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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, 2022
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

nly-20220331_g1.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 Class Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per share NLY New York Stock Exchange
6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock NLY.F New York Stock Exchange
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock NLY.G New York Stock Exchange
6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock NLY.I New 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 22, 2022 was 1,461,012,252.



ANNALY CAPITAL MANAGEMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
   
Page
Item 1.  Financial Statements
1
1
2
3
4
5
5
5
6
9
9
Note 9. Sale of Commercial Real Estate Business
26
 



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,
2022
2021 (1)
(Unaudited)
Assets    
Cash and cash equivalents (includes pledged assets of $830,546 and $1,222,505, respectively) (2)
$ 955,840  $ 1,342,090 
Securities (includes pledged assets of $54,705,431 and $56,675,447, respectively) (3)
60,727,637  63,655,674 
Loans, net (includes pledged assets of $2,778,141 and $2,462,776, respectively) (4)
3,617,818  4,242,043 
Mortgage servicing rights 1,108,937  544,562 
Interests in MSR 85,653  69,316 
Assets transferred or pledged to securitization vehicles 7,809,307  6,086,308 
Assets of disposal group held for sale   194,138 
Derivative assets 964,075  170,370 
Receivable for unsettled trades 407,225  2,656 
Principal and interest receivable 246,739  234,983 
Goodwill and intangible assets, net 23,110  24,241 
Other assets 238,793  197,683 
Total assets $ 76,185,134  $ 76,764,064 
Liabilities and stockholders’ equity    
Liabilities    
Repurchase agreements $ 52,626,503  $ 54,769,643 
Other secured financing 914,255  903,255 
Debt issued by securitization vehicles 6,711,953  5,155,633 
Participations issued 775,432  1,049,066 
Liabilities of disposal group held for sale   154,956 
Derivative liabilities 826,972  881,537 
Payable for unsettled trades 1,992,568  147,908 
Interest payable 80,870  91,176 
Dividends payable 321,423  321,142 
Other liabilities 456,388  94,423 
Total liabilities 64,706,364  63,568,739 
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, 1,461,012,252 and 1,459,736,258 issued and outstanding, respectively
14,610  14,597 
Additional paid-in capital 20,321,952  20,313,832 
Accumulated other comprehensive income (loss) (2,465,482) 958,410 
Accumulated deficit (7,980,407) (9,653,582)
Total stockholders’ equity 11,427,242  13,169,826 
Noncontrolling interests 51,528  25,499 
Total equity 11,478,770  13,195,325 
Total liabilities and equity $ 76,185,134  $ 76,764,064 
(1)Derived from the audited consolidated financial statements at December 31, 2021.
(2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $8.6 million and $16.2 million at March 31, 2022 and December 31, 2021, respectively.
(3)Excludes $38.5 million and $44.2 million at March 31, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $709.0 million and $350.4 million at March 31, 2022 and December 31, 2021, 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 $1.9 million and $2.3 million of residential mortgage loans held for sale at March 31, 2022 and December 31, 2021, 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,
  2022 2021
Net interest income    
Interest income $ 655,850  $ 763,378 
Interest expense 74,922  75,973 
Net interest income 580,928  687,405 
Net servicing income
Servicing and related income $ 34,715  9,229 
Servicing and related expense 3,757  2,297 
Net servicing income 30,958  6,932 
Other income (loss)
Net gains (losses) on investments and other (159,804) 38,405 
Net gains (losses) on derivatives 1,642,028  1,169,383 
Loan loss (provision) reversal (608) 139,620 
Business divestiture-related gains (losses) (354) (249,563)
Other, net 3,058  6,536 
Total other income (loss) 1,484,320  1,104,381 
General and administrative expenses
Compensation and management fee 33,002  31,518 
Other general and administrative expenses 12,762  16,387 
Total general and administrative expenses 45,764  47,905 
Income (loss) before income taxes 2,050,442  1,750,813 
Income taxes 26,548  (321)
Net income (loss) 2,023,894  1,751,134 
Net income (loss) attributable to noncontrolling interests 1,639  321 
Net income (loss) attributable to Annaly 2,022,255  1,750,813 
Dividends on preferred stock 26,883  26,883 
Net income (loss) available (related) to common stockholders $ 1,995,372  $ 1,723,930 
Net income (loss) per share available (related) to common stockholders    
Basic $ 1.37  $ 1.23 
Diluted $ 1.36  $ 1.23 
Weighted average number of common shares outstanding    
Basic 1,461,363,637  1,399,210,925 
Diluted 1,462,451,965  1,400,000,727 
Other comprehensive income (loss)    
Net income (loss) $ 2,023,894  $ 1,751,134 
Unrealized gains (losses) on available-for-sale securities (3,568,679) (1,428,927)
Reclassification adjustment for net (gains) losses included in net income (loss) 144,787  56,823 
Other comprehensive income (loss) (3,423,892) (1,372,104)
Comprehensive income (loss) (1,399,998) 379,030 
Comprehensive income (loss) attributable to noncontrolling interests 1,639  321 
Comprehensive income (loss) attributable to Annaly (1,401,637) 378,709 
Dividends on preferred stock 26,883  26,883 
Comprehensive income (loss) attributable to common stockholders $ (1,428,520) $ 351,826 
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,
2022 2021
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
$ 14,597  $ 13,982 
Issuance
8  — 
Stock-based award activity
5 
End of period $ 14,610  $ 13,985 
Additional paid-in capital
Beginning of period
$ 20,313,832  $ 19,750,818 
Issuance
6,096  — 
Stock-based award activity
2,024  4,008 
End of period $ 20,321,952  $ 19,754,826 
Accumulated other comprehensive income (loss)
Beginning of period
$ 958,410  $ 3,374,335 
Unrealized gains (losses) on available-for-sale securities
(3,568,679) (1,428,927)
Reclassification adjustment for net gains (losses) included in net income (loss)
144,787  56,823 
End of period $ (2,465,482) $ 2,002,231 
Accumulated deficit
Beginning of period $ (9,653,582) $ (10,667,388)
Net income (loss) attributable to Annaly
2,022,255  1,750,813 
Dividends declared on preferred stock (1)
(26,883) (26,883)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)
(322,197) (308,346)
End of period $ (7,980,407) $ (9,251,804)
Total stockholder’s equity $ 11,427,242  $ 14,055,807 
Noncontrolling interests
Beginning of period
$ 25,499  $ 13,480 
Net income (loss) attributable to noncontrolling interests
1,639  321 
Equity contributions from (distributions to) noncontrolling interests
24,390  (2,013)
End of period $ 51,528  $ 11,788 
Total equity $ 11,478,770  $ 14,067,595 
(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)
  For The Three Months Ended March 31,
  2022 2021
Cash flows from operating activities    
Net income (loss) $ 2,023,894  $ 1,751,134 
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net (11,770) (9,960)
Amortization of securitized debt premiums and discounts and deferred financing costs (3,074) (3,588)
Depreciation, amortization and other noncash expenses 4,746  8,408 
Net (gains) losses on investments and derivatives (1,544,765) (1,287,535)
Business divestiture-related (gains) losses 354  249,563 
Income from unconsolidated joint ventures (8,384) (1,025)
Loan loss provision (reversal) 608  (139,620)
Payments on purchases of loans held for sale   (969)
Proceeds from sales and repayments of loans held for sale 994  3,067 
Net receipts (payments) on derivatives 856,299  435,107 
Net change in    
Other assets (5,266) (31,236)
Interest receivable (8,069) 9,386 
Interest payable (10,657) (89,000)
Other liabilities 734,238  170,818 
Net cash provided by (used in) operating activities 2,029,148  1,064,550 
Cash flows from investing activities    
Payments on purchases of securities (5,061,300) (5,478,414)
Proceeds from sales of securities 2,393,169  2,852,764 
Principal payments on securities 3,047,356  4,986,008 
Payments on purchases and origination of loans (2,194,285) (651,397)
Proceeds from sales of loans 4,215  46,171 
Principal payments on loans 605,626  683,451 
Payments on purchases of MSR (421,012) — 
Payments on purchases of interests in MSR (4,913) — 
Investments in real estate   (746)
Proceeds from sales of real estate   4,265 
Proceeds from reverse repurchase agreements 2,100,000  8,634,313 
Payments on reverse repurchase agreements (2,100,000) (8,634,313)
Distributions in excess of cumulative earnings from unconsolidated joint ventures   290 
Net cash provided by (used in) investing activities (1,631,144) 2,442,392 
Cash flows from financing activities    
Proceeds from repurchase agreements and other secured financing 839,715,390  534,607,127 
Payments on repurchase agreements and other secured financing (841,845,524) (537,932,992)
Proceeds from issuances of securitized debt 2,293,500  251,379 
Principal payments on securitized debt (398,843) (357,224)
Net proceeds from stock offerings, direct purchases and dividend reinvestments 6,104  — 
Proceeds from participations issued 676,499  183,067 
Payments on repurchases of participations issued (888,343) (40,434)
Principal payments on participations issued (17,370) (1,293)
Net principal receipts (payments) on mortgages payable   (330)
Net contributions (distributions) from (to) noncontrolling interests 24,390  (2,013)
Settlement of stock-based awards in satisfaction of withholding tax requirements (1,977) (596)
Dividends paid (348,080) (334,543)
Net cash provided by (used in) financing activities (784,254) (3,627,852)
Net (decrease) increase in cash and cash equivalents $ (386,250) $ (120,910)
Cash and cash equivalents including cash pledged as collateral, beginning of period 1,342,090  1,243,703 
Cash and cash equivalents including cash pledged as collateral, end of period $ 955,840  $ 1,122,793 
Supplemental disclosure of cash flow information    
Interest received $ 565,361  $ 783,900 
Dividends received $   $ 33 
Interest paid (excluding interest paid on interest rate swaps) $ 57,138  $ 116,028 
Net interest received (paid) on interest rate swaps $ (66,918) $ (133,628)
Taxes received (paid) $ (677) $ — 
Noncash investing and financing activities
Receivable for unsettled trades $ 407,225  $ 144,918 
Payable for unsettled trades $ 1,992,568  $ 1,070,080 
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment $ (3,423,892) $ (1,372,104)
Dividends declared, not yet paid $ 321,423  $ 307,671 
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 investment groups are primarily comprised of the following:
Investment Groups Description
Annaly Agency Group Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae and complementary investments within the Agency market, including Agency commercial mortgage-backed securities.
Annaly Residential Credit Group Invests primarily in non-Agency residential whole loans and securitized products within the residential and commercial markets.
Annaly Mortgage Servicing Rights Group Invests in MSR, which provide the right to service residential loans in exchange for a portion of the interest payments made on the loans.
In March 2021, the Company announced that it had entered into a definitive agreement to sell and exit its Commercial Real Estate (“CRE”) business. As of March 31, 2022, the assets held for sale and the associated liabilities were transferred. Refer to the “Sale of Commercial Real Estate Business” Note for additional information.
In April 2022, the Company announced that it had 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. Subject to customary closing conditions, the sale of the MML business is expected to be completed by the second quarter of 2022. Refer to the "Subsequent Events" Note for additional information.

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, 2021 (the “2021 Form 10-K”). The consolidated financial information as of December 31, 2021 has been derived from audited consolidated financial statements included in the Company’s 2021 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.
Beginning with the quarter ended March 31, 2022, in light of the continued growth of its mortgage servicing rights portfolio, the Company enhanced its financial disclosures by separately reporting servicing income and servicing expense in its Consolidated Statements of Comprehensive Income (Loss). Servicing income and servicing expense were previously included within Other income (loss). As a result of this change, prior periods have been adjusted to conform to the current presentation.
In addition, the Company consolidated certain line items in its Consolidated Statements of Comprehensive Income (Loss) in an effort to streamline and simplify its financial presentation. Amounts previously reported under Net interest component of interest rate swaps, Realized gains (losses) on termination or maturity of interest rate swaps, Unrealized gains (losses) on interest rate swaps and Net gains (losses) on other derivatives are combined into a single line item titled Net gains (losses) on derivatives. Similarly, amounts previously reported under Net gains (losses) on disposal of investments and other and Net unrealized gains (losses) on instruments measured at fair value through earnings are combined into a single line item titled Net
5



gains (losses) on investments and other. As a result of these changes, prior periods have been adjusted to conform to the current presentation.
Beginning with the quarter ended June 30, 2021, the Company began classifying certain portfolio activity- or volume-related expenses (including but not limited to brokerage and commission fees, due diligence costs and securitization expenses) as Other, net rather than Other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss) to better reflect the nature of the items. As such, prior periods have been conformed to the current presentation. Other general and administrative expenses for the three months ended March 31, 2021 decreased by $1.8 million and Other, net decreased by the same amounts for the three months ended March 31, 2021. These reclassifications had no effect on the reported net income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss).
In the opinion of management, all normal, recurring adjustments have been included for a fair presentation of this interim financial information. Interim period operating results may not be indicative of the operating results for a full year.

3. SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described below or are included elsewhere in these notes to the consolidated financial statements.
Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and transactions have been eliminated in consolidation.
Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE.
Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s 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 $0.8 billion and $1.2 billion at March 31, 2022 and December 31, 2021, 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 see 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.
6


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
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. Please see below and refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements.
Derivative Instruments – Derivatives are recognized as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on derivatives. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative Instruments” Note for further discussion.
Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over the vesting or requisite service period of the award. Stock-based awards that contain market-based conditions are valued using a model.
Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date. Compensation expense for awards with market conditions is recognized irrespective of the probability of the market condition being achieved and is not reversed if the market condition is not met. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.
Interest Income - The Company recognizes interest income primarily on Residential Securities (as defined in the “Securities” Note), residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not paid 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). Refer to the “Interest Income and Interest Expense” Note for further discussion.
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 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. Refer to the “Interest Income and Interest Expense” Note for further discussion on interest.
The Company has made an accounting policy election not to measure an allowance for loans losses on corporate debt for accrued interest receivable. If interest receivable is deemed to be uncollectible or not collected within 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.
7


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
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”).  ASUs not listed below were not applicable, not expected to have a significant impact on the Company’s consolidated financial statements when adopted or did not have a significant impact on the Company’s consolidated financial statements upon adoption.
Standard Description Effective Date Effect on the Financial Statements or Other Significant Matters
Standard that has been adopted
ASU 2020-04
Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting
This ASU provides optional, temporary relief to accounting for contract modifications resulting from reference rate reform.
January 1, 2020 The Company has elected to retrospectively apply the practical expedients to modifications of qualifying contracts as continuation of the existing contract rather than as a new contract. The adoption had no immediate impact and is not expected to have a material impact on the Company’s consolidated financial statements as the guidance continues to be applied to contract modifications until the ASU’s termination date.
8


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, 2022 and December 31, 2021.
Financial Instruments (1)
Balance Sheet Line Item Type / Form Measurement Basis March 31, 2022 December 31, 2021
Assets (dollars in thousands)
Securities
Agency mortgage-backed securities (2)
Fair value, with unrealized gains (losses) through other comprehensive income $ 57,257,909  $ 59,939,383 
Securities
Agency mortgage-backed securities (3)
Fair value, with unrealized gains (losses) through earnings 529,232  586,222 
Securities Residential credit risk transfer securities Fair value, with unrealized gains (losses) through earnings 845,809  936,228 
Securities Non-agency mortgage-backed securities Fair value, with unrealized gains (losses) through earnings 1,737,333  1,663,336 
Securities Commercial real estate debt investments - CMBS Fair value, with unrealized gains (losses) through earnings 348,666  521,440 
Securities Commercial real estate debt investments - credit risk transfer securities Fair value, with unrealized gains (losses) through earnings 8,688  9,065 
Total securities 60,727,637  63,655,674 
Loans, net Residential mortgage loans Fair value, with unrealized gains (losses) through earnings 1,650,151  2,272,072 
Loans, net Residential mortgage loan warehouse facility Fair value, with unrealized gains (losses) through earnings   980 
Loans, net Corporate debt, held for investment Amortized cost 1,967,667  1,968,991 
Total loans, net 3,617,818  4,242,043 
Interests in MSR Interest in net servicing cash flows Fair value, with unrealized gains (losses) through earnings 85,653  69,316 
Assets transferred or pledged to securitization vehicles Agency mortgage-backed securities Fair value, with unrealized gains (losses) through other comprehensive income 544,991  589,873 
Assets transferred or pledged to securitization vehicles Residential mortgage loans Fair value, with unrealized gains (losses) through earnings 7,264,316  5,496,435 
Total assets transferred or pledged to securitization vehicles 7,809,307  6,086,308 
Liabilities
Repurchase agreements Repurchase agreements Amortized cost 52,626,503  54,769,643 
Other secured financing Loans Amortized cost 914,255  903,255 
Debt issued by securitization vehicles Securities Fair value, with unrealized gains (losses) through earnings 6,711,953  5,155,633 
Participations issued Participations issued Fair value, with unrealized gains (losses) through earnings 775,432  1,049,066 
(1) Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at cost. Interests in MSR are considered financial assets whereas directly held MSR are servicing assets or obligations.
(2) Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.
(3) Includes interest-only securities and reverse mortgages.
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). 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 and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the
9


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
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. For the three months ended March 31, 2021, the Company recognized a $0.4 million impairment on a commercial mortgage-backed security that was sold subsequently in 2021.
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”) - Certain commercial mortgage-backed securities (“CMBS”) are classified as available-for-sale and reported at fair value with any credit loss recognized through an allowance for credit losses and any other unrealized gains and losses reported as a component of Other comprehensive income (loss). Management evaluates its Commercial Securities for impairment at least quarterly. The Company elected the fair value option for all other Commercial Securities, including conduit and credit CMBS, to simplify the accounting where the unrealized gains and losses on these financial instruments are recorded through earnings.
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, 2022:
Agency Securities Residential Credit Securities Commercial Securities Total
(dollars in thousands)
Beginning balance January 1, 2022
$ 60,525,605  $ 2,599,564  $ 530,505  $ 63,655,674 
Purchases 6,160,670  372,464    6,533,134 
Sales and transfers
(2,583,651) (177,561) (169,224) (2,930,436)
Principal paydowns (2,910,094) (132,519) (773) (3,043,386)
(Amortization) / accretion 24,656  890  4  25,550 
Fair value adjustment (3,430,045) (79,696) (3,158) (3,512,899)
Ending balance March 31, 2022
$ 57,787,141  $ 2,583,142  $ 357,354  $ 60,727,637 







10


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, 2022 and December 31, 2021:
  March 31, 2022
  Principal /
Notional
Remaining Premium Remaining Discount Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair Value
Agency (dollars in thousands)
Fixed-rate pass-through $ 54,859,660  $ 3,047,099  $ (79,126) $ 57,827,633  $ 136,232  $ (2,585,619) $ 55,378,246 
Adjustable-rate pass-through 284,000  5,581  (660) 288,921  8,490  (1,639) 295,772 
CMO 110,247  1,827    112,074  103  (1,898) 110,279 
Interest-only 1,784,533  435,220    435,220  149  (192,355) 243,014 
Multifamily(1)
6,805,912  280,406  (6,099) 1,785,614  8,223  (68,736) 1,725,101 
Reverse mortgages 33,287  3,414    36,701    (1,972) 34,729 
Total agency securities $ 63,877,639  $ 3,773,547  $ (85,885) $ 60,486,163  $ 153,197  $ (2,852,219) $ 57,787,141 
Residential credit              
Credit risk transfer (2)
$ 848,990  $ 7,899  $ (570) $ 854,879  $ 3,304  $ (12,374) $ 845,809 
Alt-A 81,711  33  (16,943) 64,801  2,121  (2,344) 64,578 
Prime (3)
299,044  9,405  (14,304) 263,750  6,396  (20,334) 249,812 
Subprime 158,423  298  (15,359) 143,362  5,642  (4,479) 144,525 
NPL/RPL 1,097,310  877  (3,357) 1,094,830  736  (20,558) 1,075,008 
Prime jumbo (>=2010 vintage) (4)
1,391,118  13,143  (14,778) 217,179  2,851  (16,620) 203,410 
Total residential credit securities $ 3,876,596  $ 31,655  $ (65,311) $ 2,638,801  $ 21,050  $ (76,709) $ 2,583,142 
Total Residential Securities $ 67,754,235  $ 3,805,202  $ (151,196) $ 63,124,964  $ 174,247  $ (2,928,928) $ 60,370,283 
Commercial
Commercial Securities $ 363,046  $   $ (96) $ 362,950  $   $ (5,596) $ 357,354 
Total securities $ 68,117,281  $ 3,805,202  $ (151,292) $ 63,487,914  $ 174,247  $ (2,934,524) $ 60,727,637 
  December 31, 2021
  Principal /
Notional
Remaining Premium Remaining Discount Amortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair Value
Agency (dollars in thousands)
Fixed-rate pass-through $ 54,432,252  $ 3,008,185  $ (18,314) $ 57,422,123  $ 1,349,125  $ (474,643) $ 58,296,605 
Adjustable-rate pass-through 305,211  1,965  (2,124) 305,052  16,223  (2) 321,273 
CMO 114,533  1,888  —  116,421  5,277  —  121,698 
Interest-only 1,912,415  456,683  —  456,683  428  (163,197) 293,914 
Multifamily (1)
5,671,138  273,553  —  1,453,946  15,330  (16,563) 1,452,713 
Reverse mortgages 36,807  3,550  —  40,357  —  (955) 39,402 
Total agency investments $ 62,472,356  $ 3,745,824  $ (20,438) $ 59,794,582  $ 1,386,383  $ (655,360) $ 60,525,605 
Residential credit              
Credit risk transfer (2)
$ 924,101  $ 8,754  $ (1,176) $ 927,555  $ 9,641  $ (968) $ 936,228 
Alt-A 83,213  31  (17,133) 66,111  3,627  (251) 69,487 
Prime (3)
323,062  9,841  (14,757) 268,117  10,853  (3,529) 275,441 
Subprime 170,671  349  (16,111) 154,909  8,285  (118) 163,076 
NPL/RPL 987,415  950  (1,698) 986,667  2,739  (5,968) 983,438 
Prime jumbo (>=2010 vintage) (4)
299,783  5,680  (6,410) 172,598  4,272  (4,976) 171,894 
Total residential credit securities $ 2,788,245  $ 25,605  $ (57,285) $ 2,575,957  $ 39,417  $ (15,810) $ 2,599,564 
Total Residential Securities $ 65,260,601  $ 3,771,429  $ (77,723) $ 62,370,539  $ 1,425,800  $ (671,170) $ 63,125,169 
Commercial
Commercial Securities $ 533,071  $ —  $ (127) $ 532,944  $ 165  $ (2,604) $ 530,505 
Total securities $ 65,793,672  $ 3,771,429  $ (77,850) $ 62,903,483  $ 1,425,965  $ (673,774) $ 63,655,674 
(1) Principal/Notional amount includes $5.3 billion and $4.5 billion of Agency Multifamily interest-only securities as of March 31, 2022 and December 31, 2021, respectively.
(2) Principal/Notional amount includes $1.4 million and $4.1 million of a CRT interest-only security as of March 31, 2022 and December 31, 2021, respectively.
(3) Principal/Notional amount includes $30.4 million and $50.0 million of Prime interest-only securities as of March 31, 2022 and December 31, 2021, respectively.
(4) Principal/Notional amount includes $1.2 billion and $126.5 million of Prime Jumbo interest-only securities as of March 31, 2022 and December 31, 2021, respectively.

11


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at March 31, 2022 and December 31, 2021: 
March 31, 2022 December 31, 2021
Investment Type (dollars in thousands)
Fannie Mae $ 46,824,563  $ 48,404,991 
Freddie Mac 9,819,001  10,880,033 
Ginnie Mae 1,143,577  1,240,581 
Total $ 57,787,141  $ 60,525,605 
Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.
The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at March 31, 2022 and December 31, 2021, according to their estimated weighted average life classifications:
  March 31, 2022 December 31, 2021
Estimated Fair Value Amortized
Cost
Estimated Fair Value Amortized
Cost
Estimated weighted average life (dollars in thousands)
Less than one year $ 181,054  $ 180,846  $ 253,129  $ 250,689 
Greater than one year through five years 4,123,236  4,160,292  16,155,017  15,766,307 
Greater than five years through ten years 51,112,733  53,521,509  45,470,212  45,102,607 
Greater than ten years 4,953,260  5,262,317  1,246,811  1,250,936 
Total $ 60,370,283  $ 63,124,964  $ 63,125,169  $ 62,370,539 
The estimated weighted average lives of the Residential Securities at March 31, 2022 and December 31, 2021 in the table above are based upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or shorter than projected.
The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at March 31, 2022 and December 31, 2021.
  March 31, 2022 December 31, 2021
 
Estimated Fair Value (1)
Gross Unrealized Losses (1)
Number of Securities (1)
Estimated Fair Value (1)
Gross Unrealized Losses (1)
Number of Securities (1)
  (dollars in thousands)
Less than 12 months $ 37,098,530  $ (1,402,053) 1,838  $ 22,828,156  $ (475,064) 571 
12 Months or more 12,118,518  (1,238,095) 301  383,815  (10,960) 19 
Total $ 49,217,048  $ (2,640,148) 2,139  $ 23,211,971  $ (486,024) 590 
(1) Excludes interest-only mortgage-backed securities and reverse mortgages.
The decline in value of these securities is solely due to market conditions and not the quality of the assets.  Substantially all of the Agency mortgage-backed securities have an actual or implied credit rating that is the same as that of the U.S. government. The investments are not considered to be impaired because the Company currently has the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost bases, which may be maturity. 
During the three months ended March 31, 2022 and 2021, the Company disposed of $2.8 billion and $3.0 billion of Residential Securities, respectively. The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the three months ended March 31, 2022 and 2021.
  Gross Realized Gains Gross Realized Losses Net Realized Gains (Losses)
For the three months ended (dollars in thousands)
March 31, 2022 $ 1,565  $ (146,056) $ (144,491)
March 31, 2021 $ 4,646  $ (65,340) $ (60,694)
12


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
6. LOANS
The Company invests in residential and corporate loans. Loans are classified as either held for investment or held for sale. Loans are eligible to be accounted for under the fair value option. If loans are elected under the fair value option, they are carried at fair value with changes in fair value recognized in earnings. Otherwise, loans held for investment are carried at cost less impairment and loans held for sale are accounted for at the lower of cost or fair value.
Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of March 31, 2022 and December 31, 2021, the Company reported $1.7 billion and $2.3 billion, respectively, of loans for which the fair value option was elected. If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale. If loans are held for sale and the fair value option was not elected, they are accounted for at the lower of cost or fair value. Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company determines the fair value of loans held for sale on an individual loan basis. The carrying value of the Company’s residential loans held for sale was $1.9 million and $2.3 million at March 31, 2022 and December 31, 2021, respectively.
Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment, which primarily include corporate debt, where the fair value option is not elected. Allowance for loan losses are written off in the period the loans are deemed uncollectible.
Given the unique nature of each underlying borrower and any collateral, the Company assesses an allowance for each individual loan held for investment. An allowance is established at origination or acquisition that reflects management’s estimate of the total expected credit loss over the expected life of the loan. In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss Given Default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period. The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors. For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis. Management uses third party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio. Changes in the lifetime expected credit loss are reflected in Loan loss (provision) reversal in the Consolidated Statements of Comprehensive Income (Loss).
For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis. For collateral-dependent loans, if foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any selling costs, if applicable. Additionally, the Company may elect the practical expedient for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty by measuring the allowance as the difference between the fair value of the collateral, less costs to sell, if applicable, and the amortized cost basis of the financial asset at the reporting date.
Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loans as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive landscape where the borrower conducts business. To determine if loan loss allowances are required on investments in corporate debt, the Company reviews the monthly and/or quarterly financial statements of the borrowers, verifies loan compliance packages, if applicable, and analyzes current results relative to budgets and sensitivities performed at inception of the investment.  Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.
The Company may be exposed to various levels of credit risk depending on the nature of its investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval and periodic monitoring of credit risk and other risks associated with each investment.  The Company’s investment underwriting procedures include evaluation of the underlying borrowers’ ability to manage and operate their respective properties or companies.  Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.
The Company recorded net loan loss (provisions) reversals of ($0.6) million and $139.6 million for the three months ended March 31, 2022 and 2021, respectively. As of March 31, 2022 and December 31, 2021, the Company’s loan loss allowance was $28.5 million and $27.9 million, respectively.
13


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table presents the activity of the Company’s loan investments, including loans held for sale and excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, for the three months ended March 31, 2022:
Residential
Corporate Debt
Total
(dollars in thousands)
Beginning balance January 1, 2022
$ 2,272,072  $ 1,968,991  $ 4,241,063 
Purchases / originations 2,025,930  171,697  2,197,627 
Sales and transfers (1)
(2,550,155)   (2,550,155)
Principal payments (34,284) (174,238) (208,522)
Gains / (losses) (2)
(60,654) (608) (61,262)
(Amortization) / accretion (2,758) 1,825  (933)
Ending balance March 31, 2022
$ 1,650,151  $ 1,967,667  $ 3,617,818 
(1) Includes securitizations, syndications and transfers to securitization vehicles. Includes transfer of residential loans to securitization vehicles with a carrying value of $2.5 billion during the three months ended March 31, 2022.
(2) Includes loan loss allowances.
The Company’s corporate loans also have off-balance-sheet credit exposure related to unfunded loan commitments, including revolvers, delayed draw term loans and future funding commitments that are not unconditionally cancellable by the Company. The Company utilizes the same methodology in calculating the liability related to the expected credit losses on these exposures as it does for the calculation of the allowance for loan losses. In determining the estimate of credit losses for off-balance-sheet credit exposures, the Company will consider the contractual period in which the entity is exposed to credit risk and the likelihood that funding will occur, if material. Estimated credit losses for off-balance-sheet credit exposures are included in Other liabilities on the Company’s Consolidated Statements of Financial Condition.

Residential
The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.
The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles and excluding loan warehouse facilities, at March 31, 2022 and December 31, 2021:
March 31, 2022 December 31, 2021
  (dollars in thousands)
Fair value $ 8,914,467  $ 7,768,507 
Unpaid principal balance $ 9,097,860  $ 7,535,855 

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three months ended March 31, 2022 and 2021 for these investments, excluding loan warehouse facilities:
For the Three Months Ended
March 31, 2022 March 31, 2021
  (dollars in thousands)
Interest income $ 73,465  $ 37,109 
Net gains (losses) on disposal of investments (1)
(7,338) (5,220)
Net unrealized gains (losses) on instruments measured at fair value through earnings (1)
(415,248) 22,455 
Total included in net income (loss) $ (349,121) $ 54,344 
(1) These amounts are presented in the line item Net gains (losses) on investments and other on the Consolidated Statements of Comprehensive Income (Loss)
14


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

The following table provides the geographic concentrations based on the unpaid principal balances at March 31, 2022 and December 31, 2021 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:
Geographic Concentrations of Residential Mortgage Loans
March 31, 2022 December 31, 2021
Property location % of Balance Property location % of Balance
California 48.4% California 50.2%
New York 11.6% New York 10.9%
Florida 6.8% Florida 6.1%
All other (none individually greater than 5%) 33.2% All other (none individually greater than 5%) 32.8%
Total 100.0% 100.0%
The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at March 31, 2022 and December 31, 2021:
  March 31, 2022 December 31, 2021
 
Portfolio
Range
Portfolio Weighted
Average
Portfolio
Range
Portfolio Weighted Average
  (dollars in thousands)
Unpaid principal balance
$1 - $4,396
$496
$1 - $4,382
$513
Interest rate
0.75% - 15.00%
4.02%
0.75% - 9.24%
4.04%
Maturity 7/1/2029 - 4/1/2062 4/8/2051 7/1/2029 - 12/1/2061 12/22/2050
FICO score at loan origination
588 - 832
762
604 - 831
762
Loan-to-value ratio at loan origination
7% - 103%
66%
8% - 103%
66%
At March 31, 2022 and December 31, 2021, approximately 13% and 16%, respectively, of the carrying value of the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, were adjustable-rate.
The Company participates in an arrangement that provides a residential mortgage loan warehouse facility to a third-party originator. The Company has elected to apply the fair value option to this lending facility in order to simplify the accounting and keep the accounting consistent with other residential credit financial instruments with similar characteristics. At March 31, 2022 and December 31, 2021, the fair value and carrying value of this warehouse facility was $0 and $1.0 million, respectively, and reported as Loans, net in the Consolidated Statements of Financial Condition. As of March 31, 2022, the lending facility was not on nonaccrual status nor past due.

Commercial
As of December 31, 2021, commercial real estate loans are reported in Assets of disposal group held for sale in the Consolidated Statements of Financial Condition and classified as held for sale. Refer to the “Sale of Commercial Real Estate Business” Note for additional information on the transaction.

Corporate Debt
The Company’s investments in corporate loans typically take the form of senior secured loans primarily in first or second lien positions. The Company’s senior secured loans generally have stated maturities of five to eight years. In connection with these senior secured loans, the Company receives a security interest in certain assets of the borrower and such assets support repayment of such loans. Senior secured loans are generally exposed to less credit risk than more junior loans given their seniority to scheduled principal and interest and priority of security in the assets of the borrower. Interest income from coupon payments is accrued based upon the outstanding principal amounts of the debt and its contractual terms. Premiums and discounts are amortized or accreted into interest income using the effective interest method.
The Company’s internal risk rating rubric for corporate debt has nine categories as depicted below:
15


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Risk Rating - Corporate Debt Description
1-5 / Performing Meets all present contractual obligations.
6 / Performing - Closely Monitored Meets all present contractual obligations but exhibits a defined weakness in either leverage or liquidity, but not both. Loans at this rating will require closer monitoring, but where we expect no loss of interest or principal.
7 / Substandard A loan that has a defined weakness in either leverage and/or liquidity, and which may require substantial changes to strengthen the asset. Loans at this rating level have a higher probability of loss, although no determination of the amount or timing of a loss is yet possible.
8 / Doubtful A loan that has missed a scheduled principal or interest payment or is otherwise deemed a non-earning account. The probability of loss is increasingly certain due to significant performance issues.
9 / Loss Considered uncollectible.
Management assesses each loan at least quarterly and assigns an internal risk rating based on its evaluation of the most recent financial information produced by the borrower and consideration of economic conditions. See below for a tabular disclosure of the amortized cost basis of the Company’s corporate debt held for investment by year of origination and internal risk rating.
There was no provision for loan loss recorded on corporate loans using a discounted cash flow methodology for the three months ended March 31, 2022 and 2021.
For the three months ended March 31, 2022 and 2021 the Company recorded a net loan loss (provision) reversal on corporate loans of ($0.6) million and $6.2 million, respectively, based upon its Loss Given Default methodology.
At March 31, 2022 and December 31, 2021, the Company had unfunded corporate loan commitments of $284.5 million and $278.9 million, respectively. At March 31, 2022 and December 31, 2021, the liability related to the expected credit losses on the unfunded corporate loan commitments was $2.5 million and $2.3 million, respectively.
The Company invests in corporate loans through its Annaly Middle Market Lending Group. The industry and rate attributes of the portfolio at March 31, 2022 and December 31, 2021 are as follows:
16


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
  Industry Dispersion
  March 31, 2022 December 31, 2021
 
Total (1)
Total (1)
  (dollars in thousands)
Computer Programming, Data Processing & Other Computer Related Services $ 464,921  $ 437,257 
Management & Public Relations Services 229,097  263,187 
Industrial Inorganic Chemicals 155,728  156,292 
Miscellaneous Industrial & Commercial 96,789  93,619 
Miscellaneous Health & Allied Services, not elsewhere classified 96,104  64,133 
Public Warehousing & Storage 95,037  94,179 
Electronic Components & Accessories 92,166  92,261 
Surgical, Medical & Dental Instruments & Supplies 80,391  80,786 
Drugs 67,244  — 
Research, Development & Testing Services 62,689  59,311 
Engineering, Architectural & Surveying 50,023  49,088 
Offices & Clinics of Doctors of Medicine 49,910  50,017 
Medical & Dental Laboratories 48,603  30,199 
Insurance Agents, Brokers & Service 43,360  43,598 
Telephone Communications 42,651  42,589 
Electrical Work 42,611  42,617 
Miscellaneous Equipment Rental & Leasing 32,367  32,346 
Home Health Care Services 28,600  28,660 
Metal Forgings & Stampings 27,514  27,483 
Legal Services 26,146  26,105 
Petroleum & Petroleum Products 20,705  21,434 
Sanitary Services 20,410  20,453 
Grocery Stores 19,646  19,745 
Coating, Engraving & Allied Services 17,742  17,705 
Chemicals & Allied Products 14,626  14,657 
Mailing, Reproduction, Commercial Art & Photography & Stenographic 12,431  12,388 
Machinery, Equipment & Supplies 10,323  10,814 
Offices & Clinics of Other Health Practitioners 10,068  10,083 
Schools & Educational Services, not elsewhere classified 9,765  9,781 
Metal Cans & Shipping Containers   118,204 
Total $ 1,967,667  $ 1,968,991 
(1) All middle market lending positions are floating rate.
The table below reflects the Company’s aggregate positions by their respective place in the capital structure of the borrowers at March 31, 2022 and December 31, 2021. 
  March 31, 2022 December 31, 2021
  (dollars in thousands)
First lien loans $ 1,471,546  $ 1,391,217 
Second lien loans (1)
496,121  577,774 
Total $ 1,967,667  $ 1,968,991 
(1) Includes mezzanine positions.







17


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following tables represent a rollforward of the activity for the Company’s corporate debt investments held for investment at March 31, 2022 and December 31, 2021:
March 31, 2022
First Lien Second Lien Total
  (dollars in thousands)
Beginning balance (January 1, 2022) (1)
$ 1,391,217  $ 577,774  $ 1,968,991 
Originations & advances 154,396  17,301  171,697 
Principal payments (74,251) (99,987) (174,238)
Amortization & accretion of (premium) discounts 885  940  1,825 
Allowance for loan losses
         Beginning allowance (17,341) (10,579) (27,920)
         Current period (allowance) reversal (701) 93  (608)
         Ending allowance (18,042) (10,486) (28,528)
Net carrying value (March 31, 2022)
$ 1,471,546  $ 496,121  $ 1,967,667 

December 31, 2021
  First Lien Second Lien Total
  (dollars in thousands)
Beginning balance (January 1, 2021) (1)
$ 1,489,125  $ 750,805  $ 2,239,930 
 Originations & advances 1,506,705  66,013  1,572,718 
Sales and transfers (2)
(1,122,275) (83,690) (1,205,965)
Principal payments (492,884) (169,057) (661,941)
Amortization & accretion of (premium) discounts 9,120  3,497  12,617 
Allowance for loan losses
         Beginning allowance (18,767) (20,785) (39,552)
         Current period (allowance) reversal 1,426  10,206  11,632 
Ending allowance (17,341) (10,579) (27,920)
Net carrying value (December 31, 2021)
$ 1,391,217  $ 577,774  $ 1,968,991 
(1) Excludes loan loss allowances.
(2) Includes syndications.

The following table provides the amortized cost basis of corporate debt held for investment as of March 31, 2022 by vintage year and internal risk rating.
Amortized Cost Basis by Risk Rating and Vintage (1)
Risk Rating Vintage
Total 2022 2021 2020 2019 2018 2017 2016
(dollars in thousands)
1-5 / Performing $ 1,797,943  $ 55,565  $ 641,746  $ 342,945  $ 221,796  $ 358,884  $ 138,903  $ 38,104 
6 / Performing - Closely Monitored 65,000    22,522  26,146  16,332       
7 / Substandard 104,724      10,323  9,276  85,125     
8 / Doubtful                
9 / Loss                
Total $ 1,967,667  $ 55,565  $ 664,268  $ 379,414  $ 247,404  $ 444,009  $ 138,903  $ 38,104 
(1) The amortized cost basis excludes accrued interest and includes deferred fees on unfunded loans. As of March 31, 2022, the Company had $9.7 million of accrued interest receivable on corporate loans, which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition, and $0.8 million of deferred loan fees on unfunded loans, which is reported in Loans, net in the Consolidated Statements of Financial Condition.





18


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


7. MORTGAGE SERVICING RIGHTS
The Company owns variable interests in entities that invest in MSR and Interests in MSR. Refer to the “Variable Interest Entities” Note for a detailed discussion on this topic.
MSR represent the rights and obligations associated with servicing pools of residential mortgage loans. The Company and its subsidiaries do not originate or directly service residential mortgage loans. Rather, these activities are carried out by duly licensed subservicers who perform substantially all servicing functions for the loans underlying the MSR. The Company generally intends to hold the MSR as investments and elected to account for all of its investments in MSR at fair value. As such, they are recognized at fair value on the accompanying Consolidated Statements of Financial Condition with changes in the estimated fair value presented as a component of Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss).
Interests in MSR represent agreements to purchase all, or a component of, net servicing cash flows. A third party acts as a master servicer for the loans providing the net servicing cash flows represented by the Interests in MSR. The Company accounts for its Interests in MSR at fair value with change in fair value presented in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Cash flows received for Interests in MSR are recorded in Other, net in the Consolidated Statements of Comprehensive Income (Loss).
The following tables present activity related to MSR and Interests in MSR for the three months ended March 31, 2022 and 2021:  
 Mortgage Servicing Rights