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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549


FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:  March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______________ TO _________________
COMMISSION FILE NUMBER:  1-13447

nlya11.jpg

ANNALY CAPITAL MANAGEMENT INC
(Exact Name of Registrant as Specified in its Charter)

Maryland
22-3479661
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
  
1211 Avenue of the Americas 
New York,
New York
10036
(Address of principal executive offices)(Zip Code)
(212) 696-0100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareNLYNew York Stock Exchange
6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNLY.FNew York Stock Exchange
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNLY.GNew York Stock Exchange
6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNLY.INew York Stock Exchange







Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑    No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer☑Accelerated
filer		☐Non-accelerated filer☐Smaller reporting company☐Emerging growth company☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes ☐    No  ☑

The number of shares of the registrant’s Common Stock outstanding on April 28, 2023 was 493,880,938.


WEBSITE AND SOCIAL MEDIA DISCLOSURE

We use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-management) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Annaly when you enroll your email address by visiting the "Investors" section of our website, then clicking on "Investor Resources" and selecting "Email Alerts" to complete the email notification form. Our website, any alerts and social media channels are not incorporated into this annual report on Form 10-K.


ANNALY CAPITAL MANAGEMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
  
Page
Item 1.  Financial Statements
 


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)
 March 31,December 31,
2023
2022 (1)
(Unaudited)
Assets  
Cash and cash equivalents (includes pledged assets of $1,638,172 and $1,424,160, respectively) (2)
$1,794,173 $1,576,714 
Securities (includes pledged assets of $62,169,855 and $60,660,121, respectively) (3)
69,238,185 65,789,907 
Loans, net (includes pledged assets of $1,573,233 and $1,653,464, respectively) (4)
1,642,822 1,809,832 
Mortgage servicing rights (includes pledged assets of $946,464 and $684,703, respectively)
1,790,980 1,748,209 
Assets transferred or pledged to securitization vehicles10,277,588 9,121,912 
Derivative assets400,139 342,064 
Receivable for unsettled trades679,096 575,091 
Principal and interest receivable773,722 637,301 
Goodwill and intangible assets, net15,921 16,679 
Other assets219,391 233,003 
Total assets$86,832,017 $81,850,712 
Liabilities and stockholders’ equity  
Liabilities  
Repurchase agreements$60,993,018 $59,512,597 
Other secured financing250,000 250,000 
Debt issued by securitization vehicles8,805,911 7,744,160 
Participations issued673,431 800,849 
Derivative liabilities473,515 204,172 
Payable for unsettled trades3,259,034 1,157,846 
Interest payable118,395 325,280 
Dividends payable321,023 412,113 
Other liabilities28,657 74,269 
Total liabilities74,922,984 70,481,286 
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, 2,936,500,000 authorized, 493,880,938 and 468,309,810 issued and outstanding, respectively
4,939 4,683 
Additional paid-in capital23,543,091 22,981,320 
Accumulated other comprehensive income (loss)(2,550,614)(3,708,896)
Accumulated deficit(10,741,863)(9,543,233)
Total stockholders’ equity11,792,122 11,270,443 
Noncontrolling interests116,911 98,983 
Total equity11,909,033 11,369,426 
Total liabilities and equity$86,832,017 $81,850,712 
(1)Derived from the audited consolidated financial statements at December 31, 2022.
(2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $2.5 million and $2.2 million at March 31, 2023 and December 31, 2022, respectively.
(3)Excludes $1.2 billion and $1.0 billion at March 31, 2023 and December 31, 2022, respectively, of non-Agency mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 
(4)Includes $1.2 million and $1.3 million of residential mortgage loans held for sale at March 31, 2023 and December 31, 2022, respectively.
See notes to consolidated financial statements.
1

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 March 31,
 20232022
Net interest income  
Interest income$818,250 $655,850 
Interest expense798,787 74,922 
Net interest income19,463 580,928 
Net servicing income
Servicing and related income84,273 34,715 
Servicing and related expense7,880 3,757 
Net servicing income76,393 30,958 
Other income (loss)
Net gains (losses) on investments and other1,712 (159,804)
Net gains (losses) on derivatives(900,752)1,642,028 
Loan loss (provision) reversal219 (608)
Business divestiture-related gains (losses)— (354)
Other, net15,498 3,058 
Total other income (loss)(883,323)1,484,320 
General and administrative expenses
Compensation expense29,391 33,002 
Other general and administrative expenses11,437 12,762 
Total general and administrative expenses40,828 45,764 
Income (loss) before income taxes(828,295)2,050,442 
Income taxes11,033 26,548 
Net income (loss)(839,328)2,023,894 
Net income (loss) attributable to noncontrolling interests4,928 1,639 
Net income (loss) attributable to Annaly(844,256)2,022,255 
Dividends on preferred stock31,875 26,883 
Net income (loss) available (related) to common stockholders$(876,131)$1,995,372 
Net income (loss) per share available (related) to common stockholders  
Basic$(1.79)$5.46 
Diluted$(1.79)$5.46 
Weighted average number of common shares outstanding  
Basic489,688,364 365,340,909 
Diluted489,688,364 365,612,991 
Other comprehensive income (loss)  
Net income (loss)$(839,328)$2,023,894 
Unrealized gains (losses) on available-for-sale securities675,374 (3,568,679)
Reclassification adjustment for net (gains) losses included in net income (loss)482,908 144,787 
Other comprehensive income (loss)1,158,282 (3,423,892)
Comprehensive income (loss)318,954 (1,399,998)
Comprehensive income (loss) attributable to noncontrolling interests4,928 1,639 
Comprehensive income (loss) attributable to Annaly314,026 (1,401,637)
Dividends on preferred stock31,875 26,883 
Comprehensive income (loss) attributable to common stockholders$282,151 $(1,428,520)
See notes to consolidated financial statements.


2

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
(Unaudited)
For The Three Months Ended March 31,
20232022
Preferred stock
Beginning of period
$1,536,569 $1,536,569 
End of period$1,536,569 $1,536,569 
Common stock
Beginning of period
$4,683 $3,649 
Issuance
253 3 
Stock-based award activity
3 1 
End of period$4,939 $3,653 
Additional paid-in capital
Beginning of period
$22,981,320 $20,324,780 
Issuance
562,456 6,101 
Stock-based award activity
(685)2,028 
End of period$23,543,091 $20,332,909 
Accumulated other comprehensive income (loss)
Beginning of period
$(3,708,896)$958,410 
Unrealized gains (losses) on available-for-sale securities
675,374 (3,568,679)
Reclassification adjustment for net gains (losses) included in net income (loss)
482,908 144,787 
End of period$(2,550,614)$(2,465,482)
Accumulated deficit
Beginning of period$(9,543,233)$(9,653,582)
Net income (loss) attributable to Annaly
(844,256)2,022,255 
Dividends declared on preferred stock (1)
(31,875)(26,883)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)
(322,499)(322,197)
End of period$(10,741,863)$(7,980,407)
Total stockholder’s equity$11,792,122 $11,427,242 
Noncontrolling interests
Beginning of period
$98,983 $25,499 
Net income (loss) attributable to noncontrolling interests
4,928 1,639 
Equity contributions from (distributions to) noncontrolling interests
13,000 24,390 
End of period$116,911 $51,528 
Total equity$11,909,033 $11,478,770 
(1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.
See notes to consolidated financial statements.



3

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 Three Months Ended March 31,
 20232022
Cash flows from operating activities  
Net income (loss)$(839,328)$2,023,894 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net66,570 (11,770)
Amortization of securitized debt premiums and discounts and deferred financing costs2,806 (3,074)
Depreciation, amortization and other noncash expenses5,050 4,746 
Net (gains) losses on investments and derivatives1,284,746 (1,544,765)
Business divestiture-related (gains) losses— 354 
Income (loss) from unconsolidated joint ventures(676)(8,384)
Loan loss provision (reversal)(219)608 
Proceeds from sales and repayments of loans held for sale636 994 
Net receipts (payments) on derivatives(1,075,189)856,299 
Net change in  
Other assets(36,601)(5,266)
Interest receivable(136,796)(8,069)
Interest payable(206,885)(10,657)
Other liabilities(83,086)734,238 
Net cash provided by (used in) operating activities(1,018,972)2,029,148 
Cash flows from investing activities  
Payments on purchases of securities(6,332,698)(5,061,300)
Proceeds from sales of securities4,685,607 2,393,169 
Principal payments on securities1,349,348 3,047,356 
Payments on purchases and origination of loans(935,360)(2,194,285)
Proceeds from sales of loans— 4,215 
Principal payments on loans188,082 605,626 
Payments on purchases of MSR(35,825)(421,012)
Payments on purchases of interests in MSR— (4,913)
Proceeds from reverse repurchase agreements18,450,000 2,100,000 
Payments on reverse repurchase agreements(18,450,000)(2,100,000)
Net cash provided by (used in) investing activities(1,080,846)(1,631,144)
Cash flows from financing activities  
Proceeds from repurchase agreements and other secured financing1,168,976,892 839,715,390 
Payments on repurchase agreements and other secured financing(1,167,496,471)(841,845,524)
Proceeds from issuances of securitized debt1,007,971 2,293,500 
Principal payments on securitized debt(158,983)(398,843)
Payments on purchases of securitized debt(1,974)— 
Proceeds from participations issued236,121 676,499 
Payments on repurchases of participations issued(360,943)(888,343)
Principal payments on participations issued(11,168)(17,370)
Net contributions (distributions) from (to) noncontrolling interests13,000 24,390 
Net proceeds from stock offerings, direct purchases and dividend reinvestments562,709 6,104 
Settlement of stock-based awards in satisfaction of withholding tax requirements(5,810)(1,977)
Dividends paid(444,067)(348,080)
Net cash provided by (used in) financing activities2,317,277 (784,254)
Net (decrease) increase in cash and cash equivalents217,459 (386,250)
Cash and cash equivalents including cash pledged as collateral, beginning of period1,576,714 1,342,090 
Cash and cash equivalents including cash pledged as collateral, end of period$1,794,173 $955,840 
Supplemental disclosure of cash flow information  
Interest received$746,161 $565,361 
Interest paid (excluding interest paid on interest rate swaps)$928,649 $57,138 
Net interest received (paid) on interest rate swaps$302,041 $(66,918)
Taxes received (paid)$(139)$(677)
Noncash investing and financing activities
Receivable for unsettled trades$679,096 $407,225 
Payable for unsettled trades$3,259,034 $1,992,568 
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment$1,158,282 $(3,423,892)
Dividends declared, not yet paid$321,023 $321,423 
See notes to consolidated financial statements.
4

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.
The Company is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).
The Company’s three investment groups are primarily comprised of the following:
Investment GroupsDescription
Annaly Agency GroupInvests 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 mortgage-backed securities.
Annaly Residential Credit GroupInvests primarily in non-Agency residential whole loans and securitized products within the residential and commercial markets.
Annaly Mortgage Servicing Rights GroupInvests in MSR, which provide the right to service residential mortgage loans in exchange for a portion of the interest payments made on the loans.
In April 2022, the Company entered into a definitive agreement to sell substantially all of the assets that comprise the Annaly Middle Market Lending (“MML”) portfolio, including assets held on balance sheet as well as assets managed for third parties (collectively, the “MML Portfolio”). All of the assets comprising the MML Portfolio were transferred by the end of 2022. Refer to the “Sale of Middle Market Lending Portfolio” Note for additional information on the transaction.

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, 2022 (the “2022 Form 10-K”). The consolidated financial information as of December 31, 2022 has been derived from audited consolidated financial statements included in the Company’s 2022 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.
Reverse Stock Split
On September 8, 2022, the Company announced that its Board had unanimously approved a reverse stock split of the Company’s common stock at a ratio of 1-for-4 (the “Reverse Stock Split”). The Reverse Stock Split was effective following the close of business on September 23, 2022 (the “Effective Time”). Accordingly, at the Effective Time, every four issued and outstanding shares of the Company’s common stock were converted into one share of the Company’s common stock. No fractional shares were issued in connection with the Reverse Stock Split. Instead, each stockholder that would have held fractional shares as a result of the Reverse Stock Split received cash in lieu of such fractional shares. The par value per share of the Company’s common stock remained unchanged at $0.01 per share after the Reverse Stock Split. Accordingly, for all historical periods presented, an amount equal to the par value of the reduced number of shares resulting from the Reverse Stock Split was reclassified from Common stock to Additional paid in capital in the Company’s Consolidated Statements of Financial Condition. All references made to share or per share amounts in the accompanying consolidated financial statements and disclosures have been retroactively adjusted, where applicable, to reflect the effects of the Reverse Stock Split.

5

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
3. SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described below or are included elsewhere in these notes to the consolidated financial statements.
Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and transactions have been eliminated in consolidation.
Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE.
Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities” Note for further information.
Equity Method Investments - For entities that are not consolidated, but where the Company has significant influence over the operating or financial decisions of the entity, the Company accounts for the investment under the equity method of accounting. In accordance with the equity method of accounting, the Company will recognize its share of earnings or losses of the investee in the period in which they are reported by the investee. The Company also considers whether there are any indicators of other-than-temporary impairment of joint ventures accounted for under the equity method. These investments are included in Other assets with income or loss included in Other, net.
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost, which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $1.6 billion and $1.4 billion at March 31, 2023 and December 31, 2022, respectively.
Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to elect the FVO in order to simplify the accounting treatment for certain financial instruments. Items for which the FVO has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). For additional information regarding financial instruments for which the Company has elected the FVO refer to the table in the “Financial Instruments” Note.
Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to estimate the fair value of certain financial instruments.
Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they meet the offsetting criteria. Refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements.
Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative Instruments” Note for further discussion.
Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a model.
6

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date. Compensation expense for awards with market conditions is recognized irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.
Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities” Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not received is recognized as Interest receivable on the Consolidated Statements of Financial Condition. Interest income is presented as a separate line item on the Consolidated Statements of Comprehensive Income (Loss).
For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation of the effective yield.  The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.
Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to yield made on a prospective basis.
Premiums or discounts associated with the purchase of multifamily securities are amortized or accreted into interest income based upon their contractual payment terms. If a prepayment occurs, an adjustment is made to the unpaid principal balance and unamortized premium or discount in the current period and the original effective yield continues to be applied.
Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).
If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued. For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt, interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time and there is a sustained period of repayment performance by the borrower.
The Company has made an accounting policy election not to measure an allowance for loans losses for accrued interest receivable. If interest receivable is deemed to be uncollectible or not collected within 90 days of its contractual due date for commercial loans or 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income. Any interest written off that is recovered is recognized as interest income.
Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income.
Income Taxes – The Company has elected to be taxed as a REIT and intends to comply with the provisions of the Code, with respect thereto. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. The Company and certain of its direct and indirect subsidiaries have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRSs”).  As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon its taxable income. Refer to the “Income Taxes” Note for further discussion on income taxes.
Recent Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”). There were no recent ASUs that are expected to have a significant impact on the Company’s consolidated financial statements when adopted or that had a significant impact on the Company’s consolidated financial statements upon adoption.
7

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 March 31, 2023 and December 31, 2022.
Financial Instruments (1)
Balance Sheet Line ItemType / FormMeasurement BasisMarch 31, 2023December 31, 2022
Assets(dollars in thousands)
Securities
Agency mortgage-backed securities (2)
Fair value, with unrealized gains (losses) through other comprehensive income$30,891,678 $34,528,515 
Securities
Agency mortgage-backed securities (3)
Fair value, with unrealized gains (losses) through earnings34,731,856 27,746,380 
SecuritiesResidential credit risk transfer securitiesFair value, with unrealized gains (losses) through earnings1,085,384 997,557 
SecuritiesNon-agency mortgage-backed securitiesFair value, with unrealized gains (losses) through earnings2,028,656 1,991,146 
SecuritiesCommercial real estate debt investments - CMBSFair value, with unrealized gains (losses) through earnings482,780 508,406 
SecuritiesCommercial real estate debt investments - credit risk transfer securitiesFair value, with unrealized gains (losses) through earnings17,831 17,903 
Total securities69,238,185 65,789,907 
Loans, netResidential mortgage loansFair value, with unrealized gains (losses) through earnings1,642,822 1,809,832 
Total loans, net1,642,822 1,809,832 
Assets transferred or pledged to securitization vehiclesResidential mortgage loansFair value, with unrealized gains (losses) through earnings10,277,588 9,121,912 
Total assets transferred or pledged to securitization vehicles10,277,588 9,121,912 
Liabilities
Repurchase agreementsRepurchase agreementsAmortized cost60,993,018 59,512,597 
Other secured financingLoansAmortized cost250,000 250,000 
Debt issued by securitization vehiclesSecuritiesFair value, with unrealized gains (losses) through earnings8,805,911 7,744,160 
Participations issuedParticipations issuedFair value, with unrealized gains (losses) through earnings673,431 800,849 
(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, collateralized mortgage obligation (“CMO”) and multifamily securities.
5. SECURITIES
The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed securities. All of the debt securities are classified as available-for-sale. Available-for-sale debt securities are carried at fair value, with changes in fair value recognized in other comprehensive income, unless the fair value option is elected in which case changes in fair value are recognized in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Effective July 1, 2022, the Company elected the fair value option for any newly purchased Agency mortgage-backed securities in order to simplify the accounting for these securities. 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. During the three months ended March 31, 2023, $386.7 million of unrealized gains (losses) on Agency mortgage-backed securities were reported in Net gains (losses) on investments and other in the Company's Consolidated Statements of Comprehensive Income (Loss). 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
8

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the security. Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss) as a securities loss provision and reflected as an allowance for credit losses on securities on the Consolidated Statements of Financial Condition, while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss). When the fair value of a held-to-maturity security is less than the cost, the Company performs an analysis to determine whether it expects to recover the entire cost basis of the security.
Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”). 
Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis. TBA securities without intent to accept delivery (“TBA derivatives”) are accounted for as derivatives as discussed in the “Derivative Instruments” Note.
CRT Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit risk from Fannie Mae and Freddie Mac to private investors.
Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those issued in prime loan, prime jumbo loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations.
Agency mortgage-backed securities, non-Agency mortgage-backed securities and residential CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.
Commercial Mortgage-Backed Securities (“Commercial Securities”) - The Company invests in Commercial Securities such as conduit, credit CMBS, single-asset single borrower and collateralized loan obligations.
The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the three months ended March 31, 2023:
Agency SecuritiesResidential Credit SecuritiesCommercial SecuritiesTotal
(dollars in thousands)
Beginning balance January 1, 2023
$62,274,895 $2,988,703 $526,309 $65,789,907 
Purchases8,073,778 372,839 23,940 8,470,557 
Sales
(4,984,037)(225,907)(51,591)(5,261,535)
Principal paydowns(1,261,026)(87,915)(34)(1,348,975)
(Amortization) / accretion(62,270)5,736 325 (56,209)
Fair value adjustment1,582,194 60,584 1,662 1,644,440 
Ending balance March 31, 2023
$65,623,534 $3,114,040 $500,611 $69,238,185 










9

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements

The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that were carried at their fair value at March 31, 2023 and December 31, 2022:
 March 31, 2023
 Principal /
Notional		Remaining PremiumRemaining DiscountAmortized
Cost		Unrealized
Gains		Unrealized
Losses		Estimated Fair Value
Agency(dollars in thousands)
Fixed-rate pass-through$64,851,694 $2,009,496 $(1,116,103)$65,745,087 $185,694 $(2,978,073)$62,952,708 
Adjustable-rate pass-through221,651 16,768 (78)238,341 2,226 (15,695)224,872 
CMO99,729 1,752 — 101,481 — (11,793)89,688 
Interest-only2,347,144 507,374 — 507,374 3,675 (196,486)314,563 
Multifamily(1)
10,584,134 317,435 (1,434)2,051,517 14,746 (52,824)2,013,439 
Reverse mortgages27,584 3,350 — 30,934 —