ANNALY CAPITAL MANAGEMENT INC filed this 10-Q on Oct 31, 2024

ANNALY CAPITAL MANAGEMENT INC - 10-Q - 20241031 - FINANCIAL_STATEMENTS


ITEM 1. FINANCIAL STATEMENTS


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share data)
	September 30,		December 31,
	2024		2023 (1)
	(Unaudited)
Assets
Cash and cash equivalents (includes pledged assets of $1,235,942 and $1,136,298, respectively) (2)	$	1,560,159	$	1,412,148
Securities (includes pledged assets of $65,983,918 and $65,400,248, respectively) (3)	71,700,177		69,613,565
Loans, net (includes pledged assets of $1,957,860 and $2,082,419, respectively) (4)	2,305,613		2,353,084
Mortgage servicing rights (includes pledged assets of $1,842,510 and $1,781,279, respectively)	2,693,057		2,122,196

Assets transferred or pledged to securitization vehicles	21,044,007		13,307,622




Derivative assets	59,071		162,557


Receivable for unsettled trades	766,341		2,710,224
Principal and interest receivable	1,060,991		1,222,705


Intangible assets, net	10,088		12,106
Other assets	316,491		311,029

Total assets	$	101,515,995	$	93,227,236
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements	$	64,310,276	$	62,201,543
Other secured financing	600,000		500,000

Debt issued by securitization vehicles	18,709,118		11,600,338
Participations issued	467,006		1,103,835
U.S. Treasury securities sold, not yet purchased	2,043,519		2,132,751



Derivative liabilities	102,628		302,295
Payable for unsettled trades	1,885,286		3,249,389
Interest payable	276,397		287,937

Dividends payable	362,731		325,052
Other liabilities	219,085		179,005
Total liabilities	88,976,046		81,882,145
Stockholders’ equity







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 authorized, 558,047,743 and 500,080,287 issued and outstanding, respectively	5,580		5,001
Additional paid-in capital	24,851,604		23,672,391
Accumulated other comprehensive income (loss)	(712,203)		(1,335,400)
Accumulated deficit	(13,238,288)		(12,622,768)
Total stockholders’ equity	12,443,262		11,255,793
Noncontrolling interests	96,687		89,298
Total equity	12,539,949		11,345,091
Total liabilities and equity	$	101,515,995	$	93,227,236

(1)Derived from the audited consolidated financial statements at December 31, 2023.
(2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.4 million and $2.0 million at September 30, 2024 and December 31, 2023, respectively.
(3)Excludes $2.0 billion and $1.5 billion at September 30, 2024 and December 31, 2023, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition.
(4)Includes $0.8 million and $1.2 million of residential mortgage loans held for sale at September 30, 2024 and December 31, 2023, respectively.

See notes to consolidated financial statements.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) (Unaudited)
	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2024		2023		2024		2023
Net interest income
Interest income	$	1,229,341	$	1,001,485	$	3,501,154	$	2,741,229
Interest expense	1,215,940		1,046,819		3,440,646		2,799,063
Net interest income	13,401		(45,334)		60,508		(57,834)
Net servicing income
Servicing and related income	122,583		97,620		358,182		265,683
Servicing and related expense	12,988		9,623		37,821		26,433
Net servicing income	109,595		87,997		320,361		239,250
Other income (loss)
Net gains (losses) on investments and other	1,723,713		(2,713,126)		160,841		(4,020,362)
Net gains (losses) on derivatives	(1,754,010)		2,127,430		53,621		2,702,003
Loan loss (provision) reversal	—		—		—		219



Other, net	27,438		26,250		75,596		50,853
Total other income (loss)	(2,859)		(559,446)		290,058		(1,267,287)















General and administrative expenses
Compensation expense	34,453		30,064		96,448		90,090
Other general and administrative expenses	9,468		9,845		30,934		33,562
Total general and administrative expenses	43,921		39,909		127,382		123,652
Income (loss) before income taxes	76,216		(556,692)		543,545		(1,209,523)
Income taxes	(6,135)		12,392		4,853		37,702
Net income (loss)	82,351		(569,084)		538,692		(1,247,225)
Net income (loss) attributable to noncontrolling interests	15,906		(6,879)		18,838		(7,797)
Net income (loss) attributable to Annaly	66,445		(562,205)		519,854		(1,239,428)
Dividends on preferred stock	41,628		36,854		115,847		104,495
Net income (loss) available (related) to common stockholders	$	24,817	$	(599,059)	$	404,007	$	(1,343,923)
Net income (loss) per share available (related) to common stockholders
Basic	$	0.05	$	(1.21)	$	0.80	$	(2.73)
Diluted	$	0.05	$	(1.21)	$	0.80	$	(2.73)
Weighted average number of common shares outstanding
Basic	515,729,658		494,330,361		505,800,723		492,744,997
Diluted	516,832,152		494,330,361		506,618,143		492,744,997
Other comprehensive income (loss)
Net income (loss)	$	82,351	$	(569,084)	$	538,692	$	(1,247,225)
Unrealized gains (losses) on available-for-sale securities	428,955		(825,286)		92,843		(443,957)
Reclassification adjustment for net (gains) losses included in net income (loss)	15,769		513,041		530,354		1,458,077
Other comprehensive income (loss)	444,724		(312,245)		623,197		1,014,120
Comprehensive income (loss)	527,075		(881,329)		1,161,889		(233,105)
Comprehensive income (loss) attributable to noncontrolling interests	15,906		(6,879)		18,838		(7,797)
Comprehensive income (loss) attributable to Annaly	511,169		(874,450)		1,143,051		(225,308)
Dividends on preferred stock	41,628		36,854		115,847		104,495
Comprehensive income (loss) attributable to common stockholders	$	469,541	$	(911,304)	$	1,027,204	$	(329,803)


See notes to consolidated financial statements.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (dollars in thousands, except per share data) (Unaudited)
	For The Three Months Ended September 30,				For The Nine Months Ended September 30,
	2024		2023		2024		2023
Preferred stock
Beginning of period	$	1,536,569	$	1,536,569	$	1,536,569	$	1,536,569



End of period	$	1,536,569	$	1,536,569	$	1,536,569	$	1,536,569
Common stock
Beginning of period	$	5,010	$	4,939	$	5,001	$	4,683
Issuance	570		9		576		262

Stock-based award activity	—		—		3		3


End of period	$	5,580	$	4,948	$	5,580	$	4,948
Additional paid-in capital
Beginning of period	$	23,694,663	$	23,550,346	$	23,672,391	$	22,981,320
Issuance	1,148,881		17,500		1,159,774		579,838

Stock-based award activity	8,060		5,150		19,439		11,838



End of period	$	24,851,604	$	23,572,996	$	24,851,604	$	23,572,996
Accumulated other comprehensive income (loss)
Beginning of period	$	(1,156,927)	$	(2,382,531)	$	(1,335,400)	$	(3,708,896)
Unrealized gains (losses) on available-for-sale securities	428,955		(825,286)		92,843		(443,957)
Reclassification adjustment for net (gains) losses included in net income (loss)	15,769		513,041		530,354		1,458,077
End of period	$	(712,203)	$	(2,694,776)	$	(712,203)	$	(2,694,776)
Accumulated deficit
Beginning of period	$	(12,898,191)	$	(10,933,044)	$	(12,622,768)	$	(9,543,233)


Net income (loss) attributable to Annaly	66,445		(562,205)		519,854		(1,239,428)
Dividends declared on preferred stock (1)	(41,628)		(36,854)		(115,847)		(104,495)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)	(364,914)		(323,164)		(1,019,527)		(968,111)

End of period	$	(13,238,288)	$	(11,855,267)	$	(13,238,288)	$	(11,855,267)
Total stockholder’s equity	$	12,443,262	$	10,564,470	$	12,443,262	$	10,564,470
Noncontrolling interests
Beginning of period	$	81,780	$	111,066	$	89,298	$	98,983
Net income (loss) attributable to noncontrolling interests	15,906		(6,879)		18,838		(7,797)
Equity contributions from (distributions to) noncontrolling interests	(999)		8,400		(11,449)		21,401
End of period	$	96,687	$	112,587	$	96,687	$	112,587
Total equity	$	12,539,949	$	10,677,057	$	12,539,949	$	10,677,057

(1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.
See notes to consolidated financial statements.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (Unaudited)

	For The Nine Months Ended September 30,
	2024		2023
Cash flows from operating activities
Net income (loss)	$	538,692	$	(1,247,225)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net	95,697		132,558
Amortization of securitized debt premiums and discounts and deferred financing costs	7,127		10,724
Depreciation, amortization and other noncash expenses	23,180		19,348
Net (gains) losses on investments and derivatives	731,542		2,524,035

Income (loss) from unconsolidated joint ventures	(3,119)		(1,508)
Loan loss provision (reversal)	—		(219)

Payments on purchases of loans held for sale	(37,978)		—

Proceeds from sales and repayments of loans held for sale	38,063		1,336




Proceeds from U.S. Treasury securities	6,083,273		—
Payments on U.S. Treasury securities	(6,181,017)		—
Net receipts (payments) on derivatives	(967,289)		1,230,848
Net change in

Other assets	(8,787)		(116,687)
Interest receivable	176,430		(521,322)
Interest payable	(11,540)		(127,196)
Other liabilities	17,910		83,989
Net cash provided by (used in) operating activities	502,184		1,988,681
Cash flows from investing activities
Payments on purchases of securities	(22,984,768)		(29,960,271)
Proceeds from sales of securities	17,254,884		18,705,788
Principal payments on securities	4,875,202		4,706,936
Payments on purchases and origination of loans	(9,304,025)		(3,446,835)
Proceeds from sales of loans	414,706		—
Principal payments on loans	1,625,155		773,928
Payments on purchases of MSR	(701,418)		(398,664)
Proceeds from sales of MSR	66,269		—



Proceeds from reverse repurchase agreements	442,510,370		46,800,024
Payments on reverse repurchase agreements	(442,510,370)		(46,800,024)
Distributions in excess of cumulative earnings from unconsolidated joint ventures	19,264		—




Net cash provided by (used in) investing activities	(8,734,731)		(9,619,118)
Cash flows from financing activities
Proceeds from repurchase agreements and other secured financing	4,316,726,746		3,993,811,505
Payments on repurchase agreements and other secured financing	(4,314,490,574)		(3,988,383,706)

Proceeds from issuances of securitized debt	8,236,251		3,116,654
Principal payments on securitized debt	(1,478,171)		(673,729)
Payments on purchases of securitized debt	—		(2,504)
Payment of deferred financing cost	(2,783)		(214)
Proceeds from participations issued	2,984,799		1,182,639
Payments on repurchases of participations issued	(3,605,523)		(1,160,902)
Principal payments on participations issued	(40,805)		(30,866)

Net contributions (distributions) from (to) noncontrolling interests	(11,449)		21,401

Net proceeds from stock offerings, direct purchases and dividend reinvestments	1,160,350		580,100

Settlement of stock-based awards in satisfaction of withholding tax requirements	(6,157)		(6,661)
Dividends paid	(1,092,126)		(1,158,872)
Net cash provided by (used in) financing activities	8,380,558		7,294,845
Net (decrease) increase in cash and cash equivalents	148,011		(335,592)
Cash and cash equivalents including cash pledged as collateral, beginning of period	1,412,148		1,576,714
Cash and cash equivalents including cash pledged as collateral, end of period	$	1,560,159	$	1,241,122
Supplemental disclosure of cash flow information
Interest received	$	2,787,729	$	2,400,942



Interest paid (excluding interest paid on interest rate swaps)	$	2,907,352	$	2,673,922
Net interest received (paid) on interest rate swaps	$	1,353,022	$	891,649
Taxes received (paid)	$	(1,127)	$	1,290
Noncash investing and financing activities
Receivable for unsettled trades	$	766,341	$	1,047,566
Payable for unsettled trades	$	1,885,286	$	2,214,319
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	$	623,197	$	1,014,120


Dividends declared, not yet paid	$	362,731	$	321,629






See notes to consolidated financial statements.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)


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.

Annaly 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			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.


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 accompanying consolidated financial statements and related notes are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2023 (the “2023 Form 10-K”). The consolidated financial information as of December 31, 2023 has been derived from audited consolidated financial statements included in the Company’s 2023 Form 10-K.

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.

In the opinion of management, all normal, recurring adjustments have been included for a fair presentation of this interim financial information. Interim period operating results may not be indicative of the operating results for a full year.


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

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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 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 $1.2 billion and $1.1 billion at September 30, 2024 and December 31, 2023, 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 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 in the Consolidated Statements of Financial Condition. Interest income is presented as a separate line item in the Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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 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.

Recent Accounting Pronouncements

The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). 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 other 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.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


4. FINANCIAL INSTRUMENTS

The following table presents characteristics for certain of the Company’s financial instruments at September 30, 2024 and December 31, 2023.

Financial Instruments (1)

Balance Sheet Line Item

Type / Form

Measurement Basis

September 30, 2024

December 31, 2023

Assets

(dollars in thousands)

Securities

Agency mortgage-backed securities (2)

Fair value, with unrealized gains (losses) through other comprehensive income

9,579,247

15,665,352

Securities

Agency mortgage-backed securities (3)

Fair value, with unrealized gains (losses) through earnings

59,571,152

50,643,436

Securities

Residential credit risk transfer securities

Fair value, with unrealized gains (losses) through earnings

826,841

974,059

Securities

Non-agency mortgage-backed securities

Fair value, with unrealized gains (losses) through earnings

1,616,696

2,108,274

Securities

Commercial real estate debt investments - CMBS

Fair value, with unrealized gains (losses) through earnings

106,241

222,444

Total securities

71,700,177

69,613,565

Loans, net

Residential mortgage loans

Fair value, with unrealized gains (losses) through earnings

2,305,613

2,353,084

Assets transferred or pledged to securitization vehicles

Residential mortgage loans

Fair value, with unrealized gains (losses) through earnings

21,044,007

13,307,622

Liabilities

Repurchase agreements

Amortized cost

64,310,276

62,201,543

Other secured financing

Loans

Amortized cost

600,000

500,000

Debt issued by securitization vehicles

Securities

Fair value, with unrealized gains (losses) through earnings

18,709,118

11,600,338

Participations issued

Fair value, with unrealized gains (losses) through earnings

467,006

1,103,835

U.S. Treasury securities sold, not yet purchased

Securities

Fair value, with unrealized gains (losses) through earnings

2,043,519

2,132,751

(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at 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, 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. During the three and nine months ended September 30, 2024 and 2023, $1.7 billion and $762.8 million, and ($2.0) billion and ($2.4) billion, respectively, of unrealized gains (losses) on the Agency mortgage-backed securities, for which the fair value option was elected, 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 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

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

recognized in the Consolidated Statements of Comprehensive Income (Loss) as a securities loss provision and reflected as an allowance for credit losses on securities in 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). 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 table represents a rollforward of the activity for the Company’s securities for the nine months ended September 30, 2024:


	Agency Securities		Residential Credit Securities		Commercial Securities		Total
	(dollars in thousands)
Beginning balance January 1, 2024	$	66,308,788	$	3,082,333	$	222,444	$	69,613,565
Purchases	21,102,716		515,189		—		21,617,905
Sales	(15,307,569)		(737,702)		(107,464)		(16,152,735)
Principal paydowns	(4,338,657)		(541,052)		(10,685)		(4,890,394)
(Amortization) / accretion	(92,290)		1,672		535		(90,083)
Fair value adjustment	1,477,411		123,097		1,411		1,601,919
Ending balance September 30, 2024	$	69,150,399	$	2,443,537	$	106,241	$	71,700,177

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The following tables present the Company’s securities portfolio that were carried at their fair value at September 30, 2024 and December 31, 2023:


	September 30, 2024
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	64,672,312	$	1,321,720	$	(1,166,717)	$	64,827,315	$	895,219	$	(929,577)	$	64,792,957
Adjustable-rate pass-through	164,775		12,563		(44)		177,294		2,266		(10,226)		169,334
CMO	89,286		1,481		—		90,767		—		(11,363)		79,404
Interest-only	2,878,756		455,715		—		455,715		33,559		(109,636)		379,638
Multifamily(1)	23,793,890		484,760		(9,626)		3,659,198		73,978		(30,916)		3,702,260
Reverse mortgages	25,499		2,725		—		28,224		—		(1,418)		26,806
Total agency securities	$	91,624,518	$	2,278,964	$	(1,176,387)	$	69,238,513	$	1,005,022	$	(1,093,136)	$	69,150,399
Residential credit
Credit risk transfer	$	772,924	$	1,712	$	(3,707)	$	770,929	$	56,019	$	(107)	$	826,841
Alt-A	172,368		36		(1,810)		170,594		4,357		(6,656)		168,295
Prime (2)	1,462,881		15,842		(10,302)		32,195		3,304		(536)		34,963

Subprime	287,667		13		(30,510)		257,170		9,785		(9,163)		257,792
NPL/RPL	996,780		5,380		(6,252)		995,908		5,265		(7,925)		993,248
Prime jumbo (>=2010 vintage) (3)	10,000,947		82,250		(30,577)		144,628		21,551		(3,781)		162,398

Total residential credit securities	$	13,693,567	$	105,233	$	(83,158)	$	2,371,424	$	100,281	$	(28,168)	$	2,443,537
Total residential securities	$	105,318,085	$	2,384,197	$	(1,259,545)	$	71,609,937	$	1,105,303	$	(1,121,304)	$	71,593,936
Commercial
Commercial securities	$	106,044	$	143	$	(7)	$	106,180	$	96	$	(35)	$	106,241
Total securities	$	105,424,129	$	2,384,340	$	(1,259,552)	$	71,716,117	$	1,105,399	$	(1,121,339)	$	71,700,177


	December 31, 2023
	Principal / Notional		Remaining Premium		Remaining Discount		Amortized Cost		Unrealized Gains		Unrealized Losses		Estimated Fair Value
Agency	(dollars in thousands)
Fixed-rate pass-through	$	63,444,987	$	1,448,886	$	(1,318,948)	$	63,574,925	$	477,242	$	(1,853,226)	$	62,198,941
Adjustable-rate pass-through	188,996		15,834		(51)		204,779		1,663		(14,953)		191,489
CMO	94,448		1,612		—		96,060		—		(13,088)		82,972

Interest-only	2,010,697		416,955		—		416,955		4,729		(157,679)		264,005
Multifamily (1)	17,130,045		400,781		(9,752)		3,552,217		52,055		(59,744)		3,544,528
Reverse mortgages	26,183		3,193		—		29,376		—		(2,523)		26,853
Total agency investments	$	82,895,356	$	2,287,261	$	(1,328,751)	$	67,874,312	$	535,689	$	(2,101,213)	$	66,308,788
Residential credit
Credit risk transfer	$	924,729	$	2,240	$	(4,358)	$	922,611	$	51,984	$	(536)	$	974,059
Alt-A	164,384		9		(3,922)		160,471		2,135		(12,371)		150,235
Prime (2)	1,076,497		8,590		(21,163)		207,077		1,704		(28,134)		180,647

Subprime	272,955		—		(31,751)		241,204		5,622		(11,221)		235,605
NPL/RPL	1,237,531		8,336		(9,224)		1,236,643		4,578		(43,666)		1,197,555
Prime jumbo (>=2010 vintage) (3)	9,425,280		71,960		(49,859)		365,676		10,696		(32,140)		344,232

Total residential credit securities	$	13,101,376	$	91,135	$	(120,277)	$	3,133,682	$	76,719	$	(128,068)	$	3,082,333
Total residential securities	$	95,996,732	$	2,378,396	$	(1,449,028)	$	71,007,994	$	612,408	$	(2,229,281)	$	69,391,121
Commercial
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

(1) Principal/Notional amount includes $20.6 billion and $14.0 billion of Agency Multifamily interest-only securities as of September 30, 2024 and December 31, 2023, respectively. (2) Principal/Notional amount includes $1.4 billion and $0.9 billion of Prime interest-only securities as of September 30, 2024 and December 31, 2023, respectively. (3) Principal/Notional amount includes $9.9 billion and $9.1 billion of Prime Jumbo interest-only securities as of September 30, 2024 and December 31, 2023, respectively.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The following table presents the Company’s Agency mortgage-backed securities portfolio by issuing Agency at September 30, 2024 and December 31, 2023:


	September 30, 2024		December 31, 2023
Investment Type	(dollars in thousands)
Fannie Mae	$	64,332,620	$	60,477,303
Freddie Mac	4,711,281		5,778,809
Ginnie Mae	106,498		52,676
Total	$	69,150,399	$	66,308,788

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 September 30, 2024 and December 31, 2023, according to their estimated weighted average life classifications:


	September 30, 2024				December 31, 2023
	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
Estimated weighted average life	(dollars in thousands)
Less than one year	$	372,457	$	373,090	$	254,753	$	257,170
Greater than one year through five years	14,058,665		13,842,110		5,159,969		5,213,575
Greater than five years through ten years	55,842,923		56,074,367		62,158,711		63,662,144
Greater than ten years	1,319,891		1,320,370		1,817,688		1,875,105
Total	$	71,593,936	$	71,609,937	$	69,391,121	$	71,007,994

The estimated weighted average lives of the Residential Securities at September 30, 2024 and December 31, 2023 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 September 30, 2024 and December 31, 2023.


	September 30, 2024					December 31, 2023
	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)	Estimated Fair Value (1)		Gross Unrealized Losses (1)		Number of Securities (1)
	(dollars in thousands)
Less than 12 months	$	13,122	$	(638)	11	$	35,453	$	(418)	16
12 Months or more	9,390,134		(717,707)		1,429	15,455,118		(1,340,032)		1,747
Total	$	9,403,256	$	(718,345)	1,440	$	15,490,571	$	(1,340,450)	1,763

(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 three and nine months ended September 30, 2024, the Company disposed of $2.8 billion and $16.0 billion amortized cost basis of Residential Securities, respectively. During the three and nine months ended September 30, 2023, the Company disposed of $6.9 billion and $20.5 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 three and nine months ended September 30, 2024 and 2023, which is included in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


	Gross Realized Gains		Gross Realized Losses		Net Realized Gains (Losses)
For the three months ended	(dollars in thousands)
September 30, 2024	$	26,983	$	(35,258)	$	(8,275)
September 30, 2023	$	10,048	$	(612,665)	$	(602,617)
For the nine months ended
September 30, 2024	$	67,209	$	(888,683)	$	(821,474)
September 30, 2023	$	23,813	$	(1,747,514)	$	(1,723,701)


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, as of September 30, 2024 and December 31, 2023, the Company had $2.3 billion and $2.4 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 $0.8 million and $1.2 million at September 30, 2024 and December 31, 2023, respectively.

The following table presents the activity of the Company’s loan investments, excluding loans transferred or pledged to securitization vehicles, for the nine months ended September 30, 2024:


	Residential Loans
	(dollars in thousands)
Beginning balance January 1, 2024	$	2,353,084

Purchases / originations	9,329,964
Sales and transfers (1)	(9,287,090)



Principal payments	(103,691)
Gains / (losses)	25,189
(Amortization) / accretion	(11,843)

Ending balance September 30, 2024	$	2,305,613


(1) Includes transfer of residential loans to securitization vehicles with a carrying value of $8.8 billion during the nine months ended September 30, 2024.

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 retained 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 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.

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, at September 30, 2024 and December 31, 2023:

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


	September 30, 2024		December 31, 2023
	(dollars in thousands)
Fair value	$	23,349,620	$	15,660,706
Unpaid principal balance	$	23,711,456	$	16,611,204

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2024 and 2023 for these investments:


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(dollars in thousands)
Interest income	$	346,031	$	181,965	$	899,867	$	491,397
Net gains (losses) on disposal of investments (1)	1,535		(1,087)		(1,810)		(3,358)
Net unrealized gains (losses) on instruments measured at fair value through earnings (1)	558,161		(418,776)		469,462		(326,096)
Total included in net income (loss)	$	905,727	$	(237,898)	$	1,367,519	$	161,943

(1) These amounts are presented in the line item Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (loss).

The following table provides the geographic concentrations based on the unpaid principal balances at September 30, 2024 and December 31, 2023 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:


Geographic Concentrations of Residential Mortgage Loans
September 30, 2024		December 31, 2023
Property location	% of Balance	Property location	% of Balance
California	38.3%	California	40.1%
New York	10.9%	Florida	10.6%
Florida	10.6%	New York	10.5%
Texas	5.6%	Texas	5.6%
All other (none individually greater than 5%)	34.6%	All other (none individually greater than 5%)	33.2%


Total	100.0%		100.0%

The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at September 30, 2024 and December 31, 2023:


	September 30, 2024		December 31, 2023
	Portfolio Range	Portfolio Weighted Average	Portfolio Range	Portfolio Weighted Average
	(dollars in thousands)
Unpaid principal balance	$1 - $4,396	$475	$1 - $4,396	$477
Interest rate	2.00% - 18.00%	6.31%	2.00% - 13.25%	5.63%
Maturity	7/1/2029 - 10/1/2064	11/4/2052	7/1/2029 - 12/1/2063	4/22/2052
FICO score at loan origination	549 - 850	758	549 - 850	758
Loan-to-value ratio at loan origination	3% - 100%	68%	3% - 100%	68%

At September 30, 2024 and December 31, 2023, approximately 15% 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.


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 in 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).

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The following table presents activity related to MSR for the three and nine months ended September 30, 2024 and 2023:


Mortgage Servicing Rights	Three Months Ended				Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(dollars in thousands)
Fair value, beginning of period	$	2,785,614	$	2,018,896	$	2,122,196	$	1,748,209

Purchases (1)	64,750		185,299		701,377		399,450

Sales	(68,635)		—		(69,703)		—

Change in fair value due to:
Changes in valuation inputs or assumptions (2)	(42,752)		62,315		63,286		172,845
Other changes, including realization of expected cash flows	(45,920)		(31,697)		(124,099)		(85,691)
Fair value, end of period	$	2,693,057	$	2,234,813	$	2,693,057	$	2,234,813

(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.


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 $2.1 billion at September 30, 2024. 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.

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 that provide non-recourse financing to the Company and are collateralized by residential mortgage loans purchased by the Company. Residential securitizations closed as of September 30, 2024 are included in the following table:


Securitization	Date of Closing	Face Value at Closing
		(dollars in thousands)













































OBX 2024-NQM1	January 2024	$	413,581
OBX 2024-NQM2	January 2024	$	495,980
OBX 2024-HYB1	February 2024	$	412,084
OBX 2024-NQM3	February 2024	$	439,904
OBX 2024-NQM4	March 2024	$	592,448
OBX 2024-HYB2	March 2024	$	397,787
OBX 2024-NQM5	April 2024	$	574,553
OBX 2024-NQM6	April 2024	$	441,421
OBX 2024-NQM7	May 2024	$	551,759
OBX 2024-NQM8	May 2024	$	723,086
OBX 2024-NQM9	June 2024	$	532,126
OBX 2024-NQM10	July 2024	$	482,526
OBX 2024-NQM11	July 2024	$	602,981
OBX 2024-NQM12	August 2024	$	532,193
OBX 2024-NQM13	September 2024	$	582,213
OBX 2024-J1	September 2024	$	357,801
OBX 2024-NQM14	September 2024	$	600,909

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

As of September 30, 2024 and December 31, 2023, a total carrying value of $18.7 billion and $11.6 billion, respectively, of bonds were held by third parties and the Company retained $2.1 billion and $1.4 billion, respectively, of MBS, which were eliminated in consolidation. The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be potentially significant to these VIEs. Effective August 1, 2022, upon initial consolidation of new securitization entities, the Company elected to apply the measurement alternative for consolidated collateralized financing entities in order to simplify the accounting and valuation processes. The liabilities of these securitization entities are deemed to be more observable and are used to measure the fair value of the assets. The Company incurred $5.0 million and $1.9 million of costs during the three months ended September 30, 2024 and 2023, respectively, and $14.0 million and $5.9 million of costs during the nine months ended September 30, 2024 and 2023, respectively, in connection with these securitizations that were expensed as incurred. The contractual principal amount of the OBX Trusts’ debt held by third parties was $19.3 billion and $12.6 billion at September 30, 2024 and December 31, 2023, respectively. During the three months ended September 30, 2024 and 2023, the Company recorded ($430.4) million and $294.9 million, respectively, and ($339.6) million and $213.5 million during the nine months ended September 30, 2024 and 2023, respectively, of unrealized gains (losses) on debt held by third parties issued by OBX Trusts, which is reported in Net gains (losses) on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss).

Although the residential mortgage loans have been sold for bankruptcy and state law purposes, the transfers of the residential mortgage loans to the OBX Trusts did not qualify for sale accounting and are reflected as intercompany secured borrowings that are eliminated upon consolidation.

Residential Credit Fund

The Company manages a fund investing in participations in residential mortgage loans. The residential credit fund is deemed to be a VIE because the entity does not have sufficient equity at risk to permit the legal entity to finance its activities without additional subordinated financial support provided by any parties, including equity holders, as capital commitments are not considered equity at risk. The Company is not the primary beneficiary and does not consolidate the residential credit fund as its only interest in the fund is the management and performance fees that it earns, which are not considered variable interests in the entity. As of September 30, 2024 and December 31, 2023, the Company had outstanding participating interests in residential mortgage loans of $0.5 billion and $1.1 billion, respectively. These transfers do not meet the criteria for sale accounting and are accounted for as secured borrowings, thus the residential loans are reported as Loans, net and the associated liability is reported as Participations issued in the Consolidated Statements of Financial Condition. The Company elected the fair value option for participations issued with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss) to more accurately reflect the economics of the transfers as the underlying loans are carried at fair value through earnings.


9. DERIVATIVE INSTRUMENTS

Derivative instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA derivatives, U.S. Treasury and Secured Overnight Financing Rate (“SOFR”) futures contracts and certain forward purchase commitments. The Company may also enter into other types of mortgage derivatives such as interest-only securities, credit derivatives referencing the commercial mortgage-backed securities index and synthetic total return swaps.

In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps, swaptions and futures contracts. The Company may also enter into TBA derivatives, U.S. Treasury futures contracts, certain forward purchase commitments and credit derivatives to economically hedge its exposure to market risks. The purpose of using derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders. These derivatives are subject to changes in market values resulting from changes in interest rates, volatility, Agency mortgage-backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives also creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative transactions, the amount of which may vary based on the market value and terms of the derivative contract. In the case of market agreed coupon (“MAC”) interest rate swaps, the Company may make or receive a payment at the time of entering into such interest rate swaps, which represents fair value of these swaps, to compensate for the out of market nature of such interest rate swaps. Subsequent changes in fair value from inception of these interest rate swaps are reflected within Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss). Similar to other interest rate swaps, the Company may have to pledge cash or assets as collateral for the MAC interest rate swap transactions. In the event of a default by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in accordance with the terms of the derivative contracts.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes.

The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. In accordance with a clearing organization’s rulebook, the Company presents the fair value of centrally cleared interest rate swaps net of variation margin pledged or received under such transactions. At September 30, 2024 and December 31, 2023, ($1.8) billion and ($2.4) billion, respectively, of variation margin was reported as an adjustment to interest rate swaps, at fair value. Initial margin is reported in Cash and cash equivalents in the Consolidated Statements of Financial Condition.

Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk. In particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. The Company may have outstanding interest rate swap agreements where the floating leg is linked to the SOFR, the overnight index swap rate or another index. Interest rate swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”). Uncleared interest rate swaps are fair valued using internal pricing models and compared to the counterparty market values. Centrally cleared interest rate swaps, including MAC interest rate swaps, are generally fair valued using the DCO’s market values. If an interest rate swap is terminated, the realized gain (loss) on the interest rate swap would be equal to the difference between the cash received or paid and fair value.

Swaptions – Swaptions are purchased or sold to mitigate the potential impact of increases or decreases in interest rates. Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. The Company’s swaptions are not centrally cleared. The premium paid or received for swaptions is reported as an asset or liability in the Consolidated Statements of Financial Condition. If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium received or paid. If the Company sells or exercises a swaption, the realized gain (loss) on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid. The fair value of swaptions are estimated using internal pricing models and compared to the counterparty market values.

TBA Dollar Rolls – TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities.

Futures Contracts – Futures contracts are derivatives that track the prices of specific assets or benchmark rates. Short sales of futures contracts help to mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains margin accounts which are settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing.

Forward Purchase Commitments – The Company may enter into forward purchase commitments with counterparties whereby the Company commits to purchasing residential mortgage loans at a particular price, provided the residential mortgage loans close with the counterparties. The counterparties are required to deliver the committed loans on a “best efforts” basis.

Credit Derivatives – The Company may enter into credit derivatives referencing a commercial mortgage-backed securities index, such as the CMBX index, and synthetic total return swaps.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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


Derivatives Instruments	September 30, 2024		December 31, 2023
Assets	(dollars in thousands)
Interest rate swaps	$	3,094	$	26,344
Interest rate swaptions	13,068		105,883
TBA derivatives	2,869		20,689
Futures contracts	23,256		—
Purchase commitments	16,784		9,641

Total derivative assets	$	59,071	$	162,557
Liabilities
Interest rate swaps	$	59,297	$	83,051

TBA derivatives	8,601		39,070
Futures contracts	32,117		179,835
Purchase commitments	2,613		339

Total derivative liabilities	$	102,628	$	302,295

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


September 30, 2024
Maturity	Current Notional (1)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years	$	19,961,229	3.33	%	4.95	%	1.05
3 - 6 years	13,510,021		3.10	%	4.94	%	4.62
6 - 10 years	20,114,937		2.77	%	4.95	%	7.97
Greater than 10 years	1,559,384		3.44	%	4.84	%	23.50
Total / Weighted average	$	55,145,571	3.05	%	4.94	%	5.08


December 31, 2023
Maturity	Current Notional (1)		Weighted Average Pay Rate		Weighted Average Receive Rate		Weighted Average Years to Maturity (2)
(dollars in thousands)
0 - 3 years	$	21,397,358	3.17	%	5.26	%	1.23
3 - 6 years	12,461,799		3.09	%	5.37	%	4.75
6 - 10 years	22,949,150		2.85	%	5.34	%	8.02
Greater than 10 years	2,021,247		3.53	%	5.27	%	22.71
Total / Weighted average	$	58,829,554	3.04	%	5.31	%	5.36

(1) As of September 30, 2024, 7% and 93% of the Company’s interest rate swaps were linked to the Federal funds rate and the SOFR, respectively. As of December 31, 2023, 6% and 94% of the Company’s interest rate swaps were linked to the Federal funds rate and the SOFR, respectively. (2) The weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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

September 30, 2024

Current Underlying Notional

Weighted Average Underlying Fixed Rate

Weighted Average Underlying Floating Rate

Weighted Average Underlying Years to Maturity

Weighted Average Months to Expiration

(dollars in thousands)

Long pay

$250,000

2.40%

SOFR

5.03

0.23

December 31, 2023

Current Underlying Notional

Weighted Average Underlying Fixed Rate

Weighted Average Underlying Floating Rate

Weighted Average Underlying Years to Maturity

Weighted Average Months to Expiration

(dollars in thousands)

Long pay

$1,250,000

2.21%

SOFR

7.69

8.21

Long receive

$500,000

1.65%

SOFR

10.30

3.53

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


September 30, 2024
Purchase and Sale Contracts for Derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)
Purchase contracts	$	3,319,000	$	3,333,873	$	3,328,141	$	(5,732)

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


December 31, 2023
Purchase and Sale Contracts for Derivative TBAs	Notional		Implied Cost Basis		Implied Market Value		Net Carrying Value
(dollars in thousands)

Purchase contracts	$	988,000	$	920,626	$	915,790	$	(4,836)
Sale contracts	(1,491,000)		(1,475,847)		(1,489,392)		(13,545)
Net TBA derivatives	$	(503,000)	$	(555,221)	$	(573,602)	$	(18,381)

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


September 30, 2024
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)


U.S. Treasury futures - 2 year	$	—	$	(16,793,200)	1.94
U.S. Treasury futures - 5 year	3,346,000		—		4.39
U.S. Treasury futures - 10 year and greater	621,300		(2,285,500)		12.41
Total	$	3,967,300	$	(19,078,700)	3.62


December 31, 2023
	Notional - Long Positions		Notional - Short Positions		Weighted Average Years to Maturity
	(dollars in thousands)


U.S. Treasury futures - 2 year	$	—	$	(5,001,400)	1.97

U.S. Treasury futures - 10 year and greater	—		(1,733,600)		14.26
Total	$	—	$	(6,735,000)	5.13

The Company presents derivative contracts on a gross basis in the Consolidated Statements of Financial Condition. Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset in the Company’s Consolidated Statements of Financial Condition at September 30, 2024 and December 31, 2023, respectively.


September 30, 2024
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	3,094	$	—	$	—	$	3,094
Interest rate swaptions, at fair value	13,068		—		(11,100)		1,968
TBA derivatives, at fair value	2,869		(2,660)		—		209
Futures contracts, at fair value	23,256		(20,305)		—		2,951
Purchase commitments	16,784		—		—		16,784

Liabilities
Interest rate swaps, at fair value	$	59,297	$	(48,713)	$	—	$	10,584
TBA derivatives, at fair value	8,601		(6,972)		—		1,629
Futures contracts, at fair value	32,117		(20,305)		(11,812)		—
Purchase commitments	2,613		—		—		2,613



December 31, 2023
			Amounts Eligible for Offset
	Gross Amounts		Financial Instruments		Cash Collateral		Net Amounts
Assets	(dollars in thousands)
Interest rate swaps, at fair value	$	26,344	$	(21,505)	$	—	$	4,839
Interest rate swaptions, at fair value	105,883		(45,930)		(57,320)		2,633
TBA derivatives, at fair value	20,689		(13,282)		—		7,407

Purchase commitments	9,641		—		—		9,641

Liabilities
Interest rate swaps, at fair value	$	83,051	$	(72,844)	$	—	$	10,207
TBA derivatives, at fair value	39,070		(34,525)		—		4,545
Futures contracts, at fair value	179,835		—		(179,835)		—
Purchase commitments	339		—		—		339

The effect of interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss) is as follows:


Location on Consolidated Statements of Comprehensive Income (Loss)
	Net Interest Component of Interest Rate Swaps (1)		Realized Gains (Losses) on Termination of Interest Rate Swaps (1)		Unrealized Gains (Losses) on Interest Rate Swaps (1)
For the three months ended	(dollars in thousands)
September 30, 2024	$	317,483	$	(94,016)	$	(1,582,495)
September 30, 2023	$	394,677	$	16,416	$	1,475,547
For the nine months ended
September 30, 2024	$	946,004	$	(96,532)	$	(584,109)
September 30, 2023	$	1,205,676	$	(81,255)	$	1,360,977
(1) Included in Net gains (losses) on derivatives in the Consolidated Statements of Comprehensive Income (Loss).

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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


Three Months Ended September 30, 2024
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	40,561	$	(18,181)	$	22,380
Net interest rate swaptions	(21,180)		(113,792)		(134,972)
Futures	(362,660)		71,146		(291,514)
Purchase commitments	—		9,124		9,124


Total					$	(394,982)


Three Months Ended September 30, 2023
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(81,964)	$	(41,777)	$	(123,741)
Net interest rate swaptions	(27,860)		(51,041)		(78,901)
Futures (1)	309,397		131,578		440,975
Purchase commitments	—		2,457		2,457


Total					$	240,790

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


Nine Months Ended September 30, 2024
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	15,694	$	12,649	$	28,343
Net interest rate swaptions	(33,511)		(59,304)		(92,815)
Futures (1)	(323,113)		170,973		(152,140)
Purchase commitments	—		4,870		4,870

Total					$	(211,742)

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


Nine Months Ended September 30, 2023
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)		Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives	$	(136,452)	$	12,710	$	(123,742)
Net interest rate swaptions	(25,538)		(43,627)		(69,165)
Futures (1)	185,716		229,940		415,656
Purchase commitments	—		(122)		(122)
Credit derivatives	(19,282)		13,260		(6,022)
Total					$	216,605

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

Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the applicable agreement has a right to terminate the agreement in accordance with its provisions. The aggregate fair value of all derivative instruments with the aforementioned features were in a net liability position at September 30, 2024 of $42.2 million, which represents the maximum amount the Company would be required to pay upon termination. This amount is fully collateralized.


10. FAIR VALUE MEASUREMENTS

The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSR that are accounted for at fair value. The fair value of a financial instrument and MSR is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

GAAP requires classification of financial instruments and MSR into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

If the inputs used to measure the financial instrument and MSR fall within different levels of the hierarchy, the categorization is based on the lowest priority input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value in the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows:

Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets.

Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

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

The Company designates its securities as trading, available-for-sale or held-to-maturity depending upon the type of security and the Company’s intent and ability to hold such security to maturity. Securities classified as available-for-sale and trading are reported at fair value on a recurring basis.

The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the three-level fair value hierarchy, with the observability of inputs determining the appropriate level.

Futures contracts and U.S. Treasury securities are valued using quoted prices for identical instruments in active markets and are classified as Level 1.

Residential Securities, interest rate swaps, swaptions and other derivatives are valued using quoted prices or internally estimated prices for similar assets using internal models. The Company incorporates common market pricing methods, including a spread measurement to the Treasury curve as well as underlying characteristics of the particular security including coupon, prepayment speeds, periodic and life caps, rate reset period and expected life of the security in its estimates of fair value. Fair value estimates for residential mortgage loans are generated by a discounted cash flow model and are primarily based on observable market-based inputs including discount rates, prepayment speeds, delinquency levels, and credit losses. Management reviews and indirectly corroborates its estimates of the fair value derived using internal models by comparing its results to independent prices provided by dealers in the securities and/or third party pricing services. Certain liquid asset classes, such as Agency fixed-rate pass-throughs, may be priced using independent sources such as quoted prices for TBA securities.

Residential Securities, residential mortgage loans, interest rate swap and swaption markets and TBA derivatives are considered to be active markets such that participants transact with sufficient frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of the Residential Securities, residential mortgage loans, interest rate swaps, swaptions and TBA derivatives markets and the similarity of the Company’s securities to those actively traded enable the Company to observe quoted prices in the market and utilize those prices as a basis for formulating fair value measurements. Consequently, the Company has classified Residential Securities, residential mortgage loans, interest rate swaps, swaptions and TBA derivatives as Level 2.

The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying collateral. Consequently, commercial mortgage-backed securities carried at fair value are classified as Level 2.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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

The Company has classified its investments in MSR as Level 3. Fair value estimates for these investments are obtained from models, which use significant unobservable inputs in their valuations. These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including discount rates, prepayment rates, delinquency rates and costs to service. Model valuations are then compared to valuations obtained from third party pricing providers. Management reviews the valuations received from third party pricing providers and uses them as a point of comparison to modeled values. The valuation of MSR requires significant judgment by management and the third party pricing providers. Assumptions used for which there is a lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s financial statements.

The following tables present the estimated fair values of financial instruments and MSR measured at fair value on a recurring basis as of September 30, 2024 and December 31, 2023. There were no transfers between levels of the fair value hierarchy during the periods presented.


September 30, 2024
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	69,150,399	$	—	$	69,150,399
Credit risk transfer securities	—		826,841		—		826,841
Non-Agency mortgage-backed securities	—		1,616,696		—		1,616,696
Commercial mortgage-backed securities	—		106,241		—		106,241
Loans
Residential mortgage loans	—		2,305,613		—		2,305,613

Mortgage servicing rights	—		—		2,693,057		2,693,057

Assets transferred or pledged to securitization vehicles	—		21,044,007		—		21,044,007
Derivative assets

Interest rate swaps	—		3,094		—		3,094
Other derivatives	23,256		32,721		—		55,977
Total assets	$	23,256	$	95,085,612	$	2,693,057	$	97,801,925
Liabilities
Debt issued by securitization vehicles	$	—	$	18,709,118	$	—	$	18,709,118
Participations issued	—		467,006		—		467,006
U.S. Treasury securities sold, not yet purchased	2,043,519		—		—		2,043,519
Derivative liabilities
Interest rate swaps	—		59,297		—		59,297
Other derivatives	32,117		11,214		—		43,331
Total liabilities	$	2,075,636	$	19,246,635	$	—	$	21,322,271

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


December 31, 2023
	Level 1		Level 2		Level 3		Total
Assets	(dollars in thousands)
Securities
Agency mortgage-backed securities	$	—	$	66,308,788	$	—	$	66,308,788
Credit risk transfer securities	—		974,059		—		974,059
Non-Agency mortgage-backed securities	—		2,108,274		—		2,108,274
Commercial mortgage-backed securities	—		222,444		—		222,444
Loans
Residential mortgage loans	—		2,353,084		—		2,353,084

Mortgage servicing rights	—		—		2,122,196		2,122,196

Assets transferred or pledged to securitization vehicles	—		13,307,622		—		13,307,622
Derivative assets

Interest rate swaps	—		26,344		—		26,344
Other derivatives	—		136,213		—		136,213
Total assets	$	—	$	85,436,828	$	2,122,196	$	87,559,024
Liabilities
Debt issued by securitization vehicles	$	—	$	11,600,338	$	—	$	11,600,338
Participations issued	—		1,103,835		—		1,103,835
U.S. Treasury securities sold, not yet purchased	2,132,751		—		—		2,132,751
Derivative liabilities
Interest rate swaps	—		83,051		—		83,051
Other derivatives	179,835		39,409		—		219,244
Total liabilities	$	2,312,586	$	12,826,633	$	—	$	15,139,219

Qualitative and Quantitative Information about Level 3 Fair Value Measurements

The Company considers unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements are described below. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently from changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply. For MSR, in general, increases in the discount, prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement. A decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in MSR, which in turn could result in a decline in the estimated fair value of MSR. Refer to the “Mortgage Servicing Rights” Note for additional information, including rollforwards.

The following table presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSR. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments.


Unobservable Input (1)	Range (Weighted Average) (2)
	September 30, 2024	December 31, 2023
Discount rate	1.8% - 11.2% (7.6%)	7.0% - 12.0% (8.6%)

Prepayment rate	5.1% - 31.3% (6.1%)	4.8% - 11.0% (5.6%)
Delinquency rate	0.2% - 4.0% (1.2%)	0.2% - 4.2% (1.3%)
Cost to service	$83 - $108 ($91)	$84 - $111 ($94)

(1) Represents rates, estimates and assumptions that the Company believes would be used by market participants when valuing these assets. (2) Weighted average discount rate computed based on the fair value of MSR, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSR.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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


	September 30, 2024		December 31, 2023
	Carrying Value	Fair Value	Carrying Value	Fair Value

















Financial liabilities
Repurchase agreements	$64,310,276	$64,310,276	$62,201,543	$62,201,543
Other secured financing	600,000	600,000	500,000	500,000

The carrying values of repurchase agreements and short term other secured financing approximate fair value and are considered Level 2 fair value measurements. Long term other secured financing is valued using Level 2 inputs.


11. INTANGIBLE ASSETS

Intangible assets, net

Finite life intangible assets are amortized over their expected useful lives. As part of the Company’s management internalization transaction, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired assembled workforce of approximately $41.2 million based on the replacement cost of the employee base acquired by the Company.

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


Intangible Assets, net
(dollars in thousands)
Beginning balance January 1, 2024	$	12,106




Less: amortization expense	(2,018)
Ending balance September 30, 2024	$	10,088


12. SECURED FINANCING

Reverse Repurchase and Repurchase Agreements – The Company finances a significant portion of its assets with repurchase agreements. At the inception of each transaction, the Company assessed each of the specified criteria in ASC 860, Transfers and Servicing, and has determined that each of the financing agreements should be treated as a secured financing.

The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. To mitigate credit exposure, the Company monitors the market value of these securities and delivers or obtains additional collateral based on changes in market value of these securities. Generally, the Company receives or posts collateral with a fair value approximately equal to or greater than the value of the secured financing.

Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements meet the criteria to permit netting. The Company reports cash flows on repurchase agreements as financing activities and cash flows on reverse repurchase agreements as investing activities in the Consolidated Statements of Cash Flows.

The Company had outstanding $64.3 billion and $62.2 billion of repurchase agreements with weighted average remaining maturities of 34 days and 44 days and weighted average rates of 5.23% and 5.70% at September 30, 2024 and December 31, 2023, respectively. In connection with its residential mortgage loans, the Company has select arrangements with counterparties to enter into repurchase agreements for $3.5 billion with remaining capacity of $2.2 billion at September 30, 2024.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

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


September 30, 2024
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities				Total Repurchase Agreements
	(dollars in thousands)
1 day	$	24,998,317	$	175,637	$	41,503	$	—	$	—			$	25,215,457
2 to 29 days	655,425		275,927		846,860		221,231		95,291				2,094,734
30 to 59 days	34,198,599		—		589,802		26,404		—				34,814,805
60 to 89 days	2,594,869		142,486		611,235		452,799		—				3,801,389
90 to 119 days	1,675		47,353		82,050		—		—				131,078
Over 119 days (1)	—		—		364,920		566,773		—				931,693
Total	$	62,448,885	$	641,403	$	2,536,370	$	1,267,207	$	95,291			$	66,989,156

Amounts offset in accordance with netting arrangements.											(2,678,880)
Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial Condition.											$	64,310,276


December 31, 2023
	Agency Mortgage-Backed Securities		CRTs		Non-Agency Mortgage-Backed Securities		Residential Mortgage Loans		Commercial Mortgage-Backed Securities				Total Repurchase Agreements
	(dollars in thousands)
1 day	$	—	$	—	$	—	$	—	$	—			$	—
2 to 29 days	33,492,952		555,568		840,400		—		191,276				35,080,196
30 to 59 days	18,090,265		—		528,341		—		—				18,618,606
60 to 89 days	6,479,206		139,952		579,611		—		—				7,198,769
90 to 119 days	—		—		39,714		207,592		—				247,306
Over 119 days (1)	2,511,003		—		169,697		644,259		—				3,324,959
Total	$	60,573,426	$	695,520	$	2,157,763	$	851,851	$	191,276			$	64,469,836

Amounts offset in accordance with netting arrangements.											(2,268,293)
Net amounts of Repurchase agreements as presented in the Consolidated Statements of Financial Condition.											$	62,201,543

(1) Less than 1% of repurchase agreements had a remaining maturity over 1 year at September 30, 2024. No repurchase agreements had a remaining maturity over 1 year at December 31, 2023.

The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition at September 30, 2024 and December 31, 2023. Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.


	September 30, 2024				December 31, 2023
	Reverse Repurchase Agreements		Repurchase Agreements		Reverse Repurchase Agreements		Repurchase Agreements
	(dollars in thousands)
Gross amounts	$	2,678,880	$	66,989,156	$	2,268,293	$	64,469,836
Amounts offset	(2,678,880)		(2,678,880)		(2,268,293)		(2,268,293)
Netted amounts	$	—	$	64,310,276	$	—	$	62,201,543

The fair value of collateral received in connection with reverse repurchase agreements as of September 30, 2024 was $2.7 billion, of which the Company sold $2.0 billion. The fair value of collateral received in connection with reverse repurchase agreements as of December 31, 2023 was $2.3 billion, of which the Company sold $2.1 billion. The amount of collateral sold is reported at fair value in the Company’s Consolidated Statements of Financial Condition as U.S. Treasury securities sold, not yet purchased.

Other Secured Financing - As of September 30, 2024, the Company had $1.3 billion in total committed credit facilities to finance a portion of its MSR portfolio. Outstanding borrowings under this facility as of September 30, 2024 totaled $600.0 million with maturities ranging between four months to one year. The weighted average interest rate of the borrowings was

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

8.05% as of September 30, 2024. Borrowings are reported in Other secured financing in the Company’s Consolidated Statements of Financial Condition.

Refer to the “Variable Interest Entities” Note for additional information on the Company’s other secured financing arrangements at December 31, 2023.

Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $69.3 billion and $304.7 million, respectively, at September 30, 2024 and $68.2 billion and $279.5 million, respectively, at December 31, 2023.


13. CAPITAL STOCK

(A) Common Stock

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

Shares authorized

Shares issued and outstanding

September 30, 2024

December 31, 2023

September 30, 2024

December 31, 2023

Par Value

Common stock

1,468,250,000

558,047,743

500,080,287

$0.01

In January 2022, the Company announced that its Board of Directors (the “Board”) authorized the repurchase of up to $1.5 billion of its outstanding shares of common stock through December 31, 2024 (the “Share Repurchase Program”). During the three and nine months ended September 30, 2024 and 2023, no shares were repurchased under the Share Repurchase Program.

On August 6, 2020, the Company entered into separate Amended and Restated Distribution Agency Agreements (as amended by Amendment No. 1 to the Amended and Restated Distribution Agency Agreements on August 6, 2021 and Amendment No. 2 to the Amended and Restated Distribution Agency Agreements on November 3, 2022, collectively, the “Prior Sales Agreements”) with each of Barclays Capital Inc., BofA Securities, Inc., Citigroup Global Markets Inc., Goldman Sachs & Co. LLC, Keefe, Bruyette & Woods, Inc., J.P. Morgan Securities LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Prior Sales Agents”). Pursuant to the Prior Sales Agreements, the Company offered and sold shares of its common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Prior Sales Agents (the “Prior At-the-Market Sales Program”).

On September 20, 2024, the Company entered into new Distribution Agency Agreements (collectively, the “Sales Agreements”) with each of Barclays Capital Inc., BNP Paribas Securities Corp., BofA Securities, Inc., Citizens JMP Securities, LLC, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., Morgan Stanley & Co., LLC, RBC Capital Markets, LLC, UBS Securities LLC and Wells Fargo Securities, LLC (collectively, the “Sales Agents”), which terminated and replaced the Prior Sales Agreements. Under the terms of the Sales Agreements, the Company may offer and sell shares of its common stock, having an aggregate offering price of up to $1.5 billion, from time to time through any of the Sales Agents (the "Current At-the-Market Sales Program" and, together with the Prior At-the-Market Sales Program, the "at-the-market sales program").

During the three and nine months ended September 30, 2024, under the at-the-market sales program, the Company issued 57.0 million and 57.6 million shares for proceeds of $1.1 billion and $1.2 billion, respectively, each net of commissions and fees. During the three and nine months ended September 30, 2023, under the at-the-market sales program, the Company issued 0.9 million and 26.2 million shares for proceeds of $17.8 million and $580.5 million, respectively, each net of commissions and fees.

(B) Preferred Stock

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at September 30, 2024 and December 31, 2023. In the event of a liquidation or dissolution of the Company, the Company’s then outstanding preferred stock takes precedence over the Company’s common stock with respect to payment of dividends and the distribution of assets.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


	Shares Authorized		Shares Issued And Outstanding		Carrying Value				Contractual Rate	Earliest Redemption Date (1)	Effective Date of Floating Rate Dividend Period	Floating Annual Rate (2)
	September 30, 2024	December 31, 2023	September 30, 2024	December 31, 2023	September 30, 2024		December 31, 2023





Fixed-to-floating rate
Series F	28,800,000	28,800,000	28,800,000	28,800,000	696,910		696,910		6.95%	9/30/2022	9/30/2022	3M Term SOFR + 4.993%
Series G	17,000,000	17,000,000	17,000,000	17,000,000	411,335		411,335		6.50%	3/31/2023	3/31/2023	3M Term SOFR + 4.172%
Series I	17,700,000	17,700,000	17,700,000	17,700,000	428,324		428,324		6.75%	6/30/2024	6/30/2024	3M Term SOFR + 4.989%
Total	63,500,000	63,500,000	63,500,000	63,500,000	$	1,536,569	$	1,536,569

(1) Subject to the Company’s right under limited circumstances to redeem preferred stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change in control of the Company. (2) For each series of fixed-to-floating rate cumulative redeemable preferred stock, the floating rate is calculated as 3-month CME Term SOFR (plus a spread adjustment of 0.26161%) plus the spread specified in the prospectus.

Each series of preferred stock has a par value of $0.01 per share and a liquidation and redemption price of $25.00, plus accrued and unpaid dividends through their redemption date. Through September 30, 2024, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.

The Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Fixed-to-Floating Rate Cumulative Preferred Stock and Series I Fixed-to-Floating Rate Cumulative Preferred Stock rank senior to the common stock of the Company.

On November 3, 2022, the Company’s Board of Directors approved a repurchase plan for all of its existing outstanding Preferred Stock (as defined below, the “Preferred Stock Repurchase Program”). Under the terms of the plan, the Company is authorized to repurchase up to an aggregate of 63,500,000 shares of Preferred Stock, comprised of up to (i) 28,800,000 shares of its 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series F Preferred Stock”), (ii) 17,000,000 shares of its 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series G Preferred Stock”), and (iii) 17,700,000 shares of its 6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, par value $0.01 per share (the “Series I Preferred Stock”, and together with Series F Preferred Stock and Series G Preferred Stock, the “Preferred Stock”). The aggregate liquidation value of the Preferred Stock that may be repurchased by the Company pursuant to the Preferred Stock Repurchase Program, as of November 3, 2022, was approximately $1.6 billion. The Preferred Stock Repurchase Program became effective on November 3, 2022, and shall expire on December 31, 2024. No shares were repurchased with respect to the Preferred Stock Repurchase Program during the three and nine months ended September 30, 2024.

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


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(dollars in thousands, except per share data)
Dividends and dividend equivalents declared on common stock and share-based awards	$	364,914	$	323,164	$	1,019,527	$	968,111
Distributions declared per common share	$	0.65	$	0.65	$	1.95	$	1.95
Distributions paid to common stockholders after period end	$	362,731	$	321,629	$	362,731	$	321,629
Distributions paid per common share after period end	$	0.65	$	0.65	$	0.65	$	0.65
Date of distributions paid to common stockholders after period end	October 31, 2024		October 31, 2023		October 31, 2024		October 31, 2023








Dividends declared to series F preferred stockholders	$	19,055	$	18,956	$	57,142	$	54,732
Dividends declared per share of series F preferred stock	$	0.662	$	0.658	$	1.984	$	1.900
Dividends declared to series G preferred stockholders	$	10,606	$	10,431	$	31,804	$	27,362
Dividends declared per share of series G preferred stock	$	0.624	$	0.614	$	1.871	$	1.610


Dividends declared to series I preferred stockholders	$	11,967	$	7,467	$	26,901	$	22,401
Dividends declared per share of series I preferred stock	$	0.676	$	0.422	$	1.520	$	1.266

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


14. INTEREST INCOME AND INTEREST EXPENSE

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

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


			Interest Income Methodology
Agency
Fixed-rate pass-through (1)			Effective yield (3)
Adjustable-rate pass-through (1)			Effective yield (3)
Multifamily (1)			Contractual Cash Flows
CMO (1)			Effective yield (3)

Reverse mortgages (2)			Prospective
Interest-only (2)			Prospective
Residential credit
CRT (2)			Prospective
Alt-A (2)			Prospective
Prime (2)			Prospective
Subprime (2)			Prospective

NPL/RPL (2)			Prospective
Prime jumbo (2)			Prospective

(1) Changes in fair value are recognized in Other comprehensive income (loss) in the accompanying Consolidated Statements of Comprehensive Income (Loss) for securities purchased prior to July 1, 2022. Effective July 1, 2022, changes in fair value are recognized in Net gains (losses) on investments and other in the accompanying Consolidated Statements of Comprehensive Income (Loss) for newly purchased securities. (2) Changes in fair value are recognized in Net gains (losses) on investments and other in the accompanying Consolidated Statements of Comprehensive Income (Loss). (3) Effective yield is recalculated for differences between estimated and actual prepayments and the amortized cost is adjusted as if the new effective yield had been applied since inception.

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


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
Interest income	(dollars in thousands)

Agency securities	$	789,403	$	753,007	$	2,331,698	$	2,043,021
Residential credit securities	49,863		57,229		156,754		167,451
Residential mortgage loans (1)	346,031		181,965		899,867		491,398
Commercial investment portfolio (1)	2,240		5,812		8,235		24,009

Reverse repurchase agreements	41,804		3,472		104,600		15,350
Total interest income	$	1,229,341	$	1,001,485	$	3,501,154	$	2,741,229
Interest expense
Repurchase agreements	$	942,780	$	917,997	$	2,722,304	$	2,457,996

Debt issued by securitization vehicles	234,299		116,962		596,128		307,715
Participations issued	17,834		11,860		57,841		33,352
U.S. Treasury securities sold, not yet purchased	21,027		—		64,373		—

Total interest expense	1,215,940		1,046,819		3,440,646		2,799,063
Net interest income	$	13,401	$	(45,334)	$	60,508	$	(57,834)

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

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


15. NET INCOME (LOSS) PER COMMON SHARE

The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income (loss) per share for the three and nine months ended September 30, 2024 and 2023.


	For the Three Months Ended				For the Nine Months Ended
	September 30, 2024		September 30, 2023		September 30, 2024		September 30, 2023
	(dollars in thousands, except per share data)
Net income (loss)	$	82,351	$	(569,084)	$	538,692	$	(1,247,225)
Net income (loss) attributable to noncontrolling interests	15,906		(6,879)		18,838		(7,797)
Net income (loss) attributable to Annaly	66,445		(562,205)		519,854		(1,239,428)
Dividends on preferred stock	41,628		36,854		115,847		104,495
Net income (loss) available (related) to common stockholders	$	24,817	$	(599,059)	$	404,007	$	(1,343,923)


Weighted average shares of common stock outstanding-basic	515,729,658		494,330,361		505,800,723		492,744,997
Add: Effect of stock awards, if dilutive	1,102,494		—		817,420		—
Weighted average shares of common stock outstanding-diluted	516,832,152		494,330,361		506,618,143		492,744,997
Net income (loss) per share available (related) to common share
Basic	$	0.05	$	(1.21)	$	0.80	$	(2.73)
Diluted	$	0.05	$	(1.21)	$	0.80	$	(2.73)

The computations of diluted net income (loss) per share available (related) to common share for the three and nine months ended September 30, 2024 excludes 0 and 2 thousand, respectively, and for the three and nine months ended September 30, 2023 excludes 1.9 million and 1.8 million, respectively, of potentially dilutive restricted and performance stock units because their effect would have been anti-dilutive.


16. INCOME TAXES

For the three months ended September 30, 2024, the Company was qualified to be taxed as a REIT under Code Sections 856 through 860. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its stockholders and meet certain other requirements that relate to, among other things, assets it may hold, income it may generate and its stockholder composition. It is generally the Company’s policy to distribute 100% of its REIT taxable income. To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within the next year as permitted by the Code.

The Company and certain of its direct and indirect subsidiaries, including Annaly TRS, Inc. and certain subsidiaries of joint ventures, have made separate joint elections to treat these subsidiaries as TRSs. As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon their taxable income.

The provisions of ASC 740, Income Taxes (“ASC 740”), clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial position. Thus, no accruals for penalties and interest were deemed necessary at September 30, 2024 and December 31, 2023.

The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status as a REIT and, therefore, the Company generally does not pay income tax in such jurisdictions. The Company may, however, be subject to certain minimum state and local tax filing fees as well as certain excise, franchise or business taxes. The Company’s TRSs are subject to federal, state and local taxes.

During the three and nine months ended September 30, 2024, the Company recorded ($6.1) million and $4.9 million, respectively, of income tax expense/(benefit) attributable to its TRSs. During the three and nine months ended September 30, 2023, the Company recorded $12.4 million and $37.7 million, respectively, of income tax expense attributable to its TRSs. The Company’s federal, state and local tax returns from 2020 and forward remain open for examination.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


17. SEGMENTS

The Company operates in three reportable segments further described in the Description of Business Note. The accounting policies applied to the segments are the same as those described in the summary of significant accounting policies, with the exception of allocations between segments related to net interest income and other comprehensive income (loss), which are reflected in Other income (loss), and allocations between segments related to investment balances, which are presented net of associated financings in Total Assets. These allocations are made to reflect the economic hedging relationship between investments within different operating segments. Activities that are not directly attributable or not allocated to any of the three current operating segments (such as investments in commercial mortgage-backed securities, preferred stock dividends and corporate existence costs) are reported under Corporate and Other as reconciling items to the Company’s consolidated financial statements. The tables below summarize the result of operations and total assets by segment that are provided to the Chief Operating Decision Maker (CODM), which is the Company’s Operating Committee. Comprehensive income is the measure of segment profit or loss that is determined in accordance with the measurement principles used in measuring the corresponding amounts in the consolidated financial statements and is a key determinant of the Company’s economic return (computed as the change in stockholders’ equity attributable to common stockholders plus common stock dividends declared divided by the prior period’s stockholders’ equity attributable to common stockholders), a measure which is used by the CODM to evaluate segment results and is one of the factors considered in determining capital allocation among the segments.

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


Three Months Ended September 30, 2024
	Agency		Resi-credit		MSR		Corporate & Other		Consolidated
	(dollars in thousands)
Interest income	$	830,407	$	396,694	$	—	$	2,240	$	1,229,341
Interest expense	885,982		328,440		—		1,518		1,215,940
Net interest income	(55,575)		68,254		—		722		13,401
Servicing and related income	—		—		122,583		—		122,583
Servicing and related expense	—		—		12,988		—		12,988
Net servicing income	—		—		109,595		—		109,595
Other income (loss)	(6,658)		36,028		(33,967)		1,738		(2,859)
Less: Total general and administrative expenses	16,154		13,868		8,876		5,023		43,921
Income (loss) before income taxes	(78,387)		90,414		66,752		(2,563)		76,216
Income taxes	23		(8,263)		2,126		(21)		(6,135)
Net income (loss)	(78,410)		98,677		64,626		(2,542)		82,351
Less: Net income (loss) attributable to noncontrolling interest	—		15,906		—		—		15,906
Net income (loss) attributable to Annaly	(78,410)		82,771		64,626		(2,542)		66,445
Dividends on preferred stock	—		—		—		41,628		41,628
Net income (loss) available (related) to common stockholders	(78,410)		82,771		64,626		(44,170)		24,817
Unrealized gains (losses) on available-for-sale securities	428,955		—		—		—		428,955
Reclassification adjustment for net (gains) losses included in net income (loss)	15,769		—		—		—		15,769
Other comprehensive income (loss)	444,724		—		—		—		444,724
Comprehensive income (loss)	366,314		98,677		64,626		(2,542)		527,075
Comprehensive income (loss) attributable to noncontrolling interests	—		15,906		—		—		15,906
Comprehensive income (loss) attributable to Annaly	$	366,314	$	82,771	$	64,626	$	(2,542)	$	511,169
Noncash investing and financing activities:
Receivable for unsettled trades	727,124		—		39,217		—		766,341
Payable for unsettled trades	1,811,196		—		74,090		—		1,885,286
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	444,724		—		—		—		444,724
Dividends declared, not yet paid	—		—		—		362,731		362,731
Total assets
Total assets	$	71,699,019	$	26,235,097	$	3,371,113	$	210,766	$	101,515,995

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


Three Months Ended September 30, 2023
	Agency		Resi-credit		MSR		Corporate & Other		Consolidated
	(dollars in thousands)
Interest income	$	756,479	$	239,194	$	—	$	5,812	$	1,001,485
Interest expense	849,422		193,271		—		4,126		1,046,819
Net interest income	(92,943)		45,923		—		1,686		(45,334)
Servicing and related income	—		—		97,620		—		97,620
Servicing and related expense	—		—		9,623		—		9,623
Net servicing income	—		—		87,997		—		87,997
Other income (loss)	(528,640)		(12,974)		(21,870)		4,038		(559,446)
Less: Total general and administrative expenses	14,576		12,195		7,657		5,481		39,909
Income (loss) before income taxes	(636,159)		20,754		58,470		243		(556,692)
Income taxes	727		5,985		5,858		(178)		12,392
Net income (loss)	(636,886)		14,769		52,612		421		(569,084)
Less: Net income (loss) attributable to noncontrolling interest	—		(6,879)		—		—		(6,879)
Net income (loss) attributable to Annaly	(636,886)		21,648		52,612		421		(562,205)
Dividends on preferred stock	—		—		—		36,854		36,854
Net income (loss) available (related) to common stockholders	(636,886)		21,648		52,612		(36,433)		(599,059)
Unrealized gains (losses) on available-for-sale securities	(825,286)		—		—		—		(825,286)
Reclassification adjustment for net (gains) losses included in net income (loss)	513,041		—		—		—		513,041
Other comprehensive income (loss)	(312,245)		—		—		—		(312,245)
Comprehensive income (loss)	(949,131)		14,769		52,612		421		(881,329)
Comprehensive income (loss) attributable to noncontrolling interests	—		(6,879)		—		—		(6,879)
Comprehensive income (loss) attributable to Annaly	$	(949,131)	$	21,648	$	52,612	$	421	$	(874,450)
Noncash investing and financing activities:
Receivable for unsettled trades	1,039,173		—		8,393		—		1,047,566
Payable for unsettled trades	2,144,692		1,546		38,231		29,850		2,214,319
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	(312,245)		—		—		—		(312,245)
Dividends declared, not yet paid	—		—		—		321,629		321,629
Total assets
Total assets	$	70,047,768	$	16,616,765	$	2,647,052	$	336,838	$	89,648,423

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


Nine Months Ended September 30, 2024
	Agency		Resi-credit		MSR		Corporate & Other		Consolidated
	(dollars in thousands)
Interest income	$	2,433,672	$	1,059,247	$	—	$	8,235	$	3,501,154
Interest expense	2,563,077		872,118		—		5,451		3,440,646
Net interest income	(129,405)		187,129		—		2,784		60,508
Servicing and related income	—		—		358,182		—		358,182
Servicing and related expense	—		—		37,821		—		37,821
Net servicing income	—		—		320,361		—		320,361
Other income (loss)	109,384		189,851		(12,513)		3,336		290,058
Less: Total general and administrative expenses	47,604		39,690		25,977		14,111		127,382
Income (loss) before income taxes	(67,625)		337,290		281,871		(7,991)		543,545
Income taxes	748		(9,966)		14,195		(124)		4,853
Net income (loss)	(68,373)		347,256		267,676		(7,867)		538,692
Less: Net income (loss) attributable to noncontrolling interest	—		18,838		—		—		18,838
Net income (loss) attributable to Annaly	(68,373)		328,418		267,676		(7,867)		519,854
Dividends on preferred stock	—		—		—		115,847		115,847
Net income (loss) available (related) to common stockholders	(68,373)		328,418		267,676		(123,714)		404,007
Unrealized gains (losses) on available-for-sale securities	92,843		—		—		—		92,843
Reclassification adjustment for net (gains) losses included in net income (loss)	530,354		—		—		—		530,354
Other comprehensive income (loss)	623,197		—		—		—		623,197
Comprehensive income (loss)	554,824		347,256		267,676		(7,867)		1,161,889
Comprehensive income (loss) attributable to noncontrolling interests	—		18,838		—		—		18,838
Comprehensive income (loss) attributable to Annaly	$	554,824	$	328,418	$	267,676	$	(7,867)	$	1,143,051
Noncash investing and financing activities:
Receivable for unsettled trades	727,124		—		39,217		—		766,341
Payable for unsettled trades	1,811,196		—		74,090		—		1,885,286
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	623,197		—		—		—		623,197
Dividends declared, not yet paid	—		—		—		362,731		362,731
Total assets
Total assets	$	71,699,019	$	26,235,097	$	3,371,113	$	210,766	$	101,515,995

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements


Nine Months Ended September 30, 2023
	Agency		Resi-credit		MSR		Corporate & Other		Consolidated
	(dollars in thousands)
Interest income	$	2,058,371	$	658,849	$	—	$	24,009	$	2,741,229
Interest expense	2,279,586		504,011		—		15,466		2,799,063
Net interest income	(221,215)		154,838		—		8,543		(57,834)
Servicing and related income	—		—		265,683		—		265,683
Servicing and related expense	—		—		26,433		—		26,433
Net servicing income	—		—		239,250		—		239,250
Other income (loss)	(1,415,438)		91,439		61,314		(4,602)		(1,267,287)
Less: Total general and administrative expenses	44,401		36,757		22,210		20,284		123,652
Income (loss) before income taxes	(1,681,054)		209,520		278,354		(16,343)		(1,209,523)
Income taxes	1,213		14,034		22,706		(251)		37,702
Net income (loss)	(1,682,267)		195,486		255,648		(16,092)		(1,247,225)
Less: Net income (loss) attributable to noncontrolling interest	—		(7,797)		—		—		(7,797)
Net income (loss) attributable to Annaly	(1,682,267)		203,283		255,648		(16,092)		(1,239,428)
Dividends on preferred stock	—		—		—		104,495		104,495
Net income (loss) available (related) to common stockholders	(1,682,267)		203,283		255,648		(120,587)		(1,343,923)
Unrealized gains (losses) on available-for-sale securities	(443,957)		—		—		—		(443,957)
Reclassification adjustment for net (gains) losses included in net income (loss)	1,458,077		—		—		—		1,458,077
Other comprehensive income (loss)	1,014,120		—		—		—		1,014,120
Comprehensive income (loss)	(668,147)		195,486		255,648		(16,092)		(233,105)
Comprehensive income (loss) attributable to noncontrolling interests	—		(7,797)		—		—		(7,797)
Comprehensive income (loss) attributable to Annaly	$	(668,147)	$	203,283	$	255,648	$	(16,092)	$	(225,308)
Noncash investing and financing activities:
Receivable for unsettled trades	1,039,173		—		8,393		—		1,047,566
Payable for unsettled trades	2,144,692		1,546		38,231		29,850		2,214,319
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	1,014,120		—		—		—		1,014,120
Dividends declared, not yet paid	—		—		—		321,629		321,629
Total assets
Total assets	$	70,047,768	$	16,616,765	$	2,647,052	$	336,838	$	89,648,423


18. RISK MANAGEMENT

The primary risks to the Company are liquidity and funding risk, investment/market risk, credit risk and operational risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest earning assets and the interest expense incurred in connection with the interest bearing liabilities, by affecting the spread between the interest earning assets and interest bearing liabilities. Changes in the level of interest rates can also affect the value of the interest earning assets and the Company’s ability to realize gains from the sale of these assets. A decline in the value of the interest earning assets pledged as collateral for borrowings under repurchase agreements and derivative contracts could result in the counterparties demanding additional collateral or liquidating some of the existing collateral to reduce borrowing levels.

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

Weakness in the mortgage market, the shape of the yield curve, changes in the expectations for the volatility of future interest rates and deterioration of financial conditions in general may adversely affect the performance and market value of the Company’s investments. This could negatively impact the Company’s book value. Furthermore, if many of the Company’s lenders are unwilling or unable to provide additional financing, the Company could be forced to sell its investments at an inopportune time when prices are depressed. The Company has established policies and procedures for mitigating risks, including conducting scenario and sensitivity analyses and utilizing a range of hedging strategies.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities, which exclude CRT securities issued by Freddie Mac and Fannie Mae, is guaranteed by those respective agencies and the payment of principal and interest on Ginnie Mae Agency mortgage-backed securities is backed by the full faith and credit of the U.S. government.

The Company faces credit risk on the portions of its portfolio which are not guaranteed by the respective Agency or by the full faith and credit of the U.S. government. The Company is exposed to credit risk on commercial mortgage-backed securities, residential mortgage loans, CRT securities and other non-Agency mortgage-backed securities. MSR values may also be adversely impacted by rising borrower delinquencies which would reduce servicing income and increase overall costs to service the underlying mortgage loans. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, pre-purchase due diligence, maintaining qualifying collateral, continually assessing the creditworthiness of issuers, borrowers and counterparties, credit rating monitoring and active servicer oversight.

The Company depends on third party service providers to perform various business processes related to its operations, including mortgage loan servicers and sub-servicers. The Company’s vendor management policy establishes procedures for engaging, onboarding and monitoring the performance of third party vendors. For mortgage loan servicers and sub-servicers, these procedures include assessing a vendor’s financial health as well as oversight of its compliance with applicable laws and regulations, cybersecurity and business continuity programs and security of personally identifiable information.


19. LEASE COMMITMENTS AND CONTINGENCIES

The Company’s operating leases are primarily comprised of corporate office leases with remaining lease terms of approximately one year and three years. The corporate office leases include options to extend for up to five years, however the extension terms were not included in the operating lease liability calculation. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The lease cost for the three and nine months ended September 30, 2024 and 2023 was $0.8 million and $2.5 million, and $0.8 million and $2.4 million, respectively.

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

Operating Leases

Classification

September 30, 2024

Assets

(dollars in thousands)

Operating lease right-of-use assets

Other assets

3,660

Liabilities

Operating lease liabilities (1)

Other liabilities

4,585

Lease term and discount rate

Weighted average remaining lease term

1.4 years

Weighted average discount rate (1)

3.4%

Cash paid for amounts included in the measurement of lease liabilities

Operating cash flows from operating leases

3,080

(1) For the Company’s leases that do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

The following table provides details related to maturities of lease liabilities:


	Maturity of Lease Liabilities
Years ending December 31,	(dollars in thousands)
2024 (remaining)	$	1,027
2025	3,149
2026	261
2027	269
2028	22

Later years	—
Total lease payments	$	4,728
Less imputed interest	143
Present value of lease liabilities	$	4,585

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1. Financial Statements

Contingencies

From time to time, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated financial statements. There were no material contingencies at September 30, 2024 and December 31, 2023.


20. SUBSEQUENT EVENTS

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

In October 2024, the Company completed and closed the securitization of residential mortgage loans: OBX 2024-NQM15, with a face value of $635.8 million. The securitization represents a financing transaction which provided non-recourse financing to the Company collateralized by residential mortgage loans purchased by the Company.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2. Management’s Discussion and Analysis