Resources Officer
NBCUniversal
Committees
Corporate Responsibility
Risk
Committees
Audit
Risk
Committees
Management Development &
Compensation (Chair)
Nominating/Corporate Governance
Note: Board composition as of April 2024.
2023 ANNUAL REPORT (This page has been left blank intentionally.)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED: December 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______________ TO _________________
COMMISSION FILE NUMBER: 1-13447
ANNALY CAPITAL MANAGEMENT INC
(Exact Name of Registrant as Specified in its Charter)
Maryland
(State or other jurisdiction of incorporation or organization)
22-3479661
(IRS Employer Identification No.)
1211 Avenue of the Americas
New York, New York
(Address of principal executive offices)
10036
(Zip Code)
(212) 696-0100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share
6.95% Series F Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
6.50% Series G Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
6.75% Series I Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock
NLY
NLY.F
NLY.G
NLY.I
Securities registered pursuant to Section 12(g) of the Act: None
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
New York Stock Exchange
Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☑ No ☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.
Yes ☐ No ☑
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted
pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period
that the registrant was required to submit such files). Yes ☑ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller
reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
☑
Accelerated
filer
☐
Non-accelerated
filer
☐
Smaller reporting
company
☐
Emerging growth
company
☐
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the
effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.
7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the
registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-
based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to
§240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
At June 30, 2023, the aggregate market value of the voting common stock held by non-affiliates of the registrant was
approximately $9.8 billion, based on the closing sales price of the registrant’s common stock on such date as reported on the
New York Stock Exchange.
The number of shares of the registrant’s common stock outstanding on January 31, 2024 was 500,080,287.
DOCUMENTS INCORPORATED BY REFERENCE
The registrant intends to file a definitive proxy statement pursuant to Regulation 14A within 120 days of the end of the
fiscal year ended December 31, 2023. Portions of such proxy statement are incorporated by reference into Part III of this
Form 10-K.
ANNALY CAPITAL MANAGEMENT, INC.
2023 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 1C.
Cybersecurity
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Properties
Legal Proceedings
Mine Safety Disclosures
Market For Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Reserved
Management's Discussion and Analysis of Financial Condition and Results of Operations
Item 7A.
Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Item 9A.
Controls and Procedures
Item 9B.
Other Information
Item 9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections
PART III
Item 10.
Directors, Executive Officers and Corporate Governance
Item 11.
Executive Compensation
Item 12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Item 13.
Certain Relationships and Related Transactions, and Director Independence
Item 14.
Principal Accounting Fees and Services
PART IV
Item 15.
Exhibits, Financial Statement Schedules
Exhibit Index
Item 16.
Form 10-K Summary
Financial Statements
Signatures
Page
1
12
43
43
43
43
43
44
46
47
89
89
89
89
92
92
93
93
93
95
95
96
96
100
101
II-1
Special Note Regarding Forward-Looking Statements
This presentation, other written or oral communications, and our public documents to which we refer 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.
Website and Social Media Disclosure
We use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-management) as
channels of distribution of company information. The information we post through these channels may be deemed material.
Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public
conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Annaly
when you enroll your email address by visiting the “Investors” section of our website, then clicking on “Investor Resources”
and selecting “Email Alerts” to complete the email notification form. Our website, any alerts and social media channels are not
incorporated into this annual report on Form 10-K.
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
PART I
ITEM 1. BUSINESS
“Annaly,” “we,” “us,” or “our” refers to Annaly Capital Management, Inc. and our wholly-owned subsidiaries, 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 Part II, Item 7. “Management’s Discussion and Analysis of
Financial Condition and Results of Operations.” for definitions of certain of the commonly used terms in this annual report on
Form 10-K.
The following description of our business should be read in conjunction with the Consolidated Financial Statements and the
related Notes thereto, and the information set forth under the heading “Special Note Regarding Forward-Looking Statements”
in Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
INDEX TO ITEM 1. BUSINESS
Page
2
2
3
3
5
6
6
6
7
9
10
10
10
11
Business Overview
Business and Investment Strategy
Our Portfolio and Capital Allocation Policy
Risk Appetite
Capital Structure and Financing
Operating Platform
Risk Management
Information about our Executive Officers
Human Capital
Regulatory Requirements
Competition
Corporate Governance
Distributions
Available Information
1
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
Business Overview
Introduction
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 real estate investment trust (“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.
We believe that our business objectives are supported by our size and conservative financial posture relative to the industry, the
extensive experience of our employees, the diversity of our investment strategy, a comprehensive risk management approach,
the availability and diversification of financing sources and our operational efficiencies.
Investment Groups
Our three investment groups are primarily comprised of the following:
Investment Groups
Description
Annaly Agency Group
Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which
are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the
Agency market, including Agency commercial MBS.
Annaly Residential Credit Group
Invests primarily in non-Agency residential whole loans and securitized products within the residential
and commercial markets.
Annaly Mortgage Servicing Rights Group
Invests in mortgage servicing rights ("MSR"), which provide the right to service residential mortgage
loans in exchange for a portion of the interest payments made on the loans.
In April 2022, we entered into a definitive agreement to sell substantially all of the assets that comprise our Middle Market
Lending (“MML”) portfolio, including assets held on balance sheet as well as assets managed for third parties. During the year
ended December 31, 2022, the assets comprising the MML portfolio were legally transferred. For additional information about
this transaction, see the Note titled “Sale of Middle Market Lending Portfolio” in the Notes to the Consolidated Financial
Statements included in Item 15. “Exhibits, Financial Statement Schedules.”
In March 2021, we entered into a definitive agreement to sell and exit our Commercial Real Estate (“CRE”) business with the
platform and the significant majority of the assets transferred during the year ended December 31, 2021. During the year ended
December 31, 2022, the remaining CRE assets and associated liabilities were transferred. For additional information about this
transaction, see the Note titled “Sale of Commercial Real Estate Business” in the Notes to the Consolidated Financial
Statements included in Item 15. “Exhibits, Financial Statement Schedules.”
Operating Platform
Our operating platform reflects our investments in systems, infrastructure and personnel. Our technology investments have led
to the development of proprietary portfolio analytics, financial and capital allocation modeling, portfolio cash and accounting
sub-ledger systems, and other risk and reporting tools, which, coupled with cutting-edge digital transformation applications,
support the diversification and operating efficiency of our business and our ability to implement new investment strategies. Our
operating platform supports our investments in Agency assets as well as residential credit assets, commercial real estate assets,
residential mortgage loans, and mortgage servicing rights. We believe that the diversity of our investment alternatives provides
us the flexibility to adapt to changes in market conditions and to take advantage of potential opportunities.
Business and Investment Strategy
Shared Capital Model
Our company is comprised of three investment groups, each of which has multiple investment options to capitalize on attractive
relative returns and market opportunities. In aggregate, we maintain numerous investment options across our investment
groups. Our shared capital model drives our capital allocation strategy allowing us to rotate our investments based on relative
value while also managing risk.
Strategic Relationships
A key element of our strategy is to establish and grow strategic relationships with industry leading partners in order to develop
and broaden access to quality originations flow as well as to leverage third party operations to efficiently manage operating
2
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
costs, all in an effort to generate attractive risk-adjusted returns for our shareholders. Additionally, we have attracted capital
partners to our business, augmenting our public capital markets efforts, which has resulted in increased scale without sacrificing
balance sheet liquidity. Certain of our strategic relationships also afford us the opportunity to support communities through
socially responsible investing.
We have created multiple strategic and capital partnerships across our investment groups including the following:
– Annaly Residential Credit Group has established relationships with key mortgage loan originators and aggregators
including well-known money center banks, allowing us to efficiently source proprietary originations suited to our risk
parameters.
– We have partnered with GIC Private Limited (“GIC”), a leading sovereign wealth fund, through the creation of a joint
venture with the purpose of investing in residential credit assets, including newly-originated residential loans and
securities issued by our subsidiaries.
– We have partnered with Capital Impact Partners, a national community development financial institution, to create a
social impact joint venture supporting projects in underserved communities across the country.
– We have partnered with Fifth Wall Ventures, the largest venture capital firm focused on technology for the real estate
industry, through a commitment to invest in their funds that target investments in North American early- and late-stage
real estate software and marketplace companies. The partnership aims to identify innovative platforms and services
that provide efficiencies across our core investment strategies.
Our Portfolio and Capital Allocation Policy
Under our capital allocation policy and subject to oversight by our Board of Directors (“Board”), we may allocate our
investments within our target asset classes as we determine to be appropriate from time to time.
Our Board may adopt changes to our capital allocation policy and targeted assets at its discretion.
The nature of our assets and our operations are intended to meet our REIT qualification requirements and our exemption from
registration as an investment company under the Investment Company Act of 1940, as amended (“Investment Company Act”).
Our portfolio composition and capital allocation at December 31, 2023 and 2022 were as follows:
Asset Classes
Agency (1)(2)
Residential Credit (2)
MSR (2)
Commercial Real Estate
December 31, 2023
December 31, 2022
Percentage of
Portfolio
88%
8%
3%
1%
Capital
Allocation (2)
61%
20%
18%
1%
Percentage of
Portfolio
90%
7%
2%
1%
Capital
Allocation (2)
66%
19%
14%
1%
(1) Includes to-be-announced forward contracts (“TBAs”).
(2) Assets exclude assets transferred or pledged to securitization vehicles, include TBA purchase contracts (market value), unsettled
MSR commitments, CMBX derivatives (market value), and retained securities that are eliminated in consolidation and are shown
net of participations issued.
Risk Appetite
We maintain a firm-wide risk appetite statement which defines the types and levels of risk we are willing to take in order to
achieve our business objectives, and reflects our risk management philosophy. We engage in risk activities based on our core
expertise that aim to enhance value for our stockholders. Our activities focus on income generation and capital preservation
through proactive portfolio management, supported by a conservative liquidity and leverage posture.
The risk appetite statement asserts the following key risk parameters to guide our investment management activities:
3
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
Risk Parameter
Description
Portfolio Composition
We will maintain a portfolio comprised of target assets approved by our Board and in accordance with our capital
allocation policy.
Leverage
Liquidity Risk
We generally expect to maintain an economic leverage ratio no greater than 10:1 considerate of our overall capital
allocation framework.
We will seek to maintain an unencumbered asset portfolio sufficient to meet our liquidity needs under adverse
market conditions.
Interest Rate Risk
We will seek to manage interest rate risk to protect the portfolio from adverse rate movements utilizing derivative
instruments targeting both income and capital preservation.
Credit Risk
We will seek to manage credit risk by making investments which conform to our specific investment policy
parameters and optimize risk-adjusted returns.
Capital Preservation
We will seek to protect our capital base through disciplined risk management practices.
Operational Risk
We will seek to limit impacts to our business through disciplined operational risk management practices addressing
areas including but not limited to, management of key third party relationships (i.e. originators, sub-servicers),
human capital management, cybersecurity and technology related matters, business continuity and financial
reporting risk.
Compliance,
Regulatory and Legal
We will seek to comply with regulatory requirements needed to maintain our REIT status and our exemption from
registration under the Investment Company Act and the licenses and approvals of our regulated and licensed
subsidiaries.
Our Board has reviewed and approved the investment and operating policies and strategies that support our risk appetite
statement set forth in this Form 10-K. Our Board has the power to modify or waive these policies and strategies to the extent
that our Board, in its discretion, determines that the modification or waiver is in our best interests. Among other factors, market
developments that affect our policies and strategies or that change our assessment of the market may cause our Board to revise
our policies and strategies.
We may seek to expand our capital base in order to further increase our ability to acquire new and different types of assets when
the potential returns from new investments appear attractive relative to the targeted risk-adjusted returns. We may in the future
acquire assets or companies by offering our debt or equity securities in exchange for such opportunities.
Target Assets
Within the confines of the risk appetite statement, we seek to generate the highest risk-adjusted returns on capital invested, after
consideration of the following:
•
•
•
The amount, nature and variability of anticipated
cash flows from the asset across a variety of interest
rate, yield, spread, financing cost, credit loss and
prepayment scenarios;
The liquidity of the asset;
The ability to pledge the asset to secure
collateralized borrowings;
• When applicable, the credit of the underlying
borrower;
•
•
•
The costs of financing, hedging and managing the
asset;
The impact of the asset to our REIT compliance and
our exemption from registration under the
Investment Company Act; and
The capital and operational requirements associated
with the purchase and financing of the asset.
We target the purchase and sale of the following assets as part of our investment strategy. Our targeted assets and asset
acquisition strategy may change over time as market conditions change and as our business evolves.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
Investment Group
Targeted Asset Class
Description
Agency MBS
Agency pass-through certificates issued or guaranteed by Agencies. Other
Agency MBS include collateralized mortgage obligations (“CMOs”), interest-
only securities and inverse floaters
Annaly Agency Group
To-be-announced forward
contracts (“TBAs”)
Forward contracts for Agency pass-through certificates
Agency CMBS
Pass-through certificates collateralized by commercial mortgages guaranteed
by the Agencies
Residential mortgage loans
Residential mortgage loans that are not guaranteed by the Agencies
Annaly Residential
Credit Group
Residential MBS
Securities collateralized by pools of residential loans that are not guaranteed by
one of the Agencies
Agency or private label credit
risk transfer securities (“CRT”)
Risk sharing transactions issued by Freddie Mac and Fannie Mae and similarly
structured transactions arranged by third party market participants, designed to
synthetically transfer mortgage credit risk to private investors
Annaly Mortgage
Servicing Rights
Group
Mortgage Servicing Rights
(“MSR”)
Rights to service a pool of residential mortgage loans in exchange for a portion
of the interest payments made on the loans
We believe that future interest rates and mortgage prepayment rates are very difficult to predict. Therefore, we seek to acquire
assets which we believe will provide attractive returns over a broad range of interest rate and prepayment scenarios.
Capital Structure and Financing
Our capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns
for our stockholders while maintaining appropriate liquidity to support our business and meet our financial obligations under
periods of market stress. To maintain our desired capital profile, we utilize a mix of debt and equity funding. Debt funding may
include the use of repurchase agreements, loans, securitizations, participations issued, lines of credit, asset backed lending
facilities, corporate bond issuance, convertible bonds, or other liabilities. Equity capital primarily consists of common and
preferred stock.
We finance our Agency mortgage-backed securities and residential credit investments primarily with repurchase agreements.
We seek to diversify our exposure and limit concentrations by entering into repurchase agreements with multiple counterparties.
We enter into repurchase agreements with broker-dealers, commercial banks and other lenders that typically offer this type of
financing. We enter into collateralized borrowings with financial institutions meeting internal credit standards and we monitor
the financial condition of these institutions on a regular basis. At December 31, 2023, we had $62.2 billion of repurchase
agreements outstanding.
Additionally, our wholly-owned subsidiary, Arcola Securities, Inc. (“Arcola”), provides direct access to third party funding as a
member broker-dealer of the Financial Industry Regulatory Authority (“FINRA”). As an eligible institution, Arcola also raises
funds through the General Collateral Finance Repo service offered by the Fixed Income Clearing Corporation (“FICC”), with
FICC acting as the central counterparty. Arcola provides us greater depth and diversity of repurchase agreement funding while
also limiting our counterparty exposure.
To reduce our liquidity risk. we maintain a laddered approach to our repurchase agreements. At December 31, 2023, the
weighted average days to maturity was 44 days.
We also finance our investments in residential mortgage loans through the issuance of securitization transactions sponsored by
our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) under the Onslow Bay private-label securitization
program (“OBX”). We are a programmatic securitization sponsor of new origination, residential whole loans with 51 deals as of
December 31, 2023 comprising $20.0 billion of issuance since the beginning of 2018. During the year ended December 31,
2023, we issued 13 OBX securitizations backed by $4.9 billion of residential whole loans.
We utilize leverage to enhance the risk-adjusted returns generated for our stockholders. We generally expect to maintain an
economic leverage ratio of no greater than 10:1 considerate of our overall capital allocation framework. This ratio varies from
time to time based upon various factors, including our management’s opinion of the level of risk of our assets and liabilities,
our mix of assets, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-collateralization
levels required by lenders when we pledge assets to secure borrowings and, lastly, our assessment of domestic and international
market conditions. Since the financial crisis beginning in 2007, we have maintained an economic leverage ratio below 8:1 and
since the Coronavirus Disease 2019 (“COVID-19”) pandemic began, an economic leverage ratio closer to or below 7:1. For
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
purposes of calculating this ratio, our economic leverage ratio is equal to the sum of Recourse Debt, cost basis of TBA and
CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity.
Our target economic leverage ratio is determined under our capital management policy. Should our actual economic leverage
ratio increase above the target level, we will consider appropriate measures. Our actions may include asset sales, changes in
asset mix, reductions in asset purchases or originations, issuance of capital or other capital enhancing or risk reduction
strategies.
The following table presents our leverage and capital ratios as of the periods presented.
GAAP leverage ratio
Economic leverage ratio *
GAAP capital ratio
Economic capital ratio *
December 31,
2023
6.8:1
5.7:1
12.2%
14.0%
December 31,
2022
6.0:1
6.3:1
13.9%
13.4%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial
Measures” section for additional information.
Operating Platform
We maintain a flexible and scalable operating platform to support the management and maintenance of our diverse asset
portfolio. We have invested in our infrastructure to enhance resiliency, efficiency, cybersecurity and scalability while also
ensuring coverage of our target assets. Our information technology applications span the portfolio life-cycle including pre-trade
analysis, trade execution and capture, trade settlement and financing, monitoring, management and financial accounting and
reporting.
Technology applications also support our control functions including risk, compliance, and middle- and back-offices. We have
added breadth to our operating platform to accommodate diverse asset classes and drive automation-based efficiencies. Our
business operations include a centralized collateral management function that permits in-house settlement and self-clearing,
thereby creating greater control and management of our collateral. Through technology, we have also incorporated exception-
based processing, critical data assurance and paperless workflows. Our infrastructure investment has driven operating
efficiencies while expanding the platform. Routine disaster recovery and penetration testing enhances our systems resiliency,
security and recovery of critical systems throughout the computing estate.
Risk Management
Risk is a natural element of our business. Effective risk management is of critical importance to our business strategy. The
objective of our risk management framework is to identify, measure, monitor and control the key risks to which we are subject.
Our approach to risk management is comprehensive and has been designed to foster a holistic view of risk. For a full discussion
of our risk management process and policies please refer to the section titled “Risk Management” of Part II, Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Information about our Executive Officers
The following table sets forth certain information as of February 15, 2024 concerning our executive officers:
Name
David L. Finkelstein
Serena Wolfe
Steven F. Campbell
Anthony C. Green
Age
51
44
51
49
Title
Chief Executive Officer and Chief Investment Officer
Chief Financial Officer
President and Chief Operating Officer
Chief Corporate Officer, Chief Legal Officer and Secretary
David L. Finkelstein has served as the Chief Executive Officer of Annaly since March 2020 and Chief Investment Officer since
November 2022. Mr. Finkelstein previously served as President of Annaly from March 2020 until December 2022 and
Annaly’s Chief Investment Officer from November 2016 until December 2021. Prior to that, Mr. Finkelstein served as
Annaly’s Chief Investment Officer, Agency and RMBS beginning in February 2015 and as Annaly’s Head of Agency Trading
beginning in August 2013. Prior to joining Annaly in 2013, Mr. Finkelstein served for four years as an Officer in the Markets
Group of the Federal Reserve Bank of New York where he was the primary strategist and policy advisor for the MBS purchase
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
program. Mr. Finkelstein has over 25 years of experience in fixed income investments. Prior to the Federal Reserve Bank of
New York, Mr. Finkelstein held Agency MBS trading positions at Salomon Smith Barney, Citigroup Inc. and Barclays PLC.
Mr. Finkelstein is a member of the Treasury Market Practices Group sponsored by the Federal Reserve Bank of New York, as
well as a member of the Financial Sector Advisory Council of the Federal Reserve Bank of Dallas. Mr. Finkelstein received his
B.A. in Business Administration from the University of Washington and his M.B.A. from the University of Chicago, Booth
School of Business. Mr. Finkelstein also holds the Chartered Financial Analyst® designation.
Serena Wolfe has served as Chief Financial Officer of Annaly since December 2019. Prior to joining Annaly in 2019, Ms.
Wolfe served as a Partner at Ernst & Young (“EY”) since 2011 and as its Central Region Real Estate Hospitality &
Construction (“RHC”) leader from 2017 to November 2019, managing the go-to-market efforts and client relationships across
the sector. Ms. Wolfe was previously also EY’s Global RHC Assurance Leader. Ms. Wolfe practiced with EY for over 20
years, including six years with EY Australia and 16 years with the U.S. practice. Ms. Wolfe currently serves on the boards of
Lennar Corporation and Doma Holdings, Inc. Ms. Wolfe graduated from the University of Queensland with a Bachelor of
Commerce in Accounting. She is a Certified Public Accountant in the states of New York and California.
Steven F. Campbell has served as President of Annaly since December 2022 and Chief Operating Officer of Annaly since June
2020. Prior to these positions, Mr. Campbell served in a number of other senior roles at Annaly, including as Head of Business
Operations from September 2019 to June 2020, Head of Credit Operations and Enterprise Risk from February 2018 to
September 2019, Chief Operating Officer of Annaly Commercial Real Estate Group from December 2016 to February 2018 and
Head of Credit Strategy from April 2015 to February 2018. Mr. Campbell has over 25 years of experience in financial services.
Prior to joining Annaly in 2015, Mr. Campbell held various roles over six years at Fortress Investment Group LLC, including
serving as a Managing Director in the Credit Funds business. Prior to that, Mr. Campbell held positions at General Electric
Capital Corporation and D.B. Zwirn & Co., L.P. with a focus on credit and debt restructuring. Mr. Campbell currently serves on
the Advisory Board for the Fitzgerald Institute of Real Estate at the University of Notre Dame. Mr. Campbell received a B.B.A.
from the University of Notre Dame and a M.B.A. from the University of Chicago, Booth School of Business.
Anthony C. Green has served as Chief Corporate Officer of Annaly since January 2019 and as Chief Legal Officer and
Secretary of Annaly since March 2017. Mr. Green previously served as Annaly’s Deputy General Counsel from 2009 until
February 2017. Prior to joining Annaly, Mr. Green was a partner in the Corporate, Securities, Mergers & Acquisitions Group at
the law firm K&L Gates LLP. Mr. Green has over 20 years of experience in corporate and securities law. Mr. Green holds a
B.A. in Economics and Political Science from the University of Pennsylvania and a J.D. and LL.M. in International and
Comparative Law from Cornell Law School.
Human Capital
Our Human Capital team oversees our company’s workforce management to ensure its objectives are strategically integrated
with the firm’s goals and business plans. We proactively review human capital management best practices to continually
enhance our employee experience. In addition, the Management Development and Compensation (“MDC”) Committee of the
Board provides independent oversight of our policies and strategies related to human capital management. Further, the Chair of
the MDC Committee liaises on certain human capital topics with the Chair of the Corporate Responsibility Committee of the
Board as appropriate.
As of December 31, 2023, we had 187 employees.
Our People and Culture
Our employees are the driving force behind Annaly’s success, and we are committed to promoting their well-being,
engagement, and development to help them reach their highest potential. Our culture is focused on fostering a diverse, inclusive
and rewarding work environment for all employees, with ongoing opportunities for career development, wellness support and
empowerment.
Our culture is built on five core values: ownership, humility, accountability, collaboration and diversity, equity and inclusion.
These values are embedded in our professional and personal conduct and are crucial to how we operate our business. All
employees are responsible for upholding these values, which form the bedrock of our culture and are vital to the continued
success of our company. Guided by these values, we are committed to attracting, developing and retaining the best talent, with
diverse experiences, perspectives and backgrounds.
We utilize employee surveys, including an annual engagement survey, to create open and honest feedback channels that foster
our ability to actively engage and involve our employees in the evolution of our culture and our human capital strategies to
enhance our overall productivity and mitigate risk. Our leaders review and incorporate survey feedback to increase employee
engagement and drive positive changes throughout our company. We remain committed to maintaining an environment of
consistent feedback as we strive for high employment satisfaction levels.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
Diversity, Equity & Inclusion
The diversity of our employees enables our company to cultivate innovation, fresh perspectives and agility. Diversity, equity
and inclusion are essential tenets of our corporate culture. Our Human Capital team, in coordination with an Inclusion Support
Committee of Executive Sponsors, is responsible for overseeing and continuing to advance our diversity, equity and inclusion
initiatives.
We are committed to promoting diversity, including gender and racial/ethnic diversity, across all levels of our company. With
62% of our Operating Committee and 58% of our overall population in 2023 identifying as either female and/or racially/
ethnically diverse, we are driven by the belief that having a diverse group of employees supports our continued long-term
success. Hosting over 30 community building events in 2023, our seven employee network groups, which include the Women’s
Interactive Network (“WIN”), the Asian American and Pacific Islander Employee Network, the Black Employee Network, the
Latin American Employee Network, the Disabilities Within a Family Network, the Veteran’s Employee Network and the
Annaly Pride Network, continue to evolve and advance. These employee networks help strengthen our inclusive culture by
fostering a sense of belonging and engagement through targeted development and networking opportunities, knowledge
exchanges, mentorship, coaching and volunteer efforts.
Additionally, we recognize and understand that education, candid conversations and continued training are key to embedding
and advancing diversity, equity and inclusion within our organization and culture. To further promote and foster such a
foundation, our efforts also include offering firm-wide training on topics such as unconscious bias, allyship and inclusive
leadership. To that end, we have hosted various forums for employees to openly discuss their views and have provided
opportunities for employee connection and networking, as well as actively sought out feedback through periodic employee
surveys.
Compensation, Benefits and Wellness
Our employee compensation program includes base salary, annual incentive bonuses and stock-based awards. Employee
compensation packages are designed to align employee and stockholder interests and to provide incentives to attract, retain and
motivate talented employees.
In addition, we invest in a wide range of benefits and wellness initiatives that support healthy lifestyles and choices for our
employees. We offer benefits including health and insurance coverage, health savings and flexible spending accounts,
telemedicine benefits, 401(k) plans, paid time off and family care resources. We also sponsor a wide range of initiatives that
promote employee wellness and mental well-being, including access to talk therapy, health coaching, stress management
support and a dedicated Wellness Week that includes a number of health and wellness related activities and seminars. Over the
last few years, we have enhanced our parental and family care benefits to provide extended leave and fertility assistance.
At Annaly, we understand that it is our responsibility to provide an environment where our employees feel safe, motivated,
empowered, and prepared, regardless of whatever challenges may arise. In addition to addressing physical health and safety
concerns, we recognize that people’s daily emotional lives and mental health play a key role in their overall wellness. As such,
we continue to evaluate ways to promote and expand our mental health offerings. Additionally, we recognize that part of
meeting employee needs includes institutionalizing broader and longer-term flexibility where appropriate. Flexibility comes in
many forms at Annaly, including vacation and sick time, hybrid work options and location strategy. We remain committed to
evaluating the evolving definition of flexibility and promoting programs and practices that foster inclusivity and well-being
both personally and professionally.
Learning and Development
We seek to advance and promote our employees’ capabilities and full potential by investing in a number of targeted learning
and development opportunities. By aligning with our overall business strategy, we design our learning and development
objectives to meet our employees’ needs and interests. Additionally, we have both a tuition reimbursement and learning
reimbursement plan that provide financial support toward the cost of furthering employee education in an area directly related
to their job.
To promote a sense of purpose, accountability and broader exposure, we offer networking opportunities that include senior
leader-led small group sessions as well as one-on-one employee knowledge share sessions across the firm. More broadly, we
continue to offer firmwide learning sessions that focus on core business strategies and initiatives to foster holistic and inclusive
learning. Further, we facilitate individual style and culture sessions with new employees to promote professional awareness
and understanding of our company’s culture initiatives.
Corporate and Employee Philanthropy and Volunteerism
Our corporate giving has been focused on high-impact programs that seek to advance social issues we are committed to,
including combating homelessness and advancing the professional development of women and underrepresented groups in
finance. Annaly and our employees endeavor to meaningfully contribute to the communities where we live, work and invest by
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
partnering with well-established non-profit organizations and through Annaly’s corporate giving, employee volunteerism and
our employee charity match program.
Regulatory Requirements
The financial services industry is subject to extensive regulation and supervision, and changes to regulations and supervisory
practices are continuously being considered by regulators and policy makers worldwide. We continue to assess our business,
risk management and compliance practices to conform to developments in the regulatory environment.
We have elected, organized and operated in a manner that qualifies us to be taxed as a REIT under the Internal Revenue Code
of 1986, as amended and regulations promulgated thereunder (the “Code”). So long as we qualify for taxation as a REIT, we
generally will not be subject to U.S. federal income tax on our taxable income that is distributed to our stockholders.
Furthermore, substantially all of our assets, other than our taxable REIT subsidiaries (“TRSs”), consist of qualified REIT real
estate assets (of the type described in Section 856(c)(5) of the Code).
We regularly monitor our investments and the income from these investments and, to the extent we enter into hedging
transactions, we monitor income from our hedging transactions as well, so as to ensure at all times that we maintain our
qualification as a REIT, our exemption from registration under the Investment Company Act and our exemption from
registration as a commodity pool operator ("CPO") with the U.S. Commodity Futures Trading Commission ("CFTC").
Arcola is a member of FINRA, an SEC registered broker-dealer and is subject to regulations of the securities business that
include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and
conduct of directors, officers and employees. As a self-clearing, registered broker-dealer, Arcola is required to maintain
minimum net capital by the SEC and FINRA. Arcola consistently operates with capital in excess of its regulatory capital
requirements as defined by SEC Rule 15c3-1.
We have a subsidiary that is registered with the SEC as an investment adviser under the Investment Advisers Act. As a result,
we are subject to the anti-fraud provisions of the Investment Advisers Act and to fiduciary duties derived from these provisions
that apply to our relationships with that subsidiary’s clients. These provisions and duties impose restrictions and obligations on
us with respect to our dealings with our subsidiary’s clients, including, for example, restrictions on agency, cross and principal
transactions. Our registered investment adviser subsidiary is subject to periodic SEC examinations and other requirements
under the Investment Advisers Act and related regulations primarily intended to benefit advisory clients. These additional
requirements relate to, among other things, maintaining an effective and comprehensive compliance program, recordkeeping
and reporting requirements and disclosure requirements.
We also have a subsidiary that operates as a licensed mortgage aggregator and master servicer, which subjects it to individual
state licensing laws and to supervision and examination by federal authorities, including the Consumer Financial Protection
Bureau ("CFPB"), the U.S. Department of Housing and Urban Development (“HUD”), the SEC as well as various state
licensing, supervisory and administrative agencies. We and our subsidiaries must also comply with a large number of federal,
state and local consumer protection laws including, among others, the Gramm-Leach-Bliley Act, the Fair Debt Collection
Practices Act, Real Estate Settlement Procedures Act, the Truth in Lending Act, and the Fair Credit Reporting Act, as well as
state foreclosure laws and federal and local bankruptcy rules. These laws and regulations, which are frequently amended and
adjusted, have, in recent years, led to an increase in both the scope of the requirements and the intensity of the supervision to
which we are subject.
The CFTC has jurisdiction over the regulation of swaps. The CFTC has asserted that this causes the operators of mortgage
REITs that use swaps as part of their business model to fall within the statutory definition of CPO, and absent relief from the
Market Participants Division of the CFTC, such operators generally much register as CPOs or qualify for an exemption from
registration. On December 7, 2012, as a result of numerous requests for no-action relief from the CPO registration requirement
for operators of mortgage REITs, the Division of Swap Dealer and Intermediary Oversight (the predecessor to the Market
Participants Division) of the CFTC issued no-action relief entitled “No-Action Relief from the Commodity Pool Operator
Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real
Estate Investment Trusts” that permits a CPO to receive relief from the requirement to register by filing a claim to perfect the
use of the relief. A claim submitted by a CPO will be effective upon filing, so long as the claim is materially complete. The
conditions that must be met relate to initial margin and premiums requirements, net income derived annually from commodity
interest positions that are not qualifying hedging transactions, marketing of interests in the mortgage REIT to the public and
identification of the entity as a mortgage real estate investment trust in its federal tax filings with the IRS. We have submitted a
claim for the relief set forth in the no-action relief entitled “No-Action Relief from the Commodity Pool Operator Registration
Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate
Investment Trusts” and believe we meet the criteria for such relief set forth therein.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
Competition
We operate in a highly competitive market for investment opportunities. Competition may limit our ability to acquire desirable
investments in our target assets and could also affect the pricing of these investments. In acquiring our target assets, we will
compete with financial institutions, institutional investors, other lenders, government entities and certain other REITs. For a full
discussion of the risks associated with competition see the “Risks Related to Our Investing, Portfolio Management and
Financing Activities” section in Item 1A. “Risk Factors.”
Corporate Governance
We strive to conduct our business in accordance with the highest ethical standards and in compliance with applicable
governmental laws, rules and regulations. Our notable governance practices and policies include:
• Our Board is composed of a majority of independent
directors, and our Audit, Management Development
and Compensation, and Nominating/Corporate
Governance Committees are composed exclusively
of independent directors.
• We have separated the roles of Chair of the Board
and Chief Executive Officer, and appointed an
independent Chair of the Board.
•
All directors are elected on an annual basis.
• We have adopted an enhanced director refreshment
policy, which provides that an independent director
may not stand for re-election at the next annual
meeting of stockholders taking place at the end of
his or her term following the earlier of his or her: (i)
15th anniversary of service on our Board or (ii) 73rd
birthday.
• We have adopted a Code of Business Conduct and
Ethics, which sets forth the basic principles and
guidelines for resolving various legal and ethical
questions that may arise in the workplace and in the
conduct of our business. This code is applicable to
our directors, officers and employees.
• We have adopted Corporate Governance Guidelines
which, in conjunction with the charters of our Board
committees, provide the framework for the
governance of our company.
• We have procedures by which any of our
employees, officers or directors may raise concerns
confidentially about our company’s conduct,
accounting, internal controls or auditing matters
with the Chair of the Board, the independent
directors, or the Chair of the Audit Committee or
through our whistleblower phone hotline or e-mail
inbox.
• We have adopted an Insider Trading Policy that
prohibits our directors, officers and employees, as
well as those of our subsidiaries from buying or
selling our securities on the basis of material
nonpublic information and prohibits communicating
material nonpublic information about our company
to others. Our Insider Trading Policy prohibits our
directors, officers and employees, from (1) holding
our stock in a margin account as eligible collateral,
or otherwise pledging our stock as collateral for a
loan, or (2) engaging in any hedging transactions
with respect to our equity securities held by them.
Our executive officers are subject to two clawback
policies, one that covers financial restatements and a
second for misconduct.
Our executive officers are subject to stock
ownership guidelines and holding restrictions.
Stockholders holding 25% of our common stock
have the right to call a special meeting.
•
•
•
Distributions
In accordance with the requirements for maintaining REIT status, we intend to distribute to stockholders aggregate dividends
equaling at least 90% of our REIT taxable income (determined without regard to the deduction of dividends paid and by
excluding any net capital gain) for each taxable year and will endeavor to distribute at least 100% of our REIT taxable income
so as not to be subject to tax. Distributions of economic profits from our enterprise could be classified as return of capital due to
differences between book and tax accounting rules. We may make additional returns of capital when the potential risk-adjusted
returns from new investments fail to exceed our cost of capital. Subject to the limitations of applicable securities and state
corporation laws, we can return capital by making purchases of our own capital stock or through payment of dividends.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1. BUSINESS
Available Information
Our website is www.annaly.com. We make available on this website under “Investors - SEC Filings,” free of charge, our annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and any amendments to those reports as
soon as reasonably practicable after we electronically file or furnish such materials to the SEC pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934 (the “Securities Exchange Act”). Our website and the information contained therein are
not incorporated into this annual report on Form 10-K.
Also posted on our website, and available in print upon request of any stockholder to our Investor Relations Department, are
charters for our Audit Committee, Management Development and Compensation Committee, Nominating/Corporate
Governance Committee, Risk Committee and Corporate Responsibility Committee, our Corporate Governance Guidelines and
our Code of Business Conduct and Ethics. Within the time period required by the SEC, we will post on our website any
amendment to the Code of Business Conduct and Ethics and any waiver applicable to any executive officer, director or senior
financial officer.
Our Investor Relations Department can be contacted at:
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, New York 10036
Attn: Investor Relations
Telephone: 888-8ANNALY
E-mail: investor@annaly.com
The SEC also maintains a website that contains reports, proxy and information statements and other information we file with
the SEC at www.sec.gov.
11
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
ITEM 1A. RISK FACTORS
An investment in our stock involves a number of risks. Before making an investment decision, you should carefully consider all
of the risks described in this annual report on Form 10-K. If any of the risks discussed in this annual report on Form 10-K
actually occur, our business, financial condition and results of operations could be materially adversely affected. If this were to
occur, the trading price of our stock could decline significantly and you may lose all or part of your investment. Readers should
not consider any descriptions of these factors to be a complete set of all potential risks that could affect us.
INDEX TO ITEM 1A. RISK FACTORS
Summary of Risk Factors
Risks Related to Our Liquidity and Funding
Risks of Ownership of Our Common Stock
Compliance, Regulatory & Legal Risks
Risks Related to Our Taxation as a REIT
Counterparty Risks
Investment and Market Related Risks
Operational and Cybersecurity Risks
Other Risks
Page
13
15
20
21
26
31
32
36
41
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Summary of Risk Factors
Risks Related to Our Liquidity and Funding
Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses.
Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions.
•
•
• We may exceed our target leverage ratios.
• We may not be able to achieve our optimal leverage.
•
•
•
•
•
Failure to procure or renew funding on favorable terms, or at all, would adversely affect our results and financial condition.
Failure to effectively manage our liquidity would adversely affect our results and financial condition.
Volatile market conditions for our assets can result in contraction in liquidity for those assets and the related financing.
An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets may
adversely affect our profitability.
Differences in timing of interest rate adjustments on our interest earning assets and our borrowings may adversely affect our
profitability.
It may be uneconomical to “roll” our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA
contracts.
Our use of derivatives may expose us to counterparty and liquidity risks.
•
Securitizations expose us to additional risks.
•
Our use of non-recourse securitizations may expose us to risks which could result in losses to us.
•
•
Counterparties may require us to enter into covenants that restrict our investment strategy.
• We may be unable to profitably execute or participate in future securitization transactions.
•
Risks of Ownership of Our Common Stock
•
•
Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our
preferred stock.
Provisions contained in Maryland law may have anti-takeover effects, potentially preventing investors from receiving a
“control premium” for their shares.
• We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends in
the future.
Our reported GAAP financial results may not be an accurate indicator of future taxable income and dividend distributions.
•
Compliance, Regulatory & Legal Risks
•
Accounting rules related to certain of our transactions are highly complex and involve significant judgment and assumptions.
Our application of GAAP may produce financial results that fluctuate from one period to another.
New laws may be passed affecting the relationship between Fannie Mae, Freddie Mac and the federal government.
•
• We may be subject to liability for potential violations of truth-in-lending or other similar consumer protection laws and
regulations.
•
• We may not be able to maintain compliance with laws and regulations applicable to our Residential Credit and MSR
businesses, including through the manner in which we oversee the compliance obligations of our third party service
providers.
Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may
adversely affect our business.
The increased focus on ESG and climate change issues by investors, governmental bodies and other stakeholders, as well as
existing and proposed laws and regulations related to these topics, may adversely affect our business and financial results and
damage our reputation.
•
• We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data privacy
and security, which could increase the cost of doing business, compliance risks and potential liability.
• We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other
investment accounts, including potential regulatory risks.
Loss of our Investment Company Act exemption from registration would adversely affect us.
•
Risks Related to Our Taxation as a REIT
Our failure to maintain our qualification as a REIT would have adverse tax consequences.
Our distribution requirements could adversely affect our ability to execute our business plan.
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
•
•
•
• We may choose to pay dividends in our own stock.
•
•
Our TRSs cannot constitute more than 20% of our total assets.
TRSs are subject to tax at the regular corporate rates, are not required to distribute dividends, and the amount of dividends a
TRS can pay to its parent REIT may be limited by REIT gross income tests.
If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a
penalty tax.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate
otherwise attractive investments.
Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.
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•
•
•
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
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•
•
•
•
•
•
•
The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to
remain qualified as a REIT.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
Qualifying as a REIT involves highly technical and complex provisions of the Code.
The tax on prohibited transactions limits our ability to engage in certain transactions.
Certain financing activities may subject us to U.S. federal income tax and could have negative tax consequences for our
stockholders.
Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations.
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more
difficult or impossible for us to remain qualified as a REIT.
Counterparty Risks
The soundness of our counterparties and other financial institutions could adversely affect us.
•
• We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential
•
whole loans if they breach representations and warranties, which could cause us to suffer losses.
Our rights under our repurchase and derivative agreements are subject to the effects of the bankruptcy laws in the event of
the bankruptcy or insolvency of us or our lenders.
Investment and Market Related Risks
• We may experience declines in the market value of our assets.
Investments in MSR may expose us to additional risks.
•
A prolonged economic slowdown or declining real estate values could impair the assets we may own.
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An increase in interest rates may adversely affect the market value of our interest earning assets and, therefore, also our book
•
value.
Actions by the Federal Reserve may affect the price and returns of our assets.
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• We invest in securities that are subject to mortgage credit risk.
•
Our investments in real estate and other securities are subject to changes in credit spreads as well as available market
liquidity, which could adversely affect our ability to realize gains on the sale of such investments.
Geographic concentration exposes investors to greater risk of default and loss.
Inadequate property insurance coverage could have an adverse impact on our operating results.
Our assets may become non-performing or sub-performing assets in the future.
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• We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and
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warranties.
Our and our third party service providers’ and servicers’ due diligence of potential assets may not reveal all of the
weaknesses in such assets.
• When we foreclose on an asset, we may come to own the property securing the loan.
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Proposals to acquire mortgage loans by eminent domain may adversely affect the value of our assets.
Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior
securities.
Our hedging strategies may be costly, and may not hedge our risks as intended.
•
• We are subject to risks of loss from weather conditions, man-made or natural disasters and the direct and indirect effects of
climate change.
Operational and Cybersecurity Risks
Inaccurate models or the data used by models may expose us to risk.
•
• We are highly dependent on information systems and networks, many of which are operated by third parties, and any failure
of these systems or networks could materially and adversely affect our business.
•
Cyberattacks or other information security breaches could adversely affect our business, reputation and financial condition.
• We depend on third party service providers, including mortgage loan servicers and sub-servicers, for a variety of services
•
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related to our business.
Our investments in residential whole loans subject us to servicing-related risks.
The performance of loans underlying our MSR related assets may be adversely affected by the performance of the related
mortgage servicer.
An increase or decrease in prepayment rates may adversely affect our profitability.
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• We are subject to reinvestment risk.
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• We may enter into new lines of business, acquire other companies or engage in other strategic initiatives.
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Some of our investments, including those related to non-prime loans, involve credit risk.
If we are unable to attract, motivate and retain qualified talent, including our key personnel, it could materially and adversely
affect us.
Competition may affect availability and pricing of our target assets.
Other Risks
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• We may change our policies without stockholder approval.
The market price and trading volume of our shares of common stock may be volatile.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Risks Related to Our Liquidity and Funding
Our strategy involves the use of leverage, which increases the risk that we may incur substantial losses.
We expect our leverage to vary with market conditions and our assessment of risk/return on investments. We incur this leverage
by borrowing against a substantial portion of the market value of our assets. Leverage, which is fundamental to our investment
strategy, creates significant risks. The risks associated with leverage are more acute during periods of economic slowdown or
recession.
Because of our leverage, we may incur substantial losses if our borrowing costs increase, and we may be unable to execute our
investment strategy if leverage is unavailable or is unavailable on attractive terms. The reasons our borrowing costs may
increase or our ability to borrow may decline include, but are not limited to, the following:
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•
•
short-term interest rates increase;
the market value of our investments available to
collateralize borrowings decreases;
the “haircut” applied to our assets under the
repurchase agreements or other secured financing
arrangements increases;
•
•
•
interest rate volatility increases;
disruption in the repo market generally or the
infrastructure, including technology infrastructure,
that supports it; or
the availability of financing in the market decreases.
Our use of leverage may result in margin calls and defaults and force us to sell assets under adverse market conditions.
Because of our leverage, a decline in the value of our interest earning assets may result in our lenders initiating margin calls. A
margin call means that the lender requires us to pledge additional collateral to re-establish the ratio of the value of the collateral
to the amount of the borrowing. Borrowings secured by our fixed-rate mortgage-backed securities generally are more
susceptible to margin calls as increases in interest rates tend to more negatively affect the market value of fixed-rate securities.
Margin calls are most likely in market conditions in which the unencumbered assets that we would use to meet the margin calls
have also decreased in value. The risks associated with margin calls are more acute during periods of economic slowdown or
recession.
If we are unable to satisfy margin calls, our lenders may foreclose on our collateral. This could force us to sell our interest
earning assets under adverse market conditions, or allow lenders to sell those assets on our behalf at prices that could be below
our estimation of their value. Additionally, in the event of our bankruptcy, our borrowings, which are generally made under
repurchase agreements, may qualify for special treatment under the U.S. Bankruptcy Code. This special treatment would allow
the lenders under these agreements to avoid the automatic stay provisions of the U.S. Bankruptcy Code and to liquidate the
collateral under these agreements without delay.
We may exceed our target leverage ratios.
We generally expect to maintain an economic leverage ratio of less than 10:1. However, we are not required to stay below this
economic leverage ratio. We may exceed this ratio by incurring additional debt without increasing the amount of equity we
have. For example, if we increase the amount of borrowings under our master repurchase agreements with our existing or new
counterparties or the market value of our portfolio declines, our economic leverage ratio would increase. If we increase our
economic leverage ratio, the adverse impact on our financial condition and results of operations from the types of risks
associated with the use of leverage would likely be more severe. Our target economic leverage ratio is set for the portfolio as a
whole, rather than separately for each asset type. The economic leverage ratio on Agency mortgage-backed securities may
exceed the target ratio for the portfolio as a whole. Because credit assets are generally less levered than Agency mortgage-
backed securities, at a given economic leverage ratio an increased allocation to credit assets generally means an increase in
economic leverage on Agency mortgage-backed securities. The economic leverage on our Agency mortgage-backed securities
is the primary driver of the risk of being unable to meet margin calls discussed above.
We may not be able to achieve our optimal leverage.
We use leverage as a strategy to increase the return to our investors. However, we may not be able to achieve our desired
leverage if we determine that the leverage would expose us to excessive risk; our lenders do not make funding available to us at
acceptable rates; or our lenders require that we provide additional collateral to cover our borrowings.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Failure to procure or renew funding on favorable terms, or at all, would adversely affect our results and financial condition.
One or more of our lenders could be unwilling or unable to provide us with financing. This could potentially increase our
financing costs and reduce our liquidity. Furthermore, if any of our potential lenders or existing lenders is unwilling or unable
to provide us with financing or if we are not able to renew or replace maturing borrowings, we could be forced to sell our assets
at an inopportune time when prices are depressed. Our business, results of operations and financial condition may be materially
adversely affected by disruptions in the financial markets. We cannot assure you that, under such extreme conditions, these
markets will remain an efficient source of financing for our assets. If our strategy is not viable, we will have to find alternative
forms of financing for our assets, which may not be available. Further, as a REIT, we are required to distribute annually at least
90% of our REIT taxable income (subject to certain adjustments) to our stockholders and are, therefore, not able to retain
significant amounts of our earnings for new investments. We cannot assure you that any, or sufficient, funding or capital will
be available to us in the future on terms that are acceptable to us. If we cannot obtain sufficient funding on acceptable terms,
there may be a negative impact on the market price of our common stock and our ability to make distributions to our
stockholders. Moreover, our ability to grow will be dependent on our ability to procure additional funding. To the extent we
are not able to raise additional funds through the issuance of additional equity or borrowings, our growth will be constrained.
Failure to effectively manage our liquidity would adversely affect our results and financial condition.
Our ability to meet cash needs depends on many factors, several of which are beyond our control. Ineffective management of
liquidity levels could cause us to be unable to meet certain financial obligations. Potential conditions that could impair our
liquidity include: unwillingness or inability of any of our potential lenders to provide us with or renew financing, margin calls,
additional capital requirements applicable to our lenders, a disruption in the financial markets or declining confidence in our
creditworthiness or in financial markets in general. These conditions could force us to sell our assets at inopportune times or
otherwise cause us to potentially revise our strategic business initiatives.
Volatile market conditions for our assets can result in contraction in liquidity for those assets and the related financing.
Our results of operations are materially affected by conditions in the markets for mortgages and mortgage-related assets,
including Agency mortgage-backed securities, as well as the broader financial markets and the economy generally.
Significant adverse changes in financial market conditions can result in a deleveraging of the global financial system and the
forced sale of large quantities of mortgage-related and other financial assets. Concerns over economic recession, pandemic
diseases, geopolitical issues including events such as the war in Ukraine, trade wars, unemployment, inflation, government
actions to combat inflation, rising interest rates, the availability and cost of financing, the mortgage market, the repurchase
agreement market and a declining real estate market or prolonged government shutdown may contribute to increased volatility
and diminished expectations for the economy and markets.
For example, as a result of the financial crises beginning in the summer of 2007 and through the subsequent credit and housing
crisis, many traditional mortgage investors suffered severe losses in their residential mortgage portfolios and several major
market participants failed or were impaired, resulting in a significant contraction in market liquidity for mortgage-related assets.
This illiquidity negatively affected both the terms and availability of financing for all mortgage-related assets.
Further increased volatility and deterioration in the markets for mortgages and mortgage-related assets as well as the broader
financial markets may adversely affect the performance and market value of our Agency mortgage-backed securities. If these
conditions exist, institutions from which we seek financing for our investments may tighten their lending standards or become
insolvent, which could make it more difficult for us to obtain financing on favorable terms or at all. Our profitability and
financial condition may be adversely affected if we are unable to obtain cost-effective financing for our investments.
An increase in the interest payments on our borrowings relative to the interest we earn on our interest earning assets may
adversely affect our profitability.
We generally earn money based upon the spread between the interest payments we earn on our interest earning assets and the
interest payments we must make on our borrowings. If the interest payments on our borrowings increase relative to the interest
we earn on our interest earning assets, our profitability may be adversely affected. A significant portion of our assets are longer-
term, fixed-rate interest earning assets, and a significant portion of our borrowings are shorter-term, floating-rate borrowings.
Periods of rising interest rates or a relatively flat or inverted yield curve could decrease or eliminate the spread between the
interest payments we earn on our interest earning assets and the interest payments we must make on our borrowings.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Differences in timing of interest rate adjustments on our interest earning assets and our borrowings may adversely affect
our profitability.
We rely primarily on short-term borrowings to acquire interest earning assets with long-term maturities. Some of the interest
earning assets we acquire are adjustable-rate interest earning assets. This means that their interest rates may vary over time
based upon changes in an objective index, such as:
•
•
Treasury Rate. A monthly or weekly average yield
of benchmark U.S. Treasury securities, as published
by the Federal Reserve Board.
•
Term SOFR. A benchmark based on Secured
Overnight Financing Rate futures, administered by
CME Group.
Secured Overnight Financing Rate. A measure of
the cost of borrowing cash overnight collateralized
by U.S. Treasury securities, as published by the
Federal Reserve Bank of New York.
These indices generally reflect short-term interest rates. The interest rates on our borrowings similarly reflect short-term interest
rates. Nevertheless, the interest rates on our borrowings generally adjust more frequently than the interest rates on our
adjustable-rate interest earning assets, which are also typically subject to periodic and lifetime interest rate caps. Accordingly,
in a period of rising interest rates, we could experience a decrease in net income or a net loss because the interest rates on our
borrowings adjust faster than the interest rates on our adjustable-rate interest earning assets.
It may be uneconomical to “roll” our TBA dollar roll transactions or we may be unable to meet margin calls on our TBA
contracts.
From time to time, we enter into TBAs as an alternate means of investing in and financing Agency mortgage-backed securities.
A TBA contract is an agreement to purchase or sell, for future delivery, an Agency mortgage-backed security with a specified
issuer, term and coupon. A TBA dollar roll represents a transaction where TBA contracts with the same terms but different
settlement dates are simultaneously bought and sold. The TBA contract settling in the later month typically prices at a discount
to the earlier month contract with the difference in price commonly referred to as the “drop”. The drop is a reflection of the
expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing
cost, that would be foregone as a result of settling the contract in the later month rather than in the earlier month. The drop
between the current settlement month price and the forward settlement month price occurs because in the TBA dollar roll
market, the party providing the implied financing is the party that would retain all principal and interest payments accrued
during the financing period. Accordingly, TBA dollar roll income generally represents the economic equivalent of the net
interest income earned on the underlying Agency mortgage-backed security less an implied financing cost. Consequently,
dollar roll transactions and such forward purchases of Agency securities represent a form of off-balance sheet financing and
increase our “at risk” leverage.
The economic return of a TBA dollar roll generally equates to interest income on a generic TBA-eligible security less an
implied financing cost, and there may be situations in which the implied financing cost exceeds the interest income, resulting in
a negative carry on the position. If we roll our TBA dollar roll positions when they have a negative carry, the positions would
decrease net income and amounts available for distributions to shareholders.
There may be situations in which we are unable or unwilling to roll our TBA dollar roll positions. The TBA transaction could
have a negative carry or otherwise be uneconomical, we may be unable to find counterparties with whom to trade in sufficient
volume, or we may be required to collateralize the TBA positions in a way that is uneconomical. Because TBA dollar rolls
represent implied financing, an inability or unwillingness to roll has effects similar to any other loss of financing. If we do not
roll our TBA positions prior to the settlement date, we would have to take physical delivery of the underlying securities and
settle our obligations for cash. We may not have sufficient funds or alternative financing sources available to settle such
obligations. Counterparties may also make margin calls as the value of a generic TBA-eligible security (and therefore the value
of the TBA contract) declines. Margin calls on TBA positions or failure to roll TBA positions could have the effects described
in the liquidity risks described above.
Our use of derivatives may expose us to counterparty and liquidity risks.
Most swaps that we enter into must be executed on a Swap Extension Facility and/or be cleared by a Derivatives Clearing
Organization (“DCO”), both of which are regulated by the CFTC. DCOs are subject to regulatory oversight and use extensive
risk management processes, which result in additional expenses and collateral requirements for our swaps relative to uncleared
swaps. We access the DCO through several Futures Commission Merchants (“FCMs”). For any cleared swap, we bear the
credit risk of both the DCO and the relevant FCM, in the form of potential late or unrecoverable payments, potential difficulty
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
or delay in accessing collateral that we have posted, and potential loss of any positive market value of the swap position. In the
event of a default by the DCO or FCM, we also bear market risk, if the asset or liability being hedged is no longer effectively
hedged.
We also bear fees for use of the DCO and Swap Execution Facility, as well as risks associated with trade errors. Because the
standardized swaps available on Swap Execution Facilities and cleared through DCOs are not as customizable as uncleared
swaps, we may bear additional basis risk from hedge positions that do not exactly reflect the interest rate risk on the asset being
hedged.
Futures transactions are subject to risks analogous to those of cleared swaps, except that for futures transactions we bear a
higher risk that collateral we have posted is unavailable to us if the FCM defaults.
Some derivatives transactions, such as swaptions, are not currently required to be cleared through a DCO. Therefore, we bear
the credit risk of the dealer with which we executed the swaption or other uncleared transaction. TBA contracts and swaps on
CMBX indexes are also not cleared, and we bear the credit risk of the dealer.
Certain derivative transactions are subject to margin requirements. The relevant contract or clearinghouse rules dictate the
method of determining the required amount of margin, the types of collateral accepted and the timing required to meet margin
calls. Additionally, for cleared swaps and futures, FCMs may have the right to require more margin than the clearinghouse
requires. The requirement to meet margin calls can create liquidity risks, and we bear the cost of funding the margin that we
post. Also, as discussed above, we bear credit risk if a dealer, FCM, or clearinghouse is holding collateral we have posted.
Generally, we attempt to retain the ability to close out of a hedging position or create an offsetting position. However, in some
cases we may not be able to do so at economically viable prices, or we may be unable to do so without consent of the
counterparty. Therefore, in some situations a derivative position can be illiquid, forcing us to hold it to its maturity or scheduled
termination date.
It is possible that new regulations could be issued governing the derivatives market, including requiring additional types of
derivatives to be executed on Swap Execution Facilities or cleared through a DCO. Ongoing regulatory change in this area
could increase costs, increase risks, and adversely affect our business and results of operations.
Securitizations expose us to additional risks.
In a securitization structure, we convey a pool of assets to a special purpose vehicle, the issuing entity, and in turn the issuing
entity issues one or more classes of non-recourse notes pursuant to the terms of an indenture. The notes are secured by the pool
of assets. In exchange for the transfer of assets to the issuing entity, we receive the cash proceeds of the sale of non-recourse
notes and a 100% interest in certain subordinate interests of the issuing entity. The securitization of all or a portion of our
residential loan portfolio might magnify our exposure to losses because any subordinate interest we retain in the issuing entity
would be subordinate to the notes issued to investors and we would, therefore, absorb all of the losses sustained with respect to
a securitized pool of assets before the owners of the notes experience any losses. Moreover, we cannot assure you that we will
be able to access the securitization market or be able to do so at favorable rates. The inability to securitize our portfolio could
adversely affect our performance and our ability to grow our business.
Our use of non-recourse securitizations may expose us to risks which could result in losses to us.
We utilize non-recourse securitizations of our assets in mortgage loans, especially loans that we originate, when they are
available. Prior to any such financing, we may seek to finance assets with relatively short-term facilities until a sufficient
portfolio is accumulated. As a result, we would be subject to the risk that we would not be able to acquire, during the period
that any short-term facilities are available, sufficient eligible assets to maximize the efficiency of a securitization. We also
would bear the risk that we would not be able to obtain a new short-term facility or would not be able to renew any short-term
facilities after they expire should we need more time to seek and acquire sufficient eligible assets for a securitization. In
addition, conditions in the capital markets, including potential volatility and disruption in the capital and credit markets, may
not permit a non-recourse securitization at any particular time or may make the issuance of any such securitization less
attractive to us even when we do have sufficient eligible assets. While we would intend to retain the non-investment grade
tranches of securitizations and, therefore, still have exposure to any assets included in such securitizations, our inability to enter
into such securitizations would increase our overall exposure to risks associated with direct ownership of such assets, including
the risk of default. Our inability to refinance any short-term facilities would also increase our risk because borrowings
thereunder would likely be recourse to us as an entity. If we are unable to obtain and renew short-term facilities or to
consummate securitizations to finance our assets on a long-term basis, we may be required to seek other forms of potentially
less attractive financing or to liquidate assets at an inopportune time or price. To the extent that we are unable to obtain
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
financing for our assets, to the extent that we retain such assets in our portfolio, our returns on investment and earnings will be
negatively impacted.
Counterparties may require us to enter into covenants that restrict our investment strategy.
If or when we obtain debt financing, lenders (especially in the case of credit facilities) may impose restrictions on us that would
affect our ability to incur additional debt, make certain allocations or acquisitions, reduce liquidity below certain levels, make
distributions to our stockholders, or redeem debt or equity securities, and may impact our flexibility to determine our operating
policies and strategies. We may sell assets or reduce leverage at an inopportune time to avoid breaching these restrictions. If we
fail to meet or satisfy any of these covenants, we would be in default under these agreements, and our lenders could elect to
declare outstanding amounts due and payable, terminate their commitments, require the posting of additional collateral and
enforce their interests against existing collateral. We may also be subject to cross-default and acceleration rights and, with
respect to collateralized debt, the posting of additional collateral and foreclosure rights upon default. A default and resulting
repayment acceleration could significantly reduce our liquidity, which could require us to sell our assets to repay amounts due
and outstanding. This could also significantly harm our business, financial condition, results of operations and ability to make
distributions, which could cause our share price to decline. A default could also significantly limit our financing alternatives
such that we would be unable to pursue our leverage strategy, which could adversely affect our returns.
We may be unable to profitably execute or participate in future securitization transactions.
There are a number of factors that can have a significant impact on whether we are able to execute or participate in a
securitization transaction, and whether such a transaction is profitable to us or results in a loss. One of these factors is the price
we pay for the mortgage loans that we securitize, which, in the case of residential mortgage loans, is impacted by the level of
competition in the marketplace for acquiring mortgage loans and the relative desirability to originators of retaining mortgage
loans as investments or selling them to third parties such as us. As such, we can provide no assurance that we will be able to
identify and make investments in residential mortgage loans at attractive levels and pricing, which could adversely affect our
ability to execute future securitizations in this space. Another factor that impacts the profitability of a securitization transaction
is the cost to us of the short-term warehouse financing facilities that we use to finance our holdings of mortgage loans prior to
securitization, which cost is affected by a number of factors including the availability of this type of financing to us, the interest
rate on this type of financing, the duration of the financing we incur, and the percentage of our mortgage loans for which third
parties are willing to provide short-term financing. After we acquire mortgage loans that we intend to securitize, we can also
suffer losses if the value of those loans declines prior to securitization. Declines in the value of a mortgage loan, for example,
can be due to, among other things, changes in interest rates, changes in the credit quality of the loan, and changes in the
projected yields required by investors to invest in securitization transactions. To the extent we seek to hedge against a decline in
loan value due to changes in interest rates, there is a cost of hedging that also affects whether a securitization is profitable.
Other factors that can significantly affect whether a securitization transaction is profitable to us include the criteria and
conditions that rating agencies apply and require when they assign ratings to the mortgage-backed securities issued in our
securitization transactions, including the percentage of mortgage-backed securities issued in a securitization transaction that the
rating agencies will assign a triple-A rating to, which is also referred to as a rating agency subordination level. Rating agency
subordination levels can be impacted by numerous factors, including, without limitation, the credit quality of the loans
securitized, the geographic distribution of the loans to be securitized, the structure of the securitization transaction and other
applicable rating agency criteria. All other factors being equal, the greater the percentage of the mortgage-backed securities
issued in a securitization transaction that the rating agencies will assign a triple-A rating to, the more profitable the transaction
will be to us.
The price that investors in mortgage-backed securities will pay for securities issued in our securitization transactions also has a
significant impact on the profitability of the transactions to us, and these prices are impacted by numerous market forces and
factors. In addition, the underwriter(s) or placement agent(s) we select for securitization transactions, and the terms of their
engagement, can also impact the profitability of our securitization transactions. Also, transaction costs incurred in executing
transactions impact the profitability of our securitization transactions and any liability that we may incur, or may be required to
reserve for, in connection with executing a transaction can cause a loss to us. To the extent that we are not able to profitably
execute future securitizations of residential mortgage loans or other assets, including for the reasons described above or for
other reasons, it could have a material adverse impact on our business and financial results.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Risks of Ownership of Our Common Stock
Our charter does not permit ownership of over 9.8% in number of shares or value of our common stock or any class of our
preferred stock.
To maintain our qualification as a REIT for U.S. federal income tax purposes, not more than 50% in value of the outstanding
shares of our capital stock may be owned, directly or indirectly, by five or fewer individuals (as defined in the federal tax laws
to include certain entities). For the purpose of preserving our REIT qualification and for other reasons, our charter prohibits
direct or constructive ownership by any person of more than 9.8% of the total number or value of any class of our outstanding
common stock or any class of our preferred stock. Our charter’s constructive ownership rules are complex and may cause the
outstanding stock owned by a group of related individuals or entities to be deemed to be constructively owned by one individual
or entity. As a result, the acquisition of less than 9.8% of the outstanding shares of any class of common stock or any class of
our preferred stock by an individual or entity could cause that individual or entity to own constructively in excess of 9.8% of
the outstanding shares of such class of stock and thus be subject to our charter’s ownership limit. Any attempt to own or
transfer shares of our common stock or preferred stock in excess of the ownership limit without the consent of the Board shall
be void, or, alternatively, will result in the shares being transferred by operation of law to a charitable trust. Our Board, in its
sole and absolute discretion, may waive or modify the ownership limit with respect to one or more persons who would not be
treated as “individuals” if it is satisfied that ownership in excess of this limit will not otherwise jeopardize our status as a REIT
for U.S. federal income tax purposes. The ownership limit may have the effect of delaying, deferring or preventing a change in
control and, therefore, could adversely affect our stockholders’ ability to realize a premium over the then-prevailing market
price for our stock in connection with a change in control.
Provisions contained in Maryland law may have anti-takeover effects, potentially preventing investors from receiving a
“control premium” for their shares.
Provisions contained in our charter and bylaws, as well as the Maryland General Corporation Law (the “MGCL”), may have
anti-takeover effects that delay, defer or prevent a takeover attempt, which may prevent stockholders from receiving a “control
premium” for their shares. For example, these provisions may defer or prevent tender offers for our common stock or purchases
of large blocks of our common stock, thereby limiting the opportunities for our stockholders to receive a premium for their
common stock over then-prevailing market prices. These provisions include the following:
•
•
Ownership limit. The ownership limit in our charter
limits related investors including, among other
things, any voting group, from acquiring over 9.8%
of any class our common stock or of our preferred
stock, in each case, in number of shares or value,
without the consent of our Board.
Preferred Stock. Our charter authorizes our Board to
issue preferred stock in one or more classes and to
establish the preferences and rights of any class of
preferred stock issued. These actions can be taken
without soliciting stockholder approval.
• Maryland Business Combination Act. The Maryland
Business Combination Act provides that, subject to
certain exceptions and limitations, certain business
combinations between a Maryland corporation and
an “interested stockholder” (defined generally as
any person who beneficially owns 10% or more of
the voting power of our outstanding voting stock or
an affiliate or associate of ours who, at any time
within the two-year period immediately prior to the
date in question, was the beneficial owner of 10% or
more of the voting power of our then outstanding
shares of stock) or an affiliate of any interested
stockholder are prohibited for five years after the
most recent date on which the stockholder becomes
an interested stockholder, and thereafter imposes
two super-majority stockholder voting requirements
these combinations, unless, among other
on
20
conditions, our common stockholders receive a
minimum price, as defined in the MGCL, for their
shares of stock and the consideration is received in
cash or in the same form as previously paid by the
interested stockholder for its shares of stock. We
have opted out of
the Maryland Business
Combination Act in our charter. However, if we
amend our charter to opt back in to the statute,
subject
to stockholder approval, the Maryland
Business Combination Act could have the effect of
discouraging offers to acquire us and of increasing
the difficulty of consummating any such offers, even
if our acquisition would be in our stockholders’ best
interests.
• Maryland Control Share Acquisition Act. The
Maryland Control Share Acquisition Act provides
that, subject to certain exceptions, holders of
“control shares” (defined as voting shares that, when
aggregated with all other shares controlled by the
stockholder, entitle the stockholder to exercise one
of three increasing ranges of voting power in
electing directors) acquired in a “control share
acquisition” (defined as the direct or indirect
acquisition of ownership or control of issued and
outstanding “control shares”) have no voting rights
except to the extent approved by our stockholders by
the affirmative vote of at least two-thirds of all the
votes entitled to be cast on the matter, excluding
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
shares owned by the acquirer, by our officers, or by
our employees who are also directors of our
company. We are currently subject to the Maryland
Control Share Acquisition Act.
•
Title 3, Subtitle 8 of the MGCL: These provisions
of the MGCL permit our Board of Directors,
without stockholder approval and regardless of what
is provided in our charter or bylaws, to implement
certain takeover defenses, including adopting a
classified board or increasing the vote required to
remove a director.
We have not established a minimum dividend payment level and cannot assure stockholders of our ability to pay dividends in
the future.
We intend to pay quarterly dividends and to make distributions to our stockholders in amounts such that all or substantially all
of our taxable income in each year (subject to certain adjustments) is distributed. This enables us to qualify for the tax benefits
accorded to a REIT under the Code. We have not established a minimum dividend payment level and our ability to pay
dividends may be adversely affected for the reasons described in this section. All distributions will be made at the discretion of
our Board and will depend on our earnings, our financial condition, maintenance of our REIT status and such other factors as
our Board may deem relevant from time to time.
Our reported GAAP financial results may not be an accurate indicator of future taxable income and dividend distributions.
Generally, the cumulative net income we report over the life of an asset will be the same for GAAP and tax purposes, although
the timing of this income recognition over the life of the asset could be materially different. Differences exist in the accounting
for GAAP net income and REIT taxable income that can lead to significant variances in the amount and timing of when income
and losses are recognized under these two measures. Due to these differences, our reported GAAP financial results could
materially differ from our determination of taxable income.
Compliance, Regulatory & Legal Risks
Accounting rules related to certain of our transactions are highly complex and involve significant judgment and
assumptions. Our application of GAAP may produce financial results that fluctuate from one period to another.
Accounting rules for valuations of investments, mortgage loan sales and securitizations, investment consolidations, acquisitions
of real estate and other aspects of our operations are highly complex and involve significant judgment and assumptions. These
complexities could lead to a delay in preparation of financial information and the delivery of this information to our
stockholders. Changes in accounting interpretations or assumptions could impact our financial statements and our ability to
prepare our financial statements in a timely fashion. Our inability to prepare our financial statements in a timely fashion in the
future would likely adversely affect our share price significantly. The fair value at which our assets may be recorded may not be
an indication of their realizable value. Ultimate realization of the value of an asset depends to a great extent on economic and
other conditions. Further, fair value is only an estimate based on good faith judgment of the price at which an investment can be
sold since market prices of investments can only be determined by negotiation between a willing buyer and seller. If we were to
liquidate a particular asset, the realized value may be more than or less than the amount at which such asset was recorded.
Accordingly, the value of our common shares could be adversely affected by our determinations regarding the fair value of our
investments, whether in the applicable period or in the future. Additionally, such valuations may fluctuate over short periods of
time.
We have made certain accounting elections which may result in volatility in our periodic net income, as computed in
accordance with GAAP. For example, changes in fair value of certain instruments are reflected in GAAP net income (loss)
while others are reflected in Other comprehensive income (loss).
New laws may be passed affecting the relationship between Fannie Mae, Freddie Mac and the federal government.
The interest and principal payments we expect to receive on the Agency mortgage-backed securities in which we invest are
guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae. Principal and interest payments on Ginnie Mae certificates are directly
guaranteed by the U.S. government. Principal and interest payments relating to the securities issued by Fannie Mae and Freddie
Mac are only guaranteed by each respective Agency.
In September 2008, Fannie Mae and Freddie Mac were placed into the conservatorship of the FHFA, their federal regulator,
pursuant to its powers under The Federal Housing Finance Regulatory Reform Act of 2008, a part of the Housing and
21
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Economic Recovery Act of 2008. In addition to FHFA becoming the conservator of Fannie Mae and Freddie Mac, the U.S.
Department of the Treasury entered into Preferred Stock Purchase Agreements with the FHFA and have taken various actions
intended to provide Fannie Mae and Freddie Mac with additional liquidity in an effort to ensure their financial stability. In
September 2019, FHFA and the U.S. Treasury Department agreed to modifications to the Preferred Stock Purchase Agreements
that will permit Fannie Mae and Freddie Mac to maintain capital reserves of $25 billion and $20 billion, respectively.
Shortly after Fannie Mae and Freddie Mac were placed in federal conservatorship, the Secretary of the U.S. Treasury suggested
that the guarantee payment structure of Fannie Mae and Freddie Mac in the U.S. housing finance market should be re-
examined. The future roles of Fannie Mae and Freddie Mac could be significantly reduced and the nature of their guarantees
could be eliminated or considerably limited relative to historical measurements. The U.S. Treasury could also stop providing
credit support to Fannie Mae and Freddie Mac in the future. Any changes to the nature of the guarantees provided by Fannie
Mae and Freddie Mac could redefine what constitutes an Agency mortgage-backed security and could have broad adverse
market implications. While the likelihood that major mortgage finance system reform will be enacted in the short term remains
uncertain, it is possible that the adoption of any such reforms could adversely affect the types of assets we can buy, the costs of
these assets and our business operations. A reduction in the ability of mortgage loan originators to access Fannie Mae and
Freddie Mac to sell their mortgage loans may adversely affect the mortgage markets generally and adversely affect the ability of
mortgagors to refinance their mortgage loans. In addition, any decline in the value of securities issued by Fannie Mae and
Freddie Mac may affect the value of MBS in general. If Fannie Mae or Freddie Mac was eliminated, or their structures were to
change in a material manner that is not compatible with our business model, we would not be able to acquire Agency mortgage-
backed securities from these entities, which could adversely affect our business operations.
We may be subject to liability for potential violations of truth-in-lending or other similar consumer protection laws and
regulations.
Residential mortgage loan originators and servicers are required to comply with various federal, state and local laws and
regulations, including anti-predatory lending laws and laws and regulations imposing certain restrictions on requirements on
high-cost loans. For example, the federal Home Ownership and Equity Protection Act of 1994 (“HOEPA”), prohibits inclusion
of certain provisions in residential mortgage loans that have mortgage rates or origination costs in excess of prescribed levels
and requires that borrowers be given certain disclosures prior to origination. Failure of residential mortgage loan originators or
servicers to comply with these laws, to the extent any of their residential mortgage loans become part of our investment
portfolio, could subject us, as an assignee or purchaser of the related residential mortgage loans, to reputational harm, monetary
penalties and the risk of the borrowers rescinding the affected residential mortgage loans. Lawsuits have been brought in
various states making claims against assignees or purchasers of high-cost loans for violations of state law. Named defendants in
these cases have included numerous participants within the secondary mortgage market. If loans in our portfolio are found to
have been originated in violation of predatory or abusive lending laws, we could incur losses that would materially adversely
affect our business.
Our business is subject to, or affected by, numerous regulations, including regulations regarding mortgage loan servicing,
underwriting, and loan originator compensation and others that could be issued in the future. For example, the CFPB’s “ability-
to-repay” and “qualified mortgage” regulations impact the terms and conditions of all originated residential mortgage loans.
Additionally, the CFPB has enforcement authority and broad discretionary regulatory authority to prohibit or condition terms,
acts or practices relating to residential mortgage loans that the CFPB finds abusive, unfair, deceptive, or predatory, as well as to
take other actions that the CFPB finds are necessary or proper to ensure responsible affordable mortgage credit remains
available to consumers. These requirements can and do change as statutes and regulations are enacted, promulgated, amended,
and interpreted, and the recent trends among federal and state lawmakers and regulators have been toward increasing
compliance obligations in laws, regulations, and investigative procedures concerning the mortgage industry generally. As a
result, we are unable to fully predict how laws or regulations that may be adopted in the future, will affect our business, results
of operations and financial condition, or the environment for repurchase financing and other forms of borrowing, the investing
environment for Agency MBS, non-Agency mortgage-backed securities and/or residential mortgage, and MSR.
Some states have enacted, or may enact, similar laws or regulations, which in some cases may impose restrictions and
requirements greater than those in place under federal laws and regulations. In addition, under the anti-predatory lending laws
of some states, the origination of certain residential mortgage loans, including loans that are classified as “high cost” loans
under applicable law, must satisfy a net tangible benefits test with respect to the borrower. This test, as well as certain standards
set forth in the “ability-to-repay” and “qualified mortgage” regulations, may be highly subjective and open to interpretation. As
a result, a court may determine that a residential mortgage loan did not meet the applicable standard or test even if the originator
reasonably believed such standard or test had been satisfied. Failure of residential mortgage loan originators or servicers to
comply with federal consumer protection laws and regulations could subject us, as an assignee or purchaser of these loans (or as
an investor in securities backed by these loans), to monetary penalties and defenses to foreclosure, including by recoupment or
setoff of damages and costs, which for some violations included the sum of all finance charges and fees paid by the consumer,
22
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
and could result in rescission of the affected residential mortgage loans, which could adversely impact our business and
financial results.
The CFPB and other regulators (including the Federal Trade Commission) have provided multiple forms of guidance on the
general subject of “junk fees.” As there has been no formal definition of “junk fees” proposed with respect to mortgage lending
or servicing, it is possible that industry standard charges could be impacted through future regulatory action. The cost of whole
loans and the servicing income derived from owning MSR could be affected by the CFPB categorizing any currently
permissible fee or charge as “junk.”
We may not be able to maintain compliance with laws and regulations applicable to our Residential Credit or MSR
businesses, including through the manner in which we oversee the compliance obligations of our third party service
providers.
While we are not required to obtain licenses to purchase mortgage-backed securities, the purchase of residential mortgage loans
and certain business purpose mortgage loans in the secondary market may, in some circumstances, require us to maintain
various state licenses. Acquiring the right to service residential mortgage loans and certain business purpose mortgage loans
may also, in some circumstances, require us to maintain various state licenses even though we currently do not expect to
directly engage in loan servicing ourselves. As a result, we could be delayed in conducting certain business if we were first
required to obtain a state license. We cannot assure you that we will be able to obtain all of the licenses we need or that we
would not experience significant delays in obtaining these licenses. Furthermore, once licenses are issued we are required to
comply with various information reporting and other regulatory requirements to maintain those licenses, and there is no
assurance that we will be able to satisfy those requirements or other regulatory requirements applicable to our business of
acquiring mortgage loans on an ongoing basis. Our failure to obtain or maintain required licenses or our failure to comply with
regulatory requirements that are applicable to our business of acquiring mortgage loans may restrict our residential credit
business and investment options and could harm our business and expose us to penalties or other claims.
Although we utilize unaffiliated servicing companies to carry out the actual servicing of MSR and the loans we purchase
together with the related MSR (including all direct interface with the borrowers), we are ultimately responsible, vis-à-vis the
borrowers and state and federal regulators, for ensuring that the loans and MSR are serviced in accordance with the terms of the
related notes and mortgages and applicable law and regulation. To manage this risk, we have a robust oversight process that
monitors the activities of the third party servicers. This oversight process is also subject to regulatory requirements and
expectations that we are expected to meet.
Changes in laws or regulations governing our operations or our failure to comply with those laws or regulations may
adversely affect our business.
We are subject to regulation by laws at the local, state and federal level, including securities and tax laws and financial
accounting and reporting standards. These laws and regulations, as well as their interpretation, may be changed from time to
time and result in enhanced disclosure obligations, including with respect to climate change or other environmental, social, or
governance (“ESG”) topics, increasing our regulatory burden.
Accordingly, any change in these laws or regulations or the failure to comply with these laws or regulations could have a
material adverse impact on our business. Certain of these laws and regulations pertain specifically to REITs.
The increased focus on ESG and climate change issues by investors, governmental bodies and other stakeholders, as well as
existing and proposed laws and regulations related to these topics, may adversely affect our business and financial results
and damage our reputation.
Our business faces increasing public scrutiny related to ESG activities, which are increasingly considered to contribute to
reducing a company’s operational risk, market risk and reputational risk, which may in turn impact the long-term sustainability
of a company’s performance. A variety of organizations measure the performance of companies on ESG topics, and the results
of these assessments are widely publicized. Major institutional investors have publicly emphasized the importance of such ESG
measures to their investment decisions. ESG and climate change issues are also increasingly important to the general public and
the media, and actual or perceived underperformance with respect to these topics could result in negative press or sentiment
with respect to our business. In addition, actual or perceived effects of climate change could negatively impact house prices,
housing-related costs, and borrower behavior.
There is also growing governmental and regulatory interest across jurisdictions in improving the definition, measurement and
disclosure of ESG factors in order to allow investors to validate and better understand ESG-related claims. To the extent we
communicate ESG or climate-related statements, initiatives, commitments or goals in our SEC filings or in other disclosures,
23
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
we face the risk of being accused of “greenwashing” to the extent our practices and policies do not match such claims. In
addition, the SEC has established a climate and ESG task force to develop initiatives to identify ESG-related misconduct
consistent with increased investor reliance on climate and ESG-related disclosure and investment. As a result, the SEC has
started to bring enforcement actions based on ESG disclosures not matching actual investment processes.
In addition, the SEC is working on proposals for mandatory disclosure of certain ESG-related matters, including with respect to
greenhouse gas emissions and climate change-related risks, and similar laws and regulations related to the disclosure and/or
diligence of ESG and climate change-related risks have been enacted or proposed in U.S. states such as California, as well as
the European Union and other jurisdictions. Compliance with any such new laws or regulations increases our regulatory burden
and could make compliance more difficult and expensive, affect the manner in which we conduct our business and adversely
affect our profitability and returns to our investors.
We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations regarding data
privacy and security, which could increase the cost of doing business, compliance risks and potential liability.
We are subject to complex and evolving laws, regulations, rules, standards and contractual obligations relating to data privacy
and the security of personal information, and any failure to comply with these laws, regulations, rules, standards and contractual
obligations could expose us to liability and/or reputational damage. The legal and regulatory environment surrounding data
privacy and security in the U.S. and international jurisdictions is constantly evolving. New business initiatives have increased,
and may continue to increase, the extent to which we are subject to such U.S. and international data privacy and security
regulations. As new data privacy and security-related laws, regulations, rules and standards are implemented, the time and
resources needed for us to comply with such laws, regulations, rules and standards, as well as our potential liability for non-
compliance and reporting obligations in the case of cyberattacks, information security breaches or other similar incidents, may
significantly increase. Compliance with these laws, regulations, rules and standards may require us to change our policies,
procedures and technology for information security, which could, among other things, make us more vulnerable to operational
failures and to monetary penalties for breach of such laws, regulations, rules and standards.
In the U.S., there are numerous federal, state and local data privacy and security laws and regulations governing the collection,
sharing, use, retention, disclosure, security, storage, transfer and other processing of personal information. At the federal level,
we are subject to, among other laws and regulations, the Gramm Leach Bliley Act (which regulates the confidentiality and
security of customer information obtained by financial institutions and certain other types of financial services businesses) and
regulations under it. Additionally, numerous states have enacted, or are in the process of enacting or considering,
comprehensive state-level data privacy and security laws and regulations. Moreover, laws in all 50 U.S. states require
businesses to provide notice under certain circumstances to consumers whose personal information has been disclosed as a
result of a data breach.
Further, when required by applicable laws, regulations, rules and industry standards, we strive to provide or cause our service
providers to provide privacy policies which are accurate and comprehensive. We cannot, however, ensure that the disclosure of
these privacy policies and other statements regarding our practices will be sufficient to protect us from claims, proceedings,
liability or adverse publicity relating to data privacy and security or with respect to the legally permissible sharing of data.
Although we endeavor to comply with our privacy policies and to ensure our service providers do the same, occurrence of
noncompliance or allegations of noncompliance are possible and could subject us to potential government or legal action,
including action based on argument that the publication of these policies were deceptive, unfair, or misrepresentative of our
actual practices. Any concerns about our data privacy and security practices, even if unfounded, could damage our reputation
and adversely affect our business.
Any failure or perceived failure by us to comply with our privacy policies, or applicable data privacy and security laws,
regulations, rules, standards or contractual obligations, or any compromise of security that results in unauthorized access to, or
unauthorized loss, destruction, use, modification, acquisition, disclosure, release or transfer of personal information, may result
in requirements to modify or cease certain operations or practices, the expenditure of substantial costs, time and other resources,
proceedings or actions against us, legal liability, governmental investigations, enforcement actions, claims, fines, judgments,
awards, penalties, sanctions and costly litigation (including class actions). Any of the foregoing could harm our reputation,
distract our management and technical personnel, increase our costs of doing business, adversely affect the demand for our
products and services, and ultimately result in the imposition of liability, any of which could have a material adverse effect on
our business, financial condition and results of operations.
24
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
We are subject to risks and liabilities in connection with sponsoring, investing in and managing new funds and other
investment accounts, including potential regulatory risks.
We have, and may in the future, sponsor, manage and serve as general partner and/or manager of new funds or investment
accounts. Such sponsorship and management of, and investment in, such funds and accounts may involve risks not otherwise
present with a direct investment in such funds’ and accounts’ target investments, including, for example:
•
•
•
the possibility that investors in the funds/accounts
might become bankrupt or otherwise be unable to
meet their capital commitment obligations;
that operating and/or management agreements of a
fund/account may restrict our ability to transfer or
liquidate our interest when we desire or on
advantageous terms;
that our relationships with the investors will be
generally contractual in nature and may be
terminated or dissolved under the terms of the
agreements, or we may be removed as general
partner and/or manager (with or without cause), and
in such event, we may not continue to manage or
invest in the applicable fund/account;
•
•
that disputes between us and the investors may
result in litigation or arbitration that would increase
our expenses and prevent our officers and directors
from focusing their time and effort on our business
and result in subjecting the investments owned by
the applicable fund/account to additional risk; and
that we may incur liability for obligations of a fund/
account by reason of being its general partner or
manager.
We have a subsidiary that is registered with the SEC as an investment adviser under the Investment Advisers Act. As a result,
we are subject to the anti-fraud provisions of the Investment Advisers Act and to fiduciary duties derived from these provisions
that apply to our relationships with that subsidiary’s clients. These provisions and duties impose restrictions and obligations on
us with respect to our dealings with our subsidiary’s clients, including, for example, restrictions on agency, cross and principal
transactions. Our registered investment adviser subsidiary is subject to periodic SEC examinations and other requirements
under the Investment Advisers Act and related regulations primarily intended to benefit advisory clients. These additional
requirements relate to, among other things, maintaining an effective and comprehensive compliance program, recordkeeping
and reporting requirements and disclosure requirements. The Investment Advisers Act generally grants the SEC broad
administrative powers, including the power to limit or restrict an investment adviser from conducting advisory activities in the
event it fails to comply with federal securities laws. Additional sanctions that may be imposed for failure to comply with
applicable requirements under the Investment Advisers Act include the prohibition of individuals from associating with an
investment adviser, the revocation of registrations and other censures and fines. We may in the future be required to register one
or more entities as a commodity pool operator or commodity trading adviser, subjecting those entities to the regulations and
oversight of the Commodity Futures Trading Commission and the National Futures Association. We may also become subject
to various international regulations on the asset management industry.
Loss of our Investment Company Act exemption from registration would adversely affect us.
We intend to conduct our business so as not to become regulated as an investment company under the Investment Company
Act. We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company
Act. Section 3(c)(5)(C), as interpreted by the staff of the SEC, requires us to invest at least 55% of our assets in “mortgages and
other liens on and interest in real estate” (“Qualifying Real Estate Assets”) and at least 80% of our assets in Qualifying Real
Estate Assets plus our interests in MSR and other real estate related assets. The assets that we acquire, therefore, are limited by
this provision of the Investment Company Act and the rules and regulations promulgated under the Investment Company Act.
We rely on an SEC interpretation that “whole pool certificates” that are issued or guaranteed by Fannie Mae, Freddie Mac or
Ginnie Mae (“Agency Whole Pool Certificates”) are Qualifying Real Estate Assets under Section 3(c)(5)(C). This interpretation
was promulgated by the SEC staff in a no-action letter in the 1980s, was reaffirmed by the SEC in 1992 and has been
commonly relied upon by mortgage REITs.
On August 31, 2011, the SEC issued a concept release titled “Companies Engaged in the Business of Acquiring Mortgages and
Mortgage-Related Instruments” (SEC Release No. IC-29778). In this concept release, the SEC announced it was reviewing
interpretive issues related to the Section 3(c)(5)(C) exemption. Among other things, the SEC requested comments on whether it
should revisit whether Agency Whole Pool Certificates may be treated as interests in real estate (and presumably Qualifying
Real Estate Assets) and whether companies, such as us, whose primary business consists of investing in Agency Whole Pool
Certificates are the type of entities that Congress intended to be encompassed by the exclusion provided by Section 3(c)(5)(C).
If the SEC changes its views regarding which securities are Qualifying Real Estate Assets or real estate related assets, adopts a
contrary interpretation with respect to Agency Whole Pool Certificates or otherwise believes we do not satisfy the exemption
under Section 3(c)(5)(C), we could be required to restructure our activities or sell certain of our assets. The net effect of these
25
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
factors will be to lower our net interest income, which could negatively affect the market price of shares of our capital stock and
our ability to distribute dividends. If we fail to qualify for exemption from registration as an investment company, our ability to
use leverage would be substantially reduced, and we would not be able to conduct our business as described. Our business will
be materially and adversely affected if we fail to qualify for this exemption.
Risks Related to Our Taxation as a REIT
Our failure to maintain our qualification as a REIT would have adverse tax consequences.
We believe that since 1997 we have qualified for taxation as a REIT for U.S. federal income tax purposes under Sections 856
through 860 of the Code. We plan to continue to meet the requirements for taxation as a REIT. The determination that we are a
REIT requires an analysis of various factual matters and circumstances that may not be totally within our control. For example,
to maintain our qualification as a REIT, at least 75% of our gross income must come from real estate sources and 95% of our
gross income must come from real estate sources and certain other sources that are itemized in the REIT tax laws. Additionally,
our ability to satisfy the REIT asset tests depends upon our analysis of the characterization and fair market values of our assets,
some of which are not susceptible to precise determination, and for which we will not obtain independent appraisals. The
proper classification of an instrument as debt or equity for U.S. federal income tax purposes may be uncertain in some
circumstances, which could affect the application of the REIT asset requirements. We are also required to distribute to
stockholders at least 90% of our REIT taxable income (determined without regard to the deduction for dividends paid and by
excluding any net capital gain). Even a technical or inadvertent mistake could jeopardize our REIT status. Furthermore,
Congress and the Internal Revenue Service (“IRS”) might make changes to the tax laws and regulations, and the courts might
issue new rulings that make it more difficult or impossible for us to remain qualified as a REIT.
We also indirectly own interests in entities that have elected to be taxed as REITs under the U.S. federal income tax laws, or
“Subsidiary REITs.” Subsidiary REITs are subject to the various REIT qualification requirements that are applicable to us. If
any Subsidiary REIT were to fail to qualify as a REIT, then (i) that Subsidiary REIT would become subject to regular U.S.
federal, state, and local corporate income tax, (ii) our interest in such Subsidiary REIT would cease to be a qualifying asset for
purposes of the REIT asset tests, and (iii) it is possible that we would fail certain of the REIT asset tests, in which event we also
would fail to maintain our qualification as a REIT unless we could avail ourselves of certain relief provisions. While we
believe that the Subsidiary REITs have qualified as REITs under the Code, we have joined each Subsidiary REIT in filing
“protective” TRS elections under Section 856(l) of the Code. We cannot assure you that such “protective” TRS elections would
be effective to avoid adverse consequences to us. Moreover, even if the “protective” elections were to be effective, the
Subsidiary REITs would be subject to regular corporate income tax, and we cannot assure you that we would not fail to satisfy
the requirement that not more than 20% of the value of our total assets may be represented by the securities of one or more
TRSs. If we fail to maintain our qualification as a REIT, we would be subject to U.S. federal income tax at regular corporate
rates. Also, unless the IRS were to grant us relief under certain statutory provisions, we would remain disqualified as a REIT
for four years following the year we first fail to qualify. If we fail to maintain our qualification as a REIT, we would have to
pay significant income taxes and would therefore have less money available for investments or for distributions to our
stockholders. This would likely have a significant adverse effect on the value of our equity. In addition, the tax law would no
longer require us to make distributions to our stockholders.
A REIT that fails the quarterly asset tests for one or more quarters will not lose its REIT status as a result of such failure if
either (i) the failure is regarded as a de minimis failure under standards set out in the Code, or (ii) the failure is greater than a de
minimis failure but is attributable to reasonable cause and not willful neglect. In the case of a greater than de minimis failure,
however, the REIT must pay a tax and must remedy the failure within six months of the close of the quarter in which the failure
was identified. In addition, the Code provides relief for failures of other tests imposed as a condition of REIT qualification, as
long as the failures are attributable to reasonable cause and not willful neglect. A REIT would be required to pay a penalty of
$50,000, however, in the case of each failure.
Our distribution requirements could adversely affect our ability to execute our business plan.
As a REIT, we must distribute at least 90% of our REIT taxable income (determined without regard to the deduction for
dividends paid and by excluding any net capital gain). The required distribution limits the amount we have available for other
business purposes, including amounts to fund our growth. Also, it is possible that because of the differences between the time
we actually receive revenue or pay expenses and the period we report those items for distribution purposes, we may have to
borrow funds on a short-term basis to meet the 90% distribution requirement.
To the extent that we satisfy this distribution requirement, but distribute less than 100% of our taxable income, we will be
subject to U.S. federal corporate income tax on our undistributed taxable income. In addition, we will be subject to a non-
deductible 4% excise tax if the actual amount that we pay out to our stockholders in a calendar year is less than a minimum
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
amount specified under U.S. federal tax laws. We intend to make distributions to our stockholders to comply with the REIT
qualification requirements of the Code.
From time to time, we may generate taxable income greater than our income for financial reporting purposes prepared in
accordance with GAAP, or differences in timing between the recognition of taxable income and the actual receipt of cash may
occur. For example, if we purchase Agency or non-Agency securities at a discount, we generally are required to accrete the
discount into taxable income prior to receiving the cash proceeds of the accreted discount at maturity, and in some cases,
potentially recognize the discount in taxable income once such amounts are reflected in our financial statements. If we do not
have other funds available in these situations we could be required to (i) borrow funds on unfavorable terms, (ii) sell
investments at disadvantageous prices, (iii) distribute our own stock, or (iv) distribute amounts that would otherwise be invested
in future acquisitions to make distributions sufficient to enable us to pay out enough of our taxable income to satisfy the REIT
distribution requirement and to avoid the corporate income tax and 4% excise tax in a particular year. Also, we or our
subsidiaries may hold debt investments that could require subsequent modifications. If an amendment to an outstanding debt is
a “significant modification” for U.S. federal income tax purposes, the modified debt may be deemed to have been reissued in a
debt-for-debt taxable exchange with the borrower. This deemed reissuance could result in a portion of the modified debt not
qualifying as a good REIT asset if the underlying security has declined in value, and would cause us to recognize income to the
extent the principal amount of the modified debt exceeds our adjusted tax basis in the unmodified debt. These scenarios could
increase our costs or reduce our stockholders’ equity. Thus, compliance with the REIT requirements may hinder our ability to
grow, which could adversely affect the value of our stock.
Conversely, from time to time, we may generate taxable income less than our income for financial reporting purposes due to
GAAP and tax accounting differences or, as mentioned above, the timing between the recognition of taxable income and the
actual receipt of cash. In such circumstances we may make distributions according to our business plan that are within our
wherewithal from an economic or cash management perspective, but that are labeled as return of capital for tax reporting
purposes, as they are in excess of taxable income in that period.
Distributions to tax-exempt investors may be classified as unrelated business taxable income.
Neither ordinary nor capital gain distributions with respect to our stock nor gain from the sale of our stock are anticipated to
constitute unrelated business taxable income to a tax-exempt investor. However, there are certain exceptions to this rule. In
particular:
•
•
•
income
part of the income and gain recognized by certain
qualified employee pension trusts with respect to
our stock may be treated as unrelated business
taxable
if shares of our stock are
predominantly held by qualified employee pension
trusts, and we are required to rely on a special look-
through rule for purposes of meeting one of the
REIT ownership tests, and we are not operated in a
manner to avoid treatment of such income or gain as
unrelated business taxable income;
part of the income and gain recognized by a tax-
exempt investor with respect to our stock would
constitute unrelated business taxable income if the
investor incurs debt in order to acquire the stock;
unemployment benefit trusts and qualified group
legal services plans which are exempt from U.S.
federal income taxation under the Code may be
treated as unrelated business taxable income;
to the extent that we (or a part of us, or a
disregarded subsidiary of ours) are a “taxable
mortgage pool,” or if we hold residual interests in a
real estate mortgage investment conduit or a CLO;
a portion of the distributions paid to a tax-exempt
stockholder that is allocable to excess inclusion
income may be treated as unrelated business taxable
income.
•
•
part or all of the income or gain recognized with
respect to our stock by social clubs, voluntary
supplemental
employee
associations,
benefit
We may choose to pay dividends in our own stock.
We may in the future distribute taxable dividends that are payable in cash or shares of our stock at the election of each
stockholder. Taxable stockholders receiving such dividends will be required to include the full amount of the dividend as
ordinary income to the extent of our current and accumulated earnings and profits for U.S. federal income tax purposes. As a
result, stockholders may be required to pay income taxes with respect to such dividends in excess of the cash dividends
received. If a U.S. stockholder sells the stock that it receives as a dividend in order to pay this tax, the sales proceeds may be
less than the amount included in income with respect to the dividend, depending on the market price of our stock at the time of
the sale. Furthermore, with respect to certain non-U.S. stockholders, we may be required to withhold U.S. tax with respect to
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
such dividends, including in respect to all or a portion of such dividend that is payable in stock. In addition, if a significant
number of our stockholders determine to sell shares of our stock in order to pay taxes owed on dividends, it may put downward
pressure on the trading price of our stock.
Our TRSs cannot constitute more than 20% of our total assets.
A TRS is a corporation, other than a REIT or a qualified REIT subsidiary, in which a REIT owns stock and with which the
REIT jointly elects TRS status. The term also includes a corporate subsidiary in which the TRS owns more than a 35% interest.
A REIT may own up to 100% of the stock of one or more TRSs. A TRS may earn income that would not be qualifying income
if it was earned directly by the parent REIT. Overall, at the close of any calendar quarter, no more than 20% of the value of a
REIT’s assets may consist of stock or securities of one or more TRSs.
The stock and securities of our TRSs are expected to represent less than 20% of the value of our total assets. Furthermore, we
intend to monitor the value of our investments in the stock and securities of our TRSs to ensure compliance with the above-
described limitation. We cannot assure you, however, that we will always be able to comply with the limitation so as to
maintain REIT status.
TRSs are subject to tax at the regular corporate rates, are not required to distribute dividends, and the amount of dividends a
TRS can pay to its parent REIT may be limited by REIT gross income tests.
A TRS must pay income tax at regular corporate rates on any income that it earns. In certain circumstances, the ability of our
TRSs to deduct interest expenses for U.S. federal income tax may be limited. Such income, however, is not required to be
distributed. Our TRSs will pay corporate income tax on their taxable income, and their after-tax net income will be available
for distribution to us.
Moreover, the annual gross income tests that must be satisfied to maintain our REIT qualification may limit the amount of
dividends that we can receive from our TRSs. Generally, not more than 25% of our gross income can be derived from non-real
estate related sources, such as dividends from a TRS. If, for any taxable year, the dividends we receive from our TRSs, when
added to our other items of non-real estate related income, were to represent more than 25% of our total gross income for the
year, we could be denied REIT status, unless we were able to demonstrate, among other things, that our failure of the gross
income test was due to reasonable cause and not willful neglect.
The limitations imposed by the REIT gross income tests may impede our ability to distribute assets from our TRSs to us in the
form of dividends. Certain asset transfers may, therefore, have to be structured as purchase and sale transactions upon which
our TRSs recognize a taxable gain.
If transactions between a REIT and a TRS are entered into on other than arm’s-length terms, the REIT may be subject to a
penalty tax.
If interest accrues on an indebtedness owed by a TRS to its parent REIT at a rate in excess of a commercially reasonable rate,
then the REIT would be subject to tax at a rate of 100% on the excess of (i) interest payments made by a TRS to its parent REIT
over (ii) the amount of interest that would have been payable had interest accrued on the indebtedness at a commercially
reasonable rate. A tax at a rate of 100% is also imposed on any transaction between a TRS and its parent REIT to the extent the
transaction gives rise to deductions to the TRS that are in excess of the deductions that would have been allowable had the
transaction been entered into on arm’s-length terms. While we will scrutinize all of our transactions with our TRSs in an effort
to ensure that we do not become subject to these taxes, there is no assurance that we will be successful. We may not be able to
avoid application of these taxes.
Even if we remain qualified as a REIT, we may face other tax liabilities that reduce our cash flow.
Even if we remain qualified for taxation as a REIT, we may be subject to certain federal, state and local taxes on our income
and assets, including taxes on any undistributed income, tax on income from some activities conducted as a result of a
foreclosure, excise taxes, state or local income, property and transfer taxes, such as mortgage recording taxes, and other taxes.
In addition, in order to meet the REIT qualification requirements, prevent the recognition of certain types of non-cash income,
or to avert the imposition of a 100% tax that applies to certain gains derived by a REIT from dealer property or inventory, we
may hold some of our assets through our TRSs or other subsidiary corporations that will be subject to corporate level income
tax at regular rates.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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Complying with REIT requirements may cause us to forgo otherwise attractive opportunities and may force us to liquidate
otherwise attractive investments.
To remain qualified as a REIT for U.S. federal income tax purposes, we must continually satisfy tests concerning, among other
things, the sources of our income, the nature and diversification of our assets, the amounts that we distribute to our stockholders
and the ownership of our stock. Our ability to acquire and hold our investments is subject to the applicable REIT qualification
tests. We must ensure that at the end of each calendar quarter, at least 75% of the value of our assets consists of cash, cash
items, U.S. Government securities and qualified real estate assets. The remainder of our investment in securities (other than
U.S. Government securities, qualified real estate assets and securities issued by a TRS) generally cannot include more than 10%
of the outstanding voting securities of any one issuer or more than 10% of the total value of the outstanding securities of any
one issuer. In addition, in general, no more than 5% of the value of our assets (other than U.S. Government securities, qualified
real estate assets and securities issued by a TRS) can consist of the securities of any one issuer, and no more than 20% of the
value of our total assets can be represented by securities of one or more TRSs.
Changes in the values or other features of our assets could cause inadvertent violations of the REIT requirements. If we fail to
comply with the REIT requirements at the end of any calendar quarter, we must correct the failure within 30 days after the end
of the calendar quarter or qualify for certain statutory relief provisions to avoid losing our REIT qualification and suffering
adverse tax consequences. Additionally, we may be required to make distributions to stockholders at disadvantageous times or
when we do not have funds readily available for distribution.
Accordingly we may be unable to pursue investments that would be otherwise advantageous to us or be required to liquidate
from our investment portfolio otherwise attractive investments if we feel it is necessary to satisfy the source-of-income, asset-
diversification or distribution requirements for qualifying as a REIT. These actions could have the effect of reducing our
income and amounts available for distribution to our stockholders.
Liquidation of assets may jeopardize our REIT qualification or create additional tax liability for us.
To remain qualified as a REIT, we must comply with requirements regarding the composition of our assets and our sources of
income. If we are compelled to liquidate our investments to repay obligations to our lenders, we may be unable to comply with
these requirements, ultimately jeopardizing our qualification as a REIT, or we may be subject to a 100% tax on any resultant
gain if we sell assets that are treated as dealer property or inventory.
The failure of assets subject to repurchase agreements to qualify as real estate assets could adversely affect our ability to
remain qualified as a REIT.
We enter into certain financing arrangements that are structured as sale and repurchase agreements pursuant to which we
nominally sell certain of our assets to a counterparty and simultaneously enter into an agreement to repurchase these assets at a
later date in exchange for a purchase price. Economically, these agreements are financings that are secured by the assets sold
pursuant thereto, and we treat them as such for U.S. federal income tax purposes. We believe that we would be treated for REIT
asset and income test purposes as the owner of the assets that are the subject of any such sale and repurchase agreement
notwithstanding that such agreement may transfer record ownership of the assets to the counterparty during the term of the
agreement. It is possible, however, that the IRS could assert that we did not own the assets during the term of the sale and
repurchase agreement, in which case we could fail to remain qualified as a REIT.
Complying with REIT requirements may limit our ability to hedge effectively and may cause us to incur tax liabilities.
The REIT provisions of the Code could substantially limit our ability to hedge our liabilities. Any income from a properly
designated hedging transaction we enter into to manage risk of interest rate changes with respect to borrowings made or to be
made, or ordinary obligations incurred or to be incurred, to acquire or carry real estate assets generally does not constitute
“gross income” for purposes of the 75% or 95% gross income tests. To the extent that we enter into other types of hedging
transactions, the income from those transactions is likely to be treated as non-qualifying income for purposes of both of the
gross income tests. As a result of these rules, we may have to limit our use of advantageous hedging techniques or implement
those hedges through our TRSs. This could increase the cost of our hedging activities because our TRSs would be subject to tax
on gains or expose us to greater risks associated with changes in interest rates than we would otherwise want to bear. In
addition, losses in our TRSs generally will not provide any tax benefit, except for being carried forward potentially to offset
taxable income in the TRSs for future periods.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Qualifying as a REIT involves highly technical and complex provisions of the Code.
Qualification as a REIT involves the application of highly technical and complex Code provisions for which only limited
judicial and administrative authorities exist. Even a technical or inadvertent violation could jeopardize our REIT qualification.
Our continued qualification as a REIT depends on our satisfaction of certain asset, income, organizational, distribution,
stockholder ownership and other requirements on a continuing basis. In addition, our ability to satisfy the REIT qualification
requirements depends in part on the actions of third parties over which we have no control or only limited influence, including
in cases where we own an equity interest in an entity that is classified as a partnership for U.S. federal income tax purposes.
The tax on prohibited transactions limits our ability to engage in certain transactions.
The 100% tax on prohibited transactions will limit our ability to engage in transactions, including certain methods of structuring
CMOs, which would be treated as prohibited transactions for U.S. federal income tax purposes.
The term “prohibited transaction” generally includes a sale or other disposition of property (including mortgage loans, but other
than foreclosure property, as discussed below) that is held primarily for sale to customers in the ordinary course of a trade or
business by us or by a borrower that has issued a shared appreciation mortgage or similar debt instrument to us. We could be
subject to this tax if we were to dispose of or structure CMOs in a manner that was treated as a prohibited transaction for U.S.
federal income tax purposes.
We intend to conduct our operations at the REIT level so that no asset that we own (or are treated as owning) will be treated as
or as having been, held for sale to customers, and that a sale of any such asset will not be treated as having been in the ordinary
course of our business. As a result, we may choose not to engage in certain transactions at the REIT level, and may limit the
structures we utilize for our CMO transactions, even though the sales or structures might otherwise be beneficial to us. In
addition, whether property is held “primarily for sale to customers in the ordinary course of a trade or business” depends on the
particular facts and circumstances. No assurance can be given that any property that we sell will not be treated as property held
for sale to customers, or that we can comply with certain safe-harbor provisions of the Code that would prevent such treatment.
The 100% tax does not apply to gains from the sale of property that is held through a TRS or other taxable corporation,
although such income will be subject to tax in the hands of the corporation at regular corporate rates. We intend to structure our
activities to avoid the prohibited transaction tax.
Certain financing activities may subject us to U.S. federal income tax and could have negative tax consequences for our
stockholders.
We may enter into securitization transactions and other financing transactions that could result in us, or a portion of our assets,
being treated as a taxable mortgage pool for U.S. federal income tax purposes. If we enter into such a transaction in the future,
we could be taxable at the highest corporate income tax rate on a portion of the income arising from a taxable mortgage pool,
referred to as “excess inclusion income,” that is allocable to the percentage of our shares held in record name by disqualified
organizations (generally tax-exempt entities that are exempt from the tax on unrelated business taxable income, such as state
pension plans and charitable remainder trusts and government entities). In that case, we could reduce distributions to such
stockholders by the amount of tax paid by us that is attributable to such stockholder's ownership.
If we were to realize excess inclusion income, IRS guidance indicates that the excess inclusion income would be allocated
among our stockholders in proportion to the dividends paid. Excess inclusion income cannot be offset by losses of a
stockholder. If the stockholder is a tax-exempt entity and not a disqualified organization, then this income would be fully
taxable as unrelated business taxable income under Section 512 of the Code. If the stockholder is a foreign person, it would be
subject to U.S. federal income tax at the maximum tax rate and withholding will be required on this income without reduction
or exemption pursuant to any otherwise applicable income tax treaty.
Uncertainty exists with respect to the treatment of our TBAs for purposes of the REIT asset and income tests.
We purchase and sell Agency mortgage-backed securities through TBAs and recognize income or gains from the disposition of
those TBAs, through dollar roll transactions or otherwise, and may continue to do so in the future. While there is no direct
authority with respect to the qualification of TBAs as real estate assets or U.S. Government securities for purposes of the 75%
asset test or the qualification of income or gains from dispositions of TBAs as gains from the sale of real property (including
interests in real property and interests in mortgages on real property) or other qualifying income for purposes of the 75% gross
income test, we treat our TBAs as qualifying assets for purposes of the REIT asset tests, and we treat income and gains from
our TBAs as qualifying income for purposes of the 75% gross income test, based on an opinion of counsel substantially to the
effect that (i) for purposes of the REIT asset tests, our ownership of a TBA should be treated as ownership of real estate assets,
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
and (ii) for purposes of the 75% REIT gross income test, any gain recognized by us in connection with the settlement of our
TBAs should be treated as gain from the sale or disposition of an interest in mortgages on real property. Opinions of counsel are
not binding on the IRS, and no assurance can be given that the IRS will not successfully challenge the conclusions set forth in
such opinions. In addition, it must be emphasized that the opinion of counsel is based on various assumptions relating to our
TBAs and is conditioned upon fact-based representations and covenants made by our management regarding our TBAs. No
assurance can be given that the IRS would not assert that such assets or income are not qualifying assets or income. If the IRS
were to successfully challenge the opinion of counsel, we could be subject to a penalty tax or we could fail to remain qualified
as a REIT if a sufficient portion of our assets consists of TBAs or a sufficient portion of our income consists of income or gains
from the disposition of TBAs.
Dividends payable by REITs generally receive different tax treatment than dividend income from regular corporations.
Qualified dividend income payable to U.S. stockholders that are individuals, trusts and estates is subject to the reduced
maximum tax rate applicable to capital gains. Dividends payable by REITs, however, generally are not eligible for the reduced
qualified dividend rates. Non-corporate taxpayers may deduct up to 20% of certain pass-through business income, including
“qualified REIT dividends” (generally, dividends received by a REIT shareholder that are not designated as capital gain
dividends or qualified dividend income), subject to certain limitations, resulting in an effective maximum U.S. federal income
tax rate of 29.6% on such income. Although the reduced U.S. federal income tax rate applicable to qualified dividend income
does not adversely affect the taxation of REITs or dividends payable by REITs, the more favorable rates applicable to regular
corporate qualified dividends could cause investors who are individuals, trusts and estates to perceive investments in REITs to
be relatively less attractive than investments in the stocks of non-REIT corporations that pay dividends, which could adversely
affect the value of the shares of REITs, including our stock. Tax rates could be changed in future legislation.
New legislation or administrative or judicial action, in each instance potentially with retroactive effect, could make it more
difficult or impossible for us to remain qualified as a REIT.
The present U.S. federal income tax treatment of REITs may be modified, possibly with retroactive effect, by legislative,
judicial or administrative action at any time, which could affect the U.S. federal income tax treatment of an investment in us.
The U.S. federal income tax rules dealing with REITs constantly are under review by persons involved in the legislative
process, the IRS and the U.S. Treasury, which results in statutory changes as well as frequent revisions to regulations and
interpretations. Future revisions in federal tax laws and interpretations thereof could affect or cause us to change our
investments and commitments and affect the tax considerations of an investment in us.
Counterparty Risks
The soundness of our counterparties and other financial institutions could adversely affect us.
Financial services institutions are interrelated as a result of trading, clearing, counterparty, borrower, or other relationships. We
have exposure to many different counterparties, and routinely execute transactions with counterparties in the financial services
industry, including brokers and dealers, commercial banks, investment banks, mutual and hedge funds, mortgage companies,
and other financial institutions. Many of these transactions expose us to credit or counterparty risk in the event of default of our
counterparty or, in certain instances, our counterparty’s customers. There is no assurance that any such losses would not
materially and adversely impact our revenues, financial condition and earnings.
We are subject to counterparty risk and may be unable to seek indemnity or require counterparties to repurchase residential
whole loans if they breach representations and warranties, which could cause us to suffer losses.
When selling or securitizing mortgage loans, sellers typically make customary representations and warranties about such loans.
Residential mortgage loan purchase agreements may entitle the purchaser of the loans to seek indemnity or demand repurchase
or substitution of the loans in the event the seller of the loans breaches a representation or warranty given to the purchaser.
There can be no assurance that a mortgage loan purchase agreement will contain appropriate representations and warranties,
that we or the trust that purchases the mortgage loans would be able to enforce a contractual right to repurchase or substitution,
or that the seller of the loans will remain solvent or otherwise be able to honor its obligations under its mortgage loan purchase
agreements. The inability to obtain or enforce an indemnity or require repurchase of a significant number of loans could
adversely affect our results of operations, financial condition and business.
Our rights under our repurchase and derivative agreements are subject to the effects of the bankruptcy laws in the event of
the bankruptcy or insolvency of us or our lenders.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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In the event of our insolvency or bankruptcy, certain repurchase and derivative agreements may qualify for special treatment
under the U.S. Bankruptcy Code, the effect of which, among other things, would be to allow the lender to avoid the automatic
stay provisions of the U.S. Bankruptcy Code and to foreclose on and/or liquidate the collateral pledged under such agreements
without delay. In the event of the insolvency or bankruptcy of a lender during the term of a repurchase or derivative agreement,
the lender may be permitted, under applicable insolvency laws, to repudiate the contract, and our claim against the lender for
damages (after any permitted collateral liquidation and setoff) may be treated as an unsecured claim. Net claims in our favor
after application of setoff would be subject to significant delay and costs to us and, if and when received, may be substantially
less than the damages we actually incur.
Investment and Market Related Risks
We may experience declines in the market value of our assets.
We may experience declines in the market value of our assets due to interest rate changes, deterioration of the credit of the
borrower or counterparty, or other reasons described in other risk factors. These declines can result in fair value adjustments,
impairments, decreases in reported asset and earnings, margin calls, liquidity risks, and other adverse impacts.
Investments in MSR may expose us to additional risks.
We invest in MSR and financial instruments whose cash flows are considered to be largely dependent on underlying MSR that
either directly or indirectly act as collateral for the investment. We expect to increase our exposure to MSR-related investments
in 2024. Generally, we have the right to receive certain cash flows from the MSR that are generated from the servicing fees and/
or excess servicing spread associated with the MSR. Our investments in MSR-related assets expose us to risks associated with
MSR, including the following:
•
•
•
•
Investments in MSR are highly illiquid and subject to numerous restrictions on transfer and, as a result, there is risk that
we would be unable to locate a willing buyer or get required approval to sell MSR in the future should we desire to do
so.
Our rights to the excess servicing spread are subordinate to the interests of Fannie Mae, Freddie Mac and Ginnie Mae,
and are subject to extinguishment. Fannie Mae and Freddie Mac each require approval of the sale of excess servicing
spreads pertaining to their respective MSR. We have entered into acknowledgment agreements or subordination of
interest agreements with them, which acknowledge our subordinated rights.
Changes in minimum servicing compensation for agency loans could occur at any time and could negatively impact the
value of the income derived from MSR.
The value of MSR is highly sensitive to changes in prepayment rates. Decreasing market interest rates are generally
associated with increases in prepayment rates as borrowers are able to refinance their loans at lower costs. Prepayments
result in the partial or complete loss of the cash flows from the related MSR. Accordingly, an increase in prepayments
can result in a reduction in the value and income we may earn of our MSR related assets and negatively affect our
profitability.
• While we have executed recapture agreements with our subservicers to attempt to retain the MSR investment resulting
from a refinance transaction, the effectiveness of these efforts is impacted by borrower, subservicer, and unaffiliated
lender behavior.
•
Servicers are responsible for advancing the payment of principal, interest, and escrow items on mortgage loans when
those payments are not timely made by the borrower (including during periods of forbearance) and the timing and
amount of recovery of those advances is unpredictable.
If we are not able to successfully manage these and other risks related to investing in MSR, it may adversely affect the value of
our MSR-related assets.
A prolonged economic slowdown or declining real estate values could impair the assets we may own.
Our non-Agency mortgage-backed securities, mortgage loans, and MSR may be susceptible to economic slowdowns or
recessions, which could lead to financial losses in our assets and a decrease in revenues, net income and asset values.
Owners of Agency mortgage-backed securities are protected from the risk of default on the underlying mortgages by guarantees
from Fannie Mae, Freddie Mac or, in the case of the Ginnie Mae, the U.S. Government. A default on those underlying
mortgages exposes us to prepayment risk described above, but not a credit loss. However, we also acquire CRTs, non-Agency
mortgage-backed securities and residential loans, which are backed by residential real property but, in contrast to Agency
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
mortgage-backed securities, the principal and interest payments are not guaranteed by GSEs or the U.S. Government. Our CRT,
non-Agency mortgage-backed securities and residential loan investments are therefore particularly sensitive to recessions and
declining real estate values.
In the event of a default on one of the residential mortgage loans that we hold in our portfolio or a mortgage loan underlying
CRT or non-Agency mortgage-backed securities in our portfolio, we bear the risk of loss as a result of the potential deficiency
between the value of the collateral and the debt owed, as well as the costs and delays of foreclosure or other remedies, and the
costs of maintaining and ultimately selling a property after foreclosure. Delinquencies and defaults on mortgage loans for which
we own the servicing rights will adversely affect the amount of servicing fee income we receive and may result in increased
servicing costs and operational risks due to the increased complexity of servicing delinquent and defaulted mortgage loans.
An increase in interest rates may adversely affect the market value of our interest earning assets and, therefore, also our
book value.
Increases in interest rates may negatively affect the market value of our interest earning assets because in a period of rising
interest rates, the value of certain interest earning assets may fall and reduce our book value. For example, our fixed-rate
interest earning assets are generally negatively affected by increases in interest rates because in a period of rising rates, the
coupon we earn on our fixed-rate interest earning assets would not change. Our book value would be reduced by the amount of
a decline in the market value of our interest earning assets.
Actions by the Federal Reserve may affect the price and returns of our assets.
The Federal Reserve (the “Fed”) owns approximately $2.4 trillion of Agency mortgage-backed securities as of December 31,
2023. Certain actions taken by the U.S. government, including the Fed, may have a negative a impact on our results. For
example, rising short-term interest rates as the Fed lifts its monetary policy rate to slow the currently elevated rate of inflation
may have a negative impact on our results. Meanwhile, any potential future reduction of the Fed’s balance sheet might lead to
higher interest rate volatility and wider mortgage-backed security spreads that could negatively impact Annaly’s portfolio.
We invest in securities that are subject to mortgage credit risk.
We invest in securities in the credit risk transfer CRT sector. The CRT sector is comprised of the risk sharing transactions
issued by Fannie Mae (“CAS”) and Freddie Mac (“STACR”), and similarly structured transactions arranged by third party
market participants. The securities issued in the CRT sector are designed to synthetically transfer mortgage credit risk from
Fannie Mae and Freddie Mac to private investors. The holder of the securities in the CRT sector has the risk that the borrowers
may default on their obligations to make full and timely payments of principal and interest. Investments in securities in the
CRT sector could cause us to incur losses of income from, and/or losses in market value relating to, these assets if there are
defaults of principal and/or interest on the pool of mortgages referenced in the transaction. The holder of the CRT may also bear
the risk of the default of the issuer of the security.
Changes in credit spreads may affect the market price of credit-sensitive investments.
A significant component of the fair value of CRT and non-Agency securities and other credit risk-oriented investments is
attributable to the credit spread, or the difference between the value of the credit instrument and the value of a financial
instrument with similar interest rate exposure, but with no credit risk, such as a U.S. Treasury note. Credit spreads can be highly
volatile and may fluctuate due to changes in economic conditions, liquidity, investor demand and other factors. Credit spreads
typically widen in times of increased market uncertainty or when economic conditions have or are expected to deteriorate.
Credit spreads may also widen due to actual or anticipated rating downgrades on the securities or similar securities. Hedging
fair value changes associated with credit spreads can be inefficient and our hedging strategies are not primarily designed to
mitigate credit spread risk. Widening credit spreads could net unrealized gains to decrease or result in net losses.
Geographic concentration exposes investors to greater risk of default and loss.
Repayments by borrowers and the market value of the related assets could be affected by economic conditions generally or
specific to geographic areas or regions of the United States, and concentrations of mortgaged residential properties in particular
geographic areas may increase the risk that adverse economic or other developments or natural or man-made disasters affecting
a particular region of the country could increase the frequency and severity of losses on mortgage loans or other real estate debt
secured by those properties. From time to time, regions of the United States experience significant real estate downturns when
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
others do not. Regional economic declines or conditions in regional real estate markets could adversely affect the income from,
and market value of, the mortgaged properties. In addition, local or regional economies may be adversely affected to a greater
degree than other areas of the country by developments affecting industries concentrated in such area. A decline in the general
economic condition in the region in which mortgaged properties securing the related mortgage loans are located would result in
a decrease in consumer demand in the region, and the income from and market value of the mortgaged properties may be
adversely affected.
Other regional factors – e.g., rising sea levels, earthquakes, floods, forest fires, hurricanes or changes in governmental rules or
fiscal policies – also may adversely affect the mortgaged properties. Assets in certain regional areas may be more susceptible to
certain hazards (such as earthquakes, widespread fires, floods or hurricanes) than properties in other parts of the country and
collateral properties located in coastal states may be more susceptible to hurricanes than properties in other parts of the country.
As a result, areas affected by such events often experience disruptions in travel, transportation and tourism, loss of jobs and an
overall decrease in consumer activity, and often a decline in real estate-related investments. These types of occurrences may
increase over time or become more severe due to changes in weather patterns and other climate changes. There can be no
assurance that the economies in such impacted areas will recover sufficiently to support income producing real estate at pre-
event levels or that the costs of the related clean-up will not have a material adverse effect on the local or national economy.
Inadequate property insurance coverage could have an adverse impact on our operating results.
Residential real estate assets may suffer casualty losses due to risks (including acts of terrorism) that are not covered by
insurance or for which insurance coverage requirements have been contractually limited by the related loan documents.
Moreover, if reconstruction or major repairs are required following a casualty, changes in laws that have occurred since the time
of original construction may materially impair the borrower’s ability to effect such reconstruction or major repairs or may
materially increase the cost thereof.
There is no assurance that borrowers have maintained or will maintain the insurance required under the applicable loan
documents or that such insurance will be adequate. In addition, the effects of climate change have made, and may continue to
make, certain types of insurance, such as flood insurance, increasingly difficult and/or expensive to obtain in certain areas.In
addition, since the residential mortgage loans generally do not require maintenance of terrorism insurance, we cannot assure
you that any property will be covered by terrorism insurance. Therefore, damage to a collateral property that is not adequately
insured or damage to a collateral property caused by acts of terror may not be covered by insurance and may result in
substantial losses to us.
Our assets may become non-performing or sub-performing assets in the future.
Our assets may in the near or the long term become non-performing or sub-performing assets, which are subject to increased
risks relative to performing assets. Residential mortgage loans may become non-performing or sub-performing for a variety of
reasons that result in the borrower being unable to meet its debt service and/or repayment obligations, such as the underlying
property being too highly leveraged or the financial distress of the borrower. Such non-performing or sub-performing assets
may require a substantial amount of workout negotiations and/or restructuring, which may involve substantial cost and divert
the attention of our management from other activities and may entail, among other things, a substantial reduction in interest
rate, the capitalization of interest payments and/or a substantial write-down of the principal of the loan. Even if a restructuring
were successfully accomplished, the borrower may not be able or willing to maintain the restructured payments or refinance the
restructured loan upon maturity.
From time to time we may find it necessary or desirable to foreclose the liens of loans we acquire or originate, and the
foreclosure process may be lengthy and expensive. Borrowers may resist foreclosure actions by asserting numerous claims,
counterclaims and defenses to payment against us (such as lender liability claims and defenses) even when such assertions may
have no basis in fact or law, in an effort to prolong the foreclosure action and force the lender into a modification of the loan or
a favorable buy-out of the borrower’s position. In some states, foreclosure actions can take several years or more to litigate. At
any time prior to or during the foreclosure proceedings, the borrower may file for bankruptcy, which would have the effect of
staying the foreclosure actions and further delaying the resolution of our claims. Foreclosure may create a negative public
perception of the related property, resulting in a diminution of its value. Even if we are successful in foreclosing on a loan, the
liquidation proceeds upon sale of the underlying real estate may not be sufficient to recover our cost basis in the loan, resulting
in a loss to us. Furthermore, any costs or delays involved in the foreclosure of a loan or a liquidation of the underlying property
will further reduce the proceeds and thus increase our loss. Any such reductions could materially and adversely affect the value
of the residential mortgage loans in which we invest.
Whether or not we have participated in the negotiation of the terms of a loan, there can be no assurance as to the adequacy of
the protection of the terms of the loan, including the validity or enforceability of the loan and the maintenance of the anticipated
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
priority and perfection of the applicable security interests. Furthermore, claims may be asserted that might interfere with
enforcement of our rights. In the event of a foreclosure, we may assume direct ownership of the underlying real estate. The
liquidation proceeds upon sale of that real estate may not be sufficient to recover our cost basis in the loan, resulting in a loss to
us. Any costs or delays involved in the effectuation of a foreclosure of the loan or a liquidation of the underlying property will
further reduce the proceeds and increase our loss.
Whole loan mortgages are also subject to “special hazard” risk (property damage caused by hazards, such as earthquakes or
environmental hazards, not covered by standard property insurance policies), and to bankruptcy risk (reduction in a borrower’s
mortgage debt by a bankruptcy court). In addition, claims may be assessed against us on account of our position as mortgage
holder or property owner, as applicable, including responsibility for tax payments, environmental hazards and other liabilities,
which could have a material adverse effect on our results of operations, financial condition and our ability to make distributions
to our stockholders.
We may be required to repurchase residential mortgage loans or indemnify investors if we breach representations and
warranties.
When we sell or securitize loans, we will be required to make customary representations and warranties about such loans to the
loan purchaser. Our mortgage loan sale agreements will require us to repurchase or substitute loans in the event we breach a
representation or warranty given to the loan purchaser. In addition, we may be required to repurchase loans as a result of
borrower fraud or in the event of early payment default on a mortgage loan. Likewise, we may be required to repurchase or
substitute loans if we breach a representation or warranty in connection with our securitizations. The remedies available to a
purchaser of mortgage loans are generally broader than those available to us against the originating broker or correspondent.
Further, if a purchaser enforces its remedies against us, we may not be able to enforce the remedies we have against the sellers.
The repurchased loans typically can only be financed at a steep discount to their repurchase price, if at all. They are also
typically sold at a significant discount to the unpaid principal balance. Significant repurchase activity could adversely affect our
cash flow, results of operations, financial condition and business prospects.
Our and our third party service providers’ and servicers’ due diligence of potential assets may not reveal all weaknesses in
such assets.
Before acquiring a residential real estate debt asset, we will assess the strengths and weaknesses of the borrower, originator or
issuer of the asset as well as other factors and characteristics that are material to the performance of the asset. In making the
assessment and otherwise conducting customary due diligence, we will rely on resources available to us, including our third
party service providers and servicers. This process is particularly important with respect to newly formed originators or issuers
because there may be little or no information publicly available about these entities and assets. There can be no assurance that
our due diligence process will uncover all relevant facts or that any asset acquisition will be successful.
When we foreclose on an asset, we may come to own the property securing the loan.
When we foreclose on a residential real estate asset, we may take title to the property securing that asset, and if we do not or
cannot sell the property, we would then come to own and operate it as “real estate owned.” Owning and operating real property
involves risks that are different (and in many ways more significant) than the risks faced in owning a debt instrument secured
by that property. In addition, we may end up owning a property that we would not otherwise have decided to acquire directly at
the price of our original investment or at all. If we foreclose on and come to own property, our financial performance and
returns to investors could suffer.
Proposals to acquire mortgage loans by eminent domain may adversely affect the value of our assets.
Local governments have taken steps to consider how the power of eminent domain could be used to acquire residential
mortgage loans. There can be no certainty whether any mortgage loans sought to be purchased will be mortgage loans held in
securitization trusts and what purchase price would be paid for any such mortgage loans. Any such actions could have a
material adverse effect on the market value of our mortgage-backed securities, mortgage loans and MSR. There is also no
certainty as to whether any such action without the consent of investors would face legal challenge, and, if so, the outcome of
any such challenge.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Subordinated tranches of non-Agency mortgage-backed securities are subordinate in right of payment to more senior
securities.
Our investments may include subordinated tranches of non-Agency mortgage-backed securities, which are subordinated classes
of securities in a structure of securities collateralized by a pool of mortgage loans and, accordingly, are the first or among the
first to bear the loss upon a restructuring or liquidation of the underlying collateral and the last to receive payment of interest
and principal. Additionally, estimated fair values of these subordinated interests tend to be more sensitive to changes in
economic conditions than more senior securities. As a result, such subordinated interests generally are not actively traded and
may not be liquid investments.
Our hedging strategies may be costly, and may not hedge our risks as intended.
Our policies permit us to enter into interest rate swaps, caps and floors, interest rate swaptions, interest rate futures, and other
derivative transactions to help us mitigate our interest rate and prepayment risks described above subject to maintaining our
qualification as a REIT and our Investment Company Act exemption. We have used interest rate swaps and options to enter into
interest rate swaps (commonly referred to as interest rate swaptions) to provide a level of protection against interest rate risks.
We may also purchase or sell TBAs on Agency mortgage-backed securities, purchase or write put or call options on TBAs,
invest in other types of mortgage derivatives, such as interest-only securities, and hold short positions in U.S. Treasury
securities. No hedging strategy can protect us completely. Interest rate hedging may fail to protect or could adversely affect us
because, among other things: interest rate hedging can be expensive, particularly during periods of volatile interest rates;
available hedges may not correspond directly with the risk for which protection is sought; and the duration of the hedge may
not match the duration of the related asset or liability.
We are subject to risks of loss from weather conditions, man-made or natural disasters and the direct and indirect effects of
climate change.
Assets in which we hold a direct or indirect interest could experience severe weather, including hurricanes, severe winter
storms, and flooding (including as a result of sea level rise), all of which may become more severe as a result of climate change,
which among other effects could impact house prices and housing-related costs and/or disrupt borrowers’ ability to pay their
mortgage and or loan. In addition, such events, particularly if they are not adequately covered by insurance or have a broader
negative impact on the local economy, may decrease the value of land and property secured by mortgages. Moreover, long term
climate change could trigger extreme weather conditions that result in macroeconomic and demographic shifts. Over time, these
conditions could result in repricing of the assets (land, property, securities) that we hold. There can be no assurance that climate
change and severe weather will not have a material adverse effect on our financial performance.
Operational and Cybersecurity Risks
Inaccurate models or the data used by models may expose us to risk.
Given our strategies and the complexity of the valuation of our assets, we must rely heavily on analytical models (both
proprietary models developed by us and those supplied by third parties) and information and data supplied by our third party
vendors and servicers. Models and data are used to value assets or potential asset purchases and also in connection with hedging
our assets. When models and data prove to be incorrect, misleading or incomplete, any decisions made in reliance thereon
expose us to potential risks. For example, by relying on models and data, especially valuation models, we may be induced to
buy certain assets at prices that are too high, to sell certain other assets at prices that are too low or to miss favorable
opportunities altogether. Similarly, any hedging based on faulty models and data may prove to be unsuccessful. Furthermore,
despite our valuation validation processes our models may nevertheless prove to be incorrect.
Some of the risks of relying on analytical models and third party data are particular to analyzing tranches from securitizations,
such as commercial or residential mortgage-backed securities. These risks include, but are not limited to, the following: (i)
collateral cash flows and/or liability structures may be incorrectly modeled in all or only certain scenarios, or may be modeled
based on simplifying assumptions that lead to errors; (ii) information about collateral may be incorrect, incomplete, or
misleading; (iii) collateral or bond historical performance (such as historical prepayments, defaults, cash flows, etc.) may be
incorrectly reported, or subject to interpretation (e.g., different issuers may report delinquency statistics based on different
definitions of what constitutes a delinquent loan); or (iv) collateral or bond information may be outdated, in which case the
models may contain incorrect assumptions as to what has occurred since the date information was last updated.
Some of the analytical models used by us, such as mortgage prepayment models or mortgage default models, are predictive in
nature. The use of predictive models has inherent risks. For example, such models may incorrectly forecast future behavior,
leading to potential losses on a cash flow and/or a mark-to-market basis. In addition, the predictive models used by us may
differ substantially from those models used by other market participants, with the result that valuations based on these
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
predictive models may be substantially higher or lower for certain assets than actual market prices. Furthermore, since
predictive models are usually constructed based on historical data supplied by third parties, the success of relying on such
models may depend heavily on the accuracy and reliability of the supplied historical data and the ability of these historical
models to accurately reflect future periods.
All valuation models rely on correct market data inputs. If incorrect market data is entered into even a well-founded valuation
model, the resulting valuations will be incorrect. However, even if market data is inputted correctly, “model prices” will often
differ substantially from market prices, especially for securities with complex characteristics, such as derivative instruments or
structured notes.
We are highly dependent on information systems and networks, many of which are operated by third parties, and any failure
of these systems or networks could materially and adversely affect our business.
Our business is highly dependent on communications and information systems and networks. Any failure or interruption of our
systems or networks or cyberattacks or other information security breaches of our networks or systems could cause delays or
other problems in our securities trading activities, including mortgage-backed securities trading activities. In addition, we also
face the risk of operational failure, termination or capacity constraints of any of the third parties with which we do business or
that facilitate our business activities, including clearing agents or other financial intermediaries we use to facilitate our
securities transactions, if their respective systems experience failure, interruption, cyberattacks, or other information security
breaches. Certain third parties provide information needed for our financial statements that we cannot obtain or verify from
other sources. If one of those third parties experiences a system or network failure or cybersecurity incident, we may not have
access to that information or may not have confidence in its accuracy.
Any failure to maintain performance, reliability and security of our technical infrastructure, systems or networks, or any such
failure by third parties upon whom we rely, could materially and adversely affect our business.
Cyberattacks or other information security breaches could adversely affect our business, reputation and financial condition.
Cybersecurity risks for financial services businesses have significantly increased in recent years in part because of the
proliferation of new technologies, including generative artificial intelligence, and the increased sophistication and activities of
organized crime, hackers, terrorists, nation-states, state-sponsored actors and other external parties. Computer malware,
ransomware, viruses, computer hacking, denial-of-service attacks, and social engineering attacks (including phishing attacks)
have become more prevalent in our industry and we are subject to such attempted attacks. Cybersecurity risks also may derive
from fraud or malice on the part of our employees or third parties, or may result from human error, software bugs, server
malfunctions, software or hardware failure or other technological failure. Such threats may be difficult to detect for long periods
of time and also may be further enhanced in frequency or effectiveness through threat actors’ use of artificial intelligence.
We rely heavily on our financial, accounting and other data processing systems. A cyberattack or other information security
breach of such systems could lead to unauthorized access to and release, misuse, loss or destruction of our confidential
information or personal or confidential information of our clients, employees or third parties, which could lead to regulatory
fines, costs of remediating the breach, reputational harm, financial losses, litigation and increased difficulty doing business with
third parties that rely on us to meet their own data protection requirements.
While we generally perform cybersecurity diligence on our key service providers, we do not control our service providers and
our ability to monitor their cybersecurity is limited. Some of our service providers may store or have access to our data and may
not have effective controls, processes, or practices to protect our information from loss, unauthorized disclosure, unauthorized
use or misappropriation, cyberattacks or other information security breach. A vulnerability in our service providers’ software or
systems, a failure of our service providers’ safeguards, policies or procedures, or a cyberattack or other information security
breach affecting any of these third parties could harm our business.
Although we have not detected a material cybersecurity breach to date, other financial institutions have reported material
breaches of their systems, some of which have been significant. Even with all reasonable security efforts, not every breach can
be prevented or even detected. It is possible that we have experienced an undetected breach. There is no assurance that we, or
the third parties that facilitate our business activities, have not or will not experience a breach. We may be held responsible if
certain third parties that facilitate our business activities experience a breach. Additionally, we cannot be certain that our
insurance coverage will be adequate for cybersecurity liabilities actually incurred, that insurance will continue to be available to
us on economically reasonable terms, or at all, or that our insurer will not deny coverage as to any future claim.
We may face increased costs as we continue to evolve our cyber defenses in order to contend with changing risks, and possible
increased costs of complying with cybersecurity laws and regulations. These costs and losses associated with these risks are
difficult to predict and quantify, but could have a significant adverse effect on our operating results.
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Item 1A. Risk Factors
It is difficult to determine what, if any, negative impact may directly result from any specific interruption or cyberattacks or
other information security breaches of our networks or systems (or the networks or systems of third parties that facilitate our
business activities), but any cyberattack or other information security breach may negatively affect our operations. Further, we
could be exposed to litigation, regulatory enforcement, investigations or other legal action as a result of an incident, carrying the
potential for damages, fines, sanctions or other penalties, injunctive relief requiring costly compliance measures, and
reputational damage.
We depend on third party service providers, including mortgage loan servicers and sub-servicers, for a variety of services
related to our business.
We depend on a variety of services provided by third party service providers related to our investments in MSR as well as for
general operating purposes. For example, we rely on the mortgage servicers who service the mortgage loans underlying our
MSR to, among other things, collect principal and interest payments on such mortgage loans and perform loss mitigation
services in accordance with applicable laws and regulations. Mortgage servicers and other service providers, such as trustees,
bond insurance providers, due diligence vendors and document custodians, may fail to perform or otherwise not perform in a
manner that promotes our interests.
For example, any legislation or regulation intended to reduce or prevent foreclosures through, among other things, loan
modifications may reduce the value of mortgage loans, including those underlying our MSR. Mortgage servicers may be
required or otherwise incentivized by the Federal or state governments to pursue actions designed to assist mortgagors, such as
loan modifications, forbearance plans and other actions intended to prevent foreclosure even if such loan modifications and
other actions are not in the best interests of the beneficial owners of the mortgage loans. Similarly, legislation delaying the
initiation or completion of foreclosure proceedings on specified types of residential mortgage loans or otherwise limiting the
ability of mortgage servicers to take actions that may be essential to preserve the value of the mortgage loans may also reduce
the value of mortgage loans underlying our MSR. Any such limitations are likely to cause delayed or reduced collections from
mortgagors and generally increase servicing costs. As a consequence of the foregoing matters, our business, financial condition
and results of operations may be adversely affected.
Our investments in residential whole loans subject us to servicing-related risks.
In connection with the acquisition and securitization of residential whole loans, we rely on unaffiliated servicing companies to
service and manage the mortgages underlying our non-Agency mortgage-backed securities and our residential whole loans. If a
servicer is not vigilant in seeing that borrowers make their required monthly payments, borrowers may be less likely to make
these payments, resulting in a higher frequency of default. If a servicer takes longer to liquidate non-performing mortgages, our
losses related to those loans may be higher than originally anticipated.
Any failure by servicers to service these mortgages and related real estate owned (“REO”) properties could negatively impact
the value of these investments and our financial performance. In addition, while we have contracted, and will continue to
contract, with unaffiliated servicing companies to carry out the actual servicing of the loans we purchase together with the
related MSR (including all direct interface with the borrowers), we are nevertheless ultimately responsible, vis-à-vis the
borrowers and state and federal regulators, for ensuring that the loans are serviced in accordance with the terms of the related
notes and mortgages and applicable law and regulation. In light of the current regulatory environment, such exposure could be
significant even though we might have contractual claims against our servicers for any failure to service the loans to the
required standard.
A default by the mortgage servicer in its capacity as servicer and/or failure of the mortgage servicer to perform its obligations
related to any MSR could result in a loss of value of servicing fees and/or excess servicing spread. Mortgage servicers are
subject to extensive federal, state and local laws, regulations and administrative decisions and failure to comply with such
regulations can expose the servicer to fines, damages and losses. In the capacity of servicer, mortgage servicers operate in a
highly litigious industry that subject it to potential lawsuits related to billing and collections practices, modification protocols or
foreclosure practices.
When a residential whole loan we own is foreclosed upon, title to the underlying property would be taken by one of our
subsidiaries. The foreclosure process, especially in judicial foreclosure states such as New York, Florida and New Jersey can be
lengthy and expensive, and the delays and costs involved in completing a foreclosure, and then liquidating the property through
sale, may materially increase any related loss. Finally, at such time as title is taken to a foreclosed property, it may require more
extensive rehabilitation than we estimated at acquisition or a previously unknown environmental liability may be discovered
that would require expensive and time-consuming remediation.
Additionally, given the magnitude of the 2008-2009 housing crisis, and in response to the well-publicized failures of many
servicers to follow proper foreclosure procedures, mortgage servicers are being held to much higher foreclosure-related
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
documentation standards than they previously were. However, because many mortgages have been transferred and assigned
multiple times (and by means of varying assignment procedures) throughout the origination, warehouse, and securitization
processes, mortgage servicers have generally had much more difficulty furnishing the requisite documentation to initiate or
complete foreclosures. In addition, unexpected macro-level events such as the COVID-19 pandemic or natural disasters have
led, and could continue to lead, to delays in the foreclosure process, both by operation of state law (e.g., foreclosure
moratoriums in certain states) and by delays in the judicial system. These circumstances have led to stalled or suspended
foreclosure proceedings, and ultimately additional foreclosure-related costs. Foreclosure-related delays also tend to increase
ultimate loan loss severities as a result of property deterioration, amplified legal and other costs, and other factors. Many factors
delaying foreclosure, such as borrower lawsuits and judicial backlog and scrutiny, are outside of a servicer's control and have
delayed, and will likely continue to delay, foreclosure processing in both judicial states (where foreclosures require court
involvement) and non-judicial states. The concerns about deficiencies in foreclosure practices of servicers and related delays in
the foreclosure process may impact our loss assumptions and has affected and may continue to affect the values of, and our
returns on, our investments in residential whole loans.
The performance of loans underlying our MSR related assets may be adversely affected by the performance of the related
mortgage servicer.
The performance of the loans underlying our MSR related assets is subject to risks associated with inadequate or untimely
servicing. If our mortgage servicers commit a material breach of their obligations as a servicer, we may be subject to damages if
the breach is not cured within a specified period of time following notice. In addition, poor performance by a mortgage servicer
may result in greater than expected delinquencies and foreclosures and losses on the mortgage loans underlying our MSR
related assets. A substantial increase in our delinquency or foreclosure rate or the inability to process claims could adversely
affect our ability to access the capital and secondary markets for our financing needs.
Similarly to the way in which we service residential whole loans, we have also contracted, and will continue to contract, with
unaffiliated servicing companies to carry out the actual servicing activities (including all direct interface with the borrowers).
However, we are nevertheless ultimately responsible, vis-à-vis the borrowers and state and federal regulators, for ensuring that
these activities are performed in accordance with the terms of the related notes and mortgages and applicable laws and
regulations. In light of the current regulatory environment, such exposure could be significant even though we might have
contractual claims against our servicers for any failure to service the loans to the required standard.
A default by the mortgage servicer in its capacity as servicer and/or failure of the mortgage servicer to perform its obligations
related to any MSR could result in a loss of value of servicing fees and/or excess servicing spread. Mortgage servicers are
subject to extensive federal, state and local laws, regulations and administrative decisions and failure to comply with such
regulations can expose the servicer to fines, damages and losses. In the capacity of servicer, mortgage servicers operate in a
highly litigious industry that subject them to potential lawsuits related to billing and collections practices, modification
protocols or foreclosure practices.
An increase or decrease in prepayment rates may adversely affect our profitability.
The mortgage-backed securities we acquire are backed by pools of mortgage loans. We receive payments, generally, from the
payments that are made on the underlying mortgage loans. We often purchase mortgage-backed securities that have a higher
coupon rate than the prevailing market interest rates. In exchange for a higher coupon rate, we typically pay a premium over par
value to acquire these mortgage-backed securities. In accordance with U.S. generally accepted accounting principles
(“GAAP”), we amortize the premiums on our mortgage-backed securities over the expected life of the related mortgage-backed
securities. If the mortgage loans securing these mortgage-backed securities prepay at a more rapid rate than anticipated, we will
have to amortize our premiums on an accelerated basis that may adversely affect our profitability.
Defaults on mortgage loans underlying Agency mortgage-backed securities typically have the same effect as prepayments
because of the underlying Agency guarantee.
Prepayment rates generally increase when interest rates fall and decrease when interest rates rise, but changes in prepayment
rates are difficult to predict. Prepayment rates also may be affected by conditions in the housing and financial markets, general
economic conditions and the relative interest rates on fixed-rate and adjustable-rate mortgage loans. We may seek to minimize
prepayment risk to the extent practical, and in selecting investments we must balance prepayment risk against other risks and
the potential returns of each investment. No strategy can completely insulate us from prepayment risk. We may choose to bear
increased prepayment risk if we believe that the potential returns justify the risk.
Conversely, a decline in prepayment rates on our investments will reduce the amount of principal we receive and therefore
reduce the amount of cash we otherwise could have reinvested in higher yielding assets at that time, which could negatively
impact our future operating results.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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We are subject to reinvestment risk.
We are subject to reinvestment risk as a result of changes in interest rates. Declines in interest rates are generally accompanied
by increased prepayments of mortgage loans, which in turn results in a prepayment of the related mortgage-backed securities.
An increase in prepayments could result in the reinvestment of the proceeds we receive from such prepayments into lower
yielding assets. Conversely, increases in interest rates are generally accompanied by decreased prepayments of mortgage loans,
which could reduce our capital available to reinvest into higher-yielding assets.
Competition may affect ability and pricing of our target assets.
We operate in a highly competitive market for investment opportunities. Our profitability depends, in large part, on our ability
to acquire our target assets at attractive prices. In acquiring our target assets, we compete with a variety of institutional
investors, including other REITs, specialty finance companies, public and private funds, government entities, commercial and
investment banks, commercial finance and insurance companies and other financial institutions. Many of our competitors are
substantially larger and have considerably greater financial, technical, technological, marketing and other resources than we do.
Other REITs with investment objectives that overlap with ours may elect to raise significant amounts of capital, which may
create additional competition for investment opportunities. Some competitors may have a lower cost of funds and access to
funding sources that may not be available to us. Many of our competitors are not subject to the operating constraints associated
with REIT compliance or maintenance of an exemption from the Investment Company Act. In addition, some of our
competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety
of investments and establish more relationships than us. Furthermore, competition for investments in our target assets may lead
to the price of such assets increasing, which may further limit our ability to generate desired returns. We cannot provide
assurance that the competitive pressures we face will not have a material adverse effect on our business, financial condition and
results of operations. Also, as a result of this competition, desirable investments in our target assets may be limited in the future
and we may not be able to take advantage of attractive investment opportunities from time to time, as we can provide no
assurance that we will be able to identify and make investments that are consistent with our investment objectives.
We may enter into new lines of business, acquire other companies or engage in other strategic initiatives, each of which may
result in additional risks and uncertainties in our businesses.
We may pursue growth through acquisitions of other companies or other strategic initiatives. To the extent we pursue strategic
investments or acquisitions, undertake other strategic initiatives or consider new lines of business, we will face numerous risks
and uncertainties, including risks associated with:
•
•
•
•
•
•
•
•
the availability of suitable opportunities;
the level of competition from other companies that
may have greater financial resources;
our ability to assess the value, strengths,
weaknesses, liabilities and potential profitability of
potential acquisition opportunities accurately and
negotiate acceptable terms for those opportunities;
the required investment of capital and other
resources;
the lack of availability of financing and, if available,
the terms of any financings;
the possibility that we have insufficient expertise to
engage in such activities profitably or without
incurring inappropriate amounts of risk;
the diversion of management’s attention from our
core businesses;
the potential loss of key personnel of an acquired
business;
•
•
•
•
•
•
•
assumption of liabilities in any acquired business;
the disruption of our ongoing businesses;
the increasing demands on or issues related to the
combining or integrating operational and
management systems and controls;
compliance with additional regulatory requirements;
costs associated with integrating and overseeing the
operations of the new businesses;
failure to realize the full benefits of an acquisition,
including expected synergies, cost savings, or
growth opportunities, within the anticipated
timeframe or at all; and
post-acquisition deterioration in an acquired
business that could result in lower or negative
earnings contribution and/or goodwill impairment
charges.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
Entry into certain lines of business may subject us to new laws and regulations with which we are not familiar, or from which
we are currently exempt, and may lead to increased litigation and regulatory risk. The decision to increase or decrease
investments within a line of business may lead to additional risks and uncertainties. In addition, if a new or acquired business
generates insufficient revenues or if we are unable to efficiently manage our expanded operations, our results of operations will
be adversely affected. Our strategic initiatives may include joint ventures, in which case we will be subject to additional risks
and uncertainties in that we may be dependent upon, and subject to liability for, losses or reputational damage relating to
systems, controls and personnel that are not under our control.
Some of our investments, including those related to non-prime loans, involve credit risk.
Our current investment strategy includes seeking growth in our residential credit business. The holder of a mortgage or
mortgage-backed securities assumes the risk that the related borrowers may default on their obligations to make full and timely
payments of principal and interest. Under our investment policy, we have the ability to acquire non-Agency mortgage-backed
securities, residential whole loans, MSR and other investment assets of lower credit quality. In general, non-Agency mortgage-
backed securities carry greater investment risk than Agency mortgage-backed securities because they are not guaranteed as to
principal or interest by the U.S. Government, any federal agency or any federally chartered corporation. Non-investment grade,
non-Agency securities tend to be less liquid, may have a higher risk of default and may be more difficult to value than
investment grade bonds. Higher-than-expected rates of default and/or higher-than-expected loss severities on the mortgages
underlying our non-Agency mortgage-backed securities, MSR or on our residential whole loan investments may adversely
affect the value of those assets. Accordingly, defaults in the payment of principal and/or interest on our non-Agency mortgage-
backed securities, residential whole loan investments, MSR and other investment assets of lower credit quality would likely
result in our incurring losses of income from, and/or losses in market value relating to, these assets.
We have certain investments in non-Agency mortgage-backed securities backed by collateral pools containing mortgage loans
that were originated under underwriting standards that were less strict than those used in underwriting “prime mortgage loans.”
These lower standards permitted mortgage loans, often with LTV ratios in excess of 80%, to be made to borrowers having
impaired credit histories, lower credit scores, higher debt-to-income ratios and/or unverified income. Difficult economic
conditions, including increased interest rates and lower home prices, can result in non-prime and subprime mortgage loans
having increased rates of delinquency, foreclosure, bankruptcy and loss (including such as during the credit crisis of 2007-2008
and the housing crisis that followed), and are likely to otherwise experience delinquency, foreclosure, bankruptcy and loss rates
that are higher, and that may be substantially higher, than those experienced by mortgage loans underwritten in a more
traditional manner. Thus, because of higher delinquency rates and losses associated with non-prime and subprime mortgage
loans, the performance of our non-Agency mortgage-backed securities that are backed by these types of loans could be
correspondingly adversely affected, which could materially adversely impact our results of operations, financial condition and
business.
If we are unable to attract, motivate and retain qualified talent, including our key personnel, it could materially and
adversely affect us.
Our success and our ability to manage anticipated future growth depend, in large part, upon the efforts of our highly skilled
employees, and particularly on our key personnel, including our executive officers. Our executive officers have extensive
experience and strong reputations in the sectors in which we operate and have been instrumental in setting our strategic
direction, operating our business, identifying, recruiting, and training our other key personnel, and arranging necessary
financing. The departure of any of our executive officers or other key personnel, or our inability to attract, motivate and retain
highly qualified employees at all levels of the firm in light of the intense competition for talent, could adversely affect our
business, operating results or financial condition; diminish our investment opportunities; or weaken our relationships with
lenders, business partners and industry personnel.
Other Risks
The market price and trading volume of our shares of common stock may be volatile and issuances of large amounts of
shares of our common stock could cause the market price of our common stock to decline.
If we issue a significant number of shares of common stock or securities convertible into common stock in a short period of
time, there could be a dilution of the existing common stock and a decrease in the market price of the common stock.
The market price of our shares of common stock may be highly volatile and could be subject to wide fluctuations. In addition,
the trading volume in our shares of common stock may fluctuate and cause significant price variations to occur. We cannot
assure you that the market price of our shares of common stock will not fluctuate or decline significantly in the future. Some of
41
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1A. Risk Factors
the factors that could negatively affect our share price or result in fluctuations in the price or trading volume of our shares of
common stock include those set forth under “Special Note Regarding Forward-Looking Statements” as well as:
•
•
•
•
•
•
•
•
actual or anticipated variations in our quarterly
operating results or business prospects;
changes in our earnings estimates or publication of
research reports about us or the real estate industry;
an inability to meet or exceed securities analysts’
estimates or expectations;
increases in market interest rates;
hedging or arbitrage trading activity in our shares of
common stock;
capital commitments;
changes in market valuations of similar companies;
•
•
•
•
•
•
•
additions or departures of management personnel;
actions by institutional stockholders or activist
investors;
speculation in the press or investment community;
changes in our distribution policy;
government action or regulation;
general market and economic conditions; and
future sales of our shares of common stock or
securities convertible into, or exchangeable or
exercisable for, our shares of common stock.
adverse market
indebtedness we incur in the future;
reaction
to
any
increased
Holders of our shares of common stock will be subject to the risk of volatile market prices and wide fluctuations in the market
price of our shares of common stock. These factors may cause the market price of our shares of common stock to decline,
regardless of our financial condition, results of operations, business or prospects. It is impossible to assure you that the market
prices of our shares of common stock will not fall in the future.
Under our charter, we have 1,531,750,000 authorized shares of capital stock, par value of $0.01 per share. Sales of a substantial
number of shares of our common stock or other equity-related securities in the public market, or any hedging or arbitrage
trading activity that may develop involving our common stock, could depress the market price of our common stock and impair
our ability to raise capital through the sale of additional equity securities.
We may change our policies without stockholder approval.
Our Board has established very broad investment guidelines that may be amended from time to time. Our Board and
management determine all of our significant policies, including our investment, financing, capital and asset allocation and
distribution policies. They may amend or revise these policies at any time without a vote of our stockholders, or otherwise
initiate a change in asset allocation. Policy changes could adversely affect our financial condition, results of operations, the
market price of our common stock or our ability to pay dividends or distributions.
42
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 1C. CYBERSECURITY
For a full discussion of our cybersecurity risk management process and policies, please refer to the subsection titled
“Operational Risk Management” within the “Risk Management” section of Part II, Item 7. “Management’s Discussion and
Analysis of Financial Condition and Results of Operations.”
ITEM 2. PROPERTIES
Our executive and administrative office is located at 1211 Avenue of the Americas New York, New York 10036, telephone
212-696-0100. This office is leased under a non-cancelable lease expiring September 30, 2025.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. As of
December 31, 2023, we were not party to any pending material legal proceedings and we are not aware of any contemplated
material proceedings by governmental authorities.
ITEM 4. MINE SAFETY DISCLOSURES
None.
43
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock began trading publicly on October 8, 1997 and is traded on the New York Stock Exchange under the trading
symbol “NLY.” As of January 31, 2024, we had 500,080,287 shares of common stock issued and outstanding which were held
by approximately 480,324 beneficial holders. The equity compensation plan information called for by Item 201(d) of
Regulation S-K is set forth in Item 12 of Part III of this Form 10-K under the heading “Equity Compensation Plan Information.”
Dividends
We intend to pay quarterly dividends and to distribute to our stockholders all or substantially all of our taxable income in each
year (subject to certain adjustments) consistent with the distribution requirements applicable to REITs. This will enable us to
qualify for the tax benefits accorded to a REIT under the Code. We have not established a minimum dividend payment level
and our ability to pay dividends may be adversely affected by factors beyond our control. In addition, unrealized changes in the
estimated fair value of available-for-sale investments may have a direct effect on dividends. All distributions will be made at
the discretion of our Board and will depend on our earnings, our financial condition, maintenance of our REIT status and such
other factors as our Board may deem relevant from time to time. See also Item 1A. “Risk Factors.” No dividends can be paid
on our common stock unless we have paid full cumulative dividends on our preferred stock. From the date of issuance of our
preferred stock through December 31, 2023, we have paid full cumulative dividends on our preferred stock.
Share Performance Graph
The following graph and table set forth certain information comparing the yearly percentage change in cumulative total return
on our common stock to the cumulative total return of the Standard & Poor’s Composite 500 stock Index or S&P 500 Index,
and the Bloomberg Mortgage REIT Index, or BBG REIT index, an industry index of mortgage REITs. The comparison is for
the five-year period ended December 31, 2023 and assumes the reinvestment of dividends. The graph and table assume that
$100 was invested in our common stock and the two other indices on the last trading day of the initial year shown in the graph.
Upon written request we will provide stockholders with a list of the REITs included in the BBG REIT Index.
Five-Year Share Performance
44
Annaly Capital Management, Inc.S&P 500 IndexBBG REIT Index12/31/201812/31/201912/31/202012/31/202112/31/202212/31/202375100125150175200225
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters And Issuer Purchases Of Equity Securities
12/31/2018
12/31/2019
12/31/2020
12/31/2021
12/31/2022
12/31/2023
Annaly Capital Management, Inc.
S&P 500 Index
BBG REIT Index
100
100
100
107
131
124
110
156
96
113
200
113
89
164
86
93
207
98
The information in the share performance graph and table has been obtained from sources believed to be reliable, but neither the
accuracy nor completeness can be guaranteed. The historical information set forth above is not necessarily indicative of future
performance. Accordingly, we do not make or endorse any predictions as to future share performance.
The above performance graph and related information shall not be deemed to be “soliciting material” or to be “filed” with the
SEC or subject to Regulation 14A or 14C under the Securities Exchange Act or to the liabilities of Section 18 of the Securities
Exchange Act, and shall not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the
Securities Exchange Act, except to the extent that we specifically incorporate it by reference into such a filing.
Share Repurchase
In January 2022, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding common
shares through December 31, 2024. The new share repurchase program replaces our previous $1.5 billion share repurchase
program, which expired on December 31, 2021. No shares were repurchased with respect to this share repurchase program
during the year ended December 31, 2023. As of December 31, 2023, the maximum dollar value of shares that may yet be
purchased under this program was $1.5 billion.
In November 2022, we announced that our Board authorized a repurchase plan for all of our existing outstanding Preferred
Stock (as defined below, the “Preferred Stock Repurchase Program”). Under the terms of the plan, we are authorized to
repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of our 6.95%
Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series F Preferred
Stock”), (ii) 17,000,000 shares of our 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par
value $0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of our 6.75% Series I Fixed-to-Floating Rate
Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and together with Series F
Preferred Stock and Series G Preferred Stock, the “Preferred Stock”). The aggregate liquidation value of the Preferred Stock
that may be repurchased by us pursuant to the Preferred Stock Repurchase Program, as of November 3, 2022, was
approximately $1.6 billion. The Preferred Stock Repurchase Program became effective on November 3, 2022, and shall expire
on December 31, 2024. No shares were repurchased to with respect to the Preferred Stock Repurchase Program during the year
ended December 31, 2023. As of December 31, 2023, the maximum dollar value of shares that may yet be purchased under this
plan was $1.6 billion.
Purchases made pursuant to the Preferred Stock Repurchase Program will be made in either the open market or in privately
negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing, manner,
price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market
conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate us to acquire any
particular amount of Preferred Stock and the program may be suspended or discontinued at our discretion without prior notice.
45
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 6. Selected Financial Data
ITEM 6. [Reserved]
46
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 7 for definitions of commonly used terms in this annual report on Form 10-K.
This section of our Form 10-K generally discusses 2023 and 2022 items and year-to-year comparisons between 2023 and 2022.
Discussions of 2021 items and year-to-year comparisons between 2022 and 2021 that are not included in this Form 10-K can
be found in Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our
annual report on Form 10-K for the year ended December 31, 2022.
47
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
INDEX TO ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Page
Overview
Reverse Stock Split
Business Environment
Economic Environment
London Interbank Offered Rate (“LIBOR”) Transition
Results of Operations
Net Income (Loss) Summary
Non-GAAP Financial Measures
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
Premium Amortization Expense
Economic Leverage and Economic Capital Ratios
Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)
Experienced and Projected Long-term CPR
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
Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities
Other Income (Loss)
General and Administrative Expenses
Return on Average Equity
Unrealized Gains and Losses - Available-for-Sale Investments
Financial Condition
Residential Securities
Contractual Obligations
Commitments and Contractual Obligations with Unconsolidated Entities
Capital Management
Stockholders’ Equity
Capital Stock
Leverage and Capital
Risk Management
Risk Appetite
Governance
Description of Risks
Liquidity and Funding Risk Management
Funding
Excess Liquidity
Maturity Profile
Stress Testing
Liquidity Management Policies
Investment/Market Risk Management
Credit Risk Management
Counterparty Risk Management
Operational Risk Management
Compliance, Regulatory and Legal Risk Management
Critical Accounting Estimates
Valuation of Financial Instruments
Residential Securities
Residential Mortgage Loans
MSR
Interest Rate Swaps
Revenue Recognition
Consolidation of Variable Interest Entities
Use of Estimates
Glossary of Terms
48
49
49
49
50
51
51
52
54
54
56
56
57
58
58
59
60
61
62
62
63
63
65
66
66
66
66
67
67
68
68
69
70
70
71
72
73
74
74
75
75
76
77
78
78
78
78
78
79
79
79
79
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. 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” of Part I, Item 1. “Business.”
Reverse Stock Split
On September 8, 2022, we announced that our Board had unanimously approved a reverse stock split of our common stock at a
ratio of 1-for-4 (the “Reverse Stock Split”). The Reverse Stock Split was effective following the close of business on September
23, 2022 (the “Effective Time”). Accordingly, at the Effective Time, every four issued and outstanding shares of our common
stock were converted into one share of our common stock. No fractional shares were issued in connection with the Reverse
Stock Split. Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash
in lieu of such fractional shares. The par value per share of our common stock remained unchanged at $0.01 per share after the
Reverse Stock Split. Accordingly, for all historical periods presented, an amount equal to the par value of the reduced number
of shares resulting from the Reverse Stock Split was reclassified from Common stock to Additional paid in capital in our
Consolidated Statements of Financial Condition. All references made to share or per share amounts in the accompanying
consolidated financial statements and disclosures have been retroactively adjusted, where applicable, to reflect the effects of the
Reverse Stock Split.
Business Environment
Financial markets saw meaningful volatility in 2023, marking a second consecutive year in which fixed income markets were
more broadly impacted by elevated uncertainty around the outlook for the economy and the macroeconomic landscape. The
volatility was driven by a combination of factors, including bank earnings and liquidity pressures that emerged in March 2023
following the sudden failure of Silicon Valley Bank. Fears over the health of the broader banking system ultimately proved
disproportionate, evidenced by a normalization in interest rates as the economy remained robust. However, interest rates then
rose sharply between August and October with the ten-year Treasury note reaching the 5% yield mark as market participants
appeared increasingly concerned about the outlook for the fiscal trajectory. The total deficit reached $1.78 trillion for the full
calendar year, representing another year of large fiscal deficits despite healthy economic growth.
The broader economy continued to expand, labor markets remained robust and inflation moderated throughout the year. While
many observers had expected the economy to enter into a recession in 2023, data thus far has suggested that inflation moderated
without a meaningful deterioration in economic activity, setting up a scenario in which parts of the economy moved into better
balances without a sharp contraction in economic output or a significantly weaker labor market (a so-called “soft landing”). The
increased likelihood of a soft landing appears to have been driven by numerous factors, including fewer price pressures on the
supply side of the economy as shipping of goods normalized following earlier disruptions from the pandemic and the Russian
invasion of the Ukraine. In addition, U.S. consumers continue to find employment and enjoy healthy balance sheets, while
growing wages afford them the ability to continue to spend on goods and services, thereby supporting broader economic
growth. Private sector investment activity rebounded somewhat in 2023 relative to 2022, while government spending and
investment incentives created by federal legislation supported economic growth as well.
Following the rapid tightening in monetary policy in 2022, the Federal Reserve (the “Fed”) raised interest rates an additional
one percentage point in 2023 and ultimately kept the Federal Funds Target Rate at 5.25% – 5.50% since late July. Meanwhile,
the Fed maintained the pace it set in 2022 in the reduction of its balance sheet throughout the year, effectively letting up to $60
billion in Treasury and up to $35 billion in Agency MBS runoff per month in 2023. Driven by the continued maturities, the
Federal Reserve’s balance sheet declined by $838 billion to $7.7 trillion over the course of the year.
In this environment, home prices outperformed the market’s expectations despite mortgage rates reaching 20-year highs,
resulting in historically low affordability for prospective homeowners. Home prices have continued to benefit from existing
homeowners’ inability to move homes absent a meaningful increase in housing costs (the so called “lock in effect”), resulting in
low availability of inventory for sale as borrowers locked into below-market mortgage rates are less willing to move or trade
up. Housing activity remains depressed, although we have seen modest signs of an uptick in demand following the recent
decline in mortgage rates. Ultimately, we are constructive on the housing market outlook should the labor market and
consumers remain resilient in line with a “soft landing” economic scenario.
49
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Over the course of the year, we generated a +6.0% economic return, which demonstrates the efficacy of our diversified housing
finance model, as well as our disciplined portfolio and risk management. In light of the volatile environment, we continued to
proactively manage our leverage profile throughout the year, in turn reducing our economic leverage from 6.3x at the end of the
2022 to 5.7x at the end of 2023. A part of the reduced leverage is driven by further diversification into our Residential Credit
and MSR businesses, which are less levered than Agency MBS. Of note, the combined capital allocation to the two businesses
increased by five percentage points to 38% at the end of 2023.
Turning to the Agency MBS portfolio, our aggregate portfolio declined modestly, falling from $72.9 billion in assets at the end
of 2022 to $65.7 billion at the end of 2023. The lower portfolio balance is largely driven by asset sales throughout the year to
accommodate the shift in capital allocation, as well as a somewhat lower leverage in the strategy as interest rate markets and
mortgage spreads remained very volatile throughout most of the year. In addition to somewhat lower aggregate holdings, we
focused on shifting the coupon distribution higher throughout the year, bringing the share of 5.0% coupons or higher to 48%, up
17 percentage points from the 2022 year-end levels. In addition, we rotated out of “to be announced” (“TBA”) security
holdings, in turn reducing our holdings from $10.6 billion at the end of 2022 to ($0.6) billion at the end of 2023. This reduction
was driven by the combination of reduced advantageous financing of TBA securities relative to specified pool ownership and
the desire to add prepayment protection in higher coupon purchases. Finally, given attractive relative value opportunities with
respect to Agency MBS, we increased our portfolio of Agency CMBS to $3.5 billion market value, as the asset class offered an
attractive stable cash flow in volatile interest rate markets.
The residential credit sector benefited from the strong economic environment and the resilience of the housing market, enabling
us to continue to achieve progress in building out the business. Our Residential Credit portfolio ended the year at $5.7 billion
market value, having grown 14% year over year, and representing 20% of the firm’s capital. The business growth continued to
be driven by our residential whole loan acquisition strategy, through which our Residential Credit business acquired $4.7 billion
in loans, with a vast majority coming through our correspondent channel, which allows us to control all aspects of the loan
making process, including asset selection, counterparties and loss mitigation.
Finally, we also continued to grow our MSR portfolio, further increasing assets through purchases predominantly of low-
coupon bulk MSR packages, in turn growing the portfolio by 50% throughout 2023, to $2.7 billion market value. Similar to
2022, bulk trading activity of MSR packages remained at historically elevated levels as mortgage originators looked to
monetize MSR holdings to offset low profit margins in their mortgage origination businesses. Meanwhile, demand for MSR
also remained strong, as a broad investor base sought MSR as purely financial investments or to acquire escrow deposits and
customers that can later be refinanced. We opportunistically bought MSR packages as a strategic partner to originators given
our complementary business strategy as a financial investor. Our MSR portfolio continued to consist predominantly of low
coupon, high quality conventional MSR, which at the weighted average coupon of 3.06% at the end of 2023, remained far from
having a refinancing incentive considering prevailing mortgage rates.
Economic leverage is a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional
information, including reconciliations to its most directly comparable GAAP results.
Economic Environment
U.S. real economic growth accelerated in 2023, with U.S. gross domestic product (“GDP”) rising 2.5% on a year-over-year
basis, above the 1.9% recorded for 2022. Economic activity continued to strengthen throughout the year, led by sizeable
increases in consumption. Consumer balance sheets remained healthy and benefited from further income growth, leading retail
sales data to notably increase in the fourth quarter. Increased government spending spread across state, local and federal levels,
as well as higher exports, also boosted the GDP. Meanwhile, fixed business investment was more muted throughout the year,
while residential housing started to move sideways and home sales continued to fall in light of higher mortgage rates. Heading
into 2024, recession risks appear relatively low given the upbeat picture of consumer and business spending, although the
impact of the Fed’s monetary policy tightening continues to flow through to the real economy and credit conditions have
tightened.
Meanwhile, the supply and demand for labor moved into better balance by the end of 2023. The unemployment rate ended the
year at 3.7%, increasing 0.2 percentage points from the historic low of 3.5% reported in December 2022. Total nonfarm payroll
employment expanded at a slower pace in 2023, totaling 3.1 million added jobs, relative to 4.5 million added jobs seen in 2022.
Strong job creation was accompanied by an increase in the supply of workers, as the labor force participation rate increased
gradually throughout the year and the employment-to-population ratio rose slightly. At the same time, job openings trended
lower, although they remained elevated relative to pre-pandemic averages. As a result of the more balanced labor market, wage
growth slowed as the Employment Cost Index wages rose 4.3% over the 12 months ending in December, well below the 5.1%
shown by the same metric a year earlier.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Price pressures remained at elevated levels throughout the year although they have shown notable signs of progress toward the
Fed’s 2% target. The headline Personal Consumption Expenditure Chain Price Index (“PCE”), the Fed’s preferred inflation
gauge, measured 2.6% in December 2023, after peaking at 7.0% on a year-over-year basis in June 2022. The core measure,
which does not include price changes in food and energy sectors, measured 2.9% year-over year, the first time that the core
PCE has been below 3.0% on a year-over-year basis since March 2021. Additionally, recent survey measures of short-run
inflation expectations have declined meaningfully and longer-term inflation expectations appear well anchored. The
disinflationary pressures are mostly attributed to lower goods prices, while the service sector remains elevated, particularly in
measures such as shelter inflation.
The Fed conducts monetary policy with a dual mandate: full employment and price stability. Given the easing of inflation
pressures, the Fed slowed its tightening campaign at the beginning of 2023 and remained on pause in the second half of the
year. The target range for the Federal Funds rate increased 100 basis points from 4.25% - 4.50% in December 2022 to 5.25% -
5.50% by the end of 2023. At the December meeting of the Federal Open Market Committee (“FOMC”), Federal Reserve Chair
Jerome Powell stated that the policy rate is at or near its peak in the Fed’s tightening cycle and signaled an potentially easier
monetary policy over the course of 2024. Regarding the FOMC’s balance sheet policy, the decline in their securities portfolio,
which started in 2022, continued uninterrupted throughout all of 2023. The amount of quantitative tightening – the process in
which the Federal Reserve lets securities in its portfolio mature, thereby lowering bank reserves and other liquidity in the
financial system – continues at $95 billion per month across U.S. Treasuries and Agency MBS, almost twice the runoff rate of
the prior quantitative tightening period between 2017 and 2019.
During 2023, U.S. Treasury rates were volatile as market participants adjusted expectations for economic conditions and
monetary policy. Despite the volatility, the yield on the 10-year Treasury note ended the year effectively unchanged at 3.88%.
The 10-year Treasury Inflation Protected Security (“TIPS”), which subtracts the expected inflation rate from the bond’s
nominal yield, fell 13 basis points, as market participants have started to price in an easing cycle for the Fed. Meanwhile, the
mortgage basis, or the spread between the 30-year Agency MBS coupon and 10-year U.S. Treasury rate, tightened slightly,
ending the year 12 basis points tighter than December 2022.
The following table below presents interest rates and spreads at each date presented:
30-Year mortgage current coupon
Mortgage basis
10-Year U.S. Treasury rate
OIS SOFR Swaps
1-Month
6-Month
As of December 31,
2023
5.25%
137 bps
3.88%
5.35%
5.15%
2022
5.39%
152 bps
3.87%
4.36%
4.80%
2021
2.07%
56 bps
1.51%
0.05%
0.19%
London Interbank Offered Rate (“LIBOR”) Transition
All LIBOR tenors relevant to us either are no longer published or are no longer representative. All of our LIBOR-linked
instruments have fallen back to a non-LIBOR-based index, either by their contractual terms, pursuant to U.S. federal legislation,
through clearinghouse action, or otherwise.
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”.
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.
51
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. 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 years ended December
31, 2023, 2022 and 2021.
As of and for the Years Ended December 31,
2023
2022
2021
(dollars in thousands, except per share data)
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
3,731,581
3,842,965
(111,384)
364,157
37,652
326,505
(1,651,591)
162,553
(1,599,023)
39,434
(1,638,457)
4,714
(1,643,171)
141,676
(1,784,847)
(3.61)
(3.61)
494,541,323
494,541,323
87,396,467
88,177,773
11,437,590
6.8:1
12.2%
(1.86) %
(14.33) %
(0.13) %
4.32 %
5.13 %
(0.81) %
6.5 %
9.4 %
19.44
3,733,235
2,257,912
1,475,323
1,654
1,554,014
2.86
13.71 %
5.7:1
14.0 %
1.62 %
4.33 %
3.01 %
$
$
$
$
$
$
$
$
$
$
$
$
$
$
2,778,887
1,309,735
1,469,152
246,926
25,145
221,781
243,787
162,729
1,771,991
45,571
1,726,420
1,095
1,725,325
110,623
1,614,702
3.93
3.92
411,348,484
411,621,758
78,469,860
78,768,785
11,616,995
6.0:1
13.9 %
2.19 %
14.86 %
1.92 %
3.64 %
2.03 %
1.61 %
12.2 %
7.8 %
20.79
2,418,300
943,574
1,474,726
(360,587)
1,850,138
4.23
16.02 %
6.3:1
13.4 %
2.03 %
3.16 %
1.46 %
1,983,036
249,243
1,733,793
69,018
12,202
56,816
796,360
186,014
2,400,955
4,675
2,396,280
6,384
2,389,896
107,532
2,282,364
6.40
6.39
356,856,520
357,142,251
74,792,041
81,925,499
13,728,352
4.7:1
17.2 %
2.92 %
17.45 %
2.28 %
2.61 %
0.37 %
2.24 %
23.7 %
12.7 %
31.88
2,040,194
525,385
1,514,809
57,158
1,768,391
4.65
12.90 %
5.7:1
14.4 %
2.02 %
2.68 %
0.79 %
Interest income
Interest expense
Net interest income
Servicing and related income
Servicing and related expense
Net servicing income
Other income (loss)
Less: Total general and administrative expenses
Income (loss) before income taxes
Income taxes
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to Annaly
Less: Dividends on preferred stock
Net income (loss) available (related) to common stockholders
Net income (loss) per share available (related) to common stockholders
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
Other information
Investment portfolio at period-end
Average total assets
Average equity
GAAP leverage at period-end (1)
GAAP capital ratio at period-end (2)
Annualized return on average total assets
Annualized return on average equity
Net interest margin (3)
Average yield on interest earning assets (4)
Average GAAP cost of interest bearing liabilities (5)
Net interest spread
Weighted average experienced CPR for the period
Weighted average projected long-term CPR at period-end
Common stock book value per share
Non-GAAP metrics *
Interest income (excluding PAA)
Economic interest expense (5)
Economic net interest income (excluding PAA)
Premium amortization adjustment cost (benefit)
Earnings available for distribution (6)
Earnings available for distribution per average common share
Annualized EAD return on average equity (excluding PAA)
Economic leverage at period-end (1)
Economic capital ratio at period-end (2)
Net interest margin (excluding PAA) (3)
Average yield on interest earning assets (excluding PAA) (4)
Average economic cost of interest bearing liabilities (5)
52
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Net interest spread (excluding PAA)
1.32 %
1.70 %
1.89 %
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued, and
U.S. Treasury securities sold, not yet purchased divided by total equity. Economic leverage is computed as the sum of recourse debt, cost basis of to-be-
announced (“TBA”) and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists
of repurchase agreements, other secured financing (excluding certain non-recourse credit facilities), and U.S. Treasury securities sold, not yet purchased.
Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, and participations issued are non-recourse to us
and are excluded from economic leverage.
(2) GAAP capital ratio is computed as total equity divided by total assets. Economic capital ratio is computed as total equity divided by total economic assets.
Total economic assets include the implied market value of TBA derivatives and net of debt issued by securitization vehicles.
(3) Net interest margin represents our interest income less interest expense divided by the average interest earning assets. Net interest margin does not include
net interest component of interest rate swaps. Net interest margin (excluding PAA) represents the sum of our interest income (excluding PAA) plus TBA
dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average
interest earning assets plus average outstanding TBA contract and CMBX balances.
(4) Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets
reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using
annualized interest income (excluding PAA).
(5) Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest
bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic
interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest
component of interest rate swaps.
(6) Excludes dividends on preferred stock.
GAAP
Net income (loss) was ($1.6) billion, which includes $4.7 million attributable to noncontrolling interests, or $(3.61) per average
basic common share, for the year ended December 31, 2023 compared to $1.7 billion, which includes $1.1 million attributable
to noncontrolling interests, or $3.93 per average basic common share, for the same period in 2022. We attribute the majority of
the change in net income (loss) to an unfavorable change in net gains (losses) on derivatives and net interest income, partially
offset by favorable changes in net gains (losses) on investments and other, higher net servicing income, higher other, net and
lower business divestiture-related losses. Net gains (losses) on derivatives for the year ended December 31, 2023 was $0.4
billion compared to $4.9 billion for the same period in 2022. Net interest income for the year ended December 31, 2023 was
($111.4) million compared to $1.5 billion for the same period in 2022. Net gains (losses) on investments and other for the year
ended December 31, 2023 was ($2.1) billion compared to ($4.6) billion for the same period in 2022. Net servicing income for
the year ended December 31, 2023 was $326.5 million compared to $221.8 million for the same period in 2022. Other, net for
the year ended December 31, 2023 was $73.7 million compared to $6.7 million for the same period in 2022. Business
divestiture-related gains (losses) for the year ended December 31, 2023 was $0.0 million compared to ($40.3) million for the
same period in 2022. Refer to the section titled “Other income (loss)” located within this Item 7 for additional information
related to these changes.
Non-GAAP
Earnings available for distribution were $1.6 billion, or $2.86 per average common share, for the year ended December 31,
2023, compared to $1.9 billion, or $4.23 per average common share, for the same period in 2022. The change in earnings
available for distribution for the year ended December 31, 2023 compared to the same period in 2022 was primarily due to an
higher interest expense from an increase in average borrowing rates and average interest bearing balances, a decline in TBA
dollar roll income on reduced specialness partially offset by a favorable change in the net interest component of interest rate
swaps, higher coupon income and lower premium amortization expense, excluding PAA, resulting from an increase in interest
rates, purchasing assets with lower cost bases, and lower prepayment speeds, combined with higher servicing income and other,
net.
53
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide
the following non-GAAP financial measures:
•
•
•
•
•
•
•
earnings available for distribution (“EAD”);
earnings available for distribution attributable to
common stockholders;
earnings available for distribution per average
common share;
annualized EAD return on average equity;
economic leverage;
economic capital ratio;
interest income (excluding PAA);
•
•
•
•
•
•
economic interest expense;
economic net interest income (excluding PAA);
average yield on interest earning assets (excluding
PAA);
average economic cost of interest bearing liabilities;
net interest margin (excluding PAA); and
net interest spread (excluding PAA).
These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with
GAAP. While intended to offer a fuller understanding of our results and operations, non-GAAP financial measures also have
limitations. For example, we may calculate our non-GAAP metrics, such as earnings available for distribution, or the PAA,
differently than our peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude
the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future
periodic amortization nor is it indicative of the term over which we will amortize the remaining unamortized premium. Changes
to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and
non-GAAP results.
These non-GAAP measures provide additional detail to enhance investor understanding of our period-over-period operating
performance and business trends, as well as for assessing our performance versus that of industry peers. Additional information
pertaining to our use of these non-GAAP financial measures, including discussion of how each such measure may be useful to
investors, and reconciliations to their most directly comparable GAAP results are provided below.
Earnings Available for Distribution, Earnings Available for Distribution Attributable to Common Stockholders, Earnings
Available for Distribution Per Average Common Share and Annualized EAD Return on Average Equity
Our principal business objective is to generate net income for distribution to our stockholders and optimize our returns through
prudent management of our diversified investment strategies. We generate net income by earning a net interest spread on our
investment portfolio, which is a function of interest income from our investment portfolio less financing, hedging and operating
costs. Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll
income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss)
(excluding depreciation and amortization expense on real estate and related intangibles, non-EAD income allocated to equity
method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses
(excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD
income (loss) items), and excludes (g) the premium amortization adjustment (“PAA”) representing the cumulative impact on
prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to
our Agency mortgage-backed securities, is used by management and, we believe, used by analysts and investors to measure our
progress in achieving our principal business objective.
We seek to fulfill our principal business objective through a variety of factors including portfolio construction, the degree of
market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of
our capital allocation policy and risk governance framework.
We believe these non-GAAP measures provide management and investors with additional details regarding our underlying
operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in
fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive
income (loss), and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to
provide additional transparency into the operating performance of our portfolio. In addition, EAD serves as a useful indicator
for investors in evaluating our performance and ability to pay dividends. Annualized EAD return on average equity, which is
calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional
detail on the earnings available for distribution generated by our invested equity capital.
54
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
The following table presents a reconciliation of GAAP financial results to non-GAAP earnings available for distribution for the
periods presented:
GAAP net income (loss)
Adjustments to exclude reported realized and unrealized (gains) losses
Net (gains) losses on investments and other (1)
Net (gains) losses on derivatives (2)
Loan loss provision (reversal) (3)
Business divestiture-related (gains) losses
Other adjustments
Amortization of intangibles
Non-EAD (income) loss allocated to equity method investments (4)
Transaction expenses and non-recurring items (5)
Income tax effect of non-EAD income (loss) items
TBA dollar roll income and CMBX coupon income (6)
MSR amortization (7)
EAD attributable to noncontrolling interests
Premium amortization adjustment cost (benefit)
Earnings available for distribution *
Dividends on preferred stock
Earnings available for distribution attributable to common stockholders *
GAAP net income (loss) per average common share
Earnings available for distribution per average common share *
GAAP return (loss) on average equity
EAD return on average equity (excluding PAA) *
For the Years Ended December 31,
2023
2022
2021
(dollars in thousands, except per share data)
$ (1,638,457)
$
1,726,420
$
2,396,280
2,137,538
1,184,961
4,602,456
(120,958)
(4,493,013)
(1,083,872)
(219)
—
(22,923)
40,258
(148,632)
278,559
4,573
354
8,209
31,570
20,621
(182,151)
(14,639)
1,654
1,554,014
141,676
$
$
$
$ 1,412,338
$
$
(3.61)
2.86
(14.33) %
13.71 %
3,948
(15,499)
7,620
46,070
431,475
(114,992)
(1,095)
(360,587)
1,850,138
110,623
1,739,515
3.93
4.23
14.86 %
16.02 %
$
$
$
15,225
(10,930)
5,579
13,325
445,768
(72,727)
(6,384)
57,158
1,768,391
107,532
1,660,859
6.40
4.65
17.45 %
12.90 %
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on non-GAAP financial measures.
(1) Includes write-downs or recoveries which are reported in Other, net in the Company's Consolidated Statement of Comprehensive Income (Loss).
(2) The adjustment to add back Net (gains) losses on derivatives does not include the net interest component of interest rate swaps which is reflected in
earnings available for distribution. The net interest component of interest rate swaps totaled $1.6 billion, $366.2 million and ($276.1) million for the years
ended December 31, 2023, 2022 and 2021, respectively.
(3) Includes $0.0 million, ($2.3) million, and $(3.6) million of loss provision (reversal) on unfunded loan commitments for the years ended December 31,
2023, 2022 and 2021, respectively, which is reported in Other, net in the Consolidated Statements of Comprehensive Income (Loss).
(4) Represents unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is a component of Other, net in the Consolidated Statements
of Comprehensive Income (Loss).
(5) Represents costs incurred in connection with securitizations of residential whole loans.
(6) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives in the Consolidated Statements of
Comprehensive Income (Loss). CMBX coupon income totaled $1.5 million, $4.4 million and $5.2 million for the years ended December 31, 2023, 2022
and 2021, respectively.
(7) MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected
MSR yield income and net servicing income for the period.
From time to time, we enter into TBA forward contracts as an alternate means of investing in and financing Agency MBS. A
TBA contract is an agreement to purchase or sell, for future delivery, an Agency MBS with a specified issuer, term and coupon.
A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are
simultaneously bought and sold. The TBA contract settling in the later month typically prices at a discount to the earlier month
contract with the difference in price commonly referred to as the “drop”. The drop is a reflection of the expected net interest
income from an investment in similar Agency MBS, net of an implied financing cost, that would be foregone as a result of
settling the contract in the later month rather than in the earlier month. The drop between the current settlement month price and
the forward settlement month price occurs because in the TBA dollar roll market, the party providing the financing is the party
that would retain all principal and interest payments accrued during the financing period. Accordingly, TBA dollar roll income
generally represents the economic equivalent of the net interest income earned on the underlying Agency MBS less an implied
financing cost.
TBA dollar roll transactions are accounted for under GAAP as a series of derivatives transactions. The fair value of TBA
derivatives is based on methods similar to those used to value Agency MBS. We record TBA derivatives at fair value on our
Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on
derivatives in our Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains
and losses on derivatives.
55
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different
settlement dates multiplied by the notional amount of the TBA contract. Although accounted for as derivatives, TBA dollar
rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency MBS (interest income less an
implied cost of financing). TBA dollar roll income is reported as a component of Net gains (losses) on derivatives in the
Consolidated Statements of Comprehensive Income (Loss).
The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities of a particular
rating and vintage. The CMBX index allows investors to take a long position (referred to as selling protection) or short position
(referred to as purchasing protection) on the respective basket of commercial mortgage-backed securities and is structured as a
“pay-as-you-go” contract whereby the protection seller receives and the protection buyer pays a standardized running coupon
on the contracted notional amount. Additionally, the protection seller is obligated to pay to the protection buyer the amount of
principal losses and/or coupon shortfalls on the underlying commercial mortgage-backed securities as they occur. We report
income (expense) on CMBX positions in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive
Income (Loss). The coupon payments received or paid on CMBX positions is equivalent to interest income (expense) and
therefore included in earnings available for distribution.
Premium Amortization Expense
In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency MBS, excluding
interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the
calculation of the effective yield. We recalculate the effective yield as differences between anticipated and actual prepayments
occur. Using third party models and market information to project future cash flows and expected remaining lives of securities,
the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s
acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective
yield been applied since the acquisition date. The adjustment to amortized cost is offset with a charge or credit to interest
income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of
premium amortization recognized in any given period.
Our GAAP metrics include the unadjusted impact of amortization and accretion associated with this method. Certain of our
non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the
cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term Constant
Prepayment Rate (“CPR”).
The following table illustrates the impact of the PAA on premium amortization expense for our Residential Securities portfolio
for the periods presented:
For the Years Ended December 31,
2023
2022
2021
(dollars in thousands)
Premium amortization expense
Less: PAA cost (benefit)
Premium amortization expense (excluding PAA)
$
$
165,158 $
48,013 $
1,654
(360,587)
163,504 $
408,600 $
760,818
57,158
703,660
Economic Leverage and Economic Capital Ratios
We use capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between
the yield on our assets and the cost of our borrowings and hedging activities. Our capital structure is designed to offer an
efficient complement of funding sources to generate positive risk-adjusted returns for our stockholders while maintaining
appropriate liquidity to support our business and meet our financial obligations under periods of market stress. To maintain our
desired capital profile, we utilize a mix of debt and equity funding. Debt funding may include the use of repurchase agreements,
loans, securitizations, participations issued, lines of credit, asset backed lending facilities, corporate bond issuance, convertible
bonds, mortgages payable or other liabilities. Equity capital primarily consists of common and preferred stock.
Our economic leverage ratio is computed as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding,
and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements,
other secured financing (excluding certain non-recourse credit facilities), and U.S. Treasury securities sold, not yet purchased.
Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, and participations
issued are non-recourse to us and are excluded from economic leverage.
56
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
The following table presents a reconciliation of GAAP debt to economic debt for purposes of calculating our economic leverage
ratio for the periods presented:
Economic leverage ratio reconciliation
Repurchase agreements
Other secured financing
Debt issued by securitization vehicles
Participations issued
U.S. Treasury securities sold, not yet purchased
Total GAAP debt
Less Non-Recourse Debt:
Debt issued by securitization vehicles
Participations issued
Total recourse debt
Plus / (Less):
Cost basis of TBA and CMBX derivatives
Payable for unsettled trades
Receivable for unsettled trades
Economic debt *
Total equity
Economic leverage ratio *
$
$
$
$
$
December 31, 2023
December 31, 2022
As of
(dollars in thousands)
62,201,543
$
500,000
11,600,338
1,103,835
2,132,751
77,538,467
$
(11,600,338)
(1,103,835)
64,834,294
$
(555,221)
3,249,389
(2,710,224)
64,818,238
11,345,091
$
$
5.7:1
59,512,597
250,000
7,744,160
800,849
—
68,307,606
(7,744,160)
(800,849)
59,762,597
11,050,351
1,157,846
(575,091)
71,395,703
11,369,426
6.3:1
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional information on
non-GAAP financial measures.
The following table presents a reconciliation of GAAP total assets to economic total assets for purposes of calculating our
economic capital ratio for the periods presented:
Economic capital ratio reconciliation
(dollars in thousands)
December 31, 2023
December 31, 2022
As of
Total GAAP assets
Less:
Gross unrealized gains on TBA derivatives (1)
Debt issued by securitization vehicles
Plus:
Implied market value of TBA derivatives
Total economic assets *
Total equity
Economic capital ratio (2)*
$
$
$
93,227,236
$
81,850,712
(20,689)
(11,600,338)
(573,602)
81,032,607
11,345,091
$
$
14.0 %
(17,056)
(7,744,160)
10,578,676
84,668,172
11,369,426
13.4 %
* Represents a non-GAAP financial measure. Refer to the disclosure within this section above for additional
information on non-GAAP financial measures.
(1) Included in Derivative assets in the Consolidated Statements of Financial Condition.
(2) Economic capital ratio is computed as total equity divided by total economic assets.
Interest Income (excluding PAA), Economic Interest Expense and Economic Net Interest Income (excluding PAA)
Interest income (excluding PAA) represents interest income excluding the effect of the premium amortization adjustment, and
serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA)
and net interest margin (excluding PAA), which are discussed below. We believe this measure provides management and
investors with additional detail to enhance their understanding of our operating results and trends by excluding the component
of premium amortization expense representing the cumulative effect of quarter-over-quarter changes in estimated long-term
prepayment speeds related to our Agency MBS (other than interest-only securities, multifamily and reverse mortgages), which
can obscure underlying trends in the performance of the portfolio.
Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps. We
use interest rate swaps to manage our exposure to changing interest rates on repurchase agreements by economically hedging
cash flows associated with these borrowings. Accordingly, adding the net interest component of interest rate swaps to interest
57
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with
additional information about the cost of our financing strategy. We may use market agreed coupon (“MAC”) interest rate swaps
in which we may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-
market nature of such interest rate swap. In accordance with GAAP, upfront payments associated with MAC interest rate swaps
are not reflected in the net interest component of interest rate swaps, which is presented in Net gains (losses) on derivatives in
the Consolidated Statements of Comprehensive Income (Loss).
Similarly, economic net interest income (excluding PAA), as computed below, provides investors with additional information
to enhance their understanding of the net economics of our primary business operations.
The following tables present a reconciliation of GAAP interest income and GAAP interest expense to non-GAAP interest
income (excluding PAA), economic interest expense and economic net interest income (excluding PAA), respectively, for the
periods presented:
Interest Income (excluding PAA)
For the years ended
December 31, 2023
December 31, 2022
GAAP Interest
Income
PAA Cost
(Benefit)
Interest Income
(excluding PAA) *
(dollars in thousands)
$
$
3,731,581 $
2,778,887 $
1,654 $
(360,587) $
3,733,235
2,418,300
December 31, 2021
2,040,194
* Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional
1,983,036 $
57,158 $
$
information on non-GAAP financial measures.
Economic Interest Expense and Economic Net Interest Income (excluding PAA)
Add: Net
Interest
Component of
Interest Rate
Swaps
Economic
Interest
Expense *
GAAP
Interest
Expense
Less: Net
Interest
Component
of Interest
Rate Swaps
GAAP Net
Interest
Income
(dollars in thousands)
Economic
Net
Interest
Income *
Add: PAA
Cost
(Benefit)
Economic
Net Interest
Income
(excluding
PAA) *
$ 3,842,965 $
(1,585,053) $ 2,257,912 $
(111,384) $
(1,585,053) $ 1,473,669 $
1,654 $ 1,475,323
$ 1,309,735 $
(366,161) $ 943,574 $ 1,469,152 $
(366,161) $ 1,835,313 $
(360,587) $ 1,474,726
$
249,243 $
276,142 $ 525,385 $ 1,733,793 $
276,142 $ 1,457,651 $
57,158 $ 1,514,809
For the years ended
December 31, 2023
December 31, 2022
December 31, 2021
* Represents a non-GAAP financial measure. Refer to disclosures within this section above for additional information on non-GAAP financial measures.
Experienced and Projected Long-Term CPR
Prepayment speeds, as reflected by the CPR and interest rates vary according to the type of investment, conditions in financial
markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds and
expectations of prepayment speeds on our Agency MBS portfolio increase, related purchase premium amortization increases,
thereby reducing the yield on such assets. The following table presents the weighted average experienced CPR and weighted
average projected long-term CPR on our Agency MBS portfolio as of and for the periods presented.
For the years ended
December 31, 2023
December 31, 2022
December 31, 2021
Experienced CPR (1)
Long-term CPR (2)
6.5%
12.2%
23.7%
9.4%
7.8%
12.7%
(1) For the years ended December 31, 2023, 2022 and 2021, respectively.
(2) At December 31, 2023, 2022 and 2021, respectively.
Average Yield on Interest Earning Assets (excluding PAA), Net Interest Spread (excluding PAA), Net Interest Margin
(excluding PAA) and Average Economic Cost of Interest Bearing Liabilities
Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding
PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense
divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of
interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net
interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and
58
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
CMBX balances, provide management with additional measures of our profitability that management relies upon in monitoring
the performance of the business.
Disclosure of these measures, which are presented below, provides investors with additional detail regarding how management
evaluates our performance.
Net Interest Spread (excluding PAA)
Average
Interest
Earning
Assets (1)
Interest
Income
(excluding
PAA) *
Average
Yield on
Interest
Earning
Assets
(excluding
PAA) *
Average
Economic
Cost of
Interest
Bearing
Liabilities *
(2)
Economic
Net
Interest
Income
(excluding
PAA) *
Net
Interest
Spread
(excluding
PAA) *
Average
Interest
Bearing
Liabilities
Economic
Interest
Expense * (2)
(dollars in thousands)
For the years ended
December 31, 2023
$86,305,249
$3,733,235
December 31, 2022
$76,429,267
$2,418,300
4.33%
3.16%
$74,962,858
$2,257,912
$64,512,269
$943,574
3.01%
1.46%
$1,475,323
$1,474,726
1.32 %
1.70 %
$2,040,194
$76,079,589
December 31, 2021
2.68%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) Based on amortized cost.
(2) Average interest bearing liabilities reflects the average balances during the period. Economic interest expense is comprised of GAAP interest
expense and the net interest component of interest rate swaps. Average economic cost of interest bearing liabilities represents annualized
economic interest expense divided by average interest bearing liabilities.
$66,607,057
$1,514,809
$525,385
1.89 %
0.79%
Net Interest Margin (excluding PAA)
Interest
Income
(excluding
PAA) *
TBA Dollar
Roll and
CMBX
Coupon
Income (1)
Economic
Interest
Expense *
Subtotal
Average
Interest
Earnings
Assets
Average
TBA
Contract
and CMBX
Balances
(dollars in thousands)
Subtotal
For the years ended
December 31, 2023
$3,733,235
20,621
(2,257,912)
$1,495,944
$86,305,249
6,010,685
$92,315,934
December 31, 2022
$2,418,300
431,475
(943,574)
$1,906,201
$76,429,267
17,533,362
$93,962,629
Net
Interest
Margin
(excluding
PAA) *
1.62%
2.03%
December 31, 2021
(525,385)
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives. CMBX coupon income
$97,210,933
$76,079,589
21,131,344
$2,040,194
$1,960,577
445,768
2.02%
totaled $1.5 million, $4.4 million and $5.2 million for the years ended December 31, 2023, 2022 and 2021, respectively.
Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities
Typically, our largest expense is the cost of interest bearing liabilities and the net interest component of interest rate swaps. The
following table shows our average interest bearing liabilities and average economic cost of interest bearing liabilities as
compared to average one-month and average six-month SOFR for the periods presented.
Average Economic Cost of Interest Bearing Liabilities
Average
Interest
Bearing
Liabilities
Interest
Bearing
Liabilities at
Period End
Economic
Interest
Expense *
(1)
For the years ended
Average
Economic
Cost of
Interest
Bearing
Liabilities
*
(dollars in thousands)
Average
One-
Month
Term
SOFR
Average
Six-
Month
Term
SOFR
Average
One-
Month
Term
SOFR
Relative to
Average
Six-
Month
Term
SOFR
Average
Economic
Cost
of Interest
Bearing
Liabilities
Relative to
Average
One-
Month Term
SOFR
Average
Economic
Cost
of Interest
Bearing
Liabilities
Relative to
Average
Six-Month
Term
SOFR
December 31, 2023 $ 74,962,858 $ 77,038,467 $ 2,257,912
December 31, 2022 $ 64,512,269 $ 68,307,606 $ 943,574
December 31, 2021 $ 66,607,057 $ 61,877,597 $ 525,385
3.01%
5.07%
5.22%
1.46%
0.79%
1.85%
0.04%
2.52%
0.06%
(0.15%)
(0.67%)
(0.02%)
(2.06%)
(0.39%)
0.75%
(2.21%)
(1.06%)
0.73%
* Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(1) Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
59
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
2023 Compared with 2022
Economic interest expense increased by $1.3 billion for the year ended December 31, 2023 compared to the same period in
2022. The change was primarily due to higher average interest bearing liabilities from an increase in repurchase agreement
balances and higher borrowing rates. This was partially offset by the change in the net interest component of interest rate swaps,
which was $1.6 billion for the year ended December 31, 2023 compared to $366.2 million for the same period in 2022.
We do not manage our portfolio to have a pre-designated amount of borrowings at quarter or year end. Our borrowings at
period end are a snapshot of our borrowings as of a date, and this number may differ from average borrowings over the period
for a number of reasons. The mortgage-backed securities we own pay principal and interest towards the end of each month and
the mortgage-backed securities we purchase are typically settled during the beginning of the month. As a result, depending on
the amount of mortgage-backed securities we have committed to purchase, we may retain the principal and interest we receive
in the prior month, or we may use it to pay down our borrowings. Moreover, we generally use interest rate swaps, swaptions
and other derivative instruments to hedge our portfolio, and as we pledge or receive collateral under these agreements, our
borrowings on any given day may be increased or decreased. Our average borrowings during a quarter may differ from period
end borrowings as we implement our portfolio management strategies and risk management strategies over changing market
conditions by increasing or decreasing leverage. Additionally, these numbers may differ during periods when we conduct equity
capital raises, as in certain instances we may purchase additional assets and increase leverage in anticipation of an equity capital
raise. Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings
during a period provide a more accurate representation of our exposure to the risks associated with leverage than our period end
borrowings.
At December 31, 2023 the majority of our debt represented repurchase agreements and other secured financing arrangements
collateralized by a pledge of our Residential Securities, residential mortgage loans, and MSR. At December 31, 2022, the
majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of
our Residential Securities, residential mortgage loans, and MSR. All of our Residential Securities are currently accepted as
collateral for these borrowings. However, we limit our borrowings, and thus our potential asset growth, in order to maintain
unused borrowing capacity and maintain the liquidity and strength of our balance sheet.
Other Income (Loss)
2023 Compared with 2022
Net Gains (Losses) on Investments and Other
Net gains (losses) on disposal of investments and other was ($2.9) billion for the year ended December 31, 2023 compared with
($3.5) billion for the same period in 2022. For the year ended December 31, 2023, we disposed of Residential Securities with a
carrying value of $36.4 billion for an aggregate net loss of ($2.9) billion. For the same period in 2022, we disposed of
Residential Securities with a carrying value of $28.9 billion for an aggregate net loss of ($3.6) billion and we recognized a
realized gain of $33.4 million as a result of deconsolidating a multifamily VIE.
Net unrealized gains (losses) on instruments measured at fair value through earnings was $797.6 million for the year ended
December 31, 2023 compared to ($1.1) billion for the same period in 2022, primarily due to favorable changes in unrealized
gains (losses) on securitized residential whole loans of consolidated VIEs of $1.5 billion, Agency MBS of $1.5 billion, non-
Agency MBS of $334.1 million, residential whole loans of $252.2 million, and CRT securities of $95.7 million partially offset
by unfavorable changes in residential securitized debt of consolidated VIEs of ($1.5) billion, MSR of ($134.9) million and
participations issued of ($123.5) million.
Net Gains (Losses) on Derivatives
Net gains (losses) on interest rate swaps for the year ended December 31, 2023 was $0.7 billion compared to $3.6 billion for the
same period in 2022, attributable to unfavorable changes in unrealized gains (losses) on interest rate swaps, partially offset by
the changes in net interest component of interest rate swaps and realized gains (losses) on termination or maturity of interest
rate swaps. Unrealized gains (losses) on interest rate swaps was ($815.6) million for the year ended December 31, 2023,
reflecting quarters of rate rallies and sell-offs in forward interest rates during the current period, compared to $3.5 billion for the
same period in 2022, reflecting a sharper rise in forward interest rates during the prior period. Realized gains (losses) on
termination or maturity of interest rate swaps was ($74.8) million resulting from the termination or maturity of interest rate
swaps with a notional amount of $12.7 billion for the year ended December 31, 2023 compared to ($266.4) million resulting
from the termination or maturity of interest rate swaps with a notional amount of $21.3 billion for the same period in 2022. Net
interest component of interest rate swaps was $1.6 billion for the year ended December 31, 2023 compared to $366.2 million
for the same period in 2022 due to an increase in average notional complemented by a full year of net receive rates.
60
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Net gains (losses) on other derivatives was ($294.6) million for the year ended December 31, 2023 compared to $1.3 billion for
the same period in 2022. The change in net gains (losses) on other derivatives was primarily due to unfavorable changes in net
gains (losses) on futures contracts, which was ($6.8) million for the year ended December 31, 2023 compared to $4.0 billion for
the same period in 2022 and net gains (losses) on interest rate swaptions, which was ($148.8) million for the year ended
December 31, 2023 compared to $152.0 million for the same period in 2022, partially offset by a favorable change in net gains
(losses) on TBA derivatives, which was ($140.8) million for the year ended December 31, 2023 compared to ($2.8) billion for
the same period in 2022.
Loan Loss (Provision) Reversal
For the year ended December 31, 2023, a loan loss (provision) reversal of $0.2 million was recorded on commercial mortgage
and corporate loans compared to $20.7 million for the same period in 2022. Refer to the “Loans” Note located within Item 15
for additional information related to these loan loss provisions.
Business Divestiture-Related Gains (Losses)
For the year ended December 31, 2023, there were no business divestiture-related gains (losses). For the year ended December
31, 2022, the majority of business divestiture-related gain (losses) were associated with the sale of our corporate loan interests.
Refer to the “Sale of Middle Market Lending Portfolio” Note located within Item 15 for additional information related to the
transaction.
Other, Net
Other, net includes brokerage and commission fees, due diligence costs, securitization expenses, and interest on custodial
balances. We also report in Other, net items whose amounts, either individually or in the aggregate, would not, in the opinion of
management, be meaningful to readers of the financial statements. Given the nature of certain components of this line item,
balances may fluctuate from period to period. Other, net was $73.7 million for the year ended December 31, 2023 compared to
$6.7 million for the same period in 2022, primarily attributable to an increase in interest on custodial balances, partially offset
by an increase in MSR financing expenses.
General and Administrative Expenses
General and administrative (“G&A”) expenses consist of compensation and other expenses. The following table shows our total
G&A expenses as compared to average total assets and average equity for the periods presented.
G&A Expenses and Operating Expense Ratios
For the years ended
December 31, 2023
December 31, 2022
December 31, 2021
Total G&A
Expenses
Total G&A Expenses/
Average Assets
(dollars in thousands)
Total G&A Expenses/
Average Equity
$
$
$
162,553
162,729
186,014
0.18 %
0.21 %
0.23 %
1.42 %
1.40 %
1.35 %
2023 Compared with 2022
G&A expenses decreased $0.2 million to $162.6 million for the year ended December 31, 2023 compared to the same period in
2022. The increase in compensation expense was almost fully offset by the decrease in other general and administrative expense
due to lower expenses resulting from the divestiture of our MML assets, which was announced in the second quarter of 2022.
61
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Return on Average Equity
The following table shows the components of our annualized return on average equity for the periods presented.
Components of Annualized Return on Average Equity
Economic Net
Interest Income/
Average Equity (1)
Net Servicing
Income/Average
Equity
Other Income
(Loss)/Average
Equity (2)
G&A Expenses/
Average Equity
Income
Taxes/ Average
Equity
Return on
Average Equity
For the years ended
December 31, 2023
December 31, 2022
12.88 %
15.80 %
2.85%
1.91%
(28.30) %
(1.06) %
December 31, 2021
10.62 %
(1) Economic net interest income includes the net interest component of interest rate swaps.
(2) Other income (loss) excludes the net interest component of interest rate swaps.
0.41%
7.81%
(1.42%)
(1.40%)
(1.35%)
(0.34%)
(0.39%)
(0.04%)
(14.33%)
14.86%
17.45%
Unrealized Gains and Losses - Available-for-Sale Investments
The unrealized fluctuations in market values of our available-for-sale Agency MBS, for which the fair value option is not
elected, do not impact our GAAP net income (loss) but rather are reflected on our balance sheet by changing the carrying value
of the asset and stockholders’ equity under accumulated other comprehensive income (loss). As a result of this fair value
accounting treatment, our book value and book value per share are likely to fluctuate far more than if we used amortized cost
accounting. As a result, comparisons with companies that use amortized cost accounting for some or all of their balance sheet
may not be meaningful.
The following table shows cumulative unrealized gains and losses on our available-for-sale investments reflected in the
Consolidated Statements of Financial Condition.
Unrealized gain
Unrealized loss
Accumulated other comprehensive income (loss)
December 31, 2023
December 31, 2022
(dollars in thousands)
$
$
5,051 $
5,910
(1,340,451)
(3,714,806)
(1,335,400) $
(3,708,896)
Unrealized changes in the estimated fair value of available-for-sale investments may have a direct effect on our potential
earnings and dividends: positive changes will increase our equity base and allow us to increase our borrowing capacity while
negative changes tend to reduce borrowing capacity. A very large negative change in the net fair value of our available-for-sale
Residential Securities might impair our liquidity position, requiring us to sell assets with the potential result of realized losses
upon sale.
The fair value of these securities being less than amortized cost at December 31, 2023 is solely due to market conditions and
not the quality of the assets. Substantially all of the Agency MBS have an actual or implied credit rating that is the same as that
of the U.S. government. The investments do not require an allowance for credit losses because we currently have the ability and
intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or
beyond the cost of the investments, and it is not more likely than not that we will be required to sell the investments before
recovery of the amortized cost bases, which may be maturity. Also, we are guaranteed payment of the principal and interest
amounts of the securities by the respective issuing Agency.
62
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Financial Condition
Total assets were $93.2 billion and $81.9 billion at December 31, 2023 and 2022, respectively. The change was primarily due to
increases in Agency MBS of $4.0 billion, residential mortgage loans, including assets transferred or pledged to securitization
vehicles, of $4.7 billion, MSR of $0.4 billion, receivable for unsettled trades of $2.1 billion, and principal and interest
receivable of $0.6 billion, partially offset by decreases in CMBS of $0.3 billion and derivative assets of $0.2 billion. Our
portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at December 31, 2023:
Agency MBS
MSR
Assets
Fair value
Implied market value of derivatives (2)
$ 66,308,788
(573,602)
$ 2,122,196
—
Debt
Repurchase agreements
Implied cost basis of derivatives (2)
Other secured financing
Debt issued by securitization vehicles
Participations issued
U.S. Treasury securities sold, not yet purchased
Net forward purchases
58,305,133
(555,221)
—
—
—
1,973,568
523,543
—
—
500,000
—
—
(5,683)
15,612
Residential Credit (1)
(dollars in thousands)
$
18,743,039
—
Commercial
Total
$ 222,444
—
$ 87,396,467
(573,602)
3,705,134
—
—
11,600,338
1,103,835
163,855
10
191,276
—
—
—
—
1,011
—
62,201,543
(555,221)
500,000
11,600,338
1,103,835
2,132,751
539,165
Other
Net other assets / liabilities
Net equity allocated
Net equity allocated (%)
Debt/net equity ratio (3)
1,475,735
$ 6,963,898
327,958
$ 1,940,225
$
184,300
2,354,167
56,644
86,801
$
2,044,637
$ 11,345,091
61 %
8.4:1
18 %
0.3:1
20 %
7.0:1
1 %
2.2:1
100 %
6.8:1
(1) Fair value includes residential loans held for sale, and assets and liabilities associated with non-controlling interests.
(2) Derivatives include TBA contracts under Agency MBS.
(3) Represents the debt/net equity ratio as determined using amounts on the Consolidated Statements of Financial Condition.
Residential Securities
Substantially all of our Agency MBS at December 31, 2023 and December 31, 2022 were backed by single-family residential
mortgage loans and were secured with a first lien position on the underlying single-family properties. Our mortgage-backed
securities were largely Fannie Mae, Freddie Mac or Ginnie Mae pass through certificates or CMOs, which have an actual or
implied credit rating that is the same as that of the U.S. government. We carry all of our Agency MBS at fair value on the
Consolidated Statements of Financial Condition.
We accrete discount balances as an increase to interest income over the expected life of the related interest earning assets and
we amortize premium balances as a decrease to interest income over the expected life of the related interest earning assets. At
December 31, 2023 and December 31, 2022 we had on our Consolidated Statements of Financial Condition a total of $1.4
billion and $1.1 billion, respectively, of unamortized discount (which is the difference between the remaining principal value
and current amortized cost of our Residential Securities acquired at a price below principal value) and a total of $2.4 billion and
$2.9 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the
current amortized cost of our Residential Securities acquired at a price above principal value).
The weighted average experienced prepayment speed on our Agency MBS portfolio for the years ended December 31, 2023
and 2022 was 6.5% and 12.2%, respectively. The weighted average projected long-term prepayment speed on our Agency MBS
portfolio as of December 31, 2023 and 2022 was 9.4% and 7.8%, respectively.
Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-
backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed
securities as we would be required to amortize our net premium balance into income over a shorter time period. Similarly, if
mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being
equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net
premium balance over a longer time period.
63
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
The following table presents our Residential Securities that were carried at fair value at December 31, 2023 and December 31,
2022.
Agency
Fixed-rate pass-through
Adjustable-rate pass-through
CMO
Interest-only
Multifamily
Reverse mortgages
Total agency securities
Residential credit
Credit risk transfer
Alt-A
Prime
Subprime
NPL/RPL
Prime jumbo (>= 2010 vintage)
Total residential credit securities
Total Residential Securities
December 31, 2023
December 31, 2022
Estimated Fair Value
(dollars in thousands)
$
$
$
$
$
62,198,941 $
191,489
82,972
264,005
3,544,528
26,853
66,308,788 $
974,059 $
150,235
180,647
235,605
1,197,555
344,232
3,082,333 $
69,391,121 $
60,029,758
234,387
89,610
218,077
1,674,165
28,898
62,274,895
997,557
91,216
197,870
156,313
1,317,154
228,593
2,988,703
65,263,598
The following table summarizes certain characteristics of our Residential Securities (excluding interest-only mortgage-backed
securities) and interest-only mortgage-backed securities at December 31, 2023 and December 31, 2022.
Residential Securities (1)
Principal amount
Net premium
Amortized cost
Amortized cost / principal amount
Carrying value
Carrying value / principal amount
Weighted average coupon rate
Weighted average yield
Adjustable-rate Residential Securities (1)
Principal amount
Weighted average coupon rate
Weighted average yield
Weighted average term to next adjustment (2)
Weighted average lifetime cap (3)
Principal amount at period end as % of total residential securities
Fixed-rate Residential Securities (1)
Principal amount
Weighted average coupon rate
Weighted average yield
Principal amount at period end as % of total residential securities
Interest-only Residential Securities
Notional amount
Net premium
Amortized cost
Amortized cost / notional amount
Carrying value
Carrying value / notional amount
Weighted average coupon rate
Weighted average yield
December 31, 2023
December 31, 2022
(dollars in thousands)
$
$
70,078,626
63,902
70,142,528
100.09 %
68,701,769
98.04 %
4.68 %
4.64 %
68,290,976
1,049,253
69,340,229
101.54 %
64,736,220
94.79 %
4.03 %
3.76 %
$
1,206,700
$
1,407,295
8.79 %
8.09 %
8 Months
9.34 %
1.72 %
7.16 %
7.01 %
9 Months
9.30 %
2.06 %
$
68,871,926
$
66,883,681
4.61 %
4.58 %
98.28 %
3.96 %
3.70 %
97.94 %
$
$
25,918,105
865,467
865,467
17,346,307
785,532
785,532
3.34 %
689,352
2.66 %
0.43 %
NM
4.53 %
527,378
3.04 %
0.56 %
NM
(1) Excludes interest-only MBS.
(2) Excludes non-Agency MBS and CRT securities.
(3) Excludes non-Agency MBS and CRT securities as this attribute is not applicable to these asset classes.
NM Not meaningful.
64
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
The following tables summarize certain characteristics of our Residential Credit portfolio at December 31, 2023.
Product
Estimated
Fair Value
Senior
(dollars in thousands)
Subordinate Coupon
Credit
Enhancement
60+
Delinquencies
3M VPR (2)
Payment Structure
Investment Characteristics (1)
Credit risk transfer
$ 974,059 $
— $
974,059
9.66 %
Alt-A
Prime
Subprime
Re-performing loan securitizations
Non-performing loan securitizations
Prime jumbo (>=2010 vintage)
150,235
180,647
235,605
796,711
400,844
344,232
54,038
43,332
72,016
412,365
346,867
94,452
96,197
5.55 %
137,315
3.43 %
163,589
7.15 %
384,346
5.25 %
53,977
4.32 %
249,780
4.13 %
Total/weighted average
$ 3,082,333 $ 1,023,070 $ 2,059,263
6.35 %
(1) Investment characteristics exclude the impact of interest-only securities.
(2) Represents the 3 month voluntary prepayment rate (“VPR”).
1.73 %
14.69 %
8.29 %
23.13 %
28.24 %
40.80 %
3.13 %
16.86 %
0.81 %
2.68 %
0.40 %
8.74 %
19.73 %
66.32 %
0.46 %
14.97 %
4.40 %
8.66 %
3.38 %
5.67 %
4.61 %
15.24 %
3.06 %
5.79 %
Bond Coupon
Product
ARM
Fixed
Floater
Interest-Only
(dollars in thousands)
Credit risk transfer
$
— $
— $
974,059 $
— $
Alt-A
Prime
Subprime
Re-performing loan securitizations
Non-performing loan securitizations
Prime jumbo (>=2010 vintage)
1,178
—
—
—
—
—
149,057
175,624
213,199
796,711
400,844
252,967
—
—
22,309
—
—
—
5,023
97
—
—
20,900
70,365
Estimated
Fair Value
974,059
150,235
180,647
235,605
796,711
400,844
344,232
Total
$
1,178 $
1,988,402 $
1,017,268 $
75,485 $
3,082,333
Contractual Obligations
The following table summarizes the effect on our liquidity and cash flows from contractual obligations at December 31, 2023.
The table does not include the effect of net interest rate payments on our interest rate swap agreements. The net swap payments
will fluctuate based on monthly changes in the receive rate. At December 31, 2023, the interest rate swaps had a net fair value
of ($56.7) million.
Repurchase agreements
Interest expense on repurchase agreements (1)
Other secured financing
Interest expense on other secured financing (1)
Debt issued by securitization vehicles (principal)
Within One
Year
One to Three
Years
Three to Five
Years
(dollars in thousands)
More than
Five Years
Total
$ 62,201,543 $
431,816
250,000
30,685
—
— $
—
250,000
1,742
—
— $
— $
62,201,543
—
—
—
—
—
—
—
431,816
500,000
32,427
12,623,492
12,623,492
Interest expense on debt issued by securitization vehicles
565,573
1,131,146
1,131,146
16,757,967
19,585,832
Participations issued (principal)
Interest expense on participations issued
Long-term operating lease obligations
Total
—
82,964
4,107
—
165,927
3,410
—
165,927
291
1,086,538
2,051,321
—
1,086,538
2,466,139
7,808
$ 63,566,688 $
1,552,225 $
1,297,364 $
32,519,318 $
98,935,595
(1) Interest expense on repurchase agreements and other secured financing calculated based on rates at December 31, 2023.
In the coming periods, we expect to continue to finance our Residential Securities in a manner that is largely consistent with our
current operations via repurchase agreements. We may use securitization structures, credit facilities, or other term financing
structures to finance certain of our assets. During the year ended December 31, 2023, we received $6.2 billion from principal
repayments and $31.3 billion in cash from disposal of Securities. During the year ended December 31, 2022, we received
$9.5 billion from principal repayments and $25.0 billion in cash from disposal of Securities.
65
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Commitments and Contractual Obligations with Unconsolidated Entities
We do not have any commitments or contractual obligations arising from arrangements with unconsolidated entities that have
or are reasonably likely to have a material effect on our financial condition, revenues or expenses, results of operations,
liquidity, cash requirements or capital resources.
Capital Management
Maintaining a strong balance sheet that can support the business even in times of economic stress and market volatility is of
critical importance to our business strategy. A strong and robust capital position is essential to executing our investment
strategy. Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy
regardless of the market environment. Our capital policy defines the parameters and principles supporting a comprehensive
capital management practice.
The major risks impacting capital are liquidity and funding risk, investment/market risk, credit risk, counterparty risk,
operational risk and compliance, regulatory and legal risk. For further discussion of the risks we are subject to, please see Part I,
Item 1A. “Risk Factors” of this annual report on Form 10-K.
Capital requirements are based on maintaining levels above approved thresholds, ensuring the quality of our capital
appropriately reflects our asset mix, market and funding structure. In the event we fall short of our internal thresholds, we will
consider appropriate actions which may include asset sales, changes in asset mix, reductions in asset purchases or originations,
issuance of capital or other capital enhancing or risk reduction strategies.
Stockholders’ Equity
The following table provides a summary of total stockholders’ equity at December 31, 2023 and 2022:
Stockholders’ equity
6.95% Series F fixed-to-floating rate cumulative redeemable preferred stock
6.50% Series G fixed-to-floating rate cumulative redeemable preferred stock
6.75% Series I fixed-to-floating rate cumulative redeemable preferred stock
Common stock
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
December 31, 2023
December 31, 2022
(dollars in thousands)
696,910
411,335
428,324
5,001
23,672,391
(1,335,400)
(12,622,768)
696,910
411,335
428,324
4,683
22,981,320
(3,708,896)
(9,543,233)
$
11,255,793 $
11,270,443
Capital Stock
Common Stock
In December 2020, we announced that our Board authorized the repurchase of up to $1.5 billion of our outstanding common
shares, which expired on December 31, 2021 (the “Prior Share Repurchase Program”). In January 2022, we announced that our
Board authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock through December 31, 2024
(the “Current Share Repurchase Program”). The Current Share Repurchase Program replaced the Prior Share Repurchase
Program. During the years ended December 31, 2023 and 2022, no shares were repurchased under the Current Share
Repurchase Program or Prior Share Repurchase Program.
On August 6, 2020, we entered into separate Amended and Restated Distribution Agency Agreements (as amended by
Amendment No. 1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, and Amendment No. 2 to
the Amended and Restated Distribution Agency Agreements on November 3, 2022, collectively, the “Sales Agreements”) with
each of Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Keefe,
Bruyette & Woods, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo
Securities, LLC (collectively, the “Sales Agents”). Pursuant to the Sales Agreements, we may offer and sell shares of common
stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Sales Agents (the “at-the-
market sales program”).
During the year ended December 31, 2023, under the at-the-market sales program, we issued 31.4 million shares for proceeds
of $0.7 billion, net of commissions and fees. During the year ended December 31, 2022, under the at-the-market sales program,
66
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
we issued 45.7 million shares for proceeds of $1.1 billion, net of commissions and fees. The foregoing share amounts have been
retroactively adjusted to reflect the effects of the Reverse Stock Split.
During the year ended December 31, 2022, we closed two public offerings for an aggregate original issuance of 50 million
shares of common stock for aggregate proceeds of $1.31 billion before deducting offering expenses. In connection with each
offering, we granted the underwriters a thirty-day option to purchase up to an additional 3.75 million shares of common stock,
which the underwriters exercised in full in both instances, resulting in an additional $196.5 million in proceeds before deducting
offering expenses for the year ended December 31, 2022. The 2022 share amounts have been retroactively adjusted to reflect
the effects of the Reverse Stock Split.
Preferred Stock
On November 3, 2022, our Board approved a repurchase plan for all of our existing outstanding Preferred Stock (as defined
below, the “Preferred Stock Repurchase Program”). Under the terms of the plan, we are authorized to repurchase up to an
aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of our 6.95% Series F Fixed-to-
Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”), (ii)
17,000,000 shares of our 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per
share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of our 6.75% Series I Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and together with Series F Preferred
Stock and Series G Preferred Stock, the “Preferred Stock”). The aggregate liquidation value of the Preferred Stock that may be
repurchased by us pursuant to the Preferred Stock Repurchase Program, as of November 3, 2022, was approximately
$1.6 billion. The Preferred Stock Repurchase Program became effective on November 3, 2022, and shall expire on December
31, 2024. No shares were repurchased with respect to the Preferred Stock Repurchase Program during the year ended December
31, 2023.
Purchases made pursuant to the Preferred Stock Repurchase Program will be made in either the open market or in privately
negotiated transactions from time to time as permitted by securities laws and other legal requirements. The timing, manner,
price and amount of any repurchases will be determined by us in our discretion and will be subject to economic and market
conditions, stock price, applicable legal requirements and other factors. The authorization does not obligate us to acquire any
particular amount of Preferred Stock and the program may be suspended or discontinued at our discretion without prior notice.
Leverage and Capital
We believe that it is prudent to maintain conservative GAAP leverage ratios and economic leverage ratios as there may be
continued volatility in the mortgage and credit markets. Our capital policy governs our capital and leverage position including
setting limits. Based on the guidelines, we generally expect to maintain an economic leverage ratio of less than 10:1. Our actual
economic leverage ratio varies from time to time based upon various factors, including our management’s opinion of the level
of risk of our assets and liabilities, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-
collateralization levels required by lenders when we pledge assets to secure borrowings and our assessment of domestic and
international market conditions.
Our GAAP leverage ratio at December 31, 2023 and 2022 was 6.8:1 and 6.0:1, respectively. Our economic leverage ratio,
which is computed as the sum of Recourse Debt, cost basis of TBA and CMBX derivatives outstanding, and net forward
purchases (sales) of investments divided by total equity was 5.7:1 and 6.3:1, at December 31, 2023 and 2022, respectively. Our
GAAP capital ratio at December 31, 2023 and 2022 was 12.2% and 13.9%, respectively. Our economic capital ratio, which
represents our ratio of stockholders’ equity to total economic assets (inclusive of the implied market value of TBA derivatives
and net of debt issued by securitization vehicles), was 14.0% and 13.4% at December 31, 2023 and 2022, respectively.
Economic leverage ratio and economic capital ratio are non-GAAP financial measures. Refer to the “Non-GAAP Financial
Measures” section for additional information, including reconciliations to their most directly comparable GAAP results.
Risk Management
We are subject to a variety of risks in the ordinary conduct of our business. The effective management of these risks is of
critical importance to the overall success of Annaly. The objective of our risk management framework is to identify, measure
and monitor these risks.
Our risk management framework is intended to facilitate a holistic, enterprise-wide view of risk. We believe we have built a
strong and collaborative risk management culture throughout Annaly focused on awareness which supports appropriate
understanding and management of our key risks. Each employee is accountable for identifying, monitoring and managing risk
within their area of responsibility.
67
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Risk Appetite
We maintain a firm-wide risk appetite statement which defines the types and levels of risk we are willing to take in order to
achieve our business objectives, and reflects our risk management philosophy. We engage in risk activities based on our core
expertise that aim to enhance value for our stockholders. Our activities focus on income generation and capital preservation
through proactive portfolio management, supported by a conservative liquidity and leverage posture.
The risk appetite statement asserts the following key risk parameters to guide our investment management activities:
Risk Parameter
Description
Portfolio Composition We will maintain a portfolio comprised of target assets approved by our Board and in accordance with our
Leverage
Liquidity Risk
Interest Rate Risk
Credit Risk
capital allocation policy.
We generally expect to maintain an economic leverage ratio no greater than 10:1 considerate of our overall
capital allocation framework.
We will seek to maintain an unencumbered asset portfolio sufficient to meet our liquidity needs under adverse
market conditions.
We will seek to manage interest rate risk to protect the portfolio from adverse rate movements utilizing
derivative instruments targeting both income and capital preservation.
We will seek to manage credit risk by making investments which conform to our specific investment policy
parameters and optimize risk-adjusted returns.
Capital Preservation We will seek to protect our capital base through disciplined risk management practices.
Operational Risk
Compliance,
Regulatory and Legal
We will seek to limit impacts to our business through disciplined operational risk management practices
addressing areas including but not limited to, management of key third party relationships (i.e. originators, sub-
servicers), human capital management, cybersecurity and technology related matters, business continuity and
financial reporting risk.
We will seek to comply with regulatory requirements needed to maintain our REIT status and our exemption
from registration under the Investment Company Act and the licenses and approvals of our regulated and
licensed subsidiaries.
Governance
Risk management begins with our Board, through the review and oversight of the risk management framework, and executive
management, through the ongoing formulation of risk management practices and related execution in managing risk. The Board
exercises its oversight of risk management primarily through the Risk Committee and Audit Committee with support from the
other Board Committees. The Risk Committee is responsible for oversight of our risk governance structure, risk management
(operational and market risk) and risk assessment guidelines and policies and our risk appetite. The Audit Committee is
responsible for oversight of the quality and integrity of our accounting, internal controls and financial reporting practices,
including independent auditor selection, evaluation and review, and oversight of the internal audit function. The Risk
Committee and the Audit Committee jointly oversee practices and policies related to cybersecurity and receive regular reports
from management throughout the year on cybersecurity and related risks. The Management Development and Compensation
Committee is responsible for oversight of risk related to our compensation policies and practices and other human capital
matters such as succession and culture. The Nominating/Corporate Governance Committee assists the Board in its oversight of
our corporate governance framework and the annual self-evaluation of the Board, and the Corporate Responsibility Committee
assists the Board in its oversight of any matters that may present reputational or ESG risk to us. The Corporate Responsibility
Committee shares oversight of specific ESG-related matters with other Board Committees and meets jointly with the
Management Development and Compensation Committee on the Company's human capital management and culture and with
the Risk Committee on ESG-related regulatory and policy risks.
Risk assessment and risk management are the responsibility of our management. A series of management committees has
oversight or decision-making responsibilities for risk management activities. Membership of these committees is reviewed
regularly to ensure the appropriate personnel are engaged in the risk management process. Three primary management
committees have been established to provide a comprehensive framework for risk management. The management committees
responsible for our risk management include the Enterprise Risk Committee (“ERC”), Asset / Liability Committee (“ALCO”)
and the Financial Reporting and Disclosure Committee (“FRDC”). Each of these committees reports to our management
Operating Committee, which is responsible for oversight and management of our operations, including oversight and approval
authority over all aspects of our enterprise risk management.
Audit Services is an independent function with reporting lines to the Audit Committee. Audit Services is responsible for
performing our internal audit activities, which includes independently assessing and validating key controls within the risk
management framework.
68
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Our compliance group is responsible for oversight of our regulatory compliance. Our Chief Compliance Officer has reporting
lines to the Audit Committee.
Description of Risks
We are subject to a variety of risks due to the business we operate. Risk categories are an important component of a robust
enterprise-wide risk management framework.
We have identified the following primary categories that we utilize to identify, assess, measure and monitor risk.
Risk
Description
Liquidity and Funding Risk
Investment/Market Risk
Credit Risk
Counterparty Risk
Operational Risk
Compliance, Regulatory and Legal Risk
Risk to earnings, capital or business resulting from our inability to meet our obligations
when they come due without incurring unacceptable losses because of inability to
liquidate assets or obtain adequate funding.
Risk to earnings, capital or business resulting in the decline in value of our assets or an
increase in the costs of financing caused by changes in market variables, such as interest
rates, which affect the values of investment securities and other investment instruments.
Risk to earnings, capital or business resulting from an obligor’s failure to meet the
terms of any contract or otherwise failure to perform as agreed. This risk is present in
lending and investing activities.
Risk to earnings, capital or business resulting from a counterparty’s failure to meet the
terms of any contract or otherwise failure to perform as agreed. This risk is present in
funding, hedging and investing activities.
Risk to earnings, capital, reputation or business arising from inadequate or failed
internal processes or systems (including business continuity planning), human factors or
external events. This risk also applies to our use of proprietary and third party models,
software vendors and data providers, and oversight of third party service providers such
as sub-servicers, due diligence firms etc.
Risk to earnings, capital, reputation or conduct of business arising from violations of, or
nonconformance with internal and external applicable rules and regulations, losses
resulting from lawsuits or adverse judgments, or from changes in the regulatory
environment that may impact our business model.
69
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Liquidity and Funding Risk Management
Our liquidity and funding risk management strategy is designed to ensure the availability of sufficient resources to support our
business and meet our financial obligations under both normal and adverse market and business environments. Our liquidity
and funding risk management practices consist of the following primary elements:
Element
Funding
Excess Liquidity
Maturity Profile
Stress Testing
Description
Availability of diverse and stable sources of funds.
Excess liquidity primarily in the form of unencumbered assets and cash.
Diversity and tenor of liabilities and modest use of leverage.
Scenario modeling to measure the resiliency of our liquidity position.
Liquidity Management Policies
Comprehensive policies including monitoring, risk limits and an escalation protocol.
Funding
Our primary financing sources are repurchase agreements provided through counterparty arrangements and through Arcola,
other secured financing, debt issued by securitization vehicles, mortgages, credit facilities, note sales and various forms of
equity. We maintain excess liquidity by holding unencumbered liquid assets that could be either used to collateralize additional
borrowings or sold.
We seek to conservatively manage our repurchase agreement funding position through a variety of methods including diversity,
breadth and depth of counterparties and maintaining a staggered maturity profile.
Arcola, provides direct access to third party funding as a FINRA member broker-dealer. Arcola borrows funds through the
General Collateral Finance Repo service offered by the FICC, with FICC acting as the central counterparty. In addition, Arcola
may borrow funds through direct repurchase agreements.
To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements. At December 31, 2023 and
December 31, 2022, the weighted average days to maturity was 44 days and 27 days, respectively.
Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on
the same business day that a margin call is made. Should prepayment speeds on the mortgages underlying our Agency and
Residential mortgage-backed securities and/or market interest rates or other factors move suddenly and cause declines in the
market value of assets posted as collateral, resulting margin calls may cause an adverse change in our liquidity position.
At December 31, 2023, we had total financial assets and cash pledged against existing liabilities of $67.5 billion. The weighted
average haircut was approximately 3% on repurchase agreements. The quality and character of the Residential Securities that
we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at December 31,
2023 compared to the same period in 2022, and our counterparties did not materially alter any requirements, including required
haircuts, related to the collateral we pledge under repurchase agreements and interest rate swaps during the year ended
December 31, 2023.
The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement
balances outstanding for the periods presented:
Repurchase Agreements
Reverse Repurchase Agreements
Average Daily
Amount
Outstanding
Ending Amount
Outstanding
Average Daily
Amount
Outstanding
Ending Amount
Outstanding
For the three months ended
(dollars in thousands)
December 31, 2023
September 30, 2023
June 30, 2023
March 31, 2023
December 31, 2022
September 30, 2022
June 30, 2022
March 31, 2022
December 31, 2021
$
61,924,576 $
62,201,543 $
1,340,204 $
66,020,036
64,591,463
60,477,833
59,946,810
56,354,310
51,606,720
53,961,689
56,977,019
64,693,821
61,637,600
60,993,018
59,512,597
54,160,731
51,364,097
52,626,503
54,769,643
257,097
600,968
371,429
102,025
139,991
117,903
39,535
39,247
—
—
—
—
—
—
—
—
—
70
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
The following table provides information on our repurchase agreements and other secured financing by maturity date at
December 31, 2023. The weighted average remaining maturity on our repurchase agreements and other secured financing was
46 days at December 31, 2023:
1 day
2 to 29 days
30 to 59 days
60 to 89 days
90 to 119 days
Over 119 days (1)
Total
December 31, 2023
Principal
Balance
Weighted
Average Rate
% of Total
(dollars in thousands)
$
—
32,811,903
18,618,606
7,198,769
247,306
3,824,959
$
62,701,543
— %
5.75 %
5.57 %
5.64 %
7.09 %
6.20 %
5.72 %
— %
52.3 %
29.7 %
11.5 %
0.4 %
6.1 %
100.0 %
(1) Less than 1% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.
We also finance our investments in residential mortgage loans through the issuance of securitization transactions sponsored by
our wholly-owned subsidiary Onslow Bay Financial LLC (“Onslow Bay”) under the Onslow Bay private-label securitization
program.
The following table presents our outstanding debt balances and associated weighted average rates and days to maturity at
December 31, 2023:
Weighted Average Rate
Principal
Balance
As of Period End
For the
Quarter
Weighted Average
Days to Maturity (1)
Repurchase agreements
$
62,201,543
Other secured financing
Debt issued by securitization vehicles (2)
Participations issued (2)
500,000
12,623,492
1,086,538
Total indebtedness
$
76,411,573
(dollars in thousands)
5.70 %
8.09 %
4.48 %
7.64 %
5.56 %
8.08 %
4.43 %
6.97 %
44
289
12,467
10,850
(1) Determined based on estimated weighted-average lives of the underlying debt instruments.
(2) Non-recourse to Annaly.
Excess Liquidity
Our primary source of liquidity is the availability of unencumbered assets which may be provided as collateral to support
additional funding needs. We target minimum thresholds of available, unencumbered assets to maintain excess liquidity. The
following table illustrates our asset portfolio available to support potential collateral obligations and funding needs.
Assets are considered encumbered if pledged as collateral against an existing liability, and therefore are no longer available to
support additional funding. An asset is considered unencumbered if it has not been pledged or securitized. The following table
also provides the carrying amount of our encumbered and unencumbered financial assets at December 31, 2023:
71
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Financial assets
Cash and cash equivalents
Investments, at carrying value (1)
Agency mortgage-backed securities
Credit risk transfer securities
Non-agency mortgage-backed securities
Commercial mortgage-backed securities
Residential mortgage loans (2)
MSR
Other assets (3)
Encumbered
Assets
Unencumbered
Assets
Total
(dollars in thousands)
$
1,136,298 $
275,850 $
1,412,148
62,707,010
918,662
1,554,090
220,486
15,329,539
1,781,279
—
3,553,285
55,397
554,184
1,958
331,167
340,917
56,165
66,260,295
974,059
2,108,274
222,444
15,660,706
2,122,196
56,165
Total financial assets
$
83,647,364 $
5,168,923 $
88,816,287
(1) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the
Consolidated Statements of Financial Condition.
(2) Includes assets transferred or pledged to securitization vehicles.
(3) Includes commercial real estate investments and interests in certain joint ventures.
We maintain liquid assets in order to satisfy our current and future obligations in normal and stressed operating environments.
These are held as the primary means of liquidity risk mitigation. The composition of our liquid assets is also considered and is
subject to certain parameters. The composition is monitored for concentration risk, including in respect of our deposits of our
cash and cash equivalents, and asset type. We believe the assets we consider liquid can be readily converted into cash, through
liquidation or by being used as collateral in financing arrangements (including as additional collateral to support existing
financial arrangements). Our balance sheet also generates liquidity on an on-going basis through mortgage principal and interest
repayments and net earnings held prior to payment of dividends. The following table presents our liquid assets as a percentage
of total assets at December 31, 2023:
Liquid assets
Cash and cash equivalents
Residential Securities (2)
Commercial mortgage-backed securities
Residential mortgage loans (3)
Carrying Value (1)
(dollars in thousands)
$
1,412,148
69,342,531
222,444
2,353,084
Total liquid assets
Percentage of liquid assets to carrying amount of encumbered and unencumbered financial assets (4)
(1) Carrying value approximates the market value of assets. The assets listed in this table include $67.5 billion of assets that have been
$
73,330,207
97.14 %
pledged as collateral against existing liabilities at December 31, 2023. Please refer to the Encumbered and Unencumbered Assets table
for related information.
(2) The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the
Consolidated Statements of Financial Condition.
(3) Excludes securitized residential mortgage loans transferred or pledged to consolidated VIEs carried at fair value of $13.3 billion.
(4) Denominator is computed based on the carrying amount of encumbered and unencumbered financial assets, excluding assets transferred
or pledged to securitization vehicles, of $13.3 billion.
Maturity Profile
We consider the profile of our assets, liabilities and derivatives when managing both liquidity risk as well as investment/market
risk employing a measurement of both the maturity gap and interest rate sensitivity gap. We determine the amount of liquid
assets that are required to be held by monitoring several liquidity metrics. We utilize several modeling techniques to analyze
our current and potential obligations including the expected cash flows from our assets, liabilities and derivatives. The
following table illustrates the expected final maturities and cash flows of our assets, liabilities and derivatives. The table is
based on a static portfolio and assumes no reinvestment of asset cash flows and no future liabilities are entered into. In
assessing the maturity of our assets, liabilities and off-balance sheet obligations, we use the stated maturities, or our prepayment
expectations for assets and liabilities that exhibit prepayment characteristics. Cash and cash equivalents are included in the
‘Less than 3 Months’ maturity bucket, as they are typically held for a short period of time.
With respect to each maturity bucket, our maturity gap is considered negative when the amount of maturing liabilities exceeds
the amount of maturing assets. A negative gap increases our liquidity risk as we must enter into future liabilities.
Our interest rate sensitivity gap is the difference between interest earning assets and interest bearing liabilities maturing or re-
pricing within a given time period. Unlike the calculation of maturity gap, interest rate sensitivity gap includes the effect of our
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
interest rate swaps. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of
interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds
interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest
income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates,
a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest
income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to
changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively
even if assets and liabilities were perfectly matched in each maturity category. The amount of assets and liabilities utilized to
compute our interest rate sensitivity gap was determined in accordance with the contractual terms of the assets and liabilities,
except that adjustable-rate loans and securities are included in the period in which their interest rates are first scheduled to
adjust and not in the period in which they mature. The effects of interest rate swaps, whereby we generally pay a fixed rate and
receive a floating rate and effectively lock in our financing costs for a longer term, are also reflected in our interest rate
sensitivity gap.
The interest rate sensitivity of our assets and liabilities in the following table at December 31, 2023 could vary substantially
based on actual prepayment experience.
Financial assets
Cash and cash equivalents
Agency mortgage-backed securities (principal)
Residential credit risk transfer securities (principal)
Non-agency mortgage-backed securities (principal)
Commercial mortgage-backed securities (principal)
Total securities
Residential mortgage loans (principal)
Total loans
Assets transferred or pledged to securitization vehicles
(principal)
Total financial assets - maturity
Effect of utilizing reset dates (1)
Less than 3
Months
3-12
Months
More than 1
Year to 3
Years
3 Years and
Over
Total
(dollars in thousands)
$ 1,412,148 $
— $
— $
—
$
1,412,148
—
1,000
223,943
—
224,943
—
—
—
2,500
—
27,844
132,242
162,586
—
—
—
1,637,091
16,192,657
162,586
256,055
1,017,978
65,895,324
66,915,802
6,838
820,276
92,355
916,891
1,166,032
—
1,937,447
67,978,247
—
—
—
1,937,447
2,315,093
2,315,093
14,296,110
84,589,450
95,991
(16,544,703)
924,729
2,238,095
224,597
70,303,223
2,315,093
2,315,093
14,296,110
88,326,574
—
Total financial assets - interest rate sensitive
$ 17,829,748 $
418,641 $
2,033,438 $
68,044,747
$
88,326,574
Financial liabilities
Repurchase agreements
Debt issued by securitization vehicles (principal)
Participations issued (principal)
U.S. Treasury securities sold, not yet purchased
Total financial liabilities - maturity
Effect of utilizing reset dates (1)(2)
Maturity gap
Cumulative maturity gap
Interest rate sensitivity gap
$ 58,629,278 $
3,572,265 $
— $
—
$
62,201,543
—
—
2,132,751
—
—
—
60,762,029
3,572,265
—
—
—
—
(49,746,861)
(1,400,700)
15,028,564
12,623,492
1,086,538
—
13,710,030
36,118,997
12,623,492
1,086,538
2,132,751
78,044,324
—
78,044,324
10,282,250
$
$
$ (59,124,938) $
(3,409,679) $
1,937,447 $
70,879,420
$ (59,124,938) $ (62,534,617) $ (60,597,170) $
10,282,250
$ 6,814,580 $
(1,752,924) $ (12,995,126) $
18,215,720
$
10,282,250
Total financial liabilities - interest rate sensitive
$ 11,015,168 $
2,171,565 $ 15,028,564 $
49,829,027
Cumulative rate sensitivity gap
$ 6,814,580 $
5,061,656 $
(7,933,470) $
10,282,250
(1) Maturity gap utilizes stated maturities, or prepayment expectations for assets that exhibit prepayment characteristics, while interest rate sensitivity gap
utilizes reset dates, if applicable.
(2) Includes effect of interest rate swaps.
The methodologies we employ for evaluating interest rate risk include an analysis of our interest rate “gap,” measurement of the
duration and convexity of our portfolio and sensitivities to interest rates and spreads.
Stress Testing
We utilize liquidity stress testing to ensure we have sufficient liquidity under a variety of scenarios and stresses. These stress
tests assist with the management of our pool of liquid assets and influence our current and future funding plans. The stresses
applied include market-wide and firm-specific stresses.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Liquidity Management Policies
We utilize a comprehensive liquidity policy structure to inform our liquidity risk management practices including monitoring
and measurement, along with well-defined key risk indicators. Both quantitative and qualitative targets are utilized to measure
the ongoing stability and condition of the liquidity position, and include the level and composition of unencumbered assets, as
well as the sustainability of the funding composition under stress conditions.
We also monitor early warning metrics designed to measure the quality and depth of liquidity sources based upon both
company-specific and market conditions. The metrics assist in assessing our liquidity conditions and are integrated into our
escalation protocol.
Investment/Market Risk Management
One of the primary risks we are subject to is investment/market risk. Changes in the level of interest rates can affect our net
interest income, which is the difference between the income we earn on our interest earning assets and the interest expense
incurred from interest bearing liabilities and derivatives. Changes in the level of interest rates and spreads can also affect the
value of our assets and potential realization of gains or losses from the sale of these assets. We may utilize a variety of financial
instruments, including interest rate swaps, swaptions, options, futures and other hedges, in order to limit the adverse effects of
interest rates on our results. In the case of interest rate swaps, we utilize contracts linked to SOFR but may also enter into
interest rate swaps where the floating leg is linked to the overnight index swap rate or another index. In addition, we may use
MAC interest rate swaps in which we may receive or make a payment at the time of entering such interest rate swap to
compensate for the off-market nature of such interest rate swap. MAC interest rate swaps offer price transparency, flexibility
and more efficient portfolio administration through compression which is the process of reducing the number of unique interest
rate swap contracts and replacing them with fewer contracts containing market defined terms. Our portfolio and the value of our
portfolio, including derivatives, may be adversely affected as a result of changing interest rates and spreads.
We simulate a wide variety of interest rate scenarios in evaluating our risk. Scenarios are run to capture our sensitivity to
changes in interest rates, spreads and the shape of the yield curve. We also consider the assumptions affecting our analysis such
as those related to prepayments. In addition to predefined interest rate scenarios, we utilize Value-at-Risk measures to estimate
potential losses in the portfolio over various time horizons utilizing various confidence levels. The following tables estimate the
potential changes in economic net interest income over a twelve month period and the immediate effect on our portfolio market
value (inclusive of derivative instruments), should interest rates instantaneously increase or decrease by 25, 50 or 75 basis
points, and the effect of portfolio market value if mortgage option-adjusted spreads instantaneously increase or decrease by 5,
15 or 25 basis points (assuming shocks are parallel and instantaneous). All changes to income and portfolio market value are
measured as percentage changes from the projected net interest income and portfolio value at the base interest rate scenario.
The net interest income simulations incorporate the interest expense effect of rate resets on liabilities and derivatives as well as
the amortization expense and reinvestment of principal based on the prepayments on our securities, which varies based on the
level of rates. The results assume no management actions in response to the rate or spread changes. The following table presents
estimates at December 31, 2023. Actual results could differ materially from these estimates.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Change in Interest Rate (1)
-75 Basis points
Estimated Percentage Change in
Portfolio Value (2)
(0.3%)
Estimated Change as a
% on NAV (2)(3)
(2.2%)
-50 Basis points
-25 Basis points
+25 Basis points
+50 Basis points
+75 Basis points
MBS Spread Shock (1)
-25 Basis points
-15 Basis points
-5 Basis points
+5 Basis points
+15 Basis points
+25 Basis points
(0.1)%
—%
—%
(0.1%)
(0.3%)
(0.9)%
(0.2)%
(0.4%)
(1.2%)
(2.4%)
Estimated Change in
Portfolio Market Value (2)
1.3%
Estimated Change as a %
on NAV (2)(3)
10.1%
0.8%
0.3%
(0.3%)
(0.7%)
(1.2%)
6.0%
2.0%
(2.0%)
(6.0%)
(9.9%)
Projected Percentage
Change in Economic Net
Interest Income (4)
8.1%
5.7%
3.0%
(3.2%)
(6.7%)
(10.5%)
(1) Interest rate and MBS spread sensitivity are based on results from third party models in conjunction with inputs from our internal investment
professionals. Actual results could differ materially from these estimates.
(2) Scenarios include securities, residential mortgage loans, MSR and derivative instruments.
(3) NAV represents book value of equity.
(4) Scenarios include securities, residential mortgage loans, repurchase agreements, other secured financing and interest rate swaps. Economic
net interest income includes the net interest component of interest rate swaps.
Credit Risk Management
Key risk parameters have been established to specify our credit risk appetite. We seek to manage credit risk by making
investments which conform to the firm’s specific investment policy parameters and optimize risk-return attributes.
While we do not expect to encounter credit risk in our Agency mortgage-backed securities, we face credit risk on the non-
Agency mortgage-backed securities and CRT securities in our portfolio. In addition, we are also exposed to credit risk on
residential mortgage loans and commercial real estate investments. MSR values may also be impacted through reduced
servicing fees and higher costs to service the underlying mortgage loans due to borrower performance. Generally, we are
subject to risk of loss if an issuer or borrower fails to perform its contractual obligations. We have established policies and
procedures for mitigating credit risk, including establishing and reviewing limits for credit exposure. In the case of residential
mortgage loans and MSR, we may engage a third party to perform due diligence on a sample of loans that we believe
sufficiently represents the entire pool. Once an investment is made, our ongoing surveillance process includes regular reviews,
analysis and oversight of investments by our investment personnel and appropriate committee. We review credit and other risks
of loss associated with each investment. Our management monitors the overall portfolio risk and determines estimates of
provision for loss. Additionally, ALCO has oversight of our credit risk exposure.
Our portfolio composition, based on balance sheet values, at December 31, 2023 and 2022 was as follows:
Category
Agency mortgage-backed securities
Credit risk transfer securities
Non-agency mortgage-backed securities
Residential mortgage loans (1)
Mortgage servicing rights
Commercial real estate (1)
December 31, 2023
December 31, 2022
75.9 %
1.1 %
2.4 %
17.9 %
2.4 %
0.3 %
79.4 %
1.3 %
2.5 %
13.9 %
2.2 %
0.7 %
(1) Includes assets transferred or pledged to securitization vehicles.
Counterparty Risk Management
Our use of repurchase and derivative agreements and trading activities create exposure to counterparty risk relating to potential
losses that could be recognized if the counterparties to these agreements fail to perform their obligations under the contracts. In
the event of default by a counterparty, we could have difficulty obtaining our assets pledged as collateral. A significant portion
of our investments are financed with repurchase agreements by pledging our Residential Securities as collateral to the
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
applicable lender. The collateral we pledge generally exceeds the amount of the borrowings under each agreement. If the
counterparty to the repurchase agreement defaults on its obligations and we are not able to recover our pledged asset, we are at
risk of losing the over-collateralization or haircut. The amount of this exposure is the difference between the amount loaned to
us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest
receivable on such collateral.
We also use interest rate swaps and other derivatives to manage interest rate risk. Under these agreements, we pledge securities
and cash as collateral or settle variation margin payments as part of a margin arrangement.
If a counterparty were to default on its obligations, we would be exposed to a loss to a derivative counterparty to the extent that
the amount of our securities or cash pledged exceeded the unrealized loss on the associated derivative and we were not able to
recover the excess collateral. Additionally, we would be exposed to a loss to a derivative counterparty to the extent that our
unrealized gains on derivative instruments exceeded the amount of the counterparty’s securities or cash pledged to us.
We monitor our exposure to counterparties across several dimensions including by type of arrangement, collateral type,
counterparty type, ratings and geography. Additionally, ALCO has oversight of our counterparty exposure.
The following table summarizes our exposure to counterparties by geography at December 31, 2023:
Geography
North America
Europe
Asia (non-Japan)
Japan
Total
Number of
Counterparties
Secured Financing (1)
Interest Rate Swaps
at Fair Value
Exposure (2)
(dollars in thousands)
23 $
48,042,915 $
(29,750) $
3,225,098
10
1
4
10,403,461
447,776
3,807,391
(26,957)
—
—
803,497
16,234
310,799
38 $
62,701,543 $
(56,707) $
4,355,628
(1) Includes repurchase agreements and other secured financing.
(2) Represents the amount of cash and/or securities pledged as collateral to each counterparty less the aggregate of repurchase
agreement and other secured financing and derivatives for each counterparty.
Operational Risk Management
We are subject to operational risk in each of our business and support functions. Operational risk may arise from internal or
external sources including human error, fraud, systems issues, process change, vendors, business interruptions and other
external events. We manage operational risk through a variety of tools including processes, policies and procedures that cover
topics such as business continuity, personal conduct, cybersecurity and vendor management. Other tools include Risk and
Control Self Assessment (“RCSA”) testing, including disaster recovery/testing; systems controls, including access controls;
training, including phishing exercises and cybersecurity awareness training; and monitoring, which includes the use of key risk
indicators. Our Operational Risk Management team conducts a disaster recovery exercise on an annual basis and periodically
conducts other operational risk tabletop exercises. Employee-level lines of defense against operational risk include proper
segregation of incompatible duties, activity-level internal controls over financial reporting, the empowerment of business units
to identify and mitigate operational risk sources, testing by our internal audit staff, and our overall governance framework.
Operational Risk Management responsibilities are overseen by the ERC. The ERC is responsible for supporting the Operating
Committee in the implementation, ongoing monitoring, and evaluation of the effectiveness of the enterprise-wide risk
management framework. This oversight authority includes review of the strategies, processes, policies, and practices
established by management to identify, assess, measure, and manage enterprise-wide risk.
Cybersecurity is part of our enterprise-wide risk management framework. Processes for assessing, identifying, and managing
cybersecurity risks include cybersecurity risk assessments, use of key risk indicators, vendor cybersecurity risk management,
employee training, including phishing exercises and cybersecurity awareness training, penetration testing, evaluation of
cybersecurity insurance and periodic engagements by our internal audit department, which determines whether our
cybersecurity program and information security practices align with relevant parts of the National Institute of Standards and
Technology (“NIST”) framework. We periodically engage penetration testing companies and law firms to assist in these
processes. When we do so, we hire reputable companies, limit their access to only information necessary for the specific
purpose and maintain security controls around confidential information, including personal information. We also maintain a
Cybersecurity Incident Response Plan (“Response Plan”) with processes to identify, contain, mitigate and escalate
cybersecurity incidents, utilizing cross-functional expertise and external resources as needed. We conduct tabletop exercises to
test our Response Plan and our reaction to various business disruption events, and the results of these tabletop exercises are
reported to the Cybersecurity Committee and the ERC.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
We also have processes in place to oversee and identify material risks from cybersecurity threats associated with our use of
third party service providers, including mortgage loan servicers and sub-servicers, upon which we depend on to perform various
business processes related to our operations. Our 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. We also have processes to evaluate and
classify cybersecurity risk related to sensitive data held by key third party service providers on their systems.
The Cybersecurity Committee has primary responsibility for these processes to manage cybersecurity risks, under the oversight
of the ERC. Daily monitoring of cybersecurity defenses is performed by the IT Infrastructure Team and any issues are escalated
to the Cybersecurity Committee as needed. The Cybersecurity Committee regularly meets to discuss both routine oversight of
cybersecurity processes, policies and procedures and management of any cyber-specific events, including escalation to the
ERC, the executive leadership team and/or the Board as appropriate.
The Cybersecurity Committee includes representatives from Operational Risk Management, Information Technology, Legal,
Mortgage Operations and Internal Control. Certain members of the Cybersecurity Committee have relevant qualifications such
as extensive work experience implementing data security measures, developing cybersecurity policies and procedures, and
assessing, managing and reporting cybersecurity risk. Members also participate in cybersecurity-related professional
organizations that discuss industry threats, challenges and solutions to cybersecurity issues. Our Head of IT Infrastructure has
completed the "Cybersecurity: Managing Risk in the Information Age" certificate program from Harvard University.
The Cybersecurity Committee regularly discusses cybersecurity risk management and best practices with the ERC and with the
Audit and Risk Committees of our Board. The Audit and Risk Committees jointly oversee processes, practices and policies
related to cybersecurity and receive joint and individual presentations from management and external experts on cyber and
technology-related risks. Two members of our Board have completed the Carnegie Mellon/NACD Cyber-Risk Oversight
Program and earned the CERT Certificate in Cybersecurity Oversight and one member of our Board has completed the NACD
Master Class: Cyber-Risk Oversight Program.
To date, we have not detected any risks from cybersecurity threats that have materially affected us. However, even though we
take steps to employ reasonable cybersecurity efforts, not every cybersecurity incident can be prevented or detected. We also
may be held responsible for cybersecurity threats affecting our third party service providers, including mortgage sub-servicers.
Therefore, while we believe there are currently no risks from any potential cybersecurity threat or cybersecurity incident that
are reasonably likely to have a material effect on our business strategy, results of operations or financial condition, the
likelihood or severity of such risks are difficult to predict. For further discussion, please see the risk factors titled "We are
highly dependent on information systems and networks, many of which are operated by third parties, and any failure of these
systems or networks could materially and adversely affect our business" and "Cyberattacks or other information security
breaches could adversely affect our business, reputation and financial condition" in Part I, Item 1A. “Risk Factors” in this
Annual Report on Form 10-K.
Compliance, Regulatory and Legal Risk Management
Our business is organized as a REIT, and we seek to continue to meet the requirements for taxation as a REIT. The
determination that we are a REIT requires an analysis of various factual matters and circumstances. Accordingly, we closely
monitor our REIT status within our risk management program. We also regularly assess our risk management in respect of our
regulated and licensed subsidiaries, which include our registered broker-dealer subsidiary Arcola, our subsidiary that is
registered with the SEC as an investment adviser under the Investment Advisers Act and our subsidiary that operates as a
licensed mortgage aggregator and master servicer.
The financial services industry is highly regulated and receives significant attention from regulators, which may impact both
our company and our business strategy. Our investments in residential whole loans and MSR require us to comply with
applicable state and federal laws and regulations and maintain appropriate governmental licenses, approvals and exemptions.
We proactively monitor the potential impact regulation may have both directly and indirectly on us. We maintain a process to
actively monitor both actual and potential legal action that may affect us. Our risk management framework is designed to
identify, measure and monitor these risks under oversight of the ERC.
We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act, and we
seek to continue to meet the requirements for this exemption from registration. The determination that we qualify for this
exemption from registration depends on various factual matters and circumstances. Accordingly, in conjunction with our legal
department, we closely monitor our compliance with Section 3(c)(5)(C) within our risk management program. Compliance with
Section 3(c)(5)(C) of the Investment Company Act is monitored by the FRDC under the oversight of the ERC.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Critical Accounting Estimates
The preparation of our consolidated financial statement in accordance with generally accepted accounting principles in the
United States requires us to make estimates, judgments and assumptions that affect the reported amounts of assets, liabilities,
revenues and expenses. Actual results may differ materially from these estimates and changes in assumptions could have a
significant effect on the consolidated financial statements. Our critical accounting policies that require us to make significant
judgments or estimates are described below. For more information on these critical accounting policies and other significant
accounting policies, refer to the Note titled “Significant Accounting Policies” in the Notes to the Consolidated Financial
Statements included in Item 15. “Exhibits, Financial Statement Schedules.”
Valuation of Financial Instruments
Residential Securities
Description: We carry residential securities at estimated fair value. There is an active market for our Agency mortgage-backed
securities, CRT securities and non-Agency mortgage-backed securities.
Judgments and Uncertainties: Since we primarily invest in securities that can be valued using quoted prices for actively traded
assets, there is a high degree of observable inputs and less subjectivity in measuring fair value. Internal fair values are
determined using quoted prices from the TBA securities market, the Treasury curve and the underlying characteristics of the
individual securities, which may include coupon, periodic and life caps, reset dates and the expected life of the security. While
prepayment rates may be difficult to predict and require estimation and judgment in the valuation of Agency mortgage-backed
securities, we use several third party models to validate prepayment speeds used in fair value measurements of residential
securities. All internal fair values are compared to external pricing sources and/or dealer quotes to determine reasonableness.
Additionally, securities used as collateral for repurchase agreements are priced daily by counterparties to ensure sufficient
collateralization, providing additional verification of our internal pricing.
Sensitivity of Estimates to Change: Changes in underlying assumptions used in estimating fair value impact the carrying value
of the residential securities as well as their yield. For example, an increase in CPR would decrease the carrying value and yield
of our Agency mortgage-backed securities. Our valuations are most sensitive to changes in interest rate, which also impacts
prepayment speeds. Refer to the Experienced and Projected Long-Term CPR, Financial Condition – Residential Securities and
the interest rate sensitivity and interest rate and MBS spread shock analysis and discussions within this Item 7. for further
information.
Residential Mortgage Loans
Description: We elected to account for Residential Mortgage Loans at fair value. There is an active market for the residential
whole loans in which we invest.
Judgments and Uncertainties: Since we primarily invest in residential loans that can be valued using actively quoted prices for
similar assets, there are observable inputs in measuring fair value. Internal fair values are determined using quoted prices for
similar market transactions, the swap curve and the underlying characteristics of the individual loans, which may include loan
term, coupon, and reset dates. While prepayment rates may be difficult to predict and are a significant estimate requiring
judgment in the valuation of residential whole loans, we validate prepayment speeds against those provided by independent
pricing analytic providers specializing in residential mortgage loans. Internal fair values are generally compared to external
pricing sources to determine reasonableness.
Sensitivity of Estimates to Change: Changes to model assumptions, including prepayment speeds may significantly impact the
fair value estimate of residential mortgage loans as well as unrealized gains and losses and yield on these assets. Our valuations
are most sensitive to changes in interest rate, which also impacts prepayment speeds. Refer to the interest rate sensitivity and
interest rate shock analysis and discussions within this Item 7. for further information.
MSR
Description: We elected to account for MSR at fair value. The market for MSR is considered less active and transparent
compared to securities. As such fair value estimates for our investment in MSR are obtained from models, which use significant
unobservable inputs in their valuations.
Judgments and Uncertainties: These valuations primarily utilize discounted cash flow models that incorporate unobservable
market data inputs including prepayment rates, delinquency levels, costs to service and discount rates. Model valuations are
then compared to valuations obtained from third party pricing providers. Management reviews the valuations received from
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
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.
Sensitivity of Estimates to Change: Changes in the underlying assumptions used to estimate the fair value of MSR impact the
carrying value as well as the related unrealized gains and losses recognized. For further discussion of the sensitivity of the
model inputs refer to the Note titled “Fair Value Measurements” in the Notes to the Consolidated Financial Statements included
in Item 15. “Exhibits, Financial Statement Schedules.”
Interest Rate Swaps
Description: We are required to account for derivative assets and liabilities at fair value, which may or may not be cleared
through a derivative clearing organization. We value our cleared interest rate swaps using the prices provided by the derivatives
clearing organization. We value uncleared derivatives using internal models with prices compared to counterparty marks.
Judgments and Uncertainties: We use the overnight indexed swap (“OIS”) curve, the SOFR curve, or SOFR forward rates as an
input to value substantially all of our uncleared interest rate swaps. Consistent with market practice, we exchange collateral
(also called margin) based on the fair values of our interest rate swaps. Through this margining process, we may be able to
compare our recorded fair value with the fair value calculated by the counterparty or derivatives clearing organization,
providing additional verification of our recorded fair value of the uncleared interest rate swaps.
Sensitivity of Estimates to Change: Changes in the OIS curve will impact the carrying value of our interest rate swap assets and
liabilities. Our valuations are most sensitive to changes in interest rate, which also impacts prepayment speeds. See the interest
rate sensitivity and interest rate shock analysis and discussions within this Item 7. for further information.
Revenue Recognition
Description: Interest income from coupon payments is accrued based on the outstanding principal amounts of the Residential
Securities and their contractual terms. Premiums and discounts associated with the purchase of the Residential Securities are
amortized or accreted into interest income over the projected lives of the securities using the interest method. Gains or losses on
sales of Residential Securities are recorded on trade date based on the specific identification method.
Judgments and Uncertainties: To aid in determining projected lives of the securities, we use third party model and market
information to project prepayment speeds. Our prepayment speed projections incorporate underlying loan characteristics (i.e.,
coupon, term, original loan size, original loan-to-value ratio, etc.) and market data, including interest rate and home price index
forecasts and expert judgment. Prepayment speeds vary according to the type of investment, conditions in the financial markets
and other factors and cannot be predicted with any certainty.
Sensitivity of Estimates to Change: Changes to model assumptions, including interest rates and other market data, as well as
periodic revisions to the model will cause changes in the results. Adjustments are made for actual prepayment activity as it
relates to calculating the effective yield. The sensitivity of changes in interest rates to our economic net interest income is
included in the interest rate shock analysis and discussions within this Item 7 for further information.
Consolidation of Variable Interest Entities
Description: We are required to determine if it is required to consolidate entities in which it holds a variable interest.
Judgments and Uncertainties: Determining whether an entity has a controlling financial interest in a VIE requires significant
judgment related to assessing the purpose and design of the VIE and determination of the activities that most significantly
impact its economic performance. We must also identify explicit and implicit variable interests in the entity and consider our
involvement in both the design of the VIE and its ongoing activities. To determine whether consolidation of the VIE is required,
we must apply judgment to assess whether we have the power to direct the most significant activities of the VIE and whether
we have either the rights to receive benefits or the obligation to absorb losses that could be potentially significant to the VIE.
Use of Estimates
The use of GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
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Item 7. Management’s Discussion and Analysis
Glossary of Terms
A
Adjustable-Rate Loan / Security
A loan / security on which interest rates are adjusted at
regular intervals according to predetermined criteria. The
adjustable interest rate is tied to an objective, published
interest rate index.
Agency
Refers to a federally chartered corporation, such as the
Federal National Mortgage Association, or the Federal
Home Loan Mortgage Corporation, or an agency of the
U.S. Government, such as the Government National
Mortgage Association.
Agency Mortgage-Backed Securities
Refers to residential mortgage-backed securities that are
issued or guaranteed by an Agency.
Amortization
Liquidation of a debt through installment payments.
Amortization also refers to the process of systematically
reducing a recognized asset or liability (e.g., a purchase
premium or discount for a debt security) with an offset to
earnings.
interest bearing
Average GAAP Cost of Interest Bearing Liabilities and
Average Economic Cost of Interest Bearing Liabilities
Average GAAP cost of
liabilities
represents annualized interest expense divided by average
interest bearing
interest bearing
liabilities. Average
liabilities is a non-GAAP financial measure that reflects
the average balances during the period. Average economic
cost of interest bearing liabilities represents annualized
economic interest expense divided by average interest
bearing liabilities.
Average Life
On a mortgage-backed security, the average time to receipt
of each dollar of principal, weighted by the amount of each
principal prepayment, based on prepayment assumptions.
Average Yield on Interest Earnings Assets and Average
Yield on Interest Earnings Assets (excluding PAA)
Average yield on
interest earning assets represents
annualized interest income divided by average interest
earning assets. Average interest earning assets reflects the
average amortized cost of our investments during the
period. Average yield on interest earning assets (excluding
PAA) is a non-GAAP financial measure that is calculated
using annualized interest income (excluding PAA).
B
Basis Point (“bp” or “bps”)
in expressing
One hundredth of one percent, used
differences in interest rates. One basis point is 0.01% of
yield. For example, a bond’s yield that changed from
3.00% to 3.50% would be said to have moved 50 basis
points.
Benchmark
A bond or an index referencing a basket of bonds whose
terms are used for comparison with other bonds of similar
maturity. The global financial market typically looks to
U.S. Treasury securities as benchmarks.
Beneficial Owner
One who benefits from owning a security, even if the
security’s title of ownership is in the name of a broker or
bank.
Board
Refers to the board of directors of Annaly.
Bond
The written evidence of debt, bearing a stated rate or stated
rates of interest, or stating a formula for determining that
rate, and maturing on a date certain, on which date and
upon presentation a fixed sum of money plus interest
(usually represented by interest coupons attached to the
bond) is payable to the holder or owner. Bonds are long-
term securities with an original maturity of greater than one
year.
Book Value Per Share
Calculated by summing common stock, additional paid-in
capital, accumulated other comprehensive income (loss)
and accumulated deficit and dividing that number by the
total common shares outstanding.
Broker
Generic name for a securities firm engaged in both buying
and selling securities on behalf of customers or its own
account.
C
Capital Buffer
Includes unencumbered financial assets which can be
either sold or utilized as collateral to meet liquidity needs.
Capital Ratio (GAAP Capital Ratio)
Calculated as total stockholders’ equity divided by total
assets.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Carry
The amount an asset earns over its hedging and financing
costs. A positive carry happens when the rate on the
securities being financed is greater than the rate on the
funds borrowed. A negative carry is when the rate on the
funds borrowed is greater than the rate on the securities
that are being financed.
CMBX
The CMBX index is a synthetic tradable index referencing
a basket of 25 CMBS of a particular rating and vintage.
The CMBX index allows investors to take a long position
(referred to as selling protection) or short position (referred
to as purchasing protection) on the respective basket of
CMBS securities and is structured as a “pay-as-you-go”
contract whereby the protection seller receives and the
protection buyer pays a standardized running coupon on
the contracted notional amount. Additionally,
the
protection seller is obligated to pay to the protection buyer
the amount of principal losses and/or coupon shortfalls on
the underlying CMBS securities as they occur.
Collateral
Securities, cash or property pledged by a borrower or party
to a derivative contract to secure payment of a loan or
derivative. If the borrower fails to repay the loan or
defaults under the derivative contract, the secured party
may take ownership of the collateral.
Collateralized Loan Obligation (“CLO”)
A securitization collateralized by loans and other debt
instruments.
Collateralized Mortgage Obligation (“CMO”)
A multiclass bond backed by a pool of mortgage pass-
through securities or mortgage loans.
Commodity Futures Trading Commission (“CFTC”)
An independent U.S. federal agency established by the
Commodity Futures Trading Commission Act of 1974. The
CFTC regulates the swaps, commodity futures and options
markets. Its goals include the promotion of competitive and
efficient futures markets and the protection of investors
against manipulation, abusive trade practices and fraud.
Commercial Mortgage-Backed Security (“CMBS” or
“Commercial Securities”)
Securities collateralized by a pool of mortgages on
commercial real estate in which all principal and interest
from the mortgages flow to certificate holders in a defined
sequence or manner.
Constant Prepayment Rate (“CPR”)
The percentage of outstanding mortgage loan principal that
prepays in one year, based on the annualization of the
Single Monthly Mortality, which reflects the outstanding
mortgage loan principal that prepays in one month.
Convexity
A measure of the change in a security’s duration with
respect to changes in interest rates. The more convex a
security is, the more its duration will change with interest
rate changes.
Corporate Debt
Non-government debt instruments issued by corporations.
Long-term corporate debt can be issued as bonds or loans.
Counterparty
One of two entities in a transaction. For example, in the
bond market a counterparty can be a state or local
government, a broker-dealer or a corporation.
Coupon
The interest rate on a bond that is used to compute the
amount of interest due on a periodic basis.
Credit and Counterparty Risk
Risk to earnings, capital or business, resulting from an
obligor’s or counterparty’s failure to meet the terms of any
contract or otherwise failure to perform as agreed. Credit
and counterparty risk is present in lending, investing,
funding and hedging activities.
Credit Derivatives
Derivative instruments that have one or more underlyings
related to the credit risk of a specified entity (or group of
entities) or an index that exposes the seller to potential loss
from specified credit-risk related events. An example is
credit derivatives referencing the commercial mortgage-
backed securities index.
Credit Risk Transfer (“CRT”) Securities
Credit Risk Transfer securities are risk sharing transactions
issued by Fannie Mae and Freddie Mac and similarly
structured transactions arranged by third party market
participants. The securities issued in the CRT sector are
designed to synthetically transfer mortgage credit risk from
Fannie Mae, Freddie Mac and/or third parties to private
investors.
Current Face
The current remaining monthly principal on a mortgage
security. Current face is computed by multiplying the
original face value of the security by the current principal
balance factor.
D
Dealer
Person or organization that underwrites, trades and sells
securities, e.g., a principal market-maker in securities.
Default Risk
Possibility that a bond issuer will fail to pay principal or
interest when due.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Derivative
A financial product that derives its value from the price,
price fluctuations and price expectations of an underlying
instrument, index or reference pool (e.g. futures contracts,
options, interest rate swaps, interest rate swaptions and
certain to-be-announced securities).
Economic Capital Ratio
Non-GAAP financial measure that is calculated as total
stockholders’ equity divided by total economic assets.
Total economic assets includes the implied market value of
TBA derivatives and are net of debt
issued by
securitization vehicles .
Discount Price
When the dollar price is below face value, it is said to be
selling at a discount.
Duration
The weighted maturity of a fixed-income investment’s cash
flows, used in the estimation of the price sensitivity of
fixed-income securities for a given change in interest rates.
E
Earnings available for distribution (“EAD”) and
Earnings available
for distribution Per Average
Common Share
Non-GAAP financial measure defined as the sum of (a)
economic net interest income, (b) TBA dollar roll income
and CMBX coupon income, (c) net servicing income less
realized amortization of MSR, (d) other income (loss)
(excluding depreciation expense related to commercial real
estate and amortization of intangibles, non-EAD income
allocated to equity method investments and other non-EAD
components of other income (loss)), (e) general and
administrative expenses (excluding transaction expenses
and non-recurring items), and (f) income taxes (excluding
the income tax effect of non-EAD income (loss) items) and
excludes
the premium amortization adjustment
representing the cumulative impact on prior periods, but
not the current period, of quarter-over-quarter changes in
estimated long-term prepayment speeds related to our
Agency mortgage-backed securities. Earnings available for
distribution per average common share is a non-GAAP
financial measure calculated by dividing earnings available
for distribution by average basic common shares for the
period.
(g)
This metric was previously
labeled Core Earnings
(excluding PAA) and Core Earnings (excluding PAA) Per
Average Common Share). The definition of EAD is
identical to the definition of Core Earnings (excluding
PAA) from prior reporting periods.
Economic Capital
A measure of the risk a firm is subject to. It is the amount
of capital a firm needs as a buffer to protect against risk. It
is a probabilistic measure of potential future losses at a
given confidence level over a given time horizon.
Economic Interest Expense
Non-GAAP financial measure that is comprised of GAAP
interest expense and the net interest component of interest
rate swaps.
Economic Leverage Ratio (Economic Debt-to-Equity
Ratio)
Non-GAAP financial measure that is calculated as the sum
of recourse debt, cost basis of TBA and CMBX derivatives
outstanding and net
(sales) of
investments divided by total equity. Recourse debt consists
of repurchase agreements, other secured financing and U.S.
Treasury securities sold, not yet purchased. Debt issued by
securitization vehicles and participations issued, are non-
recourse to us and are excluded from this measure.
forward purchases
Economic Net Interest Income
Non-GAAP financial measure that is composed of GAAP
interest income less Economic Interest Expense.
Economic Return
Refers to the Company’s change in book value plus
dividends declared divided by the prior period’s book
value.
Encumbered Assets
Assets on the company’s balance sheet which have been
pledged as collateral against a liability.
ESG
Environmental, social, and governance.
F
Face Amount
The par value (i.e., principal or maturity value) of a
security appearing on the face of the instrument.
Factor
A decimal value
the
outstanding principal balance of a mortgage security,
which changes over time, in relation to its original
principal value.
the proportion of
reflecting
Fannie Mae
Federal National Mortgage Association.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Federal Deposit Insurance Corporation (“FDIC”)
An independent agency created by the U.S. Congress to
maintain stability and public confidence in the nation’s
financial system by insuring deposits, examining and
supervising financial institutions for safety and soundness
and consumer protection, and managing receiverships.
Federal Funds Rate
The interest rate charged by banks on overnight loans of
their excess reserve funds to other banks.
Federal Housing Financing Agency (“FHFA”)
The FHFA is an independent regulatory agency that
oversees vital components of the secondary mortgage
market including Fannie Mae, Freddie Mac and the Federal
Home Loan Banks.
Industry Regulatory Authority,
Financial
(“FINRA”)
FINRA is a non-governmental organization tasked with
regulating all business dealings conducted between dealers,
brokers and all public investors.
Inc.
Fixed-Rate Mortgage
A mortgage featuring level monthly payments, determined
at the outset, which remain constant over the life of the
mortgage.
Fixed Income Clearing Corporation (“FICC”)
The FICC is an agency that deals with the confirmation,
settlement and delivery of fixed-income assets in the U.S.
The agency ensures the systematic and efficient settlement
of U.S. Government securities and mortgage-backed
security transactions in the market.
Floating Rate Bond
A bond for which the interest rate is adjusted periodically
according to a predetermined formula, usually linked to an
index.
Floating Rate CMO
A CMO tranche which pays an adjustable rate of interest
tied to a representative interest rate index such as the
SOFR, the Constant Maturity Treasury or the Cost of
Funds Index.
Freddie Mac
Federal Home Loan Mortgage Corporation.
Futures Contract
A legally binding agreement to buy or sell a commodity or
financial instrument in a designated future month at a price
agreed upon at the initiation of the contract by the buyer
and seller. Futures contracts are standardized according to
the quality, quantity, and delivery time and location for
each commodity. A futures contract differs from an option
in that an option gives one of the counterparties a right and
the other an obligation to buy or sell, while a futures
contract represents an obligation of both counterparties,
one to deliver and the other to accept delivery. A futures
contract is part of a class of financial instruments called
derivatives.
G
GAAP
U.S. generally accepted accounting principles.
Ginnie Mae
Government National Mortgage Association.
H
Hedge
An investment made with the intention of minimizing the
impact of adverse movements in interest rates or securities
prices.
I
In-the-Money
Description for an option that has intrinsic value and can
be sold or exercised for a profit; a call option is in-the-
money when the strike price (execution price) is below the
market price of the underlying security.
to
Interest Bearing Liabilities
issued by
repurchase agreements, debt
Refers
securitization vehicles, U.S. Treasury securities sold, not
yet purchased, and credit facilities. Average interest
bearing liabilities is based on daily balances.
Interest Earning Assets
Refers to Residential Securities, U.S. Treasury securities,
reverse repurchase agreements, commercial real estate debt
and preferred equity interests, residential mortgage loans
and corporate debt. Average interest earning assets is based
on daily balances.
Interest-Only (IO) Bond
The interest portion of mortgage, Treasury or bond
payments, which is separated and sold individually from
the principal portion of those same payments.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
L
Leverage
The use of borrowed money to increase investing power
and economic returns.
Leverage Ratio (GAAP Leverage Ratio or Debt-to-
Equity Ratio)
Calculated as total debt to total stockholders’ equity. For
purposes of calculating this ratio total debt includes
repurchase agreements, other secured financing, debt
issued by securitization vehicles, participations issued, and
U.S. Treasury securities sold, not yet purchased. Debt
issued by securitization vehicles and participations issued
and mortgages payable are non-recourse to us.
LIBOR (London Interbank Offered Rate)
A rate previously used as a benchmark for financial
transactions. All tenors of LIBOR relevant to us are either
no longer published or are no longer representative.
Liquidity Risk
Risk to earnings, capital or business arising from our
inability to meet our obligations when they come due
without incurring unacceptable losses because of inability
to liquidate assets or obtain adequate funding.
Long-Term CPR
Our projected prepayment speeds for certain Agency
mortgage-backed securities using third party model and
market information. Our prepayment speed projections
incorporate underlying loan characteristics (e.g., coupon,
term, original loan size, original loan-to-value ratio, etc.)
and market data, including interest rate and home price
index forecasts. Changes to model assumptions, including
interest rates and other market data, as well as periodic
revisions to the model will cause changes in the results.
Long-Term Debt
Debt which matures in more than one year.
M
Market Agreed Coupon (“MAC”) Interest Rate Swap
An interest rate swap contract structure with pre-defined,
market agreed terms, developed by SIFMA and ISDA with
the purpose of promoting
liquidity and simplified
administration.
Monetary Policy
Action taken by the Federal Open Market Committee of
the Federal Reserve System to influence the money supply
or interest rates.
Interests in MSR
Represents agreements to purchase all, or a component of,
net servicing cash flows.
Interest Rate Risk
The risk that an investment’s value will change due to a
change in the absolute level of interest rates, in the spread
between two rates, in the shape of the yield curve or in any
other interest rate relationship. As market interest rates
rise, the value of current fixed income investment holdings
hedging
declines. Diversifying,
techniques are utilized to mitigate this risk. Interest rate
risk is a form of market risk.
deleveraging
and
Interest Rate Swap
A binding agreement between counterparties to exchange
periodic interest payments on some predetermined dollar
principal, which is called the notional principal amount.
For example, one party will pay fixed and receive a
variable rate.
Interest Rate Swaption
Options on interest rate swaps. The buyer of a swaption has
the right to enter into an interest rate swap agreement at
some specified date in the future. The swaption agreement
will specify whether the buyer of the swaption will be a
fixed-rate receiver or a fixed-rate payer.
International Swaps and Derivatives Association
(“ISDA”) Master Agreement
Standardized contract developed by ISDA used as an
umbrella under which bilateral derivatives contracts are
entered into.
Inverse IO Bond
An interest-only bond whose coupon is determined by a
formula expressing an inverse relationship to a benchmark
rate, such as SOFR. As the benchmark rate changes, the IO
coupon adjusts in the opposite direction. When the
benchmark rate is relatively low, the IO pays a relatively
high coupon payment, and vice versa.
Investment/Market Risk
Risk to earnings, capital or business resulting in the decline
in value of our assets caused from changes in market
variables, such as interest rates, which affect the values of
Residential Securities and other investment instruments.
Investment Advisers Act
Refers to the Investment Advisers Act of 1940, as
amended.
Investment Company Act
Refers to the Investment Company Act of 1940, as
amended.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Mortgage-Backed Security (“MBS”)
A security representing a direct interest in a pool of
mortgage loans. The pass-through issuer or servicer
collects the payments on the loans in the pool and “passes
through” the principal and interest to the security holders
on a pro rata basis.
Mortgage Loan
A mortgage loan granted by a bank, thrift or other financial
institution that is based solely on real estate as security and
is not insured or guaranteed by a government agency.
Mortgage Servicing Rights (“MSR”)
Contractual agreements constituting the right to service an
existing mortgage where the holder receives the benefits
and bears the costs and risks of servicing the mortgage.
N
NAV
Net asset value.
Net Interest Income
Represents
interest
investments, less interest expense paid for borrowings.
income earned on our portfolio
Net Interest Margin and Net Interest Margin
(excluding PAA)
Net interest margin represents our interest income less
interest expense divided by average interest earning assets.
Net interest margin (excluding PAA) is a non-GAAP
financial measure that represents the sum of our interest
income (excluding PAA) plus TBA dollar roll income and
CMBX coupon income less interest expense and the net
interest component of interest rate swaps divided by the
sum of average interest earning assets plus average
outstanding TBA contract and CMBX balances.
Net Interest Spread and Net Interest Spread (excluding
PAA)
Net interest spread represents the average yield on interest
earning assets less the average GAAP cost of interest
bearing liabilities. Net interest spread (excluding PAA) is a
non-GAAP financial measure that represents the average
yield on interest earning assets (excluding PAA) less the
average economic cost of interest bearing liabilities.
Non-Performing Loan (“NPL”)
A loan that is close to defaulting or is in default.
Notional Amount
A stated principal amount in a derivative contract on which
the contract is based.
O
Operational Risk
Risk to earnings, capital, reputation or business arising
from inadequate or failed internal processes or systems,
human factors or external events.
Option Contract
A contract in which the buyer has the right, but not the
obligation, to buy or sell an asset at a set price on or before
a given date. Buyers of call options bet that a security will
be worth more than the price set by the option (the strike
price), plus the price they pay for the option itself. Buyers
of put options bet that the security’s price will drop below
the price set by the option. An option is part of a class of
financial instruments called derivatives, which means these
financial instruments derive their value from the worth of
an underlying investment.
Original Face
The face value or original principal amount of a security on
its issue date.
Out-of-the-Money
Description for an option that has no intrinsic value and
would be worthless if it expired today; for a call option,
this situation occurs when the strike price is higher than the
market price of the underlying security; for a put option,
this situation occurs when the strike price is less than the
market price of the underlying security.
Overnight Index Swaps (“OIS”)
An interest rate swap in which a fixed rate is exchanged for
an overnight floating rate.
Over-The-Counter (“OTC”) Market
A securities market that is conducted by dealers throughout
the country through negotiation of price rather than
through the use of an auction system as represented by a
stock exchange.
P
Par
Price equal to the face amount of a security; 100%.
Par Amount
The principal amount of a bond or note due at maturity.
Also known as par value.
Pass-Through Security
A securitization structure where a GSE or other entity
“passes” the amount collected from the borrowers every
month to the investor, after deducting fees and expenses.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Pool
A collection of mortgage loans assembled by an originator
or master servicer as the basis for a security. In the case of
Ginnie Mae, Fannie Mae, or Freddie Mac mortgage pass-
through securities, pools are identified by a number
assigned by the issuing agency.
Premium
The amount by which the price of a security exceeds its
principal amount. When the dollar price of a bond is above
its face value, it is said to be selling at a premium.
Premium Amortization Adjustment (“PAA”)
The cumulative impact on prior periods, but not the current
period, of quarter-over-quarter changes in estimated long-
term prepayment speeds related to our Agency mortgage-
backed securities.
Prepayment
The unscheduled partial or complete payment of the
principal amount outstanding on a mortgage loan or other
debt before it is due.
Prepayment Risk
The risk that falling interest rates will lead to increased
prepayments of mortgage or other loans, forcing the
investor to reinvest at lower prevailing rates.
Recourse Debt
Debt on which the economic borrower is obligated to repay
the entire balance regardless of the value of the pledged
collateral. By contrast, the economic borrower’s obligation
to repay non-recourse debt is limited to the value of the
pledged collateral. Recourse debt consists of repurchase
agreements, other secured financing and U.S. Treasury
securities sold, not yet purchased. Debt
issued by
securitization vehicles and participations issued are non-
recourse to us and are excluded from this measure.
Reinvestment Risk
The risk that interest income or principal repayments will
have to be reinvested at lower rates in a declining rate
environment.
Re-Performing Loan (“RPL”)
A type of loan in which payments were previously
delinquent by at least 90 days but have resumed.
Repurchase Agreement
The sale of securities to investors with the agreement to
buy them back at a higher price after a specified time
period; a form of short-term borrowing. For the party on
the other end of the transaction (buying the security and
agreeing to sell in the future) it is a reverse repurchase
agreement.
Prepayment Speed
The estimated rate at which mortgage borrowers will pay
off the mortgages that underlie an MBS.
Residential Credit Securities
Refers to CRT securities and non-Agency mortgage-
backed securities.
Primary Market
Market for offers or sales of new bonds by the issuer.
Prime Rate
The indicative interest rate on loans that banks quote to
their best commercial customers.
Principal and Interest
The term used to refer to regularly scheduled payments or
prepayments of principal and payments of interest on a
mortgage or other security.
R
Rate Reset
The adjustment of the interest rate on a floating-rate
security according to a prescribed formula.
investment vehicle
Real Estate Investment Trust (“REIT”)
A special purpose
that provides
investors with the ability to participate directly in the
ownership or financing of real-estate related assets by
pooling their capital to purchase and manage mortgage
loans and/or income property.
Residential Securities
Refers
securities and non-Agency mortgage-backed securities.
to Agency mortgage-backed securities, CRT
Residual
In securitizations, the residual is the tranche that collects
any cash flow from the collateral that remains after
obligations to the other tranches have been met.
Return on Average Equity
Calculated by
stockholders’ equity.
taking earnings divided by average
Reverse Repurchase Agreement
Refer to Repurchase Agreement. The buyer of securities
effectively provides a collateralized loan to the seller.
Risk Appetite Statement
Defines the types and levels of risk we are willing to take
in order to achieve our business objectives, and reflects our
risk management philosophy.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
S
Secondary Market
Ongoing market for bonds previously offered or sold in the
primary market.
Secured Overnight Financing Rate (“SOFR”)
Broad measure of the cost of borrowing cash overnight
collateralized by Treasury securities and was chosen by the
Alternative Reference Rate Committee as the preferred
benchmark rate to replace dollar LIBOR.
Settlement Date
The date securities must be delivered and paid for to
complete a transaction.
Short-Term Debt
Generally, debt which matures in one year or less.
However, certain securities that mature in up to three years
may be considered short-term debt.
Spread
When buying or selling a bond through a brokerage firm,
investors will be charged a commission or spread, which is
the difference between the market price and cost of
purchase, and sometimes a service fee. Spreads differ
based on several factors including liquidity.
T
Target Assets
to-be-
Includes Agency mortgage-backed securities,
announced forward contracts, CRT securities, MSR, non-
Agency mortgage-backed securities, residential mortgage
loans, and commercial real estate investments.
Tangible Economic Return
Refers to the Company’s change in tangible book value
(calculated by summing common stock, additional paid-in
capital, accumulated other comprehensive income (loss)
and accumulated deficit
intangible assets) plus
less
dividends declared divided by the prior period’s tangible
book value.
Taxable REIT Subsidiary (“TRS”)
An entity that is owned directly or indirectly by a REIT
and has jointly elected with the REIT to be treated as a
TRS for tax purposes. Annaly and certain of its direct and
indirect subsidiaries have made separate joint elections to
treat these subsidiaries as TRSs.
Term SOFR
The term secured overnight financing rate published by the
Chicago Mercantile Exchange, which
is used as a
benchmark for financial transactions.
To-Be-Announced (“TBA”) Securities
A contract for the purchase or sale of a mortgage-backed
security to be delivered at a predetermined price, face
amount, issuer, coupon and stated maturity on an agreed-
upon future date but does not include a specified pool
number and number of pools.
TBA Dollar Roll Income
TBA dollar roll income is defined as the difference in price
between two TBA contracts with the same terms but
different settlement dates. The TBA contract settling in the
later month typically prices at a discount to the earlier
month contract with the difference in price commonly
referred to as the “drop”. TBA dollar roll income
represents the equivalent of interest income on the
underlying security less an implied cost of financing.
Total Return
Investment performance measure over a stated time period
which includes coupon interest, interest on interest, and
any realized and unrealized gains or losses.
Total Return Swap
A derivative instrument where one party makes payments
at a predetermined rate (either fixed or variable) while
receiving a return on a specific asset (generally an equity
index, loan or bond) held by the counterparty.
U
Unencumbered Assets
Assets on our balance sheet which have not been pledged
as collateral against an existing liability.
U.S. Government-Sponsored Enterprise (“GSE”)
Obligations
Obligations of Agencies originally established or chartered
by the U.S. government to serve public purposes as
specified by the U.S. Congress, such as Fannie Mae and
Freddie Mac;
these obligations are not explicitly
guaranteed as to the timely payment of principal and
interest by the full faith and credit of the U.S. government.
V
Value-at-Risk (“VaR”)
A statistical technique which measures the potential loss in
value of an asset or portfolio over a defined period for a
given confidence interval.
Variable Interest Entity (“VIE”)
An entity in which equity investors (i) do not have the
characteristics of a controlling financial interest, and/or (ii)
do not have sufficient equity at risk for the entity to finance
its activities without additional subordinated financial
support from other parties.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 7. Management’s Discussion and Analysis
Variation Margin
Cash or securities provided by a party to collateralize its
obligations under a transaction as a result of a change in
value of such transaction since the trade was executed or
the last time collateral was provided.
Volatility
A statistical measure of the variance of price or yield over
time. Volatility is low if the price does not change very
much over a short period of time, and high if there is a
greater change.
Voting Interest Entity (“VOE”)
An entity that has sufficient equity to finance its activities
without additional subordinated financial support from
other parties and in which equity investors have a
controlling financial interest.
W
Warehouse Lending
A line of credit extended to a loan originator to fund
mortgages extended by the loan originators to property
purchasers. The loan typically lasts from the time the
mortgage is originated to when the mortgage is sold into
the secondary market, whether directly or through a
securitization. Warehouse lending can provide liquidity to
the loan origination market.
Weighted Average Coupon
The weighted average interest rate of the underlying
mortgage loans or pools that serve as collateral for a
security, weighted by the size of the principal loan
balances.
Weighted Average Life (“WAL”)
The assumed weighted average amount of time that will
elapse from the date of a security’s issuance until each
dollar of principal is repaid to the investor. The WAL will
change as the security ages and depending on the actual
realized
scheduled and
unscheduled, is paid on the loans underlying the MBS.
rate at which principal,
Y
Yield-to-Maturity
The expected rate of return of a bond if it is held to its
maturity date; calculated by taking into account the current
market price, stated redemption value, coupon payments
and time to maturity and assuming all coupons are
reinvested at the same rate; equivalent to the internal rate
of return.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are contained within the section titled “Risk Management” of Item 7.
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Our financial statements and the related notes, together with the Report of Independent Registered Public Accounting Firm
thereon, are set forth beginning on page F-1 of this Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO), reviewed and
evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e)
and 15d-15(e) of the Securities Exchange Act) as of the end of the period covered by this report. Based on that review and
evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed, (1) were
effective in ensuring that information required to be disclosed by Annaly in reports it files or submits under the Securities
Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow
timely decisions regarding required disclosure and (2) were effective in ensuring that information required to be disclosed by
Annaly in reports it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within
the time periods specified by the SEC’s rules and forms.
There have been no changes in our internal controls over financial reporting that occurred during the three months ended
December 31, 2023 that have materially affected, or are reasonably likely to materially affect our internal control over financial
reporting.
Management’s Annual Report On Internal Control Over Financial Reporting
Management of Annaly is responsible for establishing and maintaining adequate internal control over financial reporting.
Internal control over financial reporting is defined in Rules 13a-15(f) or 15d-15(f) under the Securities Exchange Act. Our
internal control over financial reporting is a process designed by, or under the supervision of, Annaly’s CEO and CFO and
effected by the Annaly’s board of directors, management and other personnel to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles and includes those policies and procedures that:
•
•
pertain to the maintenance of records that in
reasonable detail accurately and fairly reflect the
transactions and dispositions of
the assets of
Annaly;
provide reasonable assurance that transactions are
recorded as necessary to permit preparation of
financial statements in accordance with generally
accepted accounting principles, and that receipts and
expenditures of Annaly are being made only in
accordance with authorizations of management and
directors of Annaly; and
•
provide reasonable assurance regarding prevention
or timely detection of unauthorized acquisition, use
or disposition of Annaly’s assets that could have a
material effect on
financial
statements.
the consolidated
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. As a
result, even systems determined to be effective can provide only reasonable assurance regarding the preparation and
presentation of financial statements. Moreover, projections of any evaluation of effectiveness to future periods are subject to the
89
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
risks that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies
or procedures may deteriorate.
Annaly’s management assessed the effectiveness of the Company’s internal control over financial reporting as of December 31,
2023. In making this assessment, the Company’s management used criteria set forth by the Committee of Sponsoring
Organizations of the Treadway Commission’s (“COSO”) Internal Control-Integrated Framework (2013).
Based on the Annaly’s management’s evaluation under the framework in Internal Control—Integrated Framework (2013),
Annaly’s management concluded that its internal control over financial reporting was effective as of December 31, 2023.
Annaly’s independent registered public accounting firm, Ernst & Young LLP, has issued an attestation report on Annaly’s
internal control over financial reporting, which is included herein.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Annaly Capital Management, Inc.
Opinion on Internal Control Over Financial Reporting
We have audited Annaly Capital Management, Inc. and subsidiaries’ internal control over financial reporting as of December
31, 2023, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Annaly Capital
Management, Inc. and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial
reporting as of December 31, 2023, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated statements of financial condition as of December 31, 2023 and 2022, the related consolidated
statements of comprehensive income (loss), stockholders’ equity and cash flows for each of the three years in the period ended
December 31, 2023, and the related notes and our report dated February 15, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual
Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal
control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material
weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and
performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
New York, NY
February 15, 2024
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 9B. OTHER INFORMATION
During the quarter ended December 31, 2023, no director or officer of the Company adopted, modified or terminated any Rule
10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement, each as defined in Item 408 of Regulation S-K.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 as to our directors is incorporated herein by reference to the proxy statement to be filed
with the SEC within 120 days after December 31, 2023. The information regarding our executive officers required by Item 10
appears in Part I of this Form 10-K. The information required by Item 10 as to our compliance with Section 16(a) of the
Securities Exchange Act of 1934 is incorporated by reference to the proxy statement to be filed with the SEC within 120 days
after December 31, 2023.
We have adopted a Code of Business Conduct and Ethics within the meaning of Item 406(b) of Regulation S-K. This Code of
Business Conduct and Ethics applies to our principal executive officer, principal financial officer and principal accounting
officer. This Code of Business Conduct and Ethics is publicly available on our website at www.annaly.com. We intend to
satisfy the disclosure requirements regarding amendments to, or waivers from, certain provisions of this Code of Business
Conduct and Ethics by posting on our website.
We have adopted an Insider Trading Policy within the meaning of Item 408(b) of Regulation S-K, which prohibits our
directors, officers and employees, as well as those of our subsidiaries, from buying or selling our securities on the basis of
material nonpublic information and prohibits communicating material nonpublic information about our company to others. Our
Insider Trading Policy prohibits our directors, officers and employees from (1) holding our stock in a margin account as eligible
collateral, or otherwise pledging our stock as collateral for a loan, or (2) engaging in any hedging transactions with respect to
our equity securities held by them.
The information regarding certain matters pertaining to our corporate governance required by Items 407(c)(3), (d)(4) and (d)(5)
of Regulation S-K is incorporated by reference to the Proxy Statement to be filed with the SEC within 120 days after December
31, 2023.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated herein by reference to the proxy statement to be filed with the SEC within
120 days after December 31, 2023.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
Equity Compensation Plan Information
On May 20, 2020, at our 2020 Annual Meeting of Stockholders, our stockholders approved the 2020 Equity Incentive Plan. The
2020 Equity Incentive Plan authorizes us to grant options, stock appreciation rights, dividend equivalent rights, or other share-
based awards, including restricted shares up to an aggregate of 31,250,000 shares, subject to adjustments for any awards that
were outstanding under our 2010 Equity Incentive Plan (the “Prior Incentive Plan,” together with the 2020 Equity Incentive
Plan, the “Incentive Plans”) on the effective date of the 2020 Equity Incentive Plan and subsequently expire, terminate, or are
surrendered or forfeited.
Since the adoption of the 2020 Equity Incentive Plan, no further awards have been made under the Prior Incentive Plan,
although existing awards remained effective.
The following table provides information as of December 31, 2023 concerning shares of our common stock authorized for
issuance under the Incentive Plans.
93
Plan Category
Equity compensation plans approved by security holders
Equity compensation plans not approved by security holders
Total
(a)
(b)
Number of securities to
be issued upon exercise
of outstanding options,
warrants and rights
Weighted-average
exercise price of
outstanding options,
warrants and rights
(c)
Number of securities
remaining available for
future issuance under
the Incentive Plans
(excluding securities in
column ‘a’)
— $
—
— $
—
—
—
28,654,814
—
28,654,814
Information with respect to security ownership of certain beneficial owners and management is incorporated herein by
reference to the proxy statement to be filed with the SEC within 120 days after December 31, 2023.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
The information required by Item 13 is incorporated herein by reference to the proxy statement to be filed with the SEC within
120 days after December 31, 2023.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated herein by reference to the proxy statement to be filed with the SEC within
120 days after December 31, 2023.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Documents filed as part of this report:
1.
2.
Financial Statements. See Index to Financial Statements below.
Schedules to Financial Statements. See Index to Financial Statements below
All financial statement schedules not included have been omitted because they are either inapplicable or the information
required is provided in our Financial Statements and Notes thereto.
3.
Exhibits. See Exhibit Index below.
EXHIBIT INDEX
Exhibit Number
Exhibit Description
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
3.9
3.10
3.11
3.12
3.13
3.14
Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant (incorporated by
reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11 (Registration No.
333-32913) filed August 5, 1997).
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Registration Statement on Form S-3 (Registration Statement 333-74618)
filed June 12, 2002).
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed August 3, 2006).
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.4 of the Registrant’s Quarterly Report on Form 10-Q filed May 7, 2008).
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed June 23, 2011).
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant’s Current Report on Form 8-K filed May 23, 2019).
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed September 23, 2022).
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.2 of the Registrant's Current Report on Form 8-K filed September 23, 2022).
Articles of Amendment to the Articles of Incorporation of the Registrant (incorporated by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed May 19, 2023).
Articles Supplementary designating the Registrant’s 6% Series B Cumulative Convertible Preferred Stock,
liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on 8-K filed April 10, 2006).
Articles Supplementary designating the Registrant’s 7.625% Series C Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed May 16, 2012).
Articles Supplementary designating the Registrant’s 7.50% Series D Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s
Current Report on Form 8-K filed September 13, 2012).
Articles Supplementary designating the Registrant’s 7.625% Series E Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 (incorporated by reference to Exhibit 3.12 to the Registrant’s
Registration Statement on Form 8-A filed July 12, 2016).
Articles Supplementary reclassifying the Registrant’s 6% Series B Cumulative Convertible Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.13 to the
Registrant’s Registration Statement on Form 8-A filed July 27, 2017).
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
3.15
3.16
3.17
3.18
3.19
3.20
3.21
3.22
3.23
3.24
4.1
4.2
4.3
4.4
4.5
4.6
4.7
4.8
Articles Supplementary designating the Registrant’s 6.95% Series F Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit
3.14 to the Registrant’s Registration Statement on Form 8-A filed July 27, 2017).
Articles Supplementary reclassifying and designating (1) 7,412,500 authorized but unissued shares of the
Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares
of undesignated Common Stock; (2) 650,000 authorized but unissued shares of the Registrant’s 7.625%
Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of undesignated
Common Stock; and (3) 3,400,000 authorized but unissued shares of the Registrant’s 6.95% Series F
Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, $0.01 par value per share, as shares of
undesignated Common Stock. (incorporated by reference to Exhibit 3.15 of the Registrant’s Quarterly
Report on Form 10-Q filed November 3, 2017).
Articles Supplementary designating Annaly’s 6.50% Series G Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit
3.16 to the Registrant’s Registration Statement on Form 8-A filed January 10, 2018).
Articles Supplementary reclassifying and designating (i) 11,500,000 authorized but unissued shares of the
Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares
of Registrant’s undesignated common stock and (ii) 5,000,000 authorized but unissued shares of
Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as
shares of Registrant’s undesignated common stock (incorporated by reference to Exhibit 3.1 to the
Registrant’s Quarterly Report on Form 10-Q filed August 3, 2018).
Form of Articles Supplementary designating Annaly’s 8.125% Series H Cumulative Redeemable Preferred
Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.17 to the
Registrant’s Registration Statement on Form 8-A filed September 7, 2018).
Articles Supplementary reclassifying and designating 2,200,000 authorized but unissued shares of the
Registrant’s preferred stock, $0.01 par value per share, without designation as to series or class, as shares
of undesignated Common Stock (incorporated by reference to Exhibit 3.1 of the Registrant’s Current
Report on Form 8-K filed June 3, 2019).
Articles Supplementary designating Annaly’s 6.750% Series I Fixed-to-Floating Rate Cumulative
Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit
3.20 to the Registrant’s Registration Statement on Form 8-A filed June 26, 2019).
Articles Supplementary reclassifying and designating 7,000,000 authorized but unissued shares of
Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, $0.01 par value per share, as
shares of Registrant’s undesignated common stock (incorporated by reference to Exhibit 3.1 to the
Registrant’s Current Report on Form 8-K filed July 22, 2019).
Articles Supplementary filed with the State Department of Assessments and Taxation of Maryland
effective on January 4, 2021 (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report
on Form 8-K filed January 5, 2021).
Amended and Restated Bylaws of the Registrant, December 8, 2022 (incorporated by reference to Exhibit
3.1 to the Registrant’s Current Report on Form 8-K filed December 9, 2022).
Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the
Registrant’s Registration Statement on Form S-11 (Registration No. 333-32913) filed September 17,
1997).
Specimen Preferred Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registrant’s
Registration Statement on Form S-3 (Registration No. 333-74618) filed on December 5, 2001).
Specimen Series F Preferred Stock Certificate (incorporated by reference to Exhibit 4.8 to the Registrant’s
Registration Statement on Form 8-A filed July 27, 2017).
Specimen Series G Preferred Stock Certificate (incorporated by reference to Exhibit 4.9 to the Registrant’s
Registration Statement on Form 8-A filed January 10, 2018).
Specimen Series I Preferred Stock Certificate (incorporated by reference to Exhibit 4.7 to the Registrant’s
Registration Statement on Form 8-A filed June 26, 2019).
Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed
February 12, 2010).
Indenture, dated as of February 1, 2019, between the Registrant and Wells Fargo Bank, National
Association (incorporated by reference to Exhibit 4.7 to the Registrant’s Current Report on Form S-3 filed
February 1, 2019).
Supplemental Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form
8-K filed February 12, 2010).
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
4.9
4.10
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
19.1
21.1
23.1
97.1
31.1
31.2
32.1
32.2
101.INS XBRL
Second Supplemental Indenture, dated as of May 14, 2012, between the Registrant and Wells Fargo Bank,
National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Current Report on Form
8-K filed May 14, 2012).
Description of Securities. †
Form of Master Repurchase Agreement (incorporated by reference to Exhibit 10.7 to the Registrant’s
Registration Statement on Form S-11 (Registration No. 333-32913) filed August 5, 1997).
Registrant’s Deferred Compensation Plan for Directors (incorporated by reference to Exhibit 10.5 to the
Registrant’s Annual Report on Form 10-K filed February 23, 2017).*
Form of Indemnification Agreement (incorporated by reference to Exhibit 10.1 to the Registrant’s Current
Report on Form 8-K filed March 20, 2017).
2020 Equity Incentive Plan (incorporated herein by reference to Annex A to the Registrant’s proxy
statement dated April 8, 2020).*
Form of Deferred Stock Unit Award for Directors (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed May 21, 2020).*
Annaly Capital Management, Inc. Executive Severance Plan (incorporated by reference to Exhibit 10.1 to
the Registrant’s Current Report on Form 8-K filed July 1, 2020).*
Form of 2020 Performance Stock Unit Award (incorporated by reference to Exhibit 10.2 to the
Registrant’s Current Report on Form 8-K filed July 1, 2020).*
Form of 2020 Restricted Stock Unit Award (incorporated by reference to Exhibit 10.3 to the Registrant’s
Current Report on Form 8-K filed July 1, 2020).*
Form of 2022 Performance Stock Unit Award (incorporated by reference to Exhibit 10.10 to the
Registrant’s Annual Report on Form 10-K filed February 18, 2022).*
Form of 2022 Restricted Stock Unit Award (incorporated by reference to Exhibit 10.11 to the Registrant’s
Annual Report on Form 10-K filed February 18, 2022.*
Form of 2023 Performance Stock Unit Award (incorporated by reference to Exhibit 10.12 to the
Registrant's Annual Report on Form 10-K filed February 16, 2023).*
Form of 2023 Restrictive Stock Unit Award (incorporated by reference to Exhibit 10.13 to the Registrant's
Annual Report on Form 10-K filed February 16, 2023).*
Insider Trading Policy †
Subsidiaries of Registrant. †
Consent of Ernst & Young LLP. †
Dodd-Frank Clawback Policy †
Certification of David L. Finkelstein, Chief Executive Officer and Chief Investment Officer (Principal
Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
302 of the Sarbanes-Oxley Act of 2002. †
Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
†
Certification of David L. Finkelstein, Chief Executive Officer and Chief Investment Officer (Principal
Executive Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section
906 of the Sarbanes-Oxley Act of 2002. †
Certification of Serena Wolfe, Chief Financial Officer (Principal Financial Officer) of the Registrant,
pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
†
The instance document does not appear in the interactive data file because its Extensible Business
Reporting Language (XBRL) tags are embedded within the Inline XBRL document. The following
documents are formatted in Inline XBRL: (i) Consolidated Statements of Financial Condition at December
31, 2023 and 2022; (ii) Consolidated Statements of Comprehensive Income (Loss) for the years ended
December 31, 2023, 2022 and 2021; (iii) Consolidated Statements of Stockholders’ Equity for the years
ended December 31, 2023, 2022 and 2021; (iv) Consolidated Statements of Cash Flows for the years
ended December 31, 2023, 2022 and 2021; and (v) Notes to Consolidated Financial Statements.
101.SCH XBRL Taxonomy Extension Schema Document †
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document †
101.DEF XBRL Additional Taxonomy Extension Definition Linkbase Document Created†
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
101.LAB XBRL Taxonomy Extension Label Linkbase Document †
101.PRE XBRL
Taxonomy Extension Presentation Linkbase Document †
104
The cover page for the Registrant’s Annual Report on Form 10-K for the year ended December 31, 2023
(formatted in Inline XBRL and contained in Exhibit 101).
* Exhibit Numbers 10.2, 10.3, 10.5, 10.6, 10.7, 10.8, 10.9, 10.10, 10.11 are management contracts or compensatory plans
required to be filed as Exhibits to this Form 10-K.
† Submitted electronically herewith.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
ITEM 16. FORM 10-K SUMMARY
None.
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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
Report of Independent Registered Public Accounting Firm (PCAOB ID: 42)
Page
F-1
Consolidated Financial Statements as of December 31, 2023 and 2022 and for the Years Ended December 31, 2023, 2022 and 2021
F-3
F-4
F-5
F-6
F-7
F-7
F-8
F-11
F-11
F-15
F-17
F-17
F-19
F-19
F-19
F-25
F-28
F-28
F-30
F-31
F-32
F-33
F-33
F-34
F-35
F-36
F-37
Consolidated Statements of Financial Condition
Consolidated Statements of Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes To Consolidated Financial Statements
Note 1.
Note 2.
Note 3.
Note 4.
Note 5.
Note 6.
Note 7.
Note 8.
Note 9.
Description of Business
Basis of Presentation
Significant Accounting Policies
Financial Instruments
Securities
Loans
Mortgage Servicing Rights
Variable Interest Entities
Sale of Commercial Real Estate Business
Note 10.
Sale of Middle Market Lending Portfolio
Note 11.
Derivative Instruments
Note 12.
Fair Value Measurements
Note 13.
Intangible Assets
Note 14.
Secured Financing
Note 15.
Capital Stock
Note 16.
Long-Term Stock Incentive Plan
Note 17.
Interest Income and Interest Expense
Note 18.
Net Income (Loss) Per Common Share
Note 19.
Income Taxes
Note 20.
Segments
Note 21.
Risk Management
Note 22.
Lease Commitments and Contingencies
Note 23.
Subsequent Events
101
(This page has been left blank intentionally.)
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Annaly Capital Management, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated statements of financial condition of Annaly Capital Management, Inc. and
subsidiaries (the Company) as of December 31, 2023 and 2022, the related consolidated statements of comprehensive income
(loss), stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2023, and the related
notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements
present fairly, in all material respects, the financial position of the Company at December 31, 2023 and 2022, and the results of
its operations and its cash flows for each of the three years in the period ended December 31, 2023, in conformity with U.S.
generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the Company’s internal control over financial reporting as of December 31, 2023, based on criteria established in
Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(2013 framework), and our report dated February 15, 2024 expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to
error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that
was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that
are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments. The
communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken
as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit
matter or on the account or disclosure to which it relates.
F-1
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
Valuation of mortgage servicing rights
Description of
the Matter
The Company invests in servicing related assets comprised of mortgage servicing rights (“MSR”)
totaling $2.1 billion as of December 31, 2023 as included in Note 7 to the consolidated financial
statements. The Company records MSR at fair value on a recurring basis with changes in fair value
recognized in the statement of comprehensive income (loss). These fair value estimates are based on
valuation techniques used to estimate future cash flows that incorporate unobservable assumptions,
including discount rate, prepayment rate, delinquency rate and cost to service.
Auditing the valuation of MSR is complex and required the use of a specialist due to the high degree of
judgement in the assumptions made by management which are unobservable in nature. Additionally,
selecting and applying audit procedures to address the estimation uncertainty involves auditor
subjectivity and industry-specific knowledge of MSR, including the current market conditions
considered by a market participant.
How We
Addressed the
Matter in Our
Audit
We obtained an understanding, evaluated and tested the Company’s processes and the design and
operating effectiveness of internal controls addressing the valuation of MSR, comprising management’s
governance over the functionality of the discounted cash flow model utilized to estimate fair value;
management’s review of the reasonableness of the unobservable assumptions used in the discounted cash
flow model (i.e., discount rate, prepayment rate, delinquency rate and cost to service); management’s
comparison of the assumptions used to independent third-party data; and management’s evaluation of the
internal fair value mark to third-party independent valuation firms’ ranges, as well as their evaluation of
the competence and objectivity of those third-party independent valuation firms, to assess the
reasonableness of the fair values developed by the Company.
To test the valuation of MSR, our audit procedures included, among others, evaluating the Company’s
valuation techniques used to estimate future cash flows, validating the accuracy and completeness of
model objective inputs by agreeing these inputs to the Company’s underlying records and third-party
data, evaluating the Company’s model, and testing the significant unobservable assumptions used by
management by comparing them to current industry, market and economic trends. We involved our
valuation specialists to assist in our evaluation of the Company’s valuation techniques and the
assumptions used by management, and to independently develop a range of fair values for the MSR. We
compared the assumptions made by management and management’s estimate of fair value to the
assumptions and fair value ranges developed by management’s valuation specialists and our independent
ranges to assess management’s estimates of fair value. We also assessed the competence and objectivity
of management’s independent valuation firms engaged to evaluate the reasonableness of the fair values
developed by the Company.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2012.
New York, NY
February 15, 2024
F-2
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)
Assets
Cash and cash equivalents (includes pledged assets of $1,136,298 and $1,424,160, respectively) (1)
Securities (includes pledged assets of $65,400,248 and $60,660,121, respectively) (2)
Loans, net (includes pledged assets of $2,082,419 and $1,653,464, respectively) (3)
Mortgage servicing rights (includes pledged assets of $1,781,279 and $684,703, respectively)
Assets transferred or pledged to securitization vehicles
Derivative assets
Receivable for unsettled trades
Principal and interest receivable
Intangible assets, net
Other assets
Total assets
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements
Other secured financing
Debt issued by securitization vehicles
Participations issued
U.S. Treasury securities sold, not yet purchased
Derivative liabilities
Payable for unsettled trades
Interest payable
Dividends payable
Other liabilities
Total liabilities
Stockholders’ equity
December 31, December 31,
2023
2022
$
1,412,148 $
1,576,714
69,613,565
65,789,907
2,353,084
2,122,196
13,307,622
162,557
2,710,224
1,222,705
12,106
311,029
1,809,832
1,748,209
9,121,912
342,064
575,091
637,301
16,679
233,003
$ 93,227,236 $
81,850,712
$ 62,201,543 $
59,512,597
500,000
250,000
11,600,338
7,744,160
1,103,835
2,132,751
302,295
800,849
—
204,172
3,249,389
1,157,846
287,937
325,052
179,005
325,280
412,113
74,269
81,882,145
70,481,286
Preferred stock, par value $0.01 per share, 63,500,000 authorized, issued and outstanding
1,536,569
1,536,569
Common stock, par value $0.01 per share, 1,468,250,000 and 2,936,500,000 authorized, 500,080,287 and
468,309,810 issued and outstanding, respectively
Additional paid-in capital
Accumulated other comprehensive income (loss)
Accumulated deficit
Total stockholders’ equity
Noncontrolling interests
Total equity
Total liabilities and equity
5,001
4,683
23,672,391
22,981,320
(1,335,400)
(3,708,896)
(12,622,768)
(9,543,233)
11,255,793
11,270,443
89,298
98,983
11,345,091
11,369,426
$ 93,227,236 $
81,850,712
(1) Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.0 million and $2.2 million at December 31, 2023 and 2022,
respectively.
(2) Excludes $1.5 billion and $1.0 billion at December 31, 2023 and 2022, respectively, of non-Agency mortgage-backed securities in
consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition.
(3) Includes $1.2 million and $1.3 million of residential mortgage loans held for sale at December 31, 2023 and 2022, respectively.
See notes to consolidated financial statements.
F-3
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
Net interest income
Interest income
Interest expense
Net interest income
Net servicing income
Servicing and related income
Servicing and related expense
Net servicing income
Other income (loss)
Net gains (losses) on investments and other
Net gains (losses) on derivatives
Loan loss (provision) reversal
Business divestiture-related gains (losses)
Other, net
Total other income (loss)
General and administrative expenses
Compensation expense
Other general and administrative expenses
Total general and administrative expenses
Income (loss) before income taxes
Income taxes
Net income (loss)
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to Annaly
Dividends on preferred stock
Net income (loss) available (related) to common stockholders
Net income (loss) per share available (related) to common stockholders
Basic
Diluted
Weighted average number of common shares outstanding
Basic
Diluted
Other comprehensive income (loss)
Net income (loss)
Unrealized gains (losses) on available-for-sale securities
Reclassification adjustment for net (gains) losses included in net income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling interests
Comprehensive income (loss) attributable to Annaly
Dividends on preferred stock
For The Years Ended December 31,
2023
2022
2021
$
3,731,581 $
2,778,887 $
1,983,036
3,842,965
(111,384)
1,309,735
1,469,152
249,243
1,733,793
364,157
37,652
326,505
246,926
25,145
221,781
(2,125,618)
(4,602,456)
400,092
4,859,174
219
—
73,716
(1,651,591)
119,592
42,961
162,553
20,660
(40,258)
6,667
243,787
112,703
50,026
162,729
69,018
12,202
56,816
120,958
807,730
145,066
(278,559)
1,165
796,360
118,451
67,563
186,014
(1,599,023)
1,771,991
2,400,955
39,434
45,571
4,675
(1,638,457)
1,726,420
2,396,280
4,714
(1,643,171)
141,676
1,095
1,725,325
110,623
6,384
2,389,896
107,532
(1,784,847) $
1,614,702 $
2,282,364
(3.61) $
(3.61) $
3.93 $
3.92 $
6.40
6.39
$
$
$
494,541,323
411,348,484
356,856,520
494,541,323
411,621,758
357,142,251
$
(1,638,457) $
1,726,420 $
2,396,280
580,680
1,792,816
2,373,496
735,039
4,714
730,325
141,676
(8,204,542)
(2,419,618)
3,537,236
(4,667,306)
(2,940,886)
1,095
(2,941,981)
110,623
3,693
(2,415,925)
(19,645)
6,384
(26,029)
107,532
Comprehensive income (loss) attributable to common stockholders
$
588,649 $
(3,052,604) $
(133,561)
See notes to consolidated financial statements.
F-4
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
Preferred stock
Beginning of period
End of period
Common stock
Beginning of period
Issuance
Stock-based award activity
End of period
Additional paid-in capital
Beginning of period
Issuance
Stock-based award activity
End of period
Accumulated other comprehensive income (loss)
Beginning of period
Unrealized gains (losses) on available-for-sale securities
Reclassification adjustment for net gains (losses) included in net income (loss)
End of period
Accumulated deficit
Beginning of period
Net income (loss) attributable to Annaly
Dividends declared on preferred stock (1)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)
End of period
Total stockholder’s equity
Noncontrolling interests
Beginning of period
Net income (loss) attributable to noncontrolling interests
Equity contributions from (distributions to) noncontrolling interests
End of period
Total equity
(1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.
See notes to consolidated financial statements.
For The Years Ended December 31,
2023
2022
2021
1,536,569 $
1,536,569 $
1,536,569 $
1,536,569 $
1,536,569
1,536,569
4,683 $
3,649 $
315
3
1,031
3
5,001 $
4,683 $
3,496
152
1
3,649
22,981,320 $
20,324,780 $
19,761,304
673,378
17,693
2,634,969
21,571
552,063
11,413
23,672,391 $
22,981,320 $
20,324,780
(3,708,896) $
958,410 $
3,374,335
580,680
1,792,816
(8,204,542)
3,537,236
(1,335,400) $
(3,708,896) $
(2,419,618)
3,693
958,410
(9,543,233) $
(9,653,582) $
(10,667,388)
(1,643,171)
(141,676)
(1,294,688)
1,725,325
(110,623)
(1,504,353)
2,389,896
(107,532)
(1,268,558)
(12,622,768) $
(9,543,233) $
(9,653,582)
11,255,793 $
11,270,443 $
13,169,826
98,983 $
25,499 $
4,714
(14,399)
1,095
72,389
89,298 $
98,983 $
13,480
6,384
5,635
25,499
11,345,091 $
11,369,426 $
13,195,325
$
$
$
$
$
$
$
$
$
$
$
$
$
$
F-5
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
For The Years Ended December 31,
2022
2021
2023
Cash flows from operating activities
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
$
(1,638,457) $
1,726,420
$
2,396,280
Amortization of premiums and discounts of investments, net
Amortization of securitized debt premiums and discounts and deferred financing costs
Depreciation, amortization and other noncash expenses
Net (gains) losses on investments and derivatives
Business divestiture-related (gains) losses
Income (loss) from unconsolidated joint ventures
Loan loss provision (reversal)
Payments on purchases of loans held for sale
Proceeds from sales and repayments of loans held for sale
Proceeds from U.S. Treasury securities
Net receipts (payments) on derivatives
Net change in
Other assets
Interest receivable
Interest payable
Other liabilities
Net cash provided by (used in) operating activities
Cash flows from investing activities
Payments on purchases of securities
Proceeds from sales of securities
Principal payments on securities
Payments on purchases and origination of loans
Proceeds from sales of loans
Principal payments on loans
Payments on purchases of MSR
Proceeds from sales of MSR
Payments on purchases of interests in MSR
Investments in real estate
Proceeds from sales of real estate
Proceeds from reverse repurchase agreements
Payments on reverse repurchase agreements
Distributions in excess of cumulative earnings from unconsolidated joint ventures
Proceeds from sale of equity securities
Net proceeds from business divestiture
Net cash provided by (used in) investing activities
Cash flows from financing activities
Proceeds from repurchase agreements and other secured financing
Payments on repurchase agreements and other secured financing
Proceeds from issuances of securitized debt
Principal payments on securitized debt
Payments on purchases of securitized debt
Payment of deferred financing cost
Net proceeds from stock offerings, direct purchases and dividend reinvestments
Proceeds from participations issued
Payments on repurchases of participations issued
Principal payments on participations issued
Net principal receipts (payments) on mortgages payable
Net contributions (distributions) from (to) noncontrolling interests
Settlement of stock-based awards in satisfaction of withholding tax requirements
Dividends paid
Net cash provided by (used in) financing activities
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents including cash pledged as collateral, beginning of period
Cash and cash equivalents including cash pledged as collateral, end of period
Supplemental disclosure of cash flow information
Interest received
Dividends received
Interest paid (excluding interest paid on interest rate swaps)
Net interest received (paid) on interest rate swaps
Taxes received (paid)
Noncash investing and financing activities
Receivable for unsettled trades
Payable for unsettled trades
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment
Dividends declared, not yet paid
Derecognition of assets of consolidated VIEs
Derecognition of securitized debt of consolidated VIEs
Derecognition of mortgages payable
See notes to consolidated financial statements.
F-6
185,728
13,824
24,806
3,310,579
—
10,270
(219)
—
1,577
2,015,608
(862,032)
(136,804)
(585,817)
(37,343)
65,483
2,367,203
(41,036,338)
31,259,983
6,153,217
(5,503,696)
21,242
1,086,508
(396,806)
—
—
—
—
128,615,235
(128,615,235)
—
—
—
(8,415,890)
87,154
(4,733)
20,506
109,443
40,258
(11,454)
(20,660)
—
4,597
—
3,643,954
(11,437)
(403,613)
233,753
(41,777)
5,372,411
(45,474,466)
25,055,929
9,541,036
(6,137,067)
1,930,367
1,562,308
(1,009,349)
9,085
(4,913)
—
—
24,500,024
(24,500,024)
—
—
—
(14,527,070)
784,110
(6,620)
24,636
(1,204,830)
278,559
12,181
(145,066)
(51,403)
90,020
—
932,867
31,044
32,926
(99,590)
1,725
3,076,839
(22,344,751)
11,670,321
18,742,951
(7,715,200)
1,213,745
2,610,912
(473,035)
82,175
(65,107)
(2,329)
53,910
16,734,313
(16,734,313)
290
6,957
1,118,440
4,899,279
5,351,050,481
(5,348,111,535)
4,480,804
(944,163)
(2,504)
(4,012)
673,693
2,007,464
(1,674,650)
(52,635)
—
(14,399)
(6,661)
(1,517,762)
5,884,121
(164,566)
1,576,714
1,412,148
$
3,571,043,066
(3,566,953,367)
5,473,311
(1,234,090)
(8,495)
—
2,636,000
1,908,204
(1,973,666)
(50,712)
—
72,389
(4,108)
(1,519,249)
9,389,283
234,624
1,342,090
1,576,714
$
2,288,704,788
(2,298,775,005)
3,719,027
(1,716,196)
—
(9,279)
552,215
1,847,821
(818,575)
(23,374)
(2,237)
5,635
(2,830)
(1,359,721)
(7,877,731)
98,387
1,243,703
1,342,090
$
$
$
$
$
$
$
$
$
$
$
$
$
3,278,519
—
3,551,873
1,306,551
1,104
2,710,224
3,249,389
2,373,496
325,052
—
—
—
$
$
$
$
$
$
$
$
$
$
$
$
2,459,012
—
866,829
15,621
$
$
$
$
(492) $
$
575,091
1,157,846
$
(4,667,306) $
$
412,113
$
424,005
$
391,928
$
—
2,701,381
51
269,244
(340,738)
(3,797)
2,656
147,908
(2,415,925)
321,142
3,075,961
2,506,799
314,485
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED December 31, 2023, 2022 and 2021
________________________________________________________________________________________________________________________________
1. DESCRIPTION OF BUSINESS
Annaly Capital Management, Inc. (the “Company” or “Annaly”) is a Maryland corporation that commenced operations on
February 18, 1997. The Company is a leading diversified capital manager with investment strategies across mortgage finance.
The Company owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized
mortgage obligations, credit risk transfer (“CRT”) securities, other securities representing interests in or obligations backed by
pools of mortgage loans, residential mortgage loans and mortgage servicing rights (“MSR”). The Company’s principal business
objective is to generate net income for distribution to its stockholders and optimize its returns through prudent management of
its diversified investment strategies.
The Company is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as
defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).
The Company’s three investment groups are primarily comprised of the following:
Investment Groups
Annaly Agency Group
Annaly Residential Credit Group
Annaly Mortgage Servicing Rights
Group
Description
Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential
mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and
complementary investments within the Agency market, including Agency commercial MBS.
Invests primarily in non-Agency residential whole loans and securitized products within the
residential and commercial markets.
Invests in mortgage servicing rights ("MSR"), which provide the right to service residential
mortgage loans in exchange for a portion of the interest payments made on the loans.
2. BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with
U.S. generally accepted accounting principles (“GAAP”).
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the
reported balance sheet amounts and/or disclosures at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ materially from those estimates.
Beginning with the quarter ended March 31, 2022, in light of the continued growth of its mortgage servicing rights portfolio the
Company enhanced its financial disclosures by separately reporting servicing income and servicing expense in its Consolidated
Statements of Comprehensive Income (Loss). Servicing income and servicing expense were previously included within Other
income (loss). As a result of this change, prior periods have been adjusted to conform to the current presentation.
In addition, beginning with the quarter ended March 31, 2022, the Company consolidated certain line items in its Consolidated
Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation. Amounts
previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of
interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined
into a single line item titled Net gains (losses) on derivatives. Similarly, amounts previously reported under Net gains (losses)
on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings
are combined into a single line item titled Net gains (losses) on investments and other. As a result of these changes, prior
periods have been adjusted to conform to the current presentation.
Reverse Stock Split
On September 8, 2022, the Company announced that its Board had unanimously approved a reverse stock split of the
Company’s common stock at a ratio of 1-for-4 (the “Reverse Stock Split”). The Reverse Stock Split was effective following the
close of business on September 23, 2022 (the “Effective Time”). Accordingly, at the Effective Time, every four issued and
outstanding shares of the Company’s common stock were converted into one share of the Company’s common stock. No
fractional shares were issued in connection with the Reverse Stock Split. Instead, each stockholder that would have held
fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares. The par value per share of
the Company’s common stock remained unchanged at $0.01 per share after the Reverse Stock Split. Accordingly, for all
historical periods presented, an amount equal to the par value of the reduced number of shares resulting from the Reverse Stock
Split was reclassified from Common stock to Additional paid in capital in the Company’s Consolidated Statements of Financial
F-7
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
Condition. All references made to share or per share amounts in the accompanying consolidated financial statements and
applicable disclosures have been retroactively adjusted to reflect the effects of the Reverse Stock Split.
3. SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described below or are included elsewhere in these notes to the consolidated
financial statements.
Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has
a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates
whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and
transactions have been eliminated in consolidation.
Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling
financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE.
Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a
controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without
additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary,
which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s
economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially
be significant to the VIE.
The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s
involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities”
Note for further information.
Equity Method Investments - For entities that are not consolidated, but where the Company has significant influence over the
operating or financial decisions of the entity, the Company accounts for the investment under the equity method of accounting.
In accordance with the equity method of accounting, the Company will recognize its share of earnings or losses of the investee
in the period in which they are reported by the investee. The Company also considers whether there are any indicators of other-
than-temporary impairment of joint ventures accounted for under the equity method. These investments are included in Other
assets with income or loss included in Other, net.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an
overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost,
which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash
on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $1.1 billion and $1.4 billion at
December 31, 2023 and December 31, 2022, respectively.
Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including
certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to
elect the FVO in order to simplify the accounting treatment for certain financial instruments. Items for which the FVO has been
elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is
recorded in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). For
additional information regarding financial instruments for which the Company has elected the FVO refer to the table in the
“Financial Instruments” Note.
Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to
estimate the fair value of certain financial instruments.
Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in
the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated
Statements of Financial Condition if they meet the offsetting criteria. Refer to the “Secured Financing” Note for further
discussion on reverse repurchase and repurchase agreements.
Derivative Instruments – 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. Refer to the “Derivative
Instruments” Note for further discussion.
Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is
generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over
F-8
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a
model.
Compensation expense for awards with performance conditions is recognized based on the probable outcome of the
performance condition at each reporting date. Compensation expense for awards with market conditions is recognized
irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met.
Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded
when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.
Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities”
Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not received
is recognized as Interest receivable on the Consolidated Statements of Financial Condition. Interest income is presented as a
separate line item on the Consolidated Statements of Comprehensive Income (Loss).
For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the
outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or
accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only
securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation
of the effective yield. The Company recalculates the effective yield as differences between anticipated and actual prepayments
occur. Using third party model and market information to project future cash flows and expected remaining lives of securities,
the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s
acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective
yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period.
The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market
factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.
Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit
securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to
yield made on a prospective basis.
Premiums or discounts associated with the purchase of multifamily securities are amortized or accreted into interest income
based upon their contractual payment terms. If a prepayment occurs, an adjustment is made to the unpaid principal balance and
unamortized premium or discount in the current period and the original effective yield continues to be applied.
Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to
securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the
effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of
discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).
If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued.
For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For
nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt,
interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against
principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a
cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the
scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment
within a reasonable period of time and there is a sustained period of repayment performance by the borrower.
The Company has made an accounting policy election not to measure an allowance for loans losses for accrued interest
receivable. If interest receivable is deemed to be uncollectible or not collected within 90 days of its contractual due date for
commercial loans or 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income.
Any interest written off that is recovered is recognized as interest income.
Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income.
Income Taxes – The Company has elected to be taxed as a REIT and intends to comply with the provisions of the Code, with
respect thereto. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to
its stockholders. The Company and certain of its direct and indirect subsidiaries have made separate joint elections to treat these
subsidiaries as taxable REIT subsidiaries (“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 its taxable income. Refer to the “Income Taxes” Note for further
discussion on income taxes.
F-9
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
Recent Accounting Pronouncements
The Company has early adopted ASU 2023-07, Improvements to Segment Reporting, as its Residential Credit and MSR
operating segments have become a more significant component of consolidated results. Refer to the “Segments” Note for more
information.
The Company reviewed additional recently issued ASUs and determined that they were not expected to have a significant
impact on the Company’s consolidated financial statements when adopted or did not have a significant impact on the
Company’s consolidated financial statements upon adoption.
F-10
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
4. FINANCIAL INSTRUMENTS
The following table presents characteristics for certain of the Company’s financial instruments at December 31, 2023 and 2022.
Balance Sheet Line Item
Type / Form
Assets
Measurement Basis
(dollars in thousands)
Financial Instruments (1)
Securities
Securities
Securities
Securities
Securities
Securities
Total securities
Loans, net
Total loans, net
Agency mortgage-backed securities (2)
Agency mortgage-backed securities (3)
Residential credit risk transfer securities
Non-agency mortgage-backed securities
Fair value, with unrealized gains (losses)
through other comprehensive income
Fair value, with unrealized gains (losses)
through earnings
Fair value, with unrealized gains (losses)
through earnings
Fair value, with unrealized gains (losses)
through earnings
Commercial real estate debt investments
- CMBS
Fair value, with unrealized gains (losses)
through earnings
Commercial real estate debt investments
- credit risk transfer securities
Fair value, with unrealized gains (losses)
through earnings
Residential mortgage loans
Fair value, with unrealized gains (losses)
through earnings
Assets transferred or pledged
to securitization vehicles
Residential mortgage loans
Fair value, with unrealized gains (losses)
through earnings
Total assets transferred or pledged to securitization vehicles
Repurchase agreements
Repurchase agreements
Liabilities
Other secured financing
Loans
Debt issued by securitization
vehicles
Securities
Participations issued
Participations issued
Amortized cost
Amortized cost
Fair value, with unrealized gains (losses)
through earnings
Fair value, with unrealized gains (losses)
through earnings
December
31, 2023
December
31, 2022
$ 15,665,352
$ 34,528,515
50,643,436
27,746,380
974,059
997,557
2,108,274
1,991,146
222,444
508,406
—
17,903
69,613,565
65,789,907
2,353,084
2,353,084
13,307,622
13,307,622
1,809,832
1,809,832
9,121,912
9,121,912
62,201,543
59,512,597
500,000
250,000
11,600,338
7,744,160
1,103,835
800,849
U.S. Treasury securities sold,
not yet purchased
Fair value, with unrealized gains (losses)
through earnings
—
(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at
2,132,751
Securities
cost.
(2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities purchased prior to July 1, 2022.
(3) Includes interest-only securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency pass-through, collateralized mortgage
obligation (“CMO”) and multifamily securities.
5. SECURITIES
The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed
securities. All of the debt securities are classified as available-for-sale. Available-for-sale debt securities are carried at fair
value, with changes in fair value recognized in other comprehensive income, unless the fair value option is elected in which
case changes in fair value are recognized in Net gains (losses) on investments and other in the Consolidated Statements of
Comprehensive Income (Loss). Effective July 1, 2022, the Company elected the fair value option for any newly purchased
Agency mortgage-backed securities in order to simplify the accounting for these securities. For the years ended December 31,
2023 and 2022, $611.5 million and ($665.6) million of unrealized gains (losses) on Agency mortgage-backed securities, for
which the fair value option was elected effective July 1, 2022, were reported in Net gains (losses) on investments and other in
the Company’s Consolidated Statements of Comprehensive Income (Loss). Agency mortgage-backed securities purchased prior
to July 1, 2022, are still classified as available-for-sale with changes in fair value recognized in other comprehensive income.
The Company has also elected the fair value option for CRT securities, interest only securities, Non-Agency and commercial
mortgage-backed securities in order to simplify the accounting. Transactions for regular-way securities are recorded on trade
date, including to-be-announced (“TBA”) securities that meet the regular-way securities scope exception from derivative
accounting. Gains and losses on disposals of securities are recorded on trade date based on the specific identification method.
Impairment – Management evaluates available-for-sale securities where the fair value option has not been elected and held-to-
maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant
such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered
impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely
F-11
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover
the entire amortized cost basis of the security. Further, the security is analyzed for credit loss (the difference between the
present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be
recognized in the Consolidated Statements of Comprehensive Income (Loss) as a securities loss provision and reflected as an
allowance for credit losses on securities on the Consolidated Statements of Financial Condition, while the balance of losses
related to other factors will be recognized as a component of Other comprehensive income (loss). For the year ended December
31, 2021, the Company recognized a $0.4 million impairment on a commercial mortgage-backed security that it intended to
sell. There was no impairment recognized for the years ended December 31, 2023 and 2022. When the fair value of a held-to-
maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire
cost basis of the security.
Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage
obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans
and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage
Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage
Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”).
Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of
a generic pool, on a to-be-announced basis. TBA securities without intent to accept delivery (“TBA derivatives”) are accounted
for as derivatives as discussed in the “Derivative Instruments” Note.
CRT Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured
transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit
risk from Fannie Mae and Freddie Mac to private investors.
Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those
issued in prime loan, prime jumbo loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan
(“RPL”) securitizations.
Agency mortgage-backed securities, non-Agency mortgage-backed securities and residential CRT securities are referred to
herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until
maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.
Commercial Mortgage-Backed Securities (“Commercial Securities”) - The Company invests in Commercial Securities such
as conduit, credit CMBS, single-asset single borrower and collateralized loan obligations.
The following represents a rollforward of the activity for the Company’s securities for the year ended December 31, 2023:
Agency Securities
Residential Credit
Securities
Commercial Securities
Total
(dollars in thousands)
Beginning balance January 1, 2023
$
62,274,895
$
2,988,703
$
526,309
$
Purchases
Sales
Principal paydowns
(Amortization) / accretion
Fair value adjustment
42,728,938
(35,733,141)
(5,843,220)
(186,553)
3,067,869
905,952
(706,750)
(303,908)
21,396
176,940
76,166
(392,202)
(5,538)
1,271
16,438
Ending balance December 31, 2023
$
66,308,788
$
3,082,333
$
222,444
$
65,789,907
43,711,056
(36,832,093)
(6,152,666)
(163,886)
3,261,247
69,613,565
F-12
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
The following tables present the Company’s securities portfolio that were carried at their fair value at December 31, 2023 and
2022:
December 31, 2023
Agency
Fixed-rate pass-through
Adjustable-rate pass-through
CMO
Interest-only
Multifamily (1)
Reverse mortgages
Total agency securities
Residential credit
Credit risk transfer
Alt-A
Prime (2)
Subprime
NPL/RPL
Prime jumbo (>=2010 vintage) (3)
Total residential credit securities
Total residential securities
Commercial
Principal /
Notional
Remaining
Premium
Remaining
Discount
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
Amortized
Cost
(dollars in thousands)
$ 63,444,987 $ 1,448,886 $ (1,318,948) $ 63,574,925 $
477,242 $ (1,853,226) $ 62,198,941
188,996
94,448
2,010,697
17,130,045
26,183
15,834
1,612
416,955
400,781
3,193
(51)
—
—
204,779
96,060
416,955
(9,752)
3,552,217
—
29,376
1,663
—
4,729
52,055
—
(14,953)
(13,088)
(157,679)
191,489
82,972
264,005
(59,744)
3,544,528
(2,523)
26,853
$ 82,895,356 $ 2,287,261 $ (1,328,751) $ 67,874,312 $
535,689 $ (2,101,213) $ 66,308,788
$
924,729 $
2,240 $
(4,358) $
922,611 $
51,984 $
(536) $
974,059
164,384
1,076,497
272,955
1,237,531
9,425,280
9
8,590
—
8,336
71,960
(3,922)
(21,163)
(31,751)
(9,224)
(49,859)
160,471
207,077
241,204
1,236,643
365,676
2,135
1,704
5,622
4,578
10,696
(12,371)
(28,134)
(11,221)
(43,666)
(32,140)
150,235
180,647
235,605
1,197,555
344,232
$ 13,101,376 $
91,135 $
(120,277) $ 3,133,682 $
76,719 $
(128,068) $ 3,082,333
$ 95,996,732 $ 2,378,396 $ (1,449,028) $ 71,007,994 $
612,408 $ (2,229,281) $ 69,391,121
Commercial securities
$
224,597
15 $
(822) $
223,790 $
19 $
(1,365) $
222,444
Total securities
$ 96,221,329 $ 2,378,411 $ (1,449,850) $ 71,231,784 $
612,427 $ (2,230,646) $ 69,613,565
Agency
Fixed-rate pass-through
Adjustable-rate pass-through
CMO
Interest-only
Multifamily (1)
Reverse mortgages
Total agency investments
Residential credit
Credit risk transfer
Alt-A
Prime (2)
Subprime
NPL/RPL
Prime jumbo (>=2010 vintage) (3)
Total residential credit securities
Total residential securities
Commercial
December 31, 2022
Principal /
Notional
Remaining
Premium
Remaining
Discount
Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated
Fair Value
(dollars in thousands)
$ 63,232,479 $ 2,105,813 $ (1,003,225) $ 64,335,067 $
62,060 $ (4,367,369) $ 60,029,758
232,028
101,543
1,824,339
9,801,375
28,478
17,065
1,781
438,295
311,785
3,379
(85)
—
—
249,008
103,324
438,295
(1,021)
1,750,737
—
31,857
2,138
—
153
7,588
—
(16,759)
(13,714)
(220,371)
234,387
89,610
218,077
(84,160)
1,674,165
(2,959)
28,898
$ 75,220,242 $ 2,878,118 $ (1,004,331) $ 66,908,288 $
71,939 $ (4,705,332) $ 62,274,895
$ 1,013,368 $
6,790 $
(4,828) $ 1,015,330 $
6,629 $
(24,402) $
997,557
111,009
1,946,186
202,304
1,426,616
5,717,558
9
19,496
—
1,624
37,260
(5,048)
(17,375)
(32,188)
(15,500)
(29,242)
105,970
240,694
170,116
1,412,740
272,623
—
1,528
1,275
87
1,685
(14,754)
(44,352)
(15,078)
(95,673)
(45,715)
91,216
197,870
156,313
1,317,154
228,593
$ 10,417,041 $
65,179 $
(104,181) $ 3,217,473 $
11,204 $
(239,974) $ 2,988,703
$ 85,637,283 $ 2,943,297 $ (1,108,512) $ 70,125,761 $
83,143 $ (4,945,306) $ 65,263,598
Commercial securities
$
546,499 $
— $
(2,405) $
544,094 $
— $
(17,785) $
526,309
Total securities
$ 86,183,782 $ 2,943,297 $ (1,110,917) $ 70,669,855 $
83,143 $ (4,963,091) $ 65,789,907
(1) Principal/Notional amount includes $14.0 billion and $8.4 billion of Agency Multifamly interest-only securities as of December 31, 2023 and December
31, 2022, respectively.
(2) Principal/Notional amount includes $0.9 billion and $1.7 billion of Prime interest-only securities as of December 31, 2023 and December 31, 2022,
respectively.
(3) Principal/Notional amount includes $9.1 billion and $5.5 billion of Prime Jumbo interest-only securities as of December 31, 2023 and December 31, 2022,
respectively.
F-13
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
The following table presents the Company’s Agency mortgage-backed securities portfolio by issuing Agency at December 31,
2023 and 2022:
Investment Type
Fannie Mae
Freddie Mac
Ginnie Mae
Total
December 31, 2023
December 31, 2022
(dollars in thousands)
$
$
60,477,303 $
5,778,809
52,676
66,308,788 $
54,043,015
8,174,080
57,800
62,274,895
Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual
maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.
The following table summarizes the Company’s Residential Securities at December 31, 2023 and 2022, according to their
estimated weighted average life classifications:
Estimated weighted average life
Less than one year
Greater than one year through five years
Greater than five years through ten years
Greater than ten years
Total
December 31, 2023
December 31, 2022
Estimated Fair
Value
Amortized
Cost
Estimated
Fair Value
Amortized
Cost
(dollars in thousands)
$
254,753 $
257,170 $
247,921 $
264,637
5,159,969
62,158,711
1,817,688
5,213,575
3,002,471
3,206,250
63,662,144
55,593,990
59,658,578
1,875,105
6,419,216
6,996,296
$
69,391,121 $
71,007,994 $
65,263,598 $
70,125,761
The estimated weighted average lives of the Residential Securities at December 31, 2023 and 2022 in the table above are based
upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or
shorter than projected.
The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed
securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such
securities have been in a continuous unrealized loss position at December 31, 2023 and 2022.
December 31, 2023
December 31, 2022
Estimated
Fair Value (1)
Gross
Unrealized
Losses (1)
Number of
Securities (1)
Estimated
Fair Value (1)
(dollars in thousands)
Gross
Unrealized
Losses (1)
Number of
Securities (1)
Less than 12 months
$
35,453 $
(418)
16 $
33,061,267 $
(3,448,120)
12 Months or more
15,455,118
(1,340,032)
1,747
1,260,378
(266,686)
Total
$
15,490,571 $
(1,340,450)
1,763 $
34,321,645 $
(3,714,806)
2,481
129
2,610
(1) Excludes interest-only mortgage-backed securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency
pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.
The decline in value of these securities is solely due to market conditions and not the quality of the assets. Substantially all of
the Agency mortgage-backed securities have an actual or implied credit rating that is the same as that of the U.S.
government. An impairment has not been recognized in earnings related to these investments because the decline in value is not
related to credit quality, the Company currently has not made a decision to sell the securities nor is it more likely than not that
the securities will be required to be sold before recovery.
During the years ended December 31, 2023 and 2022, the Company disposed of $36.4 billion and $28.9 billion amortized cost
basis of Residential Securities, respectively. The following table presents the Company’s net gains (losses) from the disposal of
Residential Securities for the years ended December 31, 2023 and 2022, which is included in Net gains (losses) on investments
and other in the Consolidated Statements of Comprehensive Income (Loss).
For the year ended
December 31, 2023
December 31, 2022
Gross Realized Gains
Gross Realized Losses
(dollars in thousands)
Net Realized Gains
(Losses)
$
$
29,668
66,587
$
$
(2,920,487) $
(3,663,446) $
(2,890,819)
(3,596,859)
F-14
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
6. LOANS
The Company invests in residential loans. Loans are classified as either held for investment or held for sale. Loans are eligible
to be accounted for under the fair value option. If loans are elected under the fair value option, they are carried at fair value with
changes in fair value recognized in earnings. Otherwise, loans held for investment are carried at cost less impairment and loans
held for sale are accounted for at the lower of cost or fair value.
Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of December 31, 2023 and
2022, the Company reported $2.4 billion and $1.8 billion, respectively, of loans for which the fair value option was elected. If
the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans
are classified as held for sale. Any origination fees and costs or purchase premiums or discounts are deferred and recognized
upon sale. The Company determines the fair value of loans held for sale on an individual loan basis. The carrying value of the
Company’s residential loans held for sale was $1.2 million and $1.3 million at December 31, 2023 and 2022, respectively.
Allowance for Losses – Prior to the sale of its corporate debt and commercial loan portfolios, the Company evaluated the need
for a loss reserve on each of its loans classified as held-for investment and carried at amortized cost based upon estimated
current expected credit losses.
The Company recorded net loan loss (provisions) reversals of $0.2 million, $20.7 million and $145.1 million for the years
ended December 31, 2023, 2022 and 2021, respectively. As of December 31, 2023 and 2022, the Company’s loan loss
allowance was $0 and $0, respectively.
The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to
securitization vehicles and loan warehouse facilities, for the year ended December 31, 2023:
Residential Loans
(dollars in thousands)
Beginning balance January 1, 2023
$
Purchases / originations
Sales and transfers (1)
Principal payments
Gains / (losses)
(Amortization) / accretion
Ending balance December 31, 2023
$
1,809,832
5,497,162
(4,905,106)
(118,932)
78,315
(8,187)
2,353,084
(1) Includes transfer of residential loans to securitization vehicles with a
carrying value of $4.9 billion during the year ended December 31, 2023.
Residential
The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans.
The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net gains
(losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company also
consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights
to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the
Company’s consolidated residential mortgage loan trusts.
The mortgage loans are secured by first liens on primarily one-to-four family residential properties. A subsidiary of the
Company has engaged a third party to act as its custodian, agent and bailee for the purposes of receiving and holding certain
documents, instruments and papers related to the residential mortgage loans it purchases. Pursuant to the Company’s custodial
agreement, the custodian segregates and maintains continuous custody of all documents constituting the mortgage file with
respect to each mortgage loan owned by the subsidiary in secure and fire resistant facilities and in a manner consistent with the
standard of care employed by prudent mortgage loan document custodians. At or prior to the funding of any residential
mortgage loan, the related seller, pursuant to the terms of our mortgage loan purchase agreement, must deliver to the custodian,
the mortgage loan documents including the mortgage note, the mortgage and other related loan documents. In addition, a
complete credit file for the related mortgage and borrower must be delivered to the subsidiary prior to the date of purchase.
F-15
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio,
including loans transferred or pledged to securitization vehicles and excluding loan warehouse facilities, at December 31, 2023
and 2022:
December 31, 2023
December 31, 2022
(dollars in thousands)
Fair value
Unpaid principal balance
$
$
15,660,706 $
16,611,204 $
10,931,744
12,247,346
The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of
Comprehensive Income (Loss) for December 31, 2023 and 2022 for these investments, excluding loan warehouse facilities:
Interest income
Net gains (losses) on disposal of investments (1)
Net unrealized gains (losses) on instruments measured at fair value through earnings (1)
Total included in net income (loss)
For the Years Ended
December 31, 2023
December 31, 2022
(dollars in thousands)
$
$
703,838
$
(5,049)
374,764
1,073,553
$
410,195
(12,842)
(1,420,645)
(1,023,292)
(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of
Comprehensive Income (loss).
The following table provides the geographic concentrations based on the unpaid principal balances at December 31, 2023 and
2022 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:
Geographic Concentrations of Residential Mortgage Loans
December 31, 2023
December 31, 2022
Property location
California
Florida
New York
Texas
All other (none individually greater than 5%)
Total
% of Balance
40.1%
10.6%
10.5%
5.6%
33.2%
100.0%
Property location
California
New York
Florida
Texas
All other (none individually greater than 5%)
% of Balance
44.8%
10.3%
8.3%
5.1%
31.5%
100.0%
The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or
pledged to securitization vehicles, at December 31, 2023 and 2022:
December 31, 2023
December 31, 2022
Portfolio
Range
Portfolio
Weighted
Average
Portfolio
Range
Unpaid principal balance
Interest rate
Maturity
FICO score at loan origination
Loan-to-value ratio at loan origination
$1 - $4,396
2.00% - 13.25%
7/1/2029 - 12/1/2063
549 - 850
3% - 100%
(dollars in thousands)
$477
5.63%
4/22/2052
758
68%
$3 - $4,396
2.00% - 15.00%
7/1/2029 - 1/1/2063
588 - 831
5% - 100%
Portfolio
Weighted
Average
$489
4.61%
10/6/2051
759
68%
At December 31, 2023 and 2022, approximately 11% and 11%, respectively, of the carrying value of the Company’s residential
mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.
The Company participated in an arrangement that provided a residential mortgage loan warehouse facility to a third party
originator. The arrangement was not renewed and expired during the quarter-ended September 30, 2023. The Company had
elected to apply the fair value option to this lending facility in order to simplify the accounting and keep the accounting
consistent with other residential credit financial instruments with similar characteristics. At both December 31, 2023 and
December 31, 2022, there were no outstanding balances on this warehouse facility.
F-16
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
7. MORTGAGE SERVICING RIGHTS
MSR represent the rights and obligations associated with servicing pools of residential mortgage loans. The Company and its
subsidiaries do not originate or directly service residential mortgage loans. Rather, these activities are carried out by duly
licensed subservicers who perform substantially all servicing functions for the loans underlying the MSR. The Company
generally intends to hold the MSR as investments and elected to account for all of its investments in MSR at fair value. As
such, they are recognized at fair value on the accompanying Consolidated Statements of Financial Condition with changes in
the estimated fair value presented as a component of Net gains (losses) on investments and other in the Consolidated Statements
of Comprehensive Income (Loss).
Interests in MSR represent agreements to purchase all, or a component of, net servicing cash flows. A third party acted as a
master servicer for the loans providing the net servicing cash flows represented by the Interests in MSR. The Company
accounts for its Interests in MSR at fair value with change in fair value presented in Net gains (losses) on investments and other
in the Consolidated Statements of Comprehensive Income (Loss). Cash flows received for Interests in MSR are recorded in
Other, net in the Consolidated Statements of Comprehensive Income (Loss).
The following tables present activity related to MSR and Interests in MSR for the years ended December 31, 2023 and 2022:
Mortgage Servicing Rights
December 31, 2023
December 31, 2022
Fair value, beginning of period
Purchases (1)
Transfers
Sales
Change in fair value due to
Changes in valuation inputs or assumptions (2)
Other changes, including realization of expected cash flows
Fair value, end of period
$
$
(dollars in thousands)
1,748,209 $
397,585
—
—
92,374
(115,972)
2,122,196 $
544,562
1,009,351
82,650
(9,084)
205,463
(84,733)
1,748,209
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were delivered but were deemed to not be acceptable.
(2) Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.
Interests in MSR
Beginning balance
Purchases (1)
Transfers
Gain (loss) included in net income
Ending balance
$
$
December 31, 2022
(dollars in thousands)
69,316
4,860
(82,650)
8,474
—
(1) Includes adjustments to original purchase price from early payoffs, defaults, or loans that were
delivered but were deemed to not be acceptable.
8. VARIABLE INTEREST ENTITIES
The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $1.4
billion at December 31, 2023. Assets of the VIEs may only be used to settle obligations of the VIEs. Creditors of the VIEs have
no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided
any form of financial support to the VIEs. No gains or losses were recognized upon consolidation of existing VIEs. Interest
income and expense are recognized using the effective interest method.
Multifamily Securitization
In March 2020, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-
off balance of $0.5 billion and retained interest-only securities with a notional balance of $0.5 billion. At the inception of this
arrangement, the Company determined that it was the primary beneficiary based upon its involvement in the design of this VIE
and through the retention of a significant variable interest in the VIE. The Company elected the fair value option for the
financial liabilities of this VIE in order to simplify the accounting; however, the financial assets were not eligible for the fair
value option as it was not elected at purchase.
F-17
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
During the year ended December 31, 2022, the Company deconsolidated the 2020 multifamily VIE since it sold all of its
interest-only securities and no longer retains a significant variable interest in the entity. As a result of the deconsolidation of this
VIE, the Company derecognized approximately $424.0 million of securities and approximately $391.9 million of debt issued by
securitization vehicles and recognized a realized gain of $33.4 million, which is included in Net gains (losses) on investments
and other in the Consolidated Statements of Comprehensive Income (Loss).
Residential Securitizations
The Company also invests in residential mortgage-backed securities issued by entities that are VIEs because they do not have
sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other
parties. The Company is not the primary beneficiary because it does not have the power to direct the activities that most
significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the
amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other
commitments to these VIEs. Refer to the “Securities” Note for further information on Residential Securities.
OBX Trusts
Residential securitizations are issued by entities generally referred to collectively as the “OBX Trusts.” These securitizations
represent financing transactions which provide non-recourse financing to the Company that are collateralized by residential
mortgage loans purchased by the Company. Residential securitizations closed during the year are included in the table below.
Securitization
Date of Closing
Face Value at Closing
(dollars in thousands)
OBX 2023-NQM1
OBX 2023-J1
OBX 2023-NQM2
OBX 2023-NQM3
OBX 2023-NQM4
OBX 2023-INV1
OBX 2023-NQM5
OBX 2023-NQM6
OBX 2023-NQM7
OBX 2023-NQM8
OBX 2023-J2
OBX 2023-NQM9
OBX 2023-NQM10
January 2023
February 2023
February 2023
April 2023
May 2023
May 2023
June 2023
July 2023
September 2023
October 2023
November 2023
November 2023
December 2023
$
$
$
$
$
$
$
$
$
$
$
$
$
405,209
305,755
420,650
407,525
394,291
314,839
390,271
400,530
411,133
406,663
303,008
393,507
387,556
As of December 31, 2023 and 2022, a total carrying value of $11.6 billion and $7.7 billion, respectively, of bonds were held by
third parties and the Company retained $1.4 billion and $1.0 billion, respectively, of MBS, which were eliminated in
consolidation. The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to
direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be
potentially significant to these VIEs. 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. During the years ended December 31, 2023 and 2022, the Company incurred $8.2
million and $7.6 million, respectively, of costs in connection with these securitizations that were expensed as incurred. The
contractual principal amount of the OBX Trusts’ debt held by third parties was $12.6 billion and $9.0 billion at December 31,
2023 and 2022, respectively. During the years ended December 31, 2023 and 2022, the Company recorded ($305.2) million and
$1.2 billion, respectively, of unrealized gains (losses) on debt held by third parties, 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.
Credit Facility VIEs
In connection with the sale of all of the assets that comprise the MML Portfolio, the credit facilities which provided financing
for the Company’s corporate debt were paid-off and terminated during the year ended December 31, 2022. Refer to the “Sale of
Middle Market Lending Portfolio” Note for additional information on the transaction.
F-18
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
Corporate Debt Funds
The Company managed parallel funds investing in senior secured first and second lien corporate loans (the “Fund Entities”).
The Fund Entities were considered VIEs because the investors did not have substantive liquidation, kick-out or participating
rights. The fees that the Company earned were not considered variable interests of the VIE. The Company was not the primary
beneficiary of the Fund Entities and therefore did not consolidate the Fund Entities. The corporate loans in the Fund Entities
were assets managed for third parties and were part of the MML Portfolio transferred to Ares during the three months ended
June 30, 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.
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 December 31, 2023 and 2022 the Company had outstanding participating interests in residential mortgage loans of
$1.1 billion and $0.8 billion, respectively. These transfers do not meet the criteria for sale accounting and are accounted for as
secured borrowings, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations
issued in the Consolidated Statements of Financial Condition. The Company elected to fair value the participations issued
through earnings to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value
through earnings.
9. SALE OF COMMERCIAL REAL ESTATE BUSINESS
On March 25, 2021, the Company entered into a definitive agreement to sell substantially all of the assets that comprise its CRE
business to Slate Asset Management L.P. and Slate Grocery REIT (together, “Slate”) for $2.33 billion. The transaction included
equity interests, loan assets and associated liabilities, and CMBS (other than commercial CRTs). The Company also sold nearly
all of the remaining CRE business assets that were not included in the transaction with Slate. Certain employees who primarily
supported the CRE business joined Slate in connection with the sale. In connection with the execution of the definitive
agreement to sell the CRE business, during the year ended December 31, 2021, the Company performed an assessment of
goodwill, which was related to the Company’s 2013 acquisition of CreXus Investment Corp., and recognized an impairment of
$71.8 million. During the year ended December 31, 2021, the Company reported Business divestiture-related gains (losses) of
($262.0) million, in its Consolidated Statements of Comprehensive Income (Loss) which includes the aforementioned goodwill
impairment as well as valuation adjustments resulting from classifying the CRE assets as held for sale and estimated transaction
costs. As of December 31, 2022, the assets held for sale and the associated liabilities were transferred to Slate.
10. SALE OF MIDDLE MARKET LENDING PORTFOLIO
In April 2022, the Company entered into a definitive agreement to sell substantially all of the corporate loan interests held by
the MML business operated by the Company, as well as assets managed for third parties (collectively, the “MML Portfolio”), to
Ares Capital Management LLC (“Ares”) for $2.4 billion. The Company’s loans, having an unpaid principal balance of
$1.9 billion, were transferred to Ares for cash proceeds of $1.9 billion and a realized gain of $20.4 million was recorded during
the year ended December 31, 2022. As of December 31, 2022, all loans were transferred to Ares.
11. 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 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
F-19
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
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.
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 December 31, 2023 and 2022, ($2.4)
billion and ($3.2) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value.
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.
F-20
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
The following table summarizes fair value information about the Company’s derivative assets and liabilities at December 31,
2023 and 2022:
Derivatives Instruments
December 31, 2023
December 31, 2022
Assets
Interest rate swaps
Interest rate swaptions
TBA derivatives
Futures contracts
Purchase commitments
Total derivative assets
Liabilities
Interest rate swaps
TBA derivatives
Futures contracts
Purchase commitments
Credit derivatives (1)
Total derivative liabilities
$
$
$
$
(dollars in thousands)
26,344
$
105,883
20,689
—
9,641
162,557
83,051
39,070
179,835
339
—
$
$
302,295
$
33,006
256,991
17,056
33,179
1,832
342,064
108,724
69,270
11,919
460
13,799
204,172
(1) The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold
protection of $420.0 million at December 31, 2022, respectively, plus any coupon shortfalls on the underlying tranche. As of
December 31, 2022, the credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and AA.
The following tables summarize certain characteristics of the Company’s interest rate swaps at December 31, 2023 and 2022:
Maturity
Current
Notional (1)(2)
Weighted Average
Pay Rate
Weighted Average
Receive Rate
Weighted Average
Years to Maturity (3)
December 31, 2023
0 - 3 years
3 - 6 years
6 - 10 years
Greater than 10 years
Total / Weighted average
(dollars in thousands)
$
21,397,358
12,461,799
22,949,150
2,021,247
$
58,829,554
3.17%
3.09%
2.85%
3.53%
3.04%
5.26%
5.37%
5.34%
5.27%
5.31%
December 31, 2022
1.23
4.75
8.02
22.71
5.36
Maturity
Current
Notional (1)(2)
Weighted Average
Pay Rate
Weighted Average
Receive Rate
Weighted Average
Years to Maturity (3)
0 - 3 years
3 - 6 years
6 - 10 years
Greater than 10 years
Total / Weighted average
(dollars in thousands)
$
26,355,700
1,120,400
22,492,200
2,309,000
$
52,277,300
0.88%
2.53%
2.54%
3.49%
1.74%
4.33%
3.95%
4.24%
4.26%
4.28%
0.75
4.07
8.76
22.93
5.25
(1) As of December 31, 2023, 94% and 6% of the Company’s interest rate swaps were linked to the Secured Overnight Financing Rate and the
Federal funds rate, respectively. As of December 31, 2022, 60%, 23% and 17% of the Company’s interest rate swaps were linked to the
Secured Overnight Financing Rate, the Federal funds rate and LIBOR, respectively.
(2) There were no forward starting swaps at December 31, 2023 and December 31, 2022.
(3) The weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest
rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed.
F-21
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
The following tables summarize certain characteristics of the Company’s swaptions at December 31, 2023 and 2022:
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
Long receive
$1,250,000
$500,000
2.21%
1.65%
SOFR
SOFR
7.69
10.30
8.21
3.53
December 31, 2022
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
Long receive
$2,500,000
$750,000
2.02%
1.57%
3M LIBOR
3M LIBOR
8.19
11.07
14.28
12.82
The following tables summarize certain characteristics of the Company’s TBA derivatives at December 31, 2023 and 2022:
Purchase and sale contracts
for derivative TBAs
Purchase contracts
Sale contracts
Net TBA derivatives
Purchase and sale contracts
for derivative TBAs
Purchase contracts
Sale contracts
Net TBA derivatives
$
$
$
$
December 31, 2023
Notional
Implied Cost Basis
Implied Market Value
Net Carrying Value
(dollars in thousands)
988,000 $
920,626 $
915,790 $
(1,491,000)
(1,475,847)
(1,489,392)
(503,000) $
(555,221) $
(573,602) $
(4,836)
(13,545)
(18,381)
December 31, 2022
Notional
Implied Cost Basis
Implied Market Value
Net Carrying Value
(dollars in thousands)
10,589,000 $
10,675,739 $
10,623,350 $
(44,000)
(44,849)
(44,674)
10,545,000 $
10,630,890 $
10,578,676 $
(52,389)
175
(52,214)
The following tables summarize certain characteristics of the Company’s futures derivatives at December 31, 2023 and 2022:
December 31, 2023
Notional - Long
Positions
(dollars in thousands)
Notional - Short
Positions
Weighted Average
Years to Maturity
U.S. Treasury futures - 2 year
U.S. Treasury futures - 10 year and greater
Total
$
$
— $
—
— $
(5,001,400)
(1,733,600)
(6,735,000)
1.97
14.26
5.13
December 31, 2022
Notional - Long
Positions
(dollars in thousands)
Notional - Short
Positions
Weighted Average
Years to Maturity
U.S. Treasury futures - 2 year
U.S. Treasury futures - 5 year
U.S. Treasury futures - 10 year and greater
Total
$
$
— $
—
—
(8,518,400)
(5,803,400)
(6,866,900)
— $
(21,188,700)
1.96
4.37
8.15
4.63
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.
F-22
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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 December 31, 2023 and 2022, respectively.
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) $
— $
Interest rate swaptions, at fair value
TBA derivatives, at fair value
Purchase commitments
Liabilities
105,883
20,689
9,641
Interest rate swaps, at fair value
$
83,051 $
TBA derivatives, at fair value
Futures contracts, at fair value
Purchase commitments
39,070
179,835
339
(45,930)
(13,282)
—
(72,844) $
(34,525)
—
—
(57,320)
—
—
— $
—
(179,835)
—
4,839
2,633
7,407
9,641
10,207
4,545
—
339
December 31, 2022
Amounts Eligible for Offset
Gross Amounts
Financial Instruments
Cash Collateral
Net Amounts
Assets
(dollars in thousands)
Interest rate swaps, at fair value
$
33,006 $
(24,625) $
— $
Interest rate swaptions, at fair value
TBA derivatives, at fair value
Futures contracts, at fair value
Purchase commitments
Liabilities
256,991
17,056
33,179
1,832
—
(16,875)
(2,414)
—
—
—
—
—
Interest rate swaps, at fair value
$
108,724 $
(24,625) $
(1,251) $
TBA derivatives, at fair value
Futures contracts, at fair value
Purchase commitments
Credit derivatives
69,270
11,919
460
13,799
(16,875)
(2,414)
—
—
—
(9,505)
—
(9,291)
8,381
256,991
181
30,765
1,832
82,848
52,395
—
460
4,508
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)
For the years ended
December 31, 2023
December 31, 2022
December 31, 2021
$
$
$
Net Interest Component of
Interest Rate Swaps (1)
Realized Gains (Losses) on
Termination of Interest
Rate Swaps (1)
(dollars in thousands)
Unrealized Gains (Losses)
on Interest Rate Swaps (1)
1,585,053 $
366,161 $
(276,142) $
(74,757) $
(266,427) $
(1,236,349) $
(815,630)
3,480,708
2,198,486
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).
F-23
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
The effect of other derivative contracts in the Company’s Consolidated Statements of Comprehensive Income (Loss) is as
follows:
Year Ended December 31, 2023
Derivative Instruments
Realized Gain (Loss)
Unrealized Gain (Loss)
(dollars in thousands)
Amount of Gain/(Loss)
Recognized in Net Gains
(Losses) on Other Derivatives
and Financial Instruments
Net TBA derivatives
$
(174,666) $
33,833 $
Net interest rate swaptions
Futures
Purchase commitments
Credit derivatives
Total
(29,438)
194,316
—
(19,368)
(119,348)
(201,095)
7,932
13,260
$
Year Ended December 31, 2022
(140,833)
(148,786)
(6,779)
7,932
(6,108)
(294,574)
Derivative Instruments
Realized Gain (Loss)
Unrealized Gain (Loss)
Amount of Gain/(Loss)
Recognized in Net Gains
(Losses) on Other Derivatives
and Financial Instruments
Net TBA derivatives
Net interest rate swaptions
Futures
Purchase commitments
Credit derivatives
Total
(dollars in thousands)
$
(2,729,866) $
(100,990) $
(43,124)
3,825,072
—
3,657
195,084
141,366
460
(12,927)
$
(2,830,856)
151,960
3,966,438
460
(9,270)
1,278,732
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.
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 that are in a liability position at December 31, 2023 was approximately
$184.9 million, which represents the maximum amount the Company would be required to pay upon termination.
F-24
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
12. 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 on the Consolidated Statements of Financial Condition or disclosed in the related notes are
categorized based on the inputs to the valuation techniques as follows:
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 inputs in the fair value hierarchy.
The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices
of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying
collateral. Consequently, commercial real estate debt investments carried at fair value are classified as Level 2.
For the fair value of debt issued by securitization vehicles, refer to the “Variable Interest Entities” Note for additional
information.
The Company classifies its investments in MSR and Interests in MSR as Level 3 in the fair value measurements hierarchy. Fair
value estimates for these investments are obtained from models, which use significant unobservable inputs in their valuations.
These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including
discount rates, prepayment rates, delinquency levels and costs to service. Model valuations are then compared to valuations
F-25
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
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 and Interests in MSR require 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. There were no transfers between levels of the fair value hierarchy during the periods presented.
Assets
Securities
December 31, 2023
Level 1
Level 2
Level 3
Total
(dollars in thousands)
Agency mortgage-backed securities
$
— $
66,308,788 $
— $
66,308,788
Credit risk transfer securities
Non-Agency mortgage-backed securities
Commercial mortgage-backed securities
Loans
Residential mortgage loans
Mortgage servicing rights
Assets transferred or pledged to securitization vehicles
Derivative assets
Interest rate swaps
Other derivatives
Total assets
Liabilities
Debt issued by securitization vehicles
Participations issued
$
$
—
—
—
—
—
—
—
—
974,059
2,108,274
222,444
2,353,084
—
—
—
—
—
2,122,196
13,307,622
26,344
136,213
—
—
—
974,059
2,108,274
222,444
2,353,084
2,122,196
13,307,622
26,344
136,213
— $
85,436,828 $
2,122,196 $
87,559,024
— $
11,600,338 $
— $
11,600,338
—
1,103,835
U.S. Treasury securities sold, not yet purchased
2,132,751
—
—
—
—
—
1,103,835
2,132,751
83,051
219,244
—
179,835
83,051
39,409
$
2,312,586 $
12,826,633 $
— $
15,139,219
December 31, 2022
Level 1
Level 2
Level 3
Total
(dollars in thousands)
Derivative liabilities
Interest rate swaps
Other derivatives
Total liabilities
Assets
Securities
Agency mortgage-backed securities
$
— $
62,274,895 $
— $
62,274,895
Credit risk transfer securities
Non-Agency mortgage-backed securities
Commercial mortgage-backed securities
Loans
Residential mortgage loans
Mortgage servicing rights
Assets transferred or pledged to securitization vehicles
Derivative assets
Interest rate swaps
Other derivatives
Total assets
Liabilities
Debt issued by securitization vehicles
Participations issued
Derivative liabilities
Interest rate swaps
Other derivatives
Total liabilities
—
—
—
—
—
—
—
33,179
997,557
1,991,146
526,309
1,809,832
—
—
—
—
—
1,748,209
9,121,912
33,006
275,879
—
—
—
997,557
1,991,146
526,309
1,809,832
1,748,209
9,121,912
33,006
309,058
33,179 $
77,030,536 $
1,748,209 $
78,811,924
— $
7,744,160 $
— $
7,744,160
—
—
11,919
800,849
108,724
83,529
—
—
—
800,849
108,724
95,448
$
$
$
11,919 $
8,737,262 $
— $
8,749,181
F-26
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
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 and Interests in 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 and Interests in MSR, which in turn could result in a decline in the estimated fair value of
MSR and Interests in 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 and Interests in 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)
Discount rate
Prepayment rate
Delinquency rate
December 31, 2023
December 31, 2022
7.0% - 12.0% (8.6%)
8.4% - 10.7% (9.7%)
4.8% - 11.0% (5.6%)
0.2% - 4.2% (1.3%)
4.8% - 8.1% (5.4%)
0.2% - 4.5% (1.3%)
Cost to service
$84 - $111 ($94)
(1) Represents rates, estimates and assumptions that the Company believes would be used by
$86 - $118 ($95)
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.
The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at
December 31, 2023 and 2022.
Financial liabilities
Repurchase agreements
Other secured financing
December 31, 2023
December 31, 2022
Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
$62,201,543
$62,201,543
$59,512,597
$59,512,597
500,000
500,000
250,000
250,000
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.
F-27
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
13. 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 year ended December 31, 2023.
Intangible Assets, net
(dollars in thousands)
Beginning balance January 1, 2023
Impairment
Less: amortization expense
Ending balance December 31, 2023
$
$
16,679
(1,626)
(2,947)
12,106
14. 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 $62.2 billion and $59.5 billion of repurchase agreements with weighted average remaining
maturities of 44 days and 27 days and weighted average rates of 5.70% and 4.29% at December 31, 2023 and 2022,
respectively. In connection with its residential mortgage loans, the Company has select arrangements with counterparties to
enter into repurchase agreements for $2.4 billion with remaining capacity of $1.5 billion at December 31, 2023.
At December 31, 2023 and 2022, the repurchase agreements had the following remaining maturities and collateral types:
December 31, 2023
Agency
Mortgage-
Backed
Securities
Non-Agency
Mortgage-
Backed
Securities
Residential
Mortgage
Loans
Commercial
Mortgage-
Backed
Securities
Total
Repurchase
Agreements
CRTs
(dollars in thousands)
$
— $
— $
— $
— $
— $
—
1 day
2 to 29 days
30 to 59 days
60 to 89 days
33,492,952
555,568
18,090,265
—
6,479,206
139,952
90 to 119 days
Over 119 days (1)
—
2,511,003
—
—
840,400
528,341
579,611
39,714
169,697
—
—
—
207,592
644,259
191,276
35,080,196
—
—
—
—
18,618,606
7,198,769
247,306
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
Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial
Condition
$ (2,268,293)
$ 62,201,543
F-28
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
December 31, 2022
Agency
Mortgage-
Backed
Securities
Non-Agency
Mortgage-
Backed
Securities
Residential
Mortgage
Loans
Commercial
Mortgage-
Backed
Securities
Total
Repurchase
Agreements
CRTs
(dollars in thousands)
1 day
2 to 29 days
30 to 59 days
60 to 89 days
90 to 119 days
Over 119 days (1)
$
— $
— $
— $
— $
— $
—
30,244,050
21,200,770
4,410,473
—
—
193,069
149,733
—
125,893
—
524,432
632,673
782,905
73,251
—
200,931
263,711
31,426,193
—
—
168,656
349,013
124,390
22,107,566
68,647
5,262,025
—
—
367,800
349,013
Total
$ 55,855,293 $
468,695 $ 2,013,261 $
718,600 $
456,748 $ 59,512,597
Amounts offset in accordance with netting arrangements
Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial
Condition
(1) No repurchase agreements had a remaining maturity over 1 year at December 31, 2023 and 2022.
$
—
$ 59,512,597
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 reverse repurchase agreements and repurchase agreements as
presented in the Consolidated Statements of Financial Condition at December 31, 2023 and 2022. Refer to the “Derivative
Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.
December 31, 2023
December 31, 2022
Reverse Repurchase
Agreements
Repurchase
Agreements
Reverse Repurchase
Agreements
Repurchase
Agreements
(dollars in thousands)
Gross amounts
Amounts offset
Netted amounts
$
$
2,268,293 $
64,469,836 $
(2,268,293)
(2,268,293)
— $
62,201,543 $
— $
—
— $
59,512,597
—
59,512,597
The fair value of collateral received in connection with reverse repurchase agreements was $2.3 billion, of which the Company
sold $2.1 billion as of December 31, 2023. 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. There were no reverse
repurchase agreements or related collateral sold as of December 31, 2022.
Other Secured Financing - As of December 31, 2023, the Company had $1.25 billion in committed credit facilities to finance a
portion of its MSR portfolio. Outstanding borrowings under this facility as of December 31, 2023 totaled $500.0 million with
maturities ranging between six months to one year. The weighted average interest average rate of the borrowings was 8.09% as
of December 31, 2023. Borrowings are reported in Other secured financing in the Company’s Consolidated Statements of
Financial Condition.
Refer to the “Variable Interest Entities” Note for additional information on the Company’s other secured financing
arrangements at December 31, 2022.
Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential mortgage
loans of consolidated VIEs, had an estimated fair value and accrued interest of $68.2 billion and $279.5 million, respectively, at
December 31, 2023 and $62.2 billion and $226.4 million, respectively, at December 31, 2022.
F-29
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
15. CAPITAL STOCK
(A)
Common Stock
The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at December
31, 2023 and 2022.
Shares authorized
Shares issued and outstanding
December 31, 2023
December 31, 2022
December 31, 2023
December 31, 2022 Par Value
Common stock
1,468,250,000
2,936,500,000
500,080,287
468,309,810
$0.01
In December 2020, the Company announced that its Board authorized the repurchase of up to $1.5 billion of its outstanding
common shares through December 31, 2021 (the “Prior Share Repurchase Program”). In January 2022, the Company
announced that its Board authorized the repurchase of up to $1.5 billion of its outstanding shares of common stock through
December 31, 2024 (the “Current Share Repurchase Program”). The Current Share Repurchase Program replaced the Prior
Share Repurchase Program. During the years ended December 31, 2023 and 2022, no shares were repurchased under the
Current Share Repurchase Program or Prior Share Repurchase Program.
On August 6, 2020, the Company entered into separate Amended and Restated Distribution Agency Agreements (as amended
by Amendment No. 1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021, and Amendment No.
2 to the Amended and Restated Distribution Agency Agreements on November 3, 2022, collectively, the “Sales Agreements”)
with each of Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Keefe,
Bruyette & Woods, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo
Securities, LLC (collectively, the “Sales Agents”). Pursuant to the Sales Agreements, the Company may offer and sell shares of
its common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Sales Agents
(the “at-the-market sales program”).
During the year ended December 31, 2023, under the at-the-market sales program, the Company issued 31.4 million shares for
proceeds of $0.7 billion, net of commissions and fees. During the year ended December 31, 2022, under the at-the-market sales
program, the Company issued 45.7 million shares for proceeds of $1.1 billion, net of commissions and fees. The foregoing
share amounts have been retroactively adjusted to reflect the effects of the Reverse Stock Split.
During the year ended December 31, 2022, the Company closed two public offerings for an aggregate original issuance of
50 million shares of common stock for aggregate proceeds of $1.31 billion before deducting offering expenses. In connection
with each offering, the Company granted the underwriters a thirty-day option to purchase up to an additional 3.75 million
shares of common stock, which the underwriters exercised in full in both instances, resulting in an additional $196.5 million in
proceeds before deducting offering expenses for the year ended December 31, 2022.
(B)
Preferred Stock
The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at December 31, 2023 and
2022. In the event of a liquidation or dissolution of the Company, the Company’s then outstanding preferred stock takes
precedence over the Company’s common stock with respect to payment of dividends and the distribution of assets.
Shares Authorized
Shares Issued And
Outstanding
Carrying Value
December
31, 2023
December
31, 2022
December
31, 2023
December
31, 2022
December
31, 2023
December
31, 2022
Contractual
Rate
Effective
Date of
Floating
Rate
Dividend
Period
Earliest
Redemption
Date (1)
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
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
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
Total
63,500,000
63,500,000
63,500,000
63,500,000
$ 1,536,569
$ 1,536,569
Floating
Annual Rate (2)
3M Term SOFR
+ 4.993%
3M Term SOFR
+ 4.172%
3M Term SOFR
+ 4.989%
(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.
F-30
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
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 December 31, 2023, 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
year ended December 31, 2023.
(C)
Distributions to Stockholders
The following table provides a summary of the Company’s dividend distribution activity for the periods presented:
Dividends and dividend equivalents declared on common stock and share-based awards
Distributions declared per common share (1)
Distributions paid to common stockholders after period end
Distributions paid per common share after period end
Date of distributions paid to common stockholders after period end
Dividends declared to series F preferred stockholders
Dividends declared per share of series F preferred stock (2)
Dividends declared to series G preferred stockholders
Dividends declared per share of series G preferred stock (2)
For the Years Ended
December 31, 2023
December 31, 2022
(dollars in thousands, except per share data)
1,294,688 $
1,504,353
2.60 $
325,052 $
0.65 $
3.52
412,113
0.88
January 31, 2024
January 31, 2023
73,892 $
2.566 $
37,916 $
2.230 $
29,868 $
53,131
1.845
27,624
1.625
29,868
$
$
$
$
$
$
$
$
$
Dividends declared to series I preferred stockholders
Dividends declared per share of series I preferred stock (2)
1.688
(1) For the year ended December 31, 2023, 100.0% of common stock dividend distributions of $2.83 per share paid in calendar year 2023 and 0.65
per share paid on January 31, 2024 were taxable as ordinary income. For the year ended December 31, 2022, 86.5% and 13.5% of common
stock dividend distributions of $3.52 per share paid in calendar year 2022 were taxable as ordinary income and a return of capital, respectively.
(2) For the years ended December 31, 2023 and 2022, 100% of the preferred stock dividend distributions per share were taxable as ordinary
1.688 $
$
income.
16. LONG-TERM STOCK INCENTIVE PLAN
Employees, Directors and other service providers of the Company are eligible to participate in the Company’s 2020 Equity
Incentive Plan (the “Plan”), which provides for equity-based compensation in the form of stock options, share appreciation
rights, dividend equivalent rights, restricted shares, restricted stock units (“RSUs”), and other share-based awards. The
Company has the ability to award up to an aggregate of 31,250,000 shares under the terms of the Plan, subject to adjustment for
any awards that were outstanding under the Company’s 2010 Equity Incentive Plan (the “Prior Plan”, collectively the “Plans")
on the effective date of the Plan and subsequently expire, terminate, or are surrendered or forfeited. No new awards are
permitted to be made under the Prior Plan, although existing awards remain effective.
Restricted Stock Units
The Company grants RSUs (including RSUs subject to performance conditions (“PSUs”)) to employees, which are generally
valued based on the closing price of the underlying shares on the date of grant. For RSUs that vest, the underlying shares of
common stock are delivered (net of required withholding tax) as outlined in the applicable award agreements. PSUs are subject
to the Company’s achievement of specified performance criteria and the number of awards that vest can range from zero to
F-31
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
150% of the grant amount. Award agreements generally provide that vesting is accelerated in certain circumstances, such as
death and disability. Delivery of the underlying shares of common stock, which generally occurs over a three-year period, is
conditioned on the grantees satisfying certain vesting and other requirements outlined in the award agreements.
The Company recognized equity-based compensation expense of $17.3 million for the year ended December 31, 2023. As of
December 31, 2023, there was $22.9 million of total unrecognized compensation cost related to non-vested share-based
compensation arrangements. This cost is expected to be recognized over a weighted average period of 1.70 years.
17. 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:
Agency
Fixed-rate pass-through (1)
Adjustable-rate pass-through (1)
Multifamily (1)
CMO (1)
Reverse mortgages (2)
Interest-only (2)
Residential credit
Interest Income Methodology
Effective yield (3)
Effective yield (3)
Contractual Cash Flows
Effective yield (3)
Prospective
Prospective
CRT (2)
Alt-A (2)
Prime (2)
Subprime (2)
NPL/RPL (2)
Prime jumbo (2)
(1) Changes in fair value are recognized in Other comprehensive income (loss) on the accompanying Consolidated
Statements of Comprehensive Income (Loss) for securities purchased prior to July 1, 2022. Effective July 1, 2022,
changes in fair value are recognized in Net gains (losses) on investments and other on the accompanying Consolidated
Statements of Comprehensive Income (Loss) for newly purchased securities.
Prospective
Prospective
Prospective
Prospective
Prospective
Prospective
(2) Changes in fair value are recognized in Net gains (losses) on investments and other on 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 years ended
December 31, 2023, 2022 and 2021.
Interest income
Agency securities (1)
Residential credit securities
Residential mortgage loans (1)
Commercial investment portfolio (1) (2)
Reverse repurchase agreements
Total interest income
Interest expense
Repurchase agreements
Debt issued by securitization vehicles
Participations issued
U.S. Treasury securities sold, not yet purchased
Other
Total interest expense
Net interest income
2023
For the Years Ended December 31,
2022
(dollars in thousands)
2021
$
$
$
$
2,740,320 $
225,266
703,838
28,385
33,772
3,731,581 $
3,337,527 $
443,584
50,357
11,497
—
3,842,965
(111,384) $
2,144,696 $
140,220
410,229
81,855
1,887
2,778,887 $
1,026,201 $
225,216
39,366
—
18,952
1,309,735
1,469,152 $
1,484,354
78,681
182,359
237,597
45
1,983,036
116,974
93,006
12,071
—
27,192
249,243
1,733,793
(1) Includes assets transferred or pledged to securitization vehicles.
(2) Includes commercial real estate debt and preferred equity and corporate debt.
F-32
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
18. 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 years ended December 31, 2023, 2022 and 2021.
For the Years Ended
December 31, 2023
December 31, 2022
December 31, 2021
(dollars in thousands, except per share data)
Net income (loss)
$
(1,638,457) $
1,726,420 $
2,396,280
Net income (loss) attributable to noncontrolling interests
Net income (loss) attributable to Annaly
Dividends on preferred stock
4,714
(1,643,171)
141,676
1,095
1,725,325
110,623
Net income (loss) available (related) to common stockholders
$
(1,784,847) $
1,614,702 $
Weighted average shares of common stock outstanding-basic
Add: Effect of stock awards, if dilutive
494,541,323
—
Weighted average shares of common stock outstanding-diluted
494,541,323
411,348,484
273,274
411,621,758
6,384
2,389,896
107,532
2,282,364
356,856,520
285,731
357,142,251
Net income (loss) per share available (related) to common share
Basic
Diluted
$
$
(3.61) $
(3.61) $
3.93 $
3.92 $
6.40
6.39
The computations of diluted net income (loss) per share available (related) to common share for the years ended December 31,
2023 and 2022 exclude 1.9 million and 0.7 million, respectively, of potentially dilutive restricted stock units and performance
stock units because their effect would have been anti-dilutive.
19. INCOME TAXES
For the year ended December 31, 2023 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860.
As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders.
To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its
stockholders and meet certain other requirements that relate to, among other things, assets it may hold, income it may 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 December 31, 2023 and 2022.
The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status
as a REIT and, therefore, the Company generally does not pay income tax in such jurisdictions. 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 years ended December 31, 2023, 2022 and 2021 the Company recorded $39.4 million, $45.6 million and $4.7
million, respectively, of income tax expense (benefit) attributable to its TRSs. The Company’s federal, state and local tax
returns from 2020 and forward remain open for examination.
F-33
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
20. 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 shareholders plus common stock dividends declared divided by the prior
period’s stockholders’ equity attributable to common shareholders), a measure which is used by the CODM to evaluate segment
results and is one of the factors considered in determining capital allocation among the segments.
The following table presents the results of operations of the Company’s reportable operating segments for the years ended
December 31, 2023 and 2022:
Interest income
Interest expense
Net interest income
Servicing and related income
Servicing and related expense
Net servicing income
Other income (loss)
Less: Total general and administrative expenses
Income (loss) before income taxes
Income taxes
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Annaly
Dividends on preferred stock
December 31, 2023
Agency
Residential
Credit
MSR
Corporate &
Other
Consolidated
(dollars in thousands)
$
2,772,963 $
930,232 $
— $
28,386 $
3,731,581
3,096,245
(323,282)
728,273
201,959
—
—
—
(1,824,323)
58,852
(2,206,457)
1,629
(2,208,086)
—
(2,208,086)
—
—
—
—
171,678
49,021
324,616
17,121
307,495
4,714
302,781
—
—
—
364,157
37,652
326,505
13,975
29,872
310,608
21,070
289,538
—
18,447
9,939
—
—
—
3,842,965
(111,384)
364,157
37,652
326,505
(12,921)
(1,651,591)
24,808
162,553
(27,790)
(1,599,023)
(386)
39,434
(27,404)
(1,638,457)
—
4,714
289,538
(27,404)
(1,643,171)
—
141,676
141,676
Net income (loss) available (related) to common stockholders
(2,208,086)
302,781
289,538
(169,080)
(1,784,847)
Unrealized gains (losses) on available-for-sale securities
Reclassification adjustment for net (gains) losses included in net
income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling
interests
580,680
1,792,816
2,373,496
165,410
—
—
—
—
—
—
—
—
—
580,680
1,792,816
2,373,496
307,495
289,538
(27,404)
735,039
—
4,714
—
—
4,714
Comprehensive income (loss) attributable to Annaly
$
165,410 $
302,781 $
289,538 $
(27,404) $
730,325
Noncash investing and financing activities:
Receivable for unsettled trades
Payable for unsettled trades
Net change in unrealized gains (losses) on available-for-sale
securities, net of reclassification adjustment
Dividends declared, not yet paid
Total assets
Total assets
2,709,398
3,232,941
2,373,496
—
—
10
—
—
826
16,438
—
—
—
—
—
325,052
2,710,224
3,249,389
2,373,496
325,052
$
71,167,416 $
19,149,003 $
2,578,644 $
332,173 $
93,227,236
F-34
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Financial Statements
Interest income
Interest expense
Net interest income
Servicing and related income
Servicing and related expense
Net servicing income
Other income (loss)
Less: Total general and administrative expenses
Income (loss) before income taxes
Income taxes
Net income (loss)
Less: Net income (loss) attributable to noncontrolling interest
Net income (loss) attributable to Annaly
Dividends on preferred stock
Net income (loss) available (related) to common stockholders
Unrealized gains (losses) on available-for-sale securities
Reclassification adjustment for net (gains) losses included in net
income (loss)
Other comprehensive income (loss)
Comprehensive income (loss)
Comprehensive income (loss) attributable to noncontrolling
interests
December 31, 2022
Agency
Residential
Credit
MSR
Corporate &
Other
Consolidated
(dollars in thousands)
$
2,146,583 $
550,449 $
— $
81,855 $
2,778,887
936,063
1,210,520
344,669
205,780
(147,908)
(47,510)
(41,178)
(792)
(10,485)
—
—
—
480,383
50,817
1,640,086
1,640,878
—
1,640,878
—
1,640,878
(8,204,542)
3,537,236
(4,667,306)
(3,026,428)
—
—
—
47,005
10,867
21,352
1,088
20,264
—
20,264
—
—
—
6,202
(6,202)
246,926
25,145
221,781
29,784
138,285
57,055
81,230
—
81,230
—
81,230
—
—
—
22,801
59,054
1,309,735
1,469,152
—
—
—
35,123
246,926
25,145
221,781
243,787
162,729
(17,247)
1,771,991
(207)
45,571
(17,040)
1,726,420
7
1,095
(17,047)
1,725,325
110,623
(127,670)
—
—
—
110,623
1,614,702
(8,204,542)
3,537,236
(4,667,306)
21,352
81,230
(17,040)
(2,940,886)
—
1,088
—
7
1,095
Comprehensive income (loss) attributable to Annaly
$
(3,026,428) $
20,264 $
81,230 $
(17,047) $
(2,941,981)
Noncash investing and financing activities:
Receivable for unsettled trades
Payable for unsettled trades
Net change in unrealized gains (losses) on available-for-sale
securities, net of reclassification adjustment
Dividends declared, not yet paid
Total assets
Total assets
572,089
1,108,386
(4,667,306)
—
—
38
—
—
3,002
49,422
—
—
—
—
—
575,091
1,157,846
(4,667,306)
412,113
412,113
$
65,080,130 $
14,152,927 $
1,931,176 $
686,479 $
81,850,712
21. 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 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.
F-35
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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 and 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.
22. LEASE COMMITMENTS AND CONTINGENCIES
The Company’s operating leases are primarily comprised of corporate office leases with remaining lease terms of
approximately two years and four years. The 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 lease cost for the year ended December 31, 2023 was $3.3 million.
Supplemental information related to leases as of and for the year ended December 31, 2023 was as follows:
Operating Leases
Classification
December 31, 2023
Assets
(dollars in thousands)
Operating lease right-of-use assets
Other assets
Liabilities
Operating lease liabilities (1)
Lease term and discount rate
Weighted average remaining lease term
Weighted average discount rate (1)
Other liabilities
$
$
5,945
7,511
2.0 years
3.3%
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases
4,081
(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:
Years ended December 31,
Maturity of Lease Liabilities
(dollars in thousands)
2024
2025
2026
2027
Later years
Total lease payments
Less imputed interest
Present value of lease liabilities
$
$
$
F-36
4,107
3,149
261
269
22
7,808
297
7,511
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
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 December 31, 2023 and 2022.
23. SUBSEQUENT EVENTS
In January 2024, the Company completed and closed two securitization of residential mortgage loans, OBX 2024-NQM1, with
a face value of $413.6 million, and OBX 2024-NQM2, with a face value of $496.0 million. In February 2024, the Company
completed and closed one securitization of residential mortgage loans, OBX 2024-HYB1, with a face value of $412.1 million.
These securitizations represent financing transactions which provided non-recourse financing to the Company collateralized by
residential mortgage loans purchased by the Company.
F-37
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.
SIGNATURES
Date: February 15, 2024
By: /s/ David L. Finkelstein
David L. Finkelstein
Chief Executive Officer and Chief Investment Officer (Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the date indicated.
Signature
/s/ David L. Finkelstein
David L. Finkelstein
/s/ Serena Wolfe
Serena Wolfe
/s/ Francine J. Bovich
Francine J. Bovich
/s/ Thomas Edward Hamilton
Thomas Edward Hamilton
Director
Director
/s/ Kathy Hopinkah Hannan
Kathy Hopinkah Hannan
Director
Title
Date
Chief Executive Officer, Chief Investment Officer, and Director
(Principal Executive Officer)
February 15, 2024
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
/s/ Michael E. Haylon
Michael E. Haylon
/s/ Martin Laguerre
Martin Laguerre
/s/ Manon Laroche
Manon Laroche
/s/ Eric A. Reeves
Eric A. Reeves
/s/ John H. Schaefer
John H. Schaefer
/s/ Glenn A. Votek
Glenn A. Votek
/s/ Scott Wede
Scott Wede
/s/ Vicki Williams
Vicki Williams
Director, Chair of the Board
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
February 15, 2024
Director
Director
Director
Director
Director
Director
Director
II-1
(This page has been left blank intentionally.)
24
GLOSSARY OF TERMS
BBREMTG Index: Represents the Bloomberg Mortgage REIT Index as of December 31, 2023,
including Annaly
CRT: Refers to Credit Risk Transfer Securities
Dedicated Capital: Represents the capital allocation for each of the investment strategies calculated
as the difference between each investment strategies’ assets and related financing. This calculation
includes TBA purchase contracts and excludes non-portfolio related activity and will vary from total
stockholders’ equity
Economic Return: Refers to the Company’s change in book value plus dividends declared divided by
the prior period’s book value
Ginnie Mae: Refers to the Government National Mortgage Association
GSE: Refers to government sponsored enterprise
LTV: Refers to Loan to Value
mREIT: Refers to mortgage Real Estate Investment Trust
MSR: Refers to Mortgage Servicing Rights
Non-Performing Loan (“NPL”): Refers to a loan that is close to defaulting or is in default
Non-QM: Refers to a Non-Qualified Mortgage
OBX: Refers to Onslow Bay Securities
Re-Performing Loan (“RPL”): Refers to a type of loan in which payments were previously delinquent
by at least 90 days but have resumed
TBA: Refers to a To-Be-Announced security
UPB: Refers to Unpaid Principal Balance
WAC: Refers to Weighted Average Coupon
ANNALY CAPITAL MANAGEMENT, INC. 25
ENDNOTES
Annaly | Leader Across Residential Mortgage Finance
Message from Our CEO
Source: Company filings and Bloomberg. Market and financial data as of
December 31, 2023.
Source: Company filings. Financial data as of December 31, 2023.
1. Refers to economic return relative to Agency-focused peers with
1. Permanent capital represents Annaly’s total stockholders’ equity as
Bloomberg mREIT Index from 2022-23.
of December 31, 2023.
2.
Total portfolio represents Annaly’s investments that are on-balance
sheet as well as investments that are off-balance sheet in which
Annaly has economic exposure. Assets reflect TBA purchase
contracts (market value) of ($0.6)bn, exclude assets transferred or
pledged to securitization vehicles of $13.3bn and include unsettled
MSR commitments of $0.5bn and $1.4bn of retained securities that
are eliminated in consolidation and are shown net of participations
issued totaling $1.1bn. MSR commitments represent the market
value of deals where Annaly has executed a letter of intent.
3. Comprised of $5.2bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.0bn of fair
value of collateral pledged for future advances.
4. Represents total shareholder return for the period beginning October
7, 1997 through December 31, 2023.
5. Data shown since Annaly’s initial public offering in October 1997
through December 31, 2023 and includes common and preferred
dividends declared.
6. Represents the estimated number of homes financed by Annaly’s
2. Refers to economic return relative to Agency-focused peers with
Bloomberg mREIT Index and the Bloomberg US MBS Index Total
Return.
3. Represents full year 2023 operating expense as a percent of average
equity relative to the mREIT index peer average.
4. Based on data from the BofA Securities Non-QM Shelf and Deal
Report, December 31, 2023.
5.
Information aggregated from 2023 Fannie Mae and Freddie Mac
monthly loan level files by eMBS servicing transfer data as of
December 31, 2023.
6. Represents Annaly MSR Group’s weighted average coupon as
compared to members of the Bloomberg Mortgage REIT index with
MSR holdings of over $1 billion.
7. Represents a non-GAAP financial measure. Refer to the “Non-GAAP
Financial Measures” section of the 10-K for additional information.
8. Comprised of $5.2bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.0bn of fair
value of collateral pledged for future advances.
holdings of Agency MBS, residential whole loans and securities,
as well as multi-family commercial real estate loans, securities
and equity investments. The number includes all homes related to
securities and loans wholly-owned by Annaly and a pro-rata share of
homes in securities or equity investments that are partially owned
by Annaly.
9.
10.
7. Represents the cumulative impact of Annaly’s investments, including
current and prior investments, with Capital Impact Partners.
Power of Annaly
Source: Company filings and Bloomberg. Market data as of
December 31, 2023. Financial data as of December 31, 2023.
1. Representative of the BBREMTG Index. Excludes Annaly.
2. Permanent capital represents Annaly’s total stockholders’ equity as
of December 31, 2023.
3. Comprised of $5.2bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.0bn of fair
value of collateral pledged for future advances.
Proven Results
Source: Company filings and Bloomberg. Market data as of
December 31, 2023. Financial data as of December 31, 2023.
4. Data shown since Annaly’s initial public offering in October 1997
through December 31, 2023 and includes common and preferred
dividends declared.
5. Represents total shareholder return for the period beginning
October 7, 1997 through December 31, 2023.
Issuer ranking data from Inside Nonconforming Markets for 2022
through 2023 year-end (January 5, 2024 issue).
Includes a $414 million and $496 million whole loan securitization
that priced in January 2024, a $412 million and $440 million whole
loan securitization that priced in February 2024 and a $592 million
and $398 whole loan securitization that priced in March 2024.
11.
In March 2024, Onslow Bay closed its $592.4mm non-QM
transaction, OBX 2024-NQM4.
12. Represents total shareholder return for Annaly, the S&P 500 and the
Bloomberg Mortgage REIT Index for the period beginning October 7,
1997 through December 31, 2023.
13. Data shown since Annaly’s initial public offering in October 1997
through December 31, 2023 and includes common and preferred
dividends declared.
Annaly Investment Strategies
Source: Company filings. Financial data as of December 31, 2023.
1.
Investment strategy pie charts are calculated off of total assets.
2. Permanent capital represents Annaly’s total stockholders’ equity as
of December 31, 2023.
3.
Includes TBA purchase contracts and fixed-rate pass-through
certificates.
4. Represents the capital allocation for each of the investment
strategies and is calculated as the difference between each
investment strategy’s allocated assets, which include TBA purchase
contracts, and liabilities. Dedicated capital allocations as of
December 31, 2023 exclude commercial real estate assets.
5. Prime includes $5.0mm of Prime IO, OBX Retained contains
$179.2mm of Prime IO and Prime Jumbo IO and Prime Jumbo
includes $70.4mm of Prime Jumbo IO.
2023 ANNUAL REPORT
26
ENDNOTES (cont’d)
Our Investment Strategies | Agency
Onslow Bay Strategic Milestones
Source: Company filings. Financial data as of December 31, 2023.
Source: Company filings. Financial data as of December 31, 2023.
1. Agency assets reflect TBA purchase contracts (market value) of
($0.6)bn.
2.
Includes TBA purchase contracts.
3. Represents Agency’s hedging profile and does not reflect Annaly’s
full hedging activity.
Our Investment Strategies | Residential Credit
1.
2.
Issuer ranking data from Inside Nonconforming Markets for 2022
through 2023 year-end (January 5, 2024 issue).
Includes a $414mm and $496mm whole loan securitization that
priced in January 2024, a $412mm and $440mm whole loan
securitization that priced in February 2024 and a $592mm and
$398mm whole loan securitization that priced in March 2024.
3. Based on data from the BofA Securities Non-QM Shelf and Deal
Source: Company filings. Financial data as of December 31, 2023.
Report, December 31, 2023.
1. Residential Credit assets exclude assets transferred or pledged
to securitization vehicles of $13.3bn, include $1.4bn of retained
securities that are eliminated in consolidation and are shown net of
participations issued totaling $1.1bn.
2.
Includes a $414mm and $496mm whole loan securitization that
priced in January 2024, a $412mm and $440mm whole loan
securitization that priced in February 2024 and a $592mm and
$398mm whole loan securitization that priced in March 2024.
3.
Issuer ranking data from Inside Nonconforming Markets for 2022
through 2023 year-end (January 5, 2024 issue).
Our Investment Strategies | Mortgage Servicing Rights
Source: Company filings. Financial data as of December 31, 2023.
1. MSR assets includes limited partnership interests in a MSR fund,
which is reported in Other Assets.
4.
5.
Information aggregated from 2023 Fannie Mae and Freddie Mac
monthly loan level files by eMBS servicing transfer data as of
December 31, 2023.
Includes unsettled commitments of $518mm. MSR commitments
represent the market value of deals where Annaly has executed a
letter of intent.
6. Based on data from the Inside Mortgage Finance for the period
ended December 31, 2023.
Corporate Responsibility & Governance
Note: Data as of December 31, 2023, unless otherwise noted.
1.
Financial services 2023 turnover rate estimated based on most
recent data from the U.S. Bureau of Labor Statistics.
Board Composition & Shareholder Engagement Efforts
2. Portfolio excludes retained servicing on whole loans within the
Board composition as of April 2024.
1. Representative of outreach during 2023-2024 proxy season and
shareholder base as of December 31, 2023. Shareholder data per
Ipreo as of December 31, 2023.
Residential Credit portfolio.
3.
Includes unsettled commitments of $518mm. MSR commitments
represent the market value of deals where Annaly has executed a
letter of intent.
Financing, Capital & Liquidity
Source: Company filings. Financial data as of December 31, 2023.
1. Repo balances exclude Residential Credit facilities and US Treasuries
reversed in to support the UST short trade.
2. Represents a non-GAAP financial measure. Refer to the “Non-GAAP
Financial Measures” section of the 10-K for additional information.
3.
Includes a $414mm and $496mm whole loan securitization that
priced in January 2024, a $412mm and $440mm whole loan
securitization that priced in February 2024 and a $592mm and
$398mm whole loan securitization that priced in March 2024.
4.
Includes Residential Credit securitizations.
5. Amount raised through the Company’s at-the-market sales program
for its common stock, net of sales agent commissions and excluded
other offering expenses.
6. Comprised of $5.2bn of unencumbered assets, which represents
Annaly’s excess liquidity and defined as assets that have not
been pledged or securitized (generally including cash and cash
equivalents, Agency MBS, CRT, Non-Agency MBS, residential
mortgage loans, MSR, reverse repurchase agreements, other
unencumbered financial assets and capital stock), and $1.0bn of fair
value of collateral pledged for future advances.
ANNALY CAPITAL MANAGEMENT, INC.
27
SAFE HARBOR NOTICE
This Annual Report is issued by Annaly Capital Management, Inc. (“Annaly”), an internally-managed, publicly traded
company that has elected to be taxed as a real estate investment trust for federal income tax purposes. This Annual
Report is provided for investors in Annaly for informational purposes only and is not an offer to sell, or a solicitation of
an offer to buy, any security or instrument.
Cautionary Note Regarding Forward-Looking Statements
This Annual Report contains or incorporates 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,”
“illustrative” 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; and risks.
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.
We use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-
management) as channels of distribution of company information. The information we post through these channels
may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press
releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email
alerts and other information about Annaly when you enroll your email address by visiting the “Investors” section of our
website, then clicking on “Investor Resources” and selecting “Email Alerts” to complete the email notification form. Our
website, any alerts and social media channels are not incorporated into this document.
Past performance is no guarantee of future results. There is no guarantee that any investment strategy referenced
herein will work under all market conditions. There is no guarantee that illustrative returns will occur. Prior to making
any investment decision, you should evaluate your ability to invest for the long-term, especially during periods of
downturns in the market. You alone assume the responsibility of evaluating the merits and risks associated with any
potential investment or investment strategy referenced herein. To the extent that this material contains reference to
any past specific investment recommendations or strategies which were or would have been profitable to any person,
it should not be assumed that recommendations made in the future will be profitable or will equal the performance of
such past investment recommendations or strategies. The information contained herein is not intended to provide, and
should not be relied upon for accounting, legal or tax advice or investment recommendations for Annaly or any of its
affiliates.
Regardless of source, information is believed to be reliable for purposes used herein, but Annaly makes no
representation or warranty as to the accuracy or completeness thereof and does not take any responsibility for
information obtained from sources outside of Annaly. Certain information contained in the presentation discusses
general market activity, industry or sector trends, or other broad-based economic, market or political conditions and
should not be construed as research or investment advice.
2023 ANNUAL REPORT R
Annaly Capital Management, Inc.
1211 Avenue of the Americas
New York, NY 10036
www.annaly.com