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

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

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

FOR THE TRANSITION PERIOD FROM _______________ TO _________________

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)

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 ☐

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  ☑

ANNALY CAPITAL MANAGEMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I  -  FINANCIAL INFORMATION			Page
Item 1.  Financial Statements			1
Consolidated Statements of Financial Condition at September 30, 2022 (Unaudited) and December 31, 2021 (Derived from the audited consolidated financial statements at December 31, 2021)			1
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine months ended September 30, 2022 and 2021			2
Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2022 and 2021			3
Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2022 and 2021			4
Notes to Consolidated Financial Statements (Unaudited)			5
Note 1. Description of Business			5
Note 2. Basis of Presentation			5
Note 3. Significant Accounting Policies			6
Note 4. Financial Instruments			9
Note 5. Securities			9
Note 6. Loans			13
Note 7. Mortgage Servicing Rights			15
Note 8. Variable Interest Entities			17
Note 9. Sale of Commercial Real Estate Business			19
Note 10. Sale of Middle Market Lending Portfolio			19
Note 11. Derivative Instruments			20
Note 12. Fair Value Measurements			26
Note 13. Goodwill and Intangible Assets			29
Note 14. Secured Financing			30
Note 15. Capital Stock			31
Note 16. Interest Income and Interest Expense			33
Note 17. Net Income (Loss) per Common Share			34
Note 18. Income Taxes			34
Note 19. Risk Management			35
Note 20. Lease Commitments and Contingencies			36
Note 21. Arcola Regulatory Requirements			36
Note 22. Subsequent Events			37
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			38
Special Note Regarding Forward-Looking Statements			38
Overview			40
Business Environment			40
Results of Operations			43
Financial Condition			56
Capital Management			59
Risk Management			61
Critical Accounting Estimates			71
Glossary of Terms			74
Item 3. Quantitative and Qualitative Disclosures about Market Risk			83
Item 4. Controls and Procedures			83
PART II  -  OTHER INFORMATION
Item 1. Legal Proceedings			84
Item 1A. Risk Factors			84
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			84
Item 5. Other Information			84
Item 6. Exhibits			85
SIGNATURES			II-1

ITEM 1. FINANCIAL STATEMENTS

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (dollars in thousands, except per share data)
			September 30,						December 31,
			2022						2021 (1)
			(Unaudited)
Assets
Cash and cash equivalents (includes pledged assets of $1,169,631 and $1,222,505, respectively) (2)			$	1,466,171					$	1,342,090
Securities (includes pledged assets of $55,889,039 and $56,675,447, respectively) (3)			66,839,353						63,655,674
Loans, net (includes pledged assets of $1,279,960 and $2,462,776, respectively) (4)			1,551,707						4,242,043
Mortgage servicing rights (includes pledged assets of $727,927 and $0, respectively)			1,705,254						544,562
Interests in MSR			—						69,316
Assets transferred or pledged to securitization vehicles			9,202,014						6,086,308
Assets of disposal group held for sale			11,371						194,138
Derivative assets			1,949,530						170,370
Receivable for unsettled trades			2,153,895						2,656
Principal and interest receivable			262,542						234,983
Goodwill and intangible assets, net			17,437						24,241
Other assets			247,490						197,683
Total assets			$	85,406,764					$	76,764,064
Liabilities and stockholders’ equity
Liabilities
Repurchase agreements			$	54,160,731					$	54,769,643
Other secured financing			250,000						903,255
Debt issued by securitization vehicles			7,844,518						5,155,633
Participations issued			745,729						1,049,066
Liabilities of disposal group held for sale			1,151						154,956
Derivative liabilities			764,535						881,537
Payable for unsettled trades			9,333,646						147,908
Interest payable			30,242						91,176
Dividends payable			411,762						321,142
Other liabilities			912,895						94,423
Total liabilities			74,455,209						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, 467,911,144 and 364,934,065 issued and outstanding, respectively			4,679						3,649
Additional paid-in capital			22,967,665						20,324,780
Accumulated other comprehensive income (loss)			(5,431,436)						958,410
Accumulated deficit			(8,211,358)						(9,653,582)
Total stockholders’ equity			10,866,119						13,169,826
Noncontrolling interests			85,436						25,499
Total equity			10,951,555						13,195,325
Total liabilities and equity			$	85,406,764					$	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 $3.5 million and $16.2 million at September 30, 2022 and December 31, 2021, respectively.
(3)Excludes $27.3 million and $44.2 million at September 30, 2022 and December 31, 2021, respectively, of Agency mortgage-backed securities and $1.0 billion and $350.4 million at September 30, 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 $1.4 million and $2.3 million of residential mortgage loans held for sale at September 30, 2022 and December 31, 2021, respectively.
See notes to consolidated financial statements.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) (dollars in thousands, except per share data) (Unaudited)
			For The Three Months Ended September 30,												For The Nine Months Ended September 30,
			2022						2021						2022						2021
Net interest income
Interest income			$	678,488					$	412,972					$	1,979,953					$	1,560,256
Interest expense			400,491						50,438						645,888						187,458
Net interest income			277,997						362,534						1,334,065						1,372,798
Net servicing income
Servicing and related income			74,486						17,948						164,886						37,696
Servicing and related expense			7,780						3,012						17,486						7,912
Net servicing income			66,706						14,936						147,400						29,784
Other income (loss)
Net gains (losses) on investments and other			(2,702,512)						102,819						(3,477,532)						161,431
Net gains (losses) on derivatives			2,117,240						84,950						4,774,911						672,371
Loan loss (provision) reversal			1,613						6,134						27,918						145,260
Business divestiture-related gains (losses)			(2,936)						(14,009)						(27,245)						(262,045)
Other, net			1,526						1,285						(902)						1,580
Total other income (loss)			(585,069)						181,179						1,297,150						718,597
General and administrative expenses
Compensation expense			27,744						27,859						82,989						91,390
Other general and administrative expenses			10,178						16,023						36,735						53,923
Total general and administrative expenses			37,922						43,882						119,724						145,313
Income (loss) before income taxes			(278,288)						514,767						2,658,891						1,975,866
Income taxes			(4,311)						(6,767)						45,657						(1,954)
Net income (loss)			(273,977)						521,534						2,613,234						1,977,820
Net income (loss) attributable to noncontrolling interests			1,287						2,290						(453)						3,405
Net income (loss) attributable to Annaly			(275,264)						519,244						2,613,687						1,974,415
Dividends on preferred stock			26,883						26,883						80,649						80,649
Net income (loss) available (related) to common stockholders			$	(302,147)					$	492,361					$	2,533,038					$	1,893,766
Net income (loss) per share available (related) to common stockholders
Basic			$	(0.70)					$	1.36					$	6.46					$	5.34
Diluted			$	(0.70)					$	1.36					$	6.45					$	5.34
Weighted average number of common shares outstanding
Basic			429,858,876						361,328,979						392,172,655						354,606,052
Diluted			429,858,876						361,589,467						392,445,034						354,875,551
Other comprehensive income (loss)
Net income (loss)			$	(273,977)					$	521,534					$	2,613,234					$	1,977,820
Unrealized gains (losses) on available-for-sale securities			(2,578,509)						(113,451)						(8,650,438)						(1,733,919)
Reclassification adjustment for net (gains) losses included in net income (loss)			1,457,999						(28,186)						2,260,592						(1,778)
Other comprehensive income (loss)			(1,120,510)						(141,637)						(6,389,846)						(1,735,697)
Comprehensive income (loss)			(1,394,487)						379,897						(3,776,612)						242,123
Comprehensive income (loss) attributable to noncontrolling interests			1,287						2,290						(453)						3,405
Comprehensive income (loss) attributable to Annaly			(1,395,774)						377,607						(3,776,159)						238,718
Dividends on preferred stock			26,883						26,883						80,649						80,649
Comprehensive income (loss) attributable to common stockholders			$	(1,422,657)					$	350,724					$	(3,856,808)					$	158,069
See notes to consolidated financial statements.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (dollars in thousands) (Unaudited)
						For The Three Months Ended September 30,												For The Nine Months Ended September 30,
						2022						2021						2022						2021
Preferred stock
Beginning of period						$	1,536,569					$	1,536,569					$	1,536,569					$	1,536,569
End of period						$	1,536,569					$	1,536,569					$	1,536,569					$	1,536,569
Common stock
Beginning of period						$	4,023					$	3,610					$	3,649					$	3,496
Issuance						655						14						1,027						128
Stock-based award activity						1						1						3						1
End of period						$	4,679					$	3,625					$	4,679					$	3,625
Additional paid-in capital
Beginning of period						$	21,293,146					$	20,189,524					$	20,324,780					$	19,761,304
Issuance						1,670,825						48,894						2,626,052						469,206
Stock-based award activity						3,694						822						16,833						8,730
End of period						$	22,967,665					$	20,239,240					$	22,967,665					$	20,239,240
Accumulated other comprehensive income (loss)
Beginning of period						$	(4,310,926)					$	1,780,275					$	958,410					$	3,374,335
Unrealized gains (losses) on available-for-sale securities						(2,578,509)						(113,451)						(8,650,438)						(1,733,919)
Reclassification adjustment for net gains (losses) included in net income (loss)						1,457,999						(28,186)						2,260,592						(1,778)
End of period						$	(5,431,436)					$	1,638,638					$	(5,431,436)					$	1,638,638
Accumulated deficit
Beginning of period						$	(7,496,061)					$	(9,892,863)					$	(9,653,582)					$	(10,667,388)
Net income (loss) attributable to Annaly						(275,264)						519,244						2,613,687						1,974,415
Dividends declared on preferred stock (1)						(26,883)						(26,883)						(80,649)						(80,649)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)						(413,150)						(319,768)						(1,090,814)						(946,648)
End of period						$	(8,211,358)					$	(9,720,270)					$	(8,211,358)					$	(9,720,270)
Total stockholder’s equity						$	10,866,119					$	13,697,802					$	10,866,119					$	13,697,802
Noncontrolling interests
Beginning of period						$	63,149					$	22,061					$	25,499					$	13,480
Net income (loss) attributable to noncontrolling interests						1,287						2,290						(453)						3,405
Equity contributions from (distributions to) noncontrolling interests						21,000						(4,286)						60,390						3,180
End of period						$	85,436					$	20,065					$	85,436					$	20,065
Total equity						$	10,951,555					$	13,717,867					$	10,951,555					$	13,717,867
(1) Refer to the “Capital Stock” Note for dividends per share for each class of shares.

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES  CONSOLIDATED STATEMENTS OF CASH FLOWS (dollars in thousands) (Unaudited)
			For The Nine Months Ended September 30,
			2022						2021
Cash flows from operating activities
Net income (loss)			$	2,613,234					$	1,977,820
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net			43,676						555,659
Amortization of securitized debt premiums and discounts and deferred financing costs			(3,829)						(4,129)
Depreciation, amortization and other noncash expenses			15,879						21,084
Net (gains) losses on investments and derivatives			(1,217,818)						(1,051,047)
Business divestiture-related (gains) losses			27,245						262,045
Income (loss) from unconsolidated joint ventures			(11,985)						5,889
Loan loss provision (reversal)			(27,918)						(145,260)
Payments on purchases of loans held for sale			—						(51,403)
Proceeds from sales and repayments of loans held for sale			3,946						88,050
Net receipts (payments) on derivatives			2,799,188						608,184
Net change in
Other assets			(6,511)						22,441
Interest receivable			(28,718)						34,881
Interest payable			(61,285)						(81,183)
Other liabilities			1,025,727						(27,750)
Net cash provided by (used in) operating activities			5,170,831						2,215,281
Cash flows from investing activities
Payments on purchases of securities			(30,851,614)						(18,334,872)
Proceeds from sales of securities			16,744,864						11,146,996
Principal payments on securities			7,864,869						14,638,456
Payments on purchases and origination of loans			(5,165,059)						(4,710,425)
Proceeds from sales of loans			1,918,996						879,147
Principal payments on loans			1,357,018						2,016,373
Payments on purchases of MSR			(866,767)						(416,149)
Proceeds from sales of MSR			9,076						376
Payments on purchases of interests in MSR			(4,913)						(53,034)
Investments in real estate			—						(1,815)
Proceeds from sales of real estate			—						53,910
Proceeds from reverse repurchase agreements			18,450,024						15,184,313
Payments on reverse repurchase agreements			(18,450,024)						(15,184,313)
Distributions in excess of cumulative earnings from unconsolidated joint ventures			—						290
Proceeds from sale of equity securities			—						6,957
Net proceeds from business divestiture			—						1,118,100
Net cash provided by (used in) investing activities			(8,993,530)						6,344,310
Cash flows from financing activities
Proceeds from repurchase agreements and other secured financing			2,581,103,609						1,702,497,310
Payments on repurchase agreements and other secured financing			(2,582,371,537)						(1,712,035,449)
Proceeds from issuances of securitized debt			4,876,814						2,005,080
Principal payments on securitized debt			(1,059,955)						(1,270,367)
Payments on purchases of securitized debt			(8,495)						—
Net proceeds from stock offerings, direct purchases and dividend reinvestments			2,627,079						469,334
Proceeds from participations issued			1,637,231						1,036,800
Payments on repurchases of participations issued			(1,796,643)						(434,873)
Principal payments on participations issued			(40,241)						(10,420)
Net principal receipts (payments) on mortgages payable			—						(1,019)
Net contributions (distributions) from (to) noncontrolling interests			60,390						3,180
Settlement of stock-based awards in satisfaction of withholding tax requirements			(4,039)						(2,773)
Dividends paid			(1,077,433)						(1,013,797)
Net cash provided by (used in) financing activities			3,946,780						(8,756,994)
Net (decrease) increase in cash and cash equivalents			124,081						(197,403)
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			$	1,466,171					$	1,046,300
Supplemental disclosure of cash flow information
Interest received			$	1,751,099					$	2,107,854
Dividends received			$	—					$	51
Interest paid (excluding interest paid on interest rate swaps)			$	457,122					$	228,875
Net interest received (paid) on interest rate swaps			$	(57,302)					$	(258,061)
Taxes received (paid)			$	(2,170)					$	(780)
Noncash investing and financing activities
Receivable for unsettled trades			$	2,153,895					$	42,482
Payable for unsettled trades			$	9,333,646					$	571,540
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment			$	(6,389,846)					$	(1,735,697)
Dividends declared, not yet paid			$	411,762					$	318,986
Derecognition of assets of consolidated VIEs			$	—					$	3,052,280
Derecognition of securitized debt of consolidated VIEs			$	—					$	2,496,118
Derecognition of mortgages payable			$	—					$	314,485
See notes to consolidated financial statements.

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

1. DESCRIPTION OF BUSINESS

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.

2. BASIS OF PRESENTATION

3. SIGNIFICANT ACCOUNTING POLICIES

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.

Equity Method Investments - For entities that are not consolidated, but where the Company has significant influence over the operating or financial decisions of the entity, the Company accounts for the investment under the equity method of accounting. In accordance with the equity method of accounting, the Company will recognize its share of earnings or losses of the investee in the period in which they are reported by the investee. The Company also considers whether there are any indicators of other-than-temporary impairment of joint ventures accounted for under the equity method. These investments are included in Other assets with income or loss included in Other, net.

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost, which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $1.2 billion and $1.2 billion at September 30, 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

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.

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.

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.

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.

4. FINANCIAL INSTRUMENTS

The following table presents characteristics for certain of the Company’s financial instruments at September 30, 2022 and December 31, 2021.

Financial Instruments (1)

Balance Sheet Line Item

Type / Form

Measurement Basis

September 30, 2022

December 31, 2021

Assets

(dollars in thousands)

Securities

Agency mortgage-backed securities (2)

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

$

41,042,640

$

59,939,383

Securities

Agency mortgage-backed securities (3)

Fair value, with unrealized gains (losses) through earnings

21,994,601

586,222

Securities

Residential credit risk transfer securities

Fair value, with unrealized gains (losses) through earnings

1,056,906

936,228

Securities

Non-agency mortgage-backed securities

Fair value, with unrealized gains (losses) through earnings

2,156,706

1,663,336

Securities

Commercial real estate debt investments - CMBS

Fair value, with unrealized gains (losses) through earnings

570,633

521,440

Securities

Commercial real estate debt investments - credit risk transfer securities

Fair value, with unrealized gains (losses) through earnings

17,867

9,065

Total securities

66,839,353

63,655,674

Loans, net

Residential mortgage loans

Fair value, with unrealized gains (losses) through earnings

1,551,637

2,272,072

Loans, net

Residential mortgage loan warehouse facility

Fair value, with unrealized gains (losses) through earnings

70

980

Loans, net

Corporate debt, held for investment

Amortized cost

—

1,968,991

Total loans, net

1,551,707

4,242,043

Interests in MSR

Interest in net servicing cash flows

Fair value, with unrealized gains (losses) through earnings

—

69,316

Assets transferred or pledged to securitization vehicles

Agency mortgage-backed securities

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

431,388

589,873

Assets transferred or pledged to securitization vehicles

Residential mortgage loans

Fair value, with unrealized gains (losses) through earnings

8,770,626

5,496,435

Total assets transferred or pledged to securitization vehicles

9,202,014

6,086,308

Liabilities

Repurchase agreements

Repurchase agreements

Amortized cost

54,160,731

54,769,643

Other secured financing

Loans

Amortized cost

250,000

903,255

Debt issued by securitization vehicles

Securities

Fair value, with unrealized gains (losses) through earnings

7,844,518

5,155,633

Participations issued

Participations issued

Fair value, with unrealized gains (losses) through earnings

745,729

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 purchased prior to July 1, 2022. (3) Includes interest-only securities and reverse mortgages and, effective July 1, 2022, newly purchased Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.

5. SECURITIES

The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed securities. All of the debt securities are classified as available-for-sale. Available-for-sale debt securities are carried at fair value, with changes in fair value recognized in other comprehensive income, unless the fair value option is elected in which case changes in fair value are recognized in Net gains (losses) on investments and other in the Consolidated Statements of Comprehensive Income (Loss). Effective July 1, 2022, the Company elected the fair value option for any newly purchased Agency mortgage-backed securities in order to simplify the accounting for these securities. Agency mortgage-backed securities purchased prior to July 1, 2022, are still classified as available-for-sale with changes in fair value recognized in other comprehensive income. Transactions for regular-way securities are recorded on trade date, including to-be-announced (“TBA”) securities that meet the regular-way securities scope exception from derivative accounting. Gains and losses on disposals of securities are recorded on trade date based on the specific identification method.

Impairment – Management evaluates available-for-sale securities where the fair value option has not been elected and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired. For securities that are impaired, the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the security.  Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be 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 nine months ended September 30, 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”). 

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.

Commercial Mortgage-Backed Securities (“Commercial Securities”) - The Company invests in Commercial securities such as conduit, credit CMBS, single-asset single borrower and collateralized loan obligations.

			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			37,900,732						1,655,685						247,746						39,804,163
Sales and transfers			(20,616,137)						(377,648)						(169,224)						(21,163,009)
Principal paydowns			(7,343,579)						(444,738)						(3,514)						(7,791,831)
(Amortization) / accretion			(12,815)						4,662						425						(7,728)
Fair value adjustment			(7,416,565)						(223,913)						(17,438)						(7,657,916)
Ending balance September 30, 2022			$	63,037,241					$	3,213,612					$	588,500					$	66,839,353

			September 30, 2022
			Principal / Notional						Remaining Premium						Remaining Discount						Amortized Cost						Unrealized Gains						Unrealized Losses						Estimated Fair Value
Agency			(dollars in thousands)
Fixed-rate pass-through			$	65,429,709					$	2,561,532					$	(727,852)					$	67,263,389					$	7,680					$	(6,289,954)					$	60,981,115
Adjustable-rate pass-through			243,262						14,340						(98)						257,504						3,738						(11,738)						249,504
CMO			103,521						1,795						—						105,316						—						(12,996)						92,320
Interest-only			1,576,498						400,101						—						400,101						259						(227,515)						172,845
Multifamily(1)			8,610,998						301,545						(1,045)						1,664,017						—						(151,917)						1,512,100
Reverse mortgages			29,090						3,368						—						32,458						—						(3,101)						29,357
Total agency securities			$	75,993,078					$	3,282,681					$	(728,995)					$	69,722,785					$	11,677					$	(6,697,221)					$	63,037,241
Residential credit
Credit risk transfer (2)			$	1,100,944					$	7,170					$	(4,385)					$	1,103,729					$	900					$	(47,723)					$	1,056,906
Alt-A			145,718						31						(20,012)						125,737						1,731						(9,624)						117,844
Prime (3)			2,038,622						21,762						(25,159)						300,186						5,440						(42,791)						262,835
Subprime			206,413						207						(19,387)						187,233						3,242						(12,656)						177,819
NPL/RPL			1,456,013						1,695						(15,580)						1,442,128						—						(58,640)						1,383,488
Prime jumbo (>=2010 vintage) (4)			2,165,973						17,327						(29,512)						254,297						2,114						(41,691)						214,720
Total residential credit securities			$	7,113,683					$	48,192					$	(114,035)					$	3,413,310					$	13,427					$	(213,125)					$	3,213,612
Total Residential Securities			$	83,106,761					$	3,330,873					$	(843,030)					$	73,136,095					$	25,104					$	(6,910,346)					$	66,250,853
Commercial
Commercial Securities			$	611,581					$	—					$	(3,205)					$	608,376					$	—					$	(19,876)					$	588,500
Total securities			$	83,718,342					$	3,330,873					$	(846,235)					$	73,744,471					$	25,104					$	(6,930,222)					$	66,839,353
			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 $7.2 billion and $4.5 billion of Agency Multifamily interest-only securities as of September 30, 2022 and December 31, 2021, respectively. (2) Principal/Notional amount includes $0.0 million and $4.1 million of a CRT interest-only security as of September 30, 2022 and December 31, 2021, respectively. (3) Principal/Notional amount includes $1.7 billion and $50.0 million of Prime interest-only securities as of September 30, 2022 and December 31, 2021, respectively. (4) Principal/Notional amount includes $1.9 billion and $126.5 million of Prime Jumbo interest-only securities as of September 30, 2022 and December 31, 2021, respectively.

			September 30, 2022						December 31, 2021
Investment Type			(dollars in thousands)
Fannie Mae			$	54,755,114					$	48,404,991
Freddie Mac			8,222,761						10,880,033
Ginnie Mae			59,366						1,240,581
Total			$	63,037,241					$	60,525,605

			September 30, 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			$	284,752					$	290,114					$	253,129					$	250,689
Greater than one year through five years			3,324,677						3,524,087						16,155,017						15,766,307
Greater than five years through ten years			53,054,872						58,412,350						45,470,212						45,102,607
Greater than ten years			9,586,552						10,909,544						1,246,811						1,250,936
Total			$	66,250,853					$	73,136,095					$	63,125,169					$	62,370,539

			September 30, 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			$	38,312,990					$	(4,825,625)					2,722						$	22,828,156					$	(475,064)					571
12 Months or more			2,505,823						(587,391)						137						383,815						(10,960)						19
Total			$	40,818,813					$	(5,413,016)					2,859						$	23,211,971					$	(486,024)					590
(1) Excludes interest-only mortgage-backed securities and reverse mortgages and effective July 1, 2022, newly purchased Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.

			Gross Realized Gains						Gross Realized Losses						Net Realized Gains (Losses)
For the three months ended			(dollars in thousands)
September 30, 2022			$	17,324					$	(1,491,325)					$	(1,474,001)
September 30, 2021			$	30,368					$	(3,636)					$	26,732
For the nine months ended
September 30, 2022			$	46,152					$	(2,321,940)					$	(2,275,788)
September 30, 2021			$	87,499					$	(86,657)					$	842

6. LOANS

Excluding loans transferred or pledged to securitization vehicles and loan warehouse facilities, as of September 30, 2022 and December 31, 2021, the Company reported $1.6 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 $1.4 million and $2.3 million at September 30, 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.

			Residential												Corporate Debt												Total
			(dollars in thousands)
Beginning balance January 1, 2022			$	2,272,072											$	1,968,991											$	4,241,063
Purchases / originations			5,008,390												185,269												5,193,659
Sales and transfers (1)			(5,470,437)												(1,902,444)												(7,372,881)
Principal payments			(86,329)												(231,190)												(317,519)
Gains / (losses) (2)			(166,111)												(23,320)												(189,431)
(Amortization) / accretion			(5,948)												2,694												(3,254)
Ending balance September 30, 2022			$	1,551,637											$	—											$	1,551,637
(1) Includes securitizations, syndications, transfers to securitization vehicles and corporate debt transfers to assets of disposal group held for sale and other assets. Includes transfer of residential loans to securitization vehicles with a carrying value of $5.5 billion during the nine months ended September 30, 2022. (2) Includes loan loss allowances.