Annaly Capital Management Inc 8-K, filed Apr 26, 2023
Annaly Capital Management Inc (NLY)
8-K
2023-04-26
For: 2023-04-26
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Added on
July 04, 2026
About this 8-K
Annaly Capital Management Inc filed this 8-K on April 26, 2023.
Items reported
- Item 8.01: Other events
- Item 9.01: Financial statements and exhibits
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported)
(Exact Name of Registrant as Specified in its Charter)
| (State or other jurisdiction of incorporation or organization) | (Commission File Number) | (IRS Employer Identification No.) | |||||||||
| (Address of principal executive offices) | (Zip Code) | ||||||||||
Registrant’s telephone number, including area code: (212 ) 696-0100
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
Securities registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol(s) | Name of Each Exchange on Which Registered | ||||||
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
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. ☐
Item 8.01 Other Events.
On April 26, 2023, the registrant posted supplemental information for the quarter ended March 31, 2023 on the Investors section of its website (www.annaly.com). A copy of the supplemental information is filed as Exhibit 99.1 to this report and incorporated herein by reference.
Item 9.01 Financial Statements and Exhibits.
(d) Exhibits
101 Pursuant to Rule 406 of Regulation S-T, the cover page information is formatted in iXBRL (Inline eXtensible Business Reporting Language).
104 Cover page interactive data file (formatted in iXBRL in Exhibit 101).
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
ANNALY CAPITAL MANAGEMENT, INC. | ||||||||||||||
By: | /s/ Anthony C. Green | |||||||||||||
Name: Anthony C. Green | ||||||||||||||
Title: Chief Corporate Officer & Chief Legal Officer | ||||||||||||||
Dated: April 26, 2023
First Quarter 2023 Supplemental Information April 26, 2023
This presentation is issued by Annaly Capital Management, Inc. ("Annaly"), an internally managed, publicly traded company that has elected to be taxed as a real estate investment trust for federal income tax purposes, and is being furnished in connection with Annaly’s First Quarter 2023 earnings release. This presentation is provided for investors in Annaly for informational purposes only and is not an offer to sell, or a solicitation of an offer to buy, any security or instrument. Forward-Looking Statements This presentation, other written or oral communications, and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms. Such statements include those relating to the Company’s future performance, macro outlook, the interest rate and credit environments, tax reform and future opportunities. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities (“MBS”) and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of the Company’s assets; changes in business conditions and the general economy including cybersecurity incidents; the Company’s ability to grow its residential credit business; the Company's ability to grow its mortgage servicing rights business; credit risks related to the Company’s investments in credit risk transfer securities and residential mortgage-backed securities and related residential mortgage credit assets; risks related to investments in mortgage servicing rights; the Company’s ability to consummate any contemplated investment opportunities; changes in government regulations or policy affecting the Company’s business; the Company’s ability to maintain its qualification as a REIT for U.S. federal income tax purposes; the Company’s ability to maintain its exemption from registration under the Investment Company Act of 1940; operational risks or risk management failures by us or critical third parties, including cybersecurity incidents; and risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. The Company does not undertake, and specifically disclaims any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements, except as required by law. We use our website (www.annaly.com) and LinkedIn account (www.linkedin.com/company/annaly-capital-management) as channels of distribution of company information. The information we post through these channels may be deemed material. Accordingly, investors should monitor these channels, in addition to following our press releases, SEC filings and public conference calls and webcasts. In addition, you may automatically receive email alerts and other information about Annaly when you enroll your email address by visiting the "Investors" section of our website, then clicking on "Investor Resources" and selecting "Email Alerts" to complete the email notification form. Our website, any alerts and social media channels are not incorporated into this document. Past performance is no guarantee of future results. There is no guarantee that any investment strategy referenced herein will work under all market conditions. Prior to making any investment decision, you should evaluate your ability to invest for the long-term, especially during periods of downturns in the market. You alone assume the responsibility of evaluating the merits and risks associated with any potential investment or investment strategy referenced herein. To the extent that this material contains reference to any past specific investment recommendations or strategies which were or would have been profitable to any person, it should not be assumed that recommendations made in the future will be profitable or will equal the performance of such past investment recommendations or strategies. The information contained herein is not intended to provide, and should not be relied upon for accounting, legal or tax advice or investment recommendations for Annaly or any of its affiliates. Regardless of source, information is believed to be reliable for purposes used herein, but Annaly makes no representation or warranty as to the accuracy or completeness thereof and does not take any responsibility for information obtained from sources outside of Annaly. Certain information contained in the presentation discusses general market activity, industry or sector trends, or other broad-based economic, market or political conditions and should not be construed as research or investment advice. Basis of Presentation On September 8, 2022, the Company announced that its Board of Directors 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 other references made to share or per share amounts in the accompanying consolidated financial statements and disclosures have also been retroactively adjusted, where applicable, to reflect the effects of the Reverse Stock Split. 1 Important Notices
Portfolio Efficiency GAAP Key Statistics Income Statement Balance Sheet For the quarters ended 3/31/2023 12/31/2022 GAAP net income (loss) per average common share (1) ($1.79) ($1.96) Earnings available for distribution per average common share *(1) $0.81 $0.89 Annualized GAAP return (loss) on average equity (28.84%) (31.78%) Annualized EAD return on average equity* 14.82% 16.19% Book value per common share $20.77 $20.79 GAAP leverage at period-end (2) 5.9x 6.0x Economic leverage at period-end *(2) 6.4x 6.3x GAAP capital ratio at period-end (3) 13.7% 13.9% Economic capital ratio at period-end *(3) 13.2% 13.4% Securities $69,238,185 $65,789,907 Loans, net 1,642,822 1,809,832 Mortgage servicing rights (4) 1,790,980 1,748,209 Assets transferred or pledged to securitization vehicles 10,277,588 9,121,912 Total investment portfolio $82,949,575 $78,469,860 Net interest margin (5) 0.09% 0.65% Average yield on interest earning assets (6) 3.96% 3.86% Average GAAP cost of interest bearing liabilities (7) 4.52% 3.71% Net interest spread (0.56)% 0.15% Net interest margin (excluding PAA) *(5) 1.76% 1.90% Average yield on interest earning assets (excluding PAA) *(6) 3.96% 3.82% Average economic cost of interest bearing liabilities *(7) 2.34% 2.11% Net interest spread (excluding PAA) * 1.62% 1.71% Operating expenses to earnings available for distribution * 9.56% 9.60% Annualized operating expenses as a % of average total assets 0.19% 0.21% Annualized operating expenses as a % of average total equity 1.40% 1.54% Unaudited, dollars in thousands except per share amounts 2 Financial Snapshot Non-GAAP Key Statistics ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation.
Portfolio- Related Data Unaudited, dollars in thousands 3 Portfolio Data For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Agency mortgage-backed securities $65,623,534 $62,274,895 $63,037,241 $55,593,336 $57,787,141 Residential credit risk transfer securities 1,085,384 997,557 1,056,906 965,714 845,809 Non-agency mortgage-backed securities 2,028,656 1,991,146 2,156,706 2,026,658 1,737,333 Commercial mortgage-backed securities 500,611 526,309 588,500 457,026 357,354 Total securities $69,238,185 $65,789,907 $66,839,353 $59,042,734 $60,727,637 Residential mortgage loans $1,642,822 $1,809,832 $1,551,637 $1,486,811 $1,650,151 Residential mortgage loan warehouse facility — — 70 322 — Corporate debt — — — — 1,967,667 Total loans, net $1,642,822 $1,809,832 $1,551,707 $1,487,133 $3,617,818 Mortgage servicing rights $1,790,980 $1,748,209 $1,705,254 $1,421,420 $1,108,937 Interests in MSR $— $— $— $83,622 $85,653 Agency mortgage-backed securities transferred or pledged to securitization vehicles $— $— $431,388 $458,268 $544,991 Residential mortgage loans transferred or pledged to securitization vehicles 10,277,588 9,121,912 8,770,626 8,418,979 7,264,316 Assets transferred or pledged to securitization vehicles $10,277,588 $9,121,912 $9,202,014 $8,877,247 $7,809,307 Assets of disposal group held for sale (1) $— $— $11,371 $97,414 $— Total investment portfolio $82,949,575 $78,469,860 $79,309,699 $71,009,570 $73,349,352 Total assets $86,832,017 $81,850,712 $85,406,764 $73,637,249 $76,185,134 Period-end TBA contract and CMBX balances, implied market value $12,386,325 $10,984,878 $15,587,425 $19,680,003 $18,691,823 Average TBA contract and CMBX balances, implied market value $13,935,845 $11,492,947 $18,718,194 $20,436,269 $19,104,165 ______________ Detailed endnotes are included within the Appendix at the end of this presentation.
Financing Data Key Capital and Hedging Metrics ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands except per share amounts 4 Financing and Capital Data For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Repurchase agreements $60,993,018 $59,512,597 $54,160,731 $51,364,097 $52,626,503 Other secured financing 250,000 250,000 250,000 — 914,255 Debt issued by securitization vehicles 8,805,911 7,744,160 7,844,518 7,502,483 6,711,953 Participations issued 673,431 800,849 745,729 696,944 775,432 Total debt $70,722,360 $68,307,606 $63,000,978 $59,563,524 $61,028,143 Liabilities of disposal group held for sale (1) $— $— $1,151 $3,608 $— Total liabilities $74,922,984 $70,481,286 $74,455,209 $62,547,349 $64,706,364 Cumulative redeemable preferred stock $1,536,569 $1,536,569 $1,536,569 $1,536,569 $1,536,569 Common equity (2) 10,255,553 9,733,874 9,329,550 9,490,182 9,890,673 Total Annaly stockholders' equity 11,792,122 11,270,443 10,866,119 11,026,751 11,427,242 Non-controlling interests 116,911 98,983 85,436 63,149 51,528 Total equity $11,909,033 $11,369,426 $10,951,555 $11,089,900 $11,478,770 Weighted average days to maturity of repurchase agreements 59 27 57 47 68 Weighted average rate on repurchase agreements, for the quarter (3)(4) 4.62% 3.72% 2.25% 0.81% 0.20% Weighted average rate on repurchase agreements, at period-end (4) 5.03% 4.29% 3.13% 1.60% 0.41% GAAP leverage at period-end 5.9x 6.0x 5.8x 5.4x 5.3x Economic leverage at period-end * 6.4x 6.3x 7.1x 6.6x 6.4x GAAP capital ratio at period-end 13.7% 13.9% 12.8% 15.1% 15.1% Economic capital ratio at period-end * 13.2% 13.4% 11.8% 13.0% 13.1% Book value per common share $20.77 $20.79 $19.94 $23.59 $27.08 Total common shares outstanding 493,881 468,310 467,911 402,304 365,253 Hedge ratio (5) 106% 107% 111% 104% 106% Weighted average pay rate on interest rate swaps, at period-end 2.13% 1.74% 1.53% 1.16% 0.70% Weighted average receive rate on interest rate swaps, at period-end 4.87% 4.28% 2.96% 1.65% 0.50% Weighted average net rate on interest rate swaps, at period-end (2.74%) (2.54%) (1.43%) (0.49%) 0.20%
______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands except per share amounts 5 Income Statement Data For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Total interest income $818,250 $798,934 $678,488 $645,615 $655,850 Total interest expense 798,787 663,847 400,491 170,475 74,922 Net interest income $19,463 $135,087 $277,997 $475,140 $580,928 Total economic interest expense *(1) $413,081 $377,247 $259,381 $169,483 $137,463 Economic net interest income * $405,169 $421,687 $419,107 $476,132 $518,387 Total interest income (excluding PAA) * $818,741 $790,798 $633,074 $518,094 $476,334 Economic net interest income (excluding PAA) * $405,660 $413,551 $373,693 $348,611 $338,871 GAAP net income (loss) ($839,328) ($886,814) ($273,977) $863,317 $2,023,894 GAAP net income (loss) available (related) to common stockholders (2) ($876,131) ($918,336) ($302,147) $839,813 $1,995,372 GAAP net income (loss) per average common share (2) ($1.79) ($1.96) ($0.70) $2.21 $5.46 Earnings available for distribution * $427,130 $448,009 $480,696 $490,802 $430,631 Earnings available for distribution attributable to common stockholders *(2) $395,255 $418,035 $453,813 $463,919 $403,748 Earnings available for distribution per average common share *(2) $0.81 $0.89 $1.06 $1.22 $1.11 PAA cost (benefit) $491 ($8,136) ($45,414) ($127,521) ($179,516) Weighted average experienced CPR for the period 5.5% 7.5% 9.8% 14.9% 16.7% Weighted average projected long-term CPR at period-end 8.4% 7.8% 7.6% 7.7% 9.5% Summary Income Statement
For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Dividends declared per common share $0.65 $0.88 $0.88 $0.88 $0.88 Total common and preferred dividends declared (1) $354,374 $443,513 $440,033 $382,350 $349,080 Annualized GAAP return (loss) on average equity (28.84%) (31.78%) (9.94%) 30.60% 65.62% Annualized GAAP return (loss) on average equity per unit of GAAP leverage (4.89%) (5.30%) (1.71%) 5.67% 12.38% Net interest margin 0.09% 0.65% 1.42% 2.64% 3.20% Average yield on interest earning assets 3.96% 3.86% 3.47% 3.58% 3.61% Average GAAP cost of interest bearing liabilities 4.52% 3.71% 2.38% 1.12% 0.48% Net interest spread (0.56)% 0.15% 1.09% 2.46% 3.13% Annualized EAD return on average equity * 14.82% 16.19% 17.57% 17.49% 14.01% Annualized EAD return on average equity per unit of economic leverage * 2.32% 2.57% 2.47% 2.65% 2.19% Net interest margin (excluding PAA) * 1.76% 1.90% 1.98% 2.20% 2.04% Average yield on interest earning assets (excluding PAA) * 3.96% 3.82% 3.24% 2.87% 2.62% Average economic cost of interest bearing liabilities * 2.34% 2.11% 1.54% 1.11% 0.89% Net interest spread (excluding PAA) * 1.62% 1.71% 1.70% 1.76% 1.73% Key GAAP Earnings Metrics ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands except per share amounts 6 Key Earnings Metrics Key Non-GAAP Earnings Metrics
Economic Net Interest Income * ______________ * Represents a non-GAAP financial measure. Unaudited, dollars in thousands 7 Components of Economic Net Interest Income * For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Interest income: Agency Securities $603,102 $607,082 $517,528 $497,135 $522,951 Resi Credit Securities 53,745 46,673 41,388 30,037 22,122 Residential mortgage loans 147,231 135,116 109,977 91,648 73,488 Commercial investment portfolio 9,887 9,144 8,853 26,575 37,283 Reverse repurchase agreements 4,285 919 742 220 6 Total interest income $818,250 $798,934 $678,488 $645,615 $655,850 Economic interest expense: Repurchase agreements $698,742 $569,141 $324,573 $105,608 $26,879 Net interest component of interest rate swaps (385,706) (286,600) (141,110) (992) 62,541 Debt issued by securitization vehicles 88,934 75,695 64,593 50,303 34,625 Participations issued 11,111 14,408 9,727 9,379 5,852 Other — 4,603 1,598 5,185 7,566 Total economic interest expense * $413,081 $377,247 $259,381 $169,483 $137,463 Economic net interest income * $405,169 $421,687 $419,107 $476,132 $518,387 PAA cost (benefit) 491 (8,136) (45,414) (127,521) (179,516) Economic net interest income (excluding PAA) * $405,660 $413,551 $373,693 $348,611 $338,871
EAD* Reconciliation 8 GAAP Net Income to Earnings Available for Distribution* Reconciliation For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 GAAP net income (loss) ($839,328) ($886,814) ($273,977) $863,317 $2,023,894 Adjustments to exclude reported realized and unrealized (gains) losses: Net (gains) losses on investments and other (1,712) 1,124,924 2,702,512 615,216 159,804 Net (gains) losses on derivatives (1) 1,286,458 202,337 (1,976,130) (1,014,651) (1,704,569) Loan loss provision (reversal) (2) (219) 7,258 (1,613) (29,380) 812 Business divestiture-related (gains) losses (3) — 13,013 2,936 23,955 354 Other adjustments: Depreciation expense related to commercial real estate and amortization of intangibles (4) 758 758 758 1,302 1,130 Non-EAD (income) loss allocated to equity method investments (5) (244) (306) (2,003) (3,270) (9,920) Transaction expenses and non-recurring items (6) 1,358 807 1,712 1,751 3,350 Income tax effect of non-EAD income (loss) items 8,278 (418) (9,444) 28,841 27,091 TBA dollar roll income and CMBX coupon income (7) 18,183 34,767 105,543 161,673 129,492 MSR amortization (8) (43,423) (38,633) (22,897) (33,810) (19,652) EAD attributable to noncontrolling interests (3,470) (1,548) (1,287) 3,379 (1,639) Premium amortization adjustment cost (benefit) 491 (8,136) (45,414) (127,521) (179,516) Earnings available for distribution * 427,130 448,009 480,696 490,802 430,631 Dividends on preferred stock 31,875 29,974 26,883 26,883 26,883 Earnings available for distribution attributable to common stockholders * $395,255 $418,035 $453,813 $463,919 $403,748 ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands
Book Value Rollforward Net Interest Margin Unaudited 9 Quarter-Over-Quarter Changes in Key Metrics For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Book value per common share, beginning of period $20.79 $19.94 $23.59 $27.08 $31.88 Net income (loss) available (related) to common stockholders (1.79) (1.96) (0.70) 2.21 5.46 Other comprehensive income (loss) attributable to common stockholders 2.37 3.68 (2.61) (4.85) (9.38) Common dividends declared (0.65) (0.88) (0.88) (0.88) (0.88) Issuance / buyback of common stock / redemption of preferred stock 0.05 0.01 0.54 0.03 — Book value per common share, end of period $20.77 $20.79 $19.94 $23.59 $27.08 Prior quarter net interest margin 0.65% 1.42% 2.64% 3.20% 1.97% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.22% 0.48% (0.18%) 0.22% (0.01%) Net amortization of premiums (0.12%) (0.09%) 0.07% (0.25%) 1.31% GAAP interest expense (0.66%) (1.16%) (1.11%) (0.53%) (0.07%) Current quarter net interest margin 0.09% 0.65% 1.42% 2.64% 3.20% Prior quarter net interest spread 0.15% 1.09% 2.46% 3.13% 1.93% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.22% 0.48% (0.18%) 0.22% (0.01%) Net amortization of premiums (0.12%) (0.09%) 0.07% (0.25%) 1.31% GAAP interest expense (0.81%) (1.33%) (1.26%) (0.64%) (0.10%) Current quarter net interest spread (0.56%) 0.15% 1.09% 2.46% 3.13% Net Interest Spread
Net Interest Margin (excluding PAA)* Unaudited 10 Quarter-Over-Quarter Changes in Key Metrics (continued) ______________ * Represents a non-GAAP financial measure. For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Prior quarter net interest margin (excluding PAA) * 1.90% 1.98% 2.20% 2.04% 2.03% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets (including average TBA dollar roll and CMBX balances) 0.09% 0.67% (0.04%) 0.13% 0.04% Net amortization of premiums (excluding PAA) (0.05%) 0.07% 0.42% 0.03% 0.00% TBA dollar roll income and CMBX coupon income (0.07%) (0.29%) (0.26%) 0.13% 0.06% Interest expense and net interest component of interest rate swaps (0.11%) (0.53%) (0.34%) (0.13%) (0.09%) Current quarter net interest margin (excluding PAA) * 1.76% 1.90% 1.98% 2.20% 2.04% Prior quarter net interest spread (excluding PAA) * 1.71% 1.70% 1.76% 1.73% 1.88% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.22% 0.48% (0.17%) 0.22% (0.02%) Net amortization of premiums (excluding PAA) (0.08%) 0.10% 0.54% 0.03% 0.01% Interest expense and net interest component of interest rate swaps (0.23%) (0.57%) (0.43%) (0.22%) (0.14%) Current quarter net interest spread (excluding PAA) * 1.62% 1.71% 1.70% 1.76% 1.73% Net Interest Spread (excluding PAA)*
Annualized GAAP Return (Loss) on Average Equity Annualized EAD Return on Average Equity* ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited 11 Quarter-Over-Quarter Changes in Annualized Return on Average Equity For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Prior quarter annualized GAAP return (loss) on average equity (31.78%) (9.94%) 30.60% 65.62% 12.44% Quarter-over-quarter changes in contribution: Coupon income 0.22% 4.71% 1.40% 3.20% 1.52% Net amortization of premiums and accretion of discounts (0.73%) (0.70%) 0.35% (1.58%) 7.17% GAAP interest expense (3.66%) (9.26%) (8.49%) (3.61%) (0.59%) Net servicing income (0.04%) 0.25% 0.66% 0.76% 0.20% Net gains (losses) on investments and other 40.38% 57.77% (76.28%) (16.63%) (3.98%) Net gains (losses) on derivatives (33.98%) (73.83%) 40.84% (17.24%) 49.22% Business divestiture-related gains (losses) (1) 0.46% (0.36%) 0.74% (0.84%) 0.48% Loan loss provision 0.27% (0.32%) (0.90%) 0.97% (0.01%) Other (2) 0.02% (0.10%) 1.14% (0.05%) (0.83%) Current quarter annualized GAAP return (loss) on average equity (28.84%) (31.78%) (9.94%) 30.60% 65.62% Prior quarter annualized EAD return on average equity * 16.19% 17.57% 17.49% 14.01% 13.10% Quarter-over-quarter changes in contribution: Coupon income 0.25% 4.79% 1.44% 3.26% 1.52% Net amortization of premiums (excluding PAA) (0.43%) 0.66% 3.23% (0.29%) (0.32%) Interest expense and net interest component of interest rate swaps (0.69%) (4.16%) (3.44%) (1.57%) (0.88%) Net servicing income (0.04%) 0.25% 0.67% 0.76% 0.20% TBA dollar roll income and CMBX coupon income (0.62%) (2.60%) (1.90%) 1.55% 0.65% Other (3) 0.16% (0.32%) 0.08% (0.23%) (0.26%) Current quarter annualized EAD return on average equity * 14.82% 16.19% 17.57% 17.49% 14.01%
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 12 Residential & Other Investments Overview as of March 31, 2023 Agency Fixed-Rate Securities (Pools) Original Weighted Avg. Years to Maturity Current Face Value % (3) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Weighted Avg. 3-Month CPR Estimated Fair Value <=15 years (1) $2,326,345 3.5% 4.08% 101.1% 99.4% 9.3% $2,312,246 20 years 735,991 1.1% 3.70% 103.1% 97.5% 6.7% 717,290 >=30 years (2) 63,624,603 95.4% 4.12% 101.4% 97.1% 5.4% 61,750,911 Total/Weighted Avg. $66,686,939 100.0% 4.11% 101.4% 97.1% 5.5% $64,780,447 TBA Contracts Type Notional Value % (4) Weighted Avg. Coupon Implied Cost Basis Implied Market Value 15-year $640,000 5.3% 4.50% $629,980 $637,800 30-year 11,328,000 94.7% 5.26% 11,227,684 11,383,010 Total/Weighted Avg. $11,968,000 100.0% 5.21% $11,857,664 $12,020,810 Agency Adjustable-Rate Securities Weighted Avg. Months to Reset Current Face Value % (3) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Weighted Avg. 3-Month CPR Estimated Fair Value 0 - 24 months $222,182 89.1% 3.99% 107.9% 102.2% 12.9% $227,065 25 - 40 months 27,053 10.9% 3.00% 109.3% 96.4% 10.6% 26,071 Total/Weighted Avg. $249,235 100.0% 3.88% 108.0% 101.6% 12.7% $253,136 Agency Interest-Only Collateralized Mortgage-Backed Obligations Type Current Notional Value % (4) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Weighted Avg. 3-Month CPR Estimated Fair Value Interest-only $1,064,199 9.5% 3.39% 18.1% 15.1% 6.7% $161,147 Inverse interest-only 1,282,945 11.5% 1.30% 24.5% 12.0% 7.0% 153,416 Multifamily interest-only 8,848,618 79.0% 0.51% 3.4% 3.1% —% 275,388 Total/Weighted Avg. $11,195,762 100.0% 0.87% 7.2% 5.3% 6.9% $589,951
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 13 Residential & Other Investments Overview as of March 31, 2023 (continued) Mortgage Servicing Rights Type Unpaid Principal Balance Servicing Fee Weighted Avg. Note Rate Valuation Discount Rate Projected CPR Estimated Fair Value MSR held directly $129,542,342 0.26% 3.0% 138.3% 9.4% 5.4% $1,790,980 MSR of limited partnership interest (1) 2,767,135 38,591 Total/Weighted Avg. $132,309,477 0.26% 3.0% 138.3% 9.4% 5.4% $1,829,571 Residential Credit Portfolio Sector Current Face / Notional Value % (2) Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Estimated Fair Value Residential credit risk transfer $1,087,475 7.2% 8.86% 100.1% 99.8% $1,085,384 Alt-A 118,110 0.7% 4.35% 95.8% 86.0% 101,569 Prime 863,323 1.4% 3.82% 94.3% 80.5% 211,871 Subprime 206,842 1.1% 5.63% 84.3% 78.4% 162,154 NPL/RPL 1,328,628 8.3% 4.13% 99.0% 94.0% 1,248,925 Prime jumbo 8,145,513 2.0% 7.99% 106.7% 94.9% 304,137 Residential mortgage loans 12,978,189 79.3% 4.83% 100.1% 91.8% 11,920,410 Total/Weighted Avg. $24,728,080 100.0% 5.12% $15,034,450 Other Credit Products Type Net Notional Range of Ratings Net Weighted Avg Coupon Implied Market Value CMBX (3) $385,000 AAA 1.0% $365,515 Type Current Face / Notional Value Weighted Avg. Coupon Weighted Avg. Amortized Cost Weighted Avg. Fair Value Estimated Fair Value Multifamily CRT $18,905 8.70% 99.5% 94.3% $17,831 CRE CLO $465,059 6.12% 99.6% 96.5% $448,700 SASB $34,600 7.28% 99.7% 98.5% $34,080
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited, dollars in thousands 14 Residential Credit Securities Detail as of March 31, 2023 Product Estimated Fair Value Payment Structure Investment Characteristics Senior Subordinate Coupon Credit Enhancement 60+ Delinquencies 3M VPR (1) Credit Risk Transfer $1,085,384 $— $1,085,384 8.86% 1.93% 0.95% 4.23% Alt-A 101,569 62,052 39,517 4.35% 14.99% 2.05% 5.98% Prime 211,871 51,291 160,580 3.82% 7.47% 2.11% 3.15% Subprime 162,154 52,794 109,360 5.63% 16.92% 8.23% 5.76% Re-Performing Loan Securitizations 784,280 408,031 376,249 4.42% 27.00% 31.48% 4.06% Non-Performing Loan Securitizations 464,645 437,930 26,715 3.62% 38.29% 79.24% 5.85% Prime Jumbo 304,137 85,006 219,131 7.99% 3.10% 3.97% 3.02% Total (2) $3,114,040 $1,097,104 $2,016,936 6.12% 15.55% 21.03% 4.29% Product Bond Coupon Estimated Fair ValueARM Fixed Floater Interest Only Credit Risk Transfer $— $— $1,085,384 $— $1,085,384 Alt-A 3,825 97,441 303 — 101,569 Prime 5,728 197,606 4,103 4,434 211,871 Subprime — 117,112 44,922 120 162,154 Re-Performing Loan Securitizations — 784,280 — — 784,280 Non-Performing Loan Securitizations — 464,645 — — 464,645 Prime Jumbo — 210,887 33,092 60,158 304,137 Total $9,553 $1,871,971 $1,167,804 $64,712 $3,114,040
______________ Detailed endnotes are included within the Appendix at the end of this presentation. 15 Unaudited, dollars in thousands Hedging and Liabilities as of March 31, 2023 Principal Balance Weighted Average Rate Days to Maturity(5)At Period End For the Quarter Repurchase agreements $60,993,018 5.03% 4.62% 59 Other secured financing 250,000 7.54% 7.25% 455 Debt issued by securitization vehicles 9,881,639 3.73% 3.78% 12,282 Participations issued 698,971 6.50% 6.05% 10,926 Total indebtedness $71,823,628 Maturity Current Notional (1)(2) Weighted Avg. Pay Rate Weighted Avg. Receive Rate Weighted Avg. Years to Maturity(3) 0 to 3 years $28,739,600 1.40% 4.85% 1.09 > 3 to 6 years 7,393,000 2.93% 4.86% 4.82 > 6 to 10 years 26,163,800 2.59% 4.88% 8.22 Greater than 10 years 2,434,000 3.46% 4.82% 21.87 Total / Weighted Avg. $64,730,400 2.13% 4.87% 5.18 Type Current Underlying Notional Weighted Avg. Underlying Fixed Rate Weighted Avg. Underlying Floating Rate Weighted Avg. Underlying Years to Maturity Weighted Avg. Months to Expiration Long Pay $2,500,000 2.02% 3M LIBOR 7.94 11.29 Long Receive $750,000 1.57% 3M LIBOR 10.82 9.82 Type Long Contracts Short Contracts Net Positions Weighted Avg. Years to Maturity U.S. Treasury Futures - 2 year $— ($6,144,400) ($6,144,400) 1.97 U.S. Treasury Futures - 5 year $— ($2,714,700) ($2,714,700) 4.47 U.S. Treasury Futures - 10 year & Greater $— ($4,147,200) ($4,147,200) 9.26 Total / Weighted Avg. $— ($13,006,300) ($13,006,300) 4.82 Maturity Principal Balance Weighted Avg. Rate At Period End Within 30 days $30,928,862 4.99% 30 to 59 days 14,244,008 5.04% 60 to 89 days 9,194,143 5.09% 90 to 119 days 70,459 5.91% Over 120 days(4) 6,805,546 5.22% Total / Weighted Avg. $61,243,018 5.04% Interest Rate Swaps Interest Rate Swaptions Futures Positions Repurchase Agreements and Other Secured Financing Total Indebtedness
______________ Detailed endnotes are included within the Appendix at the end of this presentation. Unaudited 16 Quarter-Over-Quarter Interest Rate and MBS Spread Sensitivity Assumptions: ▪ The interest rate sensitivity and MBS spread sensitivity are based on the portfolios as of March 31, 2023 and December 31, 2022 ▪ The interest rate sensitivity reflects instantaneous parallel shifts in rates ▪ The MBS spread sensitivity shifts MBS spreads instantaneously and reflects exposure to MBS basis risk ▪ All tables assume no active management of the portfolio in response to rate or spread changes Interest Rate Sensitivity (1) Interest Rate Change (bps) As of March 31, 2023 As of December 31, 2022 Estimated Percentage Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) Estimated Percentage Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) (75) (0.2%) (1.3%) 0.4% 2.9% (50) —% (0.2%) 0.3% 2.5% (25) —% 0.2% 0.2% 1.5% 25 (0.1%) (0.8%) (0.3%) (1.9%) 50 (0.3%) (2.1%) (0.6%) (4.3%) 75 (0.5%) (3.9%) (0.9%) (6.9%) MBS Spread Sensitivity (1) MBS Spread Shock (bps) As of March 31, 2023 As of December 31, 2022 Estimated Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) Estimated Change in Portfolio Market Value (2) Estimated Change as a % of NAV (2)(3) (25) 1.5% 11.2% 1.6% 12.1% (15) 0.9% 6.7% 1.0% 7.2% (5) 0.3% 2.2% 0.3% 2.4% 5 (0.3%) (2.2%) (0.3%) (2.4%) 15 (0.9%) (6.6%) (0.9%) (7.1%) 25 (1.5%) (10.9%) (1.6%) (11.8%)
Appendix
Dollars in thousands, except per share data 18 Consolidated Statements of Financial Condition 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 (unaudited) (unaudited) (unaudited) (unaudited) Assets Cash and cash equivalents $ 1,794,173 $ 1,576,714 $ 1,466,171 $ 853,932 $ 955,840 Securities 69,238,185 65,789,907 66,839,353 59,042,734 60,727,637 Loans, net 1,642,822 1,809,832 1,551,707 1,487,133 3,617,818 Mortgage servicing rights 1,790,980 1,748,209 1,705,254 1,421,420 1,108,937 Interests in MSR — — — 83,622 85,653 Assets transferred or pledged to securitization vehicles 10,277,588 9,121,912 9,202,014 8,877,247 7,809,307 Assets of disposal group held for sale — — 11,371 97,414 — Derivative assets 400,139 342,064 1,949,530 748,432 964,075 Receivable for unsettled trades 679,096 575,091 2,153,895 434,227 407,225 Principal and interest receivable 773,722 637,301 262,542 300,028 246,739 Goodwill and intangible assets, net 15,921 16,679 17,437 18,195 23,110 Other assets 219,391 233,003 247,490 272,865 238,793 Total assets $ 86,832,017 $ 81,850,712 $ 85,406,764 $ 73,637,249 $ 76,185,134 Liabilities and stockholders’ equity Liabilities Repurchase agreements $ 60,993,018 $ 59,512,597 $ 54,160,731 $ 51,364,097 $ 52,626,503 Other secured financing 250,000 250,000 250,000 — 914,255 Debt issued by securitization vehicles 8,805,911 7,744,160 7,844,518 7,502,483 6,711,953 Participations issued 673,431 800,849 745,729 696,944 775,432 Liabilities of disposal group held for sale — — 1,151 3,608 — Derivative liabilities 473,515 204,172 764,535 379,708 826,972 Payable for unsettled trades 3,259,034 1,157,846 9,333,646 1,995,960 1,992,568 Interest payable 118,395 325,280 30,242 91,962 80,870 Dividends payable 321,023 412,113 411,762 354,027 321,423 Other liabilities 28,657 74,269 912,895 158,560 456,388 Total liabilities 74,922,984 70,481,286 74,455,209 62,547,349 64,706,364 Stockholders’ equity Preferred stock, par value $0.01 per share (2) 1,536,569 1,536,569 1,536,569 1,536,569 1,536,569 Common stock, par value $0.01 per share (3) 4,939 4,683 4,679 4,023 3,653 Additional paid-in capital 23,543,091 22,981,320 22,967,665 21,293,146 20,332,909 Accumulated other comprehensive income (loss) (2,550,614) (3,708,896) (5,431,436) (4,310,926) (2,465,482) Accumulated deficit (10,741,863) (9,543,233) (8,211,358) (7,496,061) (7,980,407) Total stockholders’ equity 11,792,122 11,270,443 10,866,119 11,026,751 11,427,242 Noncontrolling interests 116,911 98,983 85,436 63,149 51,528 Total equity 11,909,033 11,369,426 10,951,555 11,089,900 11,478,770 Total liabilities and equity $ 86,832,017 $ 81,850,712 $ 85,406,764 $ 73,637,249 $ 76,185,134 ______________ Detailed endnotes are included within the Appendix at the end of this presentation. (1)
Unaudited, dollars in thousands, except per share data 19 Consolidated Statements of Comprehensive Income (Loss) For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Net interest income Interest income $ 818,250 $ 798,934 $ 678,488 $ 645,615 $ 655,850 Interest expense 798,787 663,847 400,491 170,475 74,922 Net interest income 19,463 135,087 277,997 475,140 580,928 Net servicing income Servicing and related income 84,273 82,040 74,486 55,685 34,715 Servicing and related expense 7,880 7,659 7,780 5,949 3,757 Net servicing income 76,393 74,381 66,706 49,736 30,958 Other income (loss) Net gains (losses) on investments and other 1,712 (1,124,924) (2,702,512) (615,216) (159,804) Net gains (losses) on derivatives (900,752) 84,263 2,117,240 1,015,643 1,642,028 Loan loss (provision) reversal 219 (7,258) 1,613 26,913 (608) Business divestiture-related gains (losses) — (13,013) (2,936) (23,955) (354) Other, net 15,498 7,569 1,526 (5,486) 3,058 Total other income (loss) (883,323) (1,053,363) (585,069) 397,899 1,484,320 General and administrative expenses Compensation expense 29,391 29,714 27,744 22,243 33,002 Other general and administrative expenses 11,437 13,291 10,178 13,795 12,762 Total general and administrative expenses 40,828 43,005 37,922 36,038 45,764 Income (loss) before income taxes (828,295) (886,900) (278,288) 886,737 2,050,442 Income taxes 11,033 (86) (4,311) 23,420 26,548 Net income (loss) (839,328) (886,814) (273,977) 863,317 2,023,894 Net income (loss) attributable to noncontrolling interests 4,928 1,548 1,287 (3,379) 1,639 Net income (loss) attributable to Annaly (844,256) (888,362) (275,264) 866,696 2,022,255 Dividends on preferred stock 31,875 29,974 26,883 26,883 26,883 Net income (loss) available (related) to common stockholders $ (876,131) $ (918,336) $ (302,147) $ 839,813 $ 1,995,372 Net income (loss) per share available (related) to common stockholders Basic $ (1.79) $ (1.96) $ (0.70) $ 2.21 $ 5.46 Diluted $ (1.79) $ (1.96) $ (0.70) $ 2.20 $ 5.46 Weighted average number of common shares outstanding Basic 489,688,364 468,250,672 429,858,876 380,609,192 365,340,909 Diluted 489,688,364 468,250,672 429,858,876 380,898,750 365,612,991 Other comprehensive income (loss) Net income (loss) $ (839,328) $ (886,814) $ (273,977) $ 863,317 $ 2,023,894 Unrealized gains (losses) on available-for-sale securities 675,374 445,896 (2,578,509) (2,503,250) (3,568,679) Reclassification adjustment for net (gains) losses included in net income (loss) 482,908 1,276,644 1,457,999 657,806 144,787 Other comprehensive income (loss) 1,158,282 1,722,540 (1,120,510) (1,845,444) (3,423,892) Comprehensive income (loss) 318,954 835,726 (1,394,487) (982,127) (1,399,998) Comprehensive income (loss) attributable to noncontrolling interests 4,928 1,548 1,287 (3,379) 1,639 Comprehensive income (loss) attributable to Annaly 314,026 834,178 (1,395,774) (978,748) (1,401,637) Dividends on preferred stock 31,875 29,974 26,883 26,883 26,883 Comprehensive income (loss) attributable to common stockholders $ 282,151 $ 804,204 $ (1,422,657) $ (1,005,631) $ (1,428,520)
Unaudited, dollars in thousands 20 Income Statement Gains (Losses) Detail For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Net gains (losses) on disposal of investments and other ($521,592) ($1,289,865) ($1,464,360) ($646,177) ($144,224) Net unrealized gains (losses) on instruments measured at fair value through earnings 523,304 164,941 (1,238,152) 30,961 (15,580) Net gains (losses) on investments and other $1,712 ($1,124,924) ($2,702,512) ($615,216) ($159,804) Net interest component of interest rate swaps $385,706 $286,600 $141,110 $992 ($62,541) Realized gains (losses) on termination or maturity of interest rate swaps (145,819) (183,018) (83,393) (16) — Unrealized gains (losses) on interest rate swaps (956,272) 8,382 1,251,350 897,537 1,323,439 Net gains (losses) on other derivatives (184,367) (27,701) 808,173 117,130 381,130 Net gains (losses) on derivatives ($900,752) $84,263 $2,117,240 $1,015,643 $1,642,028 Other Income Statement Details
21 Non-GAAP Reconciliations To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company provides non-GAAP financial measures. These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with GAAP. While intended to offer a fuller understanding of the Company’s results and operations, non-GAAP financial measures also have limitations. For example, the Company may calculate its non-GAAP metrics, such as Earnings Available for Distribution ("EAD"), or the premium amortization adjustment ("PAA"), differently than its peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which the Company will amortize the remaining unamortized premium. Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results. These non-GAAP measures provide additional detail to enhance investor understanding of the Company’s period-over-period operating performance and business trends, as well as for assessing the Company’s performance versus that of industry peers. Additional information pertaining to these non-GAAP financial measures and reconciliations to their most directly comparable GAAP results are provided on the following pages. A reconciliation of GAAP net income (loss) to non-GAAP Earnings available for distribution for the quarters ended March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, is provided on page 8 of this supplemental information. Earnings available for distribution, earnings available for distribution attributable to common stockholders, earnings available for distribution per average common share and annualized EAD return on average equity The Company's principal business objective is to generate net income for distribution to its stockholders and to preserve capital through prudent selection of investments and continuous management of its portfolio. The Company generates net income by earning a net interest spread on its investment portfolio, which is a function of interest income from its investment portfolio less financing, hedging and operating costs. Earnings available for distribution, which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) net servicing income less realized amortization of MSR, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-EAD income allocated to equity method investments and other non-EAD components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-EAD income (loss) items) and excludes (g) the premium amortization adjustment ("PAA") representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities is used by the Company's management and, the Company believes, used by analysts and investors to measure its progress in achieving its principal business objective. The Company seeks to fulfill this objective through a variety of factors including portfolio construction, the degree of market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of the Company's capital allocation policy and risk governance framework. The Company believes these non-GAAP measures provide management and investors with additional details regarding the Company’s underlying operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive income (loss) and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to provide additional transparency into the operating performance of the Company’s portfolio. In addition, EAD serves as a useful indicator for investors in evaluating the Company's performance and ability to pay dividends. Annualized EAD return on average equity, which is calculated by dividing earnings available for distribution over average stockholders’ equity, provides investors with additional detail on the earnings available for distribution generated by the Company’s invested equity capital. Premium Amortization Expense In accordance with GAAP, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities, excluding 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. 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. The Company’s GAAP metrics include the unadjusted impact of amortization and accretion associated with this method. Certain of the Company’s non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term CPR.
22 Non-GAAP Reconciliations (continued) Economic leverage and economic capital ratios The Company uses capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between the yield on its assets and the cost of its borrowings and hedging activities. The Company’s capital structure is designed to offer an efficient complement of funding sources to generate positive risk-adjusted returns for its stockholders while maintaining appropriate liquidity to support its business and meet the Company’s financial obligations under periods of market stress. To maintain its desired capital profile, the Company utilizes a mix of debt and equity funding. Debt funding may include the use of repurchase agreements, loans, securitizations, participations issued, lines of credit, asset backed lending facilities, corporate bond issuance, convertible bonds, mortgages payable or other liabilities. Equity capital primarily consists of common and preferred stock. The Company’s economic leverage ratio is computed as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage. Interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA) Interest income (excluding PAA) represents interest income excluding the effect of the PAA, and serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA), which are discussed below. The Company believes this measure provides management and investors with additional detail to enhance their understanding of the Company’s operating results and trends by excluding the component of premium amortization expense representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio. Economic interest expense includes GAAP interest expense and the net interest component of interest rate swaps. The Company uses interest rate swaps to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. Accordingly, adding the net interest component of interest rate swaps to interest expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with additional information about the cost of the Company's financing strategy. The Company may use market agreed coupon (“MAC”) interest rate swaps in which the Company may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-market nature of such interest rate swap. In accordance with GAAP, upfront payments associated with MAC interest rate swaps are not reflected in the net interest component of interest rate swaps in the Company's Consolidated Statements of Comprehensive Income (Loss). The Company did not enter into any MAC interest rate swaps during the quarter ended March 31, 2023. Average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA), net interest margin (excluding PAA) and average economic cost of interest bearing liabilities Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances, provide management with additional measures of the Company’s profitability that management relies upon in monitoring the performance of the business.
Unaudited, dollars in thousands 23 Non-GAAP Reconciliations (continued) For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Economic leverage ratio reconciliation Repurchase agreements $60,993,018 $59,512,597 $54,160,731 $51,364,097 $52,626,503 Other secured financing 250,000 250,000 250,000 — 914,255 Debt issued by securitization vehicles 8,805,911 7,744,160 7,844,518 7,502,483 6,711,953 Participations issued 673,431 800,849 745,729 696,944 775,432 Total GAAP debt $70,722,360 $68,307,606 $63,000,978 $59,563,524 $61,028,143 Less non-recourse debt: Credit facilities (1) $— $— $— $— ($914,255) Debt issued by securitization vehicles (8,805,911) (7,744,160) (7,844,518) (7,502,483) (6,711,953) Participations issued (673,431) (800,849) (745,729) (696,944) (775,432) Total recourse debt $61,243,018 $59,762,597 $54,410,731 $51,364,097 $52,626,503 Plus / (Less): Cost basis of TBA and CMBX derivatives $12,241,647 $11,050,351 $16,209,886 $19,723,326 $19,006,949 Payable for unsettled trades 3,259,034 1,157,846 9,333,646 1,995,960 1,992,568 Receivable for unsettled trades (679,096) (575,091) (2,153,895) (434,227) (407,225) Economic debt * $76,064,603 $71,395,703 $77,800,368 $72,649,156 $73,218,795 Total equity $11,909,033 $11,369,426 $10,951,555 $11,089,900 $11,478,770 Economic leverage ratio * 6.4x 6.3x 7.1x 6.6x 6.4x ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation.
Unaudited, dollars in thousands 24 Non-GAAP Reconciliations (continued) For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Economic capital ratio reconciliation Total GAAP assets $86,832,017 $81,850,712 $85,406,764 $73,637,249 $76,185,134 Less: Gross unrealized gains on TBA derivatives (1) (167,065) (17,056) (28,032) (60,661) (24,757) Debt issued by securitization vehicles (2) (8,805,911) (7,744,160) (7,844,518) (7,502,483) (6,711,953) Plus: Implied market value of TBA derivatives 12,020,810 10,578,676 15,182,806 19,282,979 18,284,708 Total economic assets * $89,879,851 $84,668,172 $92,717,020 $85,357,084 $87,733,132 Total equity $11,909,033 $11,369,426 $10,951,555 $11,089,900 $11,478,770 Economic capital ratio *(3) 13.2% 13.4% 11.8% 13.0% 13.1% Premium Amortization Reconciliation Premium amortization expense $56,534 $38,829 $39,406 ($4,869) ($25,353) Less: PAA cost (benefit) 491 (8,136) (45,414) (127,521) (179,516) Premium amortization expense (excluding PAA) $56,043 $46,965 $84,820 $122,652 $154,163 Interest Income (excluding PAA) Reconciliation GAAP interest income $818,250 $798,934 $678,488 $645,615 $655,850 PAA cost (benefit) 491 (8,136) (45,414) (127,521) (179,516) Interest income (excluding PAA) * $818,741 $790,798 $633,074 $518,094 $476,334 Economic Interest Expense Reconciliation GAAP interest expense $798,787 $663,847 $400,491 $170,475 $74,922 Add: Net interest component of interest rate swaps (385,706) (286,600) (141,110) (992) 62,541 Economic interest expense * $413,081 $377,247 $259,381 $169,483 $137,463 Economic Net Interest Income (excluding PAA) Reconciliation Interest income (excluding PAA) * $818,741 $790,798 $633,074 $518,094 $476,334 Less: Economic interest expense * 413,081 377,247 259,381 169,483 137,463 Economic net interest income (excluding PAA) * $405,660 $413,551 $373,693 $348,611 $338,871 ______________ * Represents a non-GAAP financial measure. Detailed endnotes are included within the Appendix at the end of this presentation.
Unaudited, dollars in thousands 25 Non-GAAP Reconciliations (continued) For the quarters ended 3/31/2023 12/31/2022 9/30/2022 6/30/2022 3/31/2022 Economic Metrics (excluding PAA) Average interest earning assets $82,644,998 $82,859,799 $78,143,337 $72,123,055 $72,590,876 Interest income (excluding PAA) * $818,741 $790,798 $633,074 $518,094 $476,334 Average yield on interest earning assets (excluding PAA) * 3.96% 3.82% 3.24% 2.87% 2.62% Average interest bearing liabilities $70,635,632 $69,981,694 $65,755,563 $60,446,528 $61,865,292 Economic interest expense * $413,081 $377,247 $259,381 $169,483 $137,463 Average economic cost of interest bearing liabilities * 2.34% 2.11% 1.54% 1.11% 0.89% Economic net interest income (excluding PAA)* $405,660 $413,551 $373,693 $348,611 $338,871 Net interest spread (excluding PAA) * 1.62% 1.71% 1.70% 1.76% 1.73% Interest income (excluding PAA) * $818,741 $790,798 $633,074 $518,094 $476,334 TBA dollar roll income and CMBX coupon income 18,183 34,767 105,543 161,673 129,492 Economic interest expense * (413,081) (377,247) (259,381) (169,483) (137,463) Subtotal $423,843 $448,318 $479,236 $510,284 $468,363 Average interest earning assets $82,644,998 $82,859,799 $78,143,337 $72,123,055 $72,590,876 Average TBA contract and CMBX balances, implied cost basis 13,949,884 11,499,881 18,837,475 20,566,553 19,229,537 Subtotal $96,594,882 $94,359,680 $96,980,812 $92,689,608 $91,820,413 Net interest margin (excluding PAA) * 1.76% 1.90% 1.98% 2.20% 2.04% ______________ * Represents a non-GAAP financial measure.
26 Endnotes Page 2 (1) Net of dividends on preferred stock. (2) GAAP leverage is computed as the sum of repurchase agreements, other secured financing, debt issued by securitization vehicles, participations issued and mortgages payable divided by total equity. Economic leverage is computed as the sum of recourse debt, cost basis of to-be-announced ("TBA") and CMBX derivatives outstanding, and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Certain credit facilities (included within other secured financing), debt issued by securitization vehicles, participations issued, and mortgages payable are non-recourse to the Company and are excluded from economic leverage. (3) GAAP capital ratio is computed as total equity divided by total assets. Economic capital ratio is computed as total equity divided by total economic assets. Total economic assets include the implied market value of TBA derivatives and are net of debt issued by securitization vehicles. (4) There are no unsettled commitments as of March 31, 2023 and December 31, 2022. MSR commitments represent the market value of deals where Annaly has executed a letter of intent. There can be no assurance whether these deals will close or when they will close. (5) Net interest margin represents interest income less interest expense divided by average interest earning assets. Net interest margin (excluding PAA) represents the sum of the Company's interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances. (6) Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA). (7) Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps. Page 3 (1) Includes assets related to the sale of the Company's Middle Market Lending portfolio at September 30, 2022 and June 30, 2022. Page 4 (1) Includes liabilities related to the sale of the Company's Middle Market Lending portfolio at September 30, 2022 and June 30, 2022. (2) Consists of common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. Page 4 (continued) (3) Utilizes an actual/360 factor. (4) The average and period-end rates are net of reverse repurchase agreements. Without netting reverse repurchase agreements, the average rate and the period-end rate was unchanged for each period. (5) Measures total notional balances of interest rate swaps, interest rate swaptions (excluding receiver swaptions) and futures relative to repurchase agreements, other secured financing, cost basis of TBA derivatives outstanding and net forward purchases (sales) of investments; excludes MSR and the effects of term financing, both of which serve to reduce interest rate risk. Additionally, the hedge ratio does not take into consideration differences in duration between assets and liabilities. Prior to the quarter ended September 30, 2022, the hedge ratio excluded the impact of net forward purchases (sales) of investments from the calculation; all prior periods have been updated to conform to the current presentation resulting in a reduction of 3% to the hedge ratio for each of the quarters ended June 30, 2022 and March 31, 2022. Page 5 (1) Includes GAAP interest expense and the net interest component of interest rate swaps. (2) Net of dividends on preferred stock. Page 6 (1) Includes dividend equivalents on share-based awards. Page 8 (1) The adjustment to add back Net (gains) losses on derivatives does not include the net interest component of interest rate swaps which is reflected in earnings available for distribution. The net interest component of interest rate swaps totaled $385.7 million, $286.6 million, $141.1 million, $1.0 million and ($62.5) million for the quarters ended March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, respectively. (2) Includes $0.0 million, $0.0 million, $0.0 million, ($2.5) million and $0.2 million of loss provision (reversal) on the Company’s unfunded loan commitments for the quarters ended March 31, 2023, December 31, 2022, September 30, 2022, June 30, 2022 and March 31, 2022, respectively, which is reported in Other, net in the Company’s Consolidated Statement of Comprehensive Income (Loss). (3) Includes losses (gains) related to the sale of the Company's Middle Market Lending portfolio for the quarters ended December 31, 2022, September 30, 2022 and June 30, 2022 and losses (gains) related to the sale of the Company's Commercial Real Estate business for the quarter ended March 31, 2022. (4) Includes depreciation and amortization expense related to equity method investments. (5) The Company excludes non-EAD (income) loss allocated to equity method investments, which represents the unrealized (gains) losses allocated to equity interests in a portfolio of MSR, which is reported in Other, net in the Company’s Consolidated Statement of Comprehensive Income (Loss).
27 Endnotes (continued) Page 8 (continued) (6) All quarters presented include costs incurred in connection with securitizations of residential whole loans. (7) TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on derivatives. CMBX coupon income totaled $1.1 million for each of the quarters presented. (8) MSR amortization utilizes purchase date cash flow assumptions and actual unpaid principal balances and is calculated as the difference between projected MSR yield income and net servicing income for the period. Page 11 (1) Includes gains (losses) related to the sale of the Company's Middle Market Lending portfolio for the quarters ended December 31, 2022, September 30, 2022 and June 30, 2022 and gains (losses) related to the sale of the Company's Commercial Real Estate business for the quarter ended March 31, 2022. (2) Includes other, net, general and administrative expenses and income taxes. (3) Includes other, net (excluding non-EAD items), MSR amortization (a component of net gains (losses) on investments and other), general and administrative expenses (excluding transaction related expenses) and income taxes (excluding non-EAD income tax). Page 12 (1) Includes Agency-backed multifamily securities with an estimated fair value of $1.7 billion. (2) Includes fixed-rate collateralized mortgage obligations with an estimated fair value of $89.7 million. (3) Weighted by current face value. (4) Weighted by current notional value. Page 13 (1) Included in Other assets in the Company’s Consolidated Statements of Financial Condition. (2) Weighted by estimated fair value. (3) The Company sells/buys protection on CMBX tranches referencing baskets of Conduit CMBS bonds with various ratings. Positive net notional indicates selling protection and being long the exposure to the underlying CMBS. CMBX positions are accounted for as derivatives with changes in fair value presented in Net gains (losses) on derivatives. Page 14 (1) Represents the 3 month voluntary prepayment rate and excludes the impact of interest- only securities. (2) Total investment characteristics exclude the impact of interest-only securities. Page 15 (1) Current notional is presented net of receiver swaps. (2) As of March 31, 2023, 13%, 19% and 68% of the Company's interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. (3) The weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed. (4) Less than 1% of the total repurchase agreements and other secured financing have a remaining maturity over one year. (5) Determined based on estimated weighted average lives of the underlying debt instruments. Page 16 (1) Interest rate and MBS spread sensitivity are based on results from third party models in conjunction with internally derived inputs. Actual results could differ materially from these estimates. (2) Scenarios include Residential Investment Securities, residential mortgage loans, MSR and derivative instruments. (3) Net asset value (“NAV”) represents book value of common equity. Page 18 (1) Derived from the audited consolidated financial statements at December 31, 2022. (2) 6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock - Includes 28,800,000 shares authorized, issued and outstanding. 6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock - Includes 17,000,000 shares authorized, issued and outstanding. 6.75% Series I Preferred Stock - Includes 17,700,000 shares authorized, issued and outstanding. (3) Includes 2,936,500,000 shares authorized. Includes 493,880,938 shares issued and outstanding at March 31, 2023; Includes 468,309,810 shares issued and outstanding at December 31, 2022; Includes 467,911,144 shares issued and outstanding at September 30, 2022; Includes 402,303,874 shares issued and outstanding at June 30, 2022; Includes 365,253,063 shares issued and outstanding at March 31, 2022. Page 23 (1) Included in Other secured financing in the Company's Consolidated Statements of Financial Condition. Page 24 (1) Included in Derivative assets in the Company’s Consolidated Statements of Financial Condition. (2) Includes debt issued by securitization vehicles reported in Liabilities of disposal group held for sale in the Company's Consolidated Statements of Financial Condition. (3) Economic capital ratio is computed as total equity divided by total economic assets.