10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

[X]             QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED:  MARCH 31, 2014

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

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, SUITE 2902
NEW YORK, NEW YORK	10036
(Address of principal executive offices)	(Zip Code)

(212) 696-0100

(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all documents and 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 þ  No o

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files).  Yes þ  No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þAccelerated filer o Non-accelerated filer o Smaller reporting company o

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

APPLICABLE ONLY TO CORPORATE ISSUERS:

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the last practicable date:

Class	Outstanding at April 30, 2014
Common Stock, $.01 par value	947,503,334

ANNALY CAPITAL MANAGEMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
PART I  -  FINANCIAL INFORMATION
Item 1.  Financial Statements	Page
Consolidated Statements of Financial Condition at March 31, 2014 (Unaudited) and December 31, 2013 (Derived from the audited consolidated financial statements        at December 31, 2013)	1
Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarters ended March 31, 2014 and 2013	2
Consolidated Statements of Stockholders’ Equity (Unaudited) for the quarters ended March 31, 2014 and 2013	3
Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 31, 2014 and 2013	4
Notes to Consolidated Financial Statements (Unaudited)
Note 1. Description of Business	6
Note 2. Basis of Presentation	6
Note 3. Significant Accounting Policies	6
Note 4. Agency Mortgage-backed Securities	14
Note 5. Acquisition of Crexus	15
Note 6. Commercial Real Estate Investments	17
Note 7. Fair Value Measurements	19
Note 8. Secured Financing	22
Note 9. Derivative Instruments	22
Note 10. Convertible Senior Notes	26
Note 11. Common Stock and Preferred Stock	27
Note 12. Goodwill	28
Note 13. Interest Income and Interest Expense	28
Note 14. Net Income (Loss) per Common Share	29
Note 15. Long-term Stock Incentive Plan	30
Note 16. Income Taxes	30
Note 17. Lease Commitments and Contingencies	31
Note 18. Risk Management	31
Note 19. RCap Regulatory Requirements	32
Note 20. Related Party Transactions	32
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Special Note Regarding Forward-Looking Statements	33
Overview	35
Business Environment	35
Results of Operations	36
Financial Condition	42
Capital Management	45
Risk Management	47
Critical Accounting Policies	55
Glossary of Terms	56
Item 3. Quantitative and Qualitative Disclosures about Market Risk	63
Item 4. Controls and Procedures	63
PART II  -  OTHER INFORMATION
Item 1. Legal Proceedings	64
Item 1A. Risk Factors	64
Item 6. Exhibits	65
SIGNATURES	67

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,
	2014			2013(1)
	(Unaudited)
ASSETS
Cash and cash equivalents	$	924,197		$	552,436
Reverse repurchase agreements		444,375			100,000
Securities borrowed		513,500			2,582,893
Investments, at fair value:
U.S. Treasury securities (including pledged assets of $0 and $1,113,027, respectively)		-			1,117,915
Agency mortgage-backed securities (including pledged assets of $66,110,869 and $63,897,873, respectively)		75,350,388			70,388,949
Agency debentures (including pledged assets of $2,368,493 and $2,931,261, respectively)		2,408,259			2,969,885
Investment in affiliates		137,647			139,447
Commercial real estate debt and preferred equity(2)		1,640,206			1,583,969
Investments in commercial real estate		40,313			60,132
Corporate debt, held for investment		145,394			117,687
Receivable for investments sold		19,116			1,193,730
Accrued interest and dividends receivable		276,007			273,079
Receivable for investment advisory income (including from affiliates of $6,498 and $6,839, respectively)		6,498			6,839
Goodwill		94,781			94,781
Interest rate swaps, at fair value		340,890			559,044
Other derivatives, at fair value		40,105			146,725
Other assets		33,101			34,949
Total assets	$	82,414,777		$	81,922,460
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
U.S. Treasury securities sold, not yet purchased, at fair value	$	-		$	1,918,394
Repurchase agreements		64,543,949			61,781,001
Securities loaned		513,510			2,527,668
Payable for investments purchased		1,898,507			764,131
Convertible Senior Notes		827,486			825,262
Securitized debt of consolidated VIE		260,700			-
Mortgages payable		19,317			19,332
Participation sold		13,963			14,065
Accrued interest payable		170,644			160,921
Dividends payable		284,247			284,230
Interest rate swaps, at fair value		1,272,616			1,141,828
Other derivatives, at fair value		6,045			55,518
Accounts payable and other liabilities		39,081			25,055
Total liabilities		69,850,065			69,517,405
Stockholders’ Equity:
7.875% Series A Cumulative Redeemable Preferred Stock:    7,412,500 authorized, issued and outstanding		177,088			177,088
7.625% Series C Cumulative Redeemable Preferred Stock:    12,650,000 authorized, 12,000,000 issued and outstanding		290,514			290,514
7.50% Series D Cumulative Redeemable Preferred Stock:    18,400,000 authorized, issued and outstanding		445,457			445,457
Common stock, par value $0.01 per share, 1,956,937,500 authorized,    947,488,945 and 947,432,862 issued and outstanding, respectively		9,475			9,474
Additional paid-in capital		14,770,553			14,765,761
Accumulated other comprehensive income (loss)		(2,088,479	)		(2,748,933	)
Accumulated deficit		(1,039,896	)		(534,306	)
Total stockholders’ equity		12,564,712			12,405,055
Total liabilities and stockholders’ equity	$	82,414,777		$	81,922,460

(1)   Derived from the audited consolidated financial statements at December 31, 2013.

(2)   Includes senior securitized mortgages of consolidated VIE with a carrying value of $398.1 million at March 31, 2014. 

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 Quarter Ended
	March 31,			March 31,
	2014			2013
Net interest income:
Interest income	$	655,901		$	737,217
Interest expense		124,971			177,590
Net interest income		530,930			559,627
Other income (loss):
Realized gains (losses) on interest rate swaps(1)		(260,435	)		(225,476	)
Realized gains (losses) on termination of interest rate swaps		(6,842	)		(16,378	)
Unrealized gains (losses) on interest rate swaps		(348,942	)		325,734
Subtotal		(616,219	)		83,880
Investment advisory income		6,123			13,408
Net gains (losses) on disposal of investments		79,710			182,843
Dividend income from affiliates		13,045			6,431
Net gains (losses) on trading assets		(146,228	)		1,549
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities		(20,793	)		80,127
Other income (loss)		1,460			132
Subtotal		(66,683	)		284,490
Total other income (loss)		(682,902	)		368,370
General and administrative expenses:
Compensation and management fee		38,521			38,443
Other general and administrative expenses		8,857			13,469
Total general and administrative expenses		47,378			51,912
Income (loss) before income taxes		(199,350	)		876,085
Income taxes		4,001			5,807
Net income (loss)		(203,351	)		870,278
Dividends on preferred stock		17,992			17,992
Net income (loss) available (related) to common stockholders	$	(221,343	)	$	852,286
Net income (loss) per share available (related) to common stockholders:
Basic	$	(0.23	)	$	0.90
Diluted	$	(0.23	)	$	0.87
Weighted average number of common shares outstanding:
Basic		947,458,813			947,249,901
Diluted		947,458,813			994,815,169
Dividends Declared Per Share of Common Stock	$	0.30		$	0.45
Net income (loss)	$	(203,351	)	$	870,278
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities		741,172			(867,151	)
Reclassification adjustment for net (gains) losses included in net income (loss)		(80,718	)		(182,843	)
Other comprehensive income (loss)		660,454			(1,049,994	)
Comprehensive income (loss)	$	457,103		$	(179,716	)

(1)   Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps. 

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, except per share data)
(Unaudited)
	7.875% Series A Cumulative Redeemable Preferred Stock		7.625% Series C Cumulative Redeemable Preferred Stock		7.50% Series D Cumulative Redeemable Preferred Stock		Common Stock Par Value		Additional Paid-In Capital		Accumulated Other Comprehensive Income (Loss)			Accumulated Deficit			Total
BALANCE, December 31, 2012	$	177,088	$	290,514	$	445,457	$	9,472	$	14,740,774	$	3,053,242		$	(2,792,103	)	$	15,924,444
Net income (loss)		-		-		-		-		-		-			870,278			870,278
Unrealized gains (losses) on available-for-sale securities		-		-		-		-		-		(867,151	)		-			(867,151	)
Reclassification adjustment for net (gains) losses    included in net income (loss)		-		-		-		-		-		(182,843	)		-			(182,843	)
Exercise of stock options		-		-		-		-		265		-			-			265
Stock compensation expense		-		-		-		-		817		-			-			817
Net proceeds from direct purchase and dividend    reinvestment		-		-		-		1		760		-			-			761
Contingent beneficial conversion feature on 4%    Convertible Senior Notes		-		-		-		-		3,963		-			-			3,963
Preferred Series A dividends, declared $0.492 per share		-		-		-		-		-		-			(3,648	)		(3,648	)
Preferred Series C dividends, declared $0.477 per share		-		-		-		-		-		-			(5,719	)		(5,719	)
Preferred Series D dividends, declared $0.469 per share		-		-		-		-		-		-			(8,625	)		(8,625	)
Common dividends declared, $0.45 per share		-		-		-		-		-		-			(426,173	)		(426,173	)
BALANCE, March 31, 2013	$	177,088	$	290,514	$	445,457	$	9,473	$	14,746,579	$	2,003,248		$	(2,365,990	)	$	15,306,369
BALANCE, December 31, 2013	$	177,088	$	290,514	$	445,457	$	9,474	$	14,765,761	$	(2,748,933	)	$	(534,306	)	$	12,405,055
Net income (loss)		-		-		-		-		-		-			(203,351	)		(203,351	)
Unrealized gains (losses) on available-for-sale securities		-		-		-		-		-		741,172			-			741,172
Reclassification adjustment for net (gains) losses included    in net income (loss)		-		-		-		-		-		(80,718	)		-			(80,718	)
Net proceeds from direct purchase and dividend    reinvestment		-		-		-		1		606		-			-			607
Contingent beneficial conversion feature on 4%    Convertible Senior Notes		-		-		-		-		4,186		-			-			4,186
Preferred Series A dividends, declared $0.492 per share		-		-		-		-		-		-			(3,648	)		(3,648	)
Preferred Series C dividends, declared $0.477 per share		-		-		-		-		-		-			(5,719	)		(5,719	)
Preferred Series D dividends, declared $0.469 per share		-		-		-		-		-		-			(8,625	)		(8,625	)
Common dividends declared, $0.30 per share		-		-		-		-		-		-			(284,247	)		(284,247	)
BALANCE, March 31, 2014	$	177,088	$	290,514	$	445,457	$	9,475	$	14,770,553	$	(2,088,479	)	$	(1,039,896	)	$	12,564,712

See notes to consolidated financial statements.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Financial Statements

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(Unaudited)
	For the Quarter Ended March 31,
	2014			2013
Cash flows from operating activities:
Net income (loss)	$	(203,351	)	$	870,278
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating  activities:
Amortization of Investment Securities premiums and discounts, net		118,988			421,057
Amortization of commercial real estate investment premiums and discounts, net		792			-
Amortization of intangibles		99			323
Amortization of deferred financing costs		2,813			2,038
Amortization of net origination fees and costs, net		(973	)		-
Amortization of contingent beneficial conversion feature and equity component of Convertible Senior Notes		6,410			3,324
Depreciation expense		292			-
Net gain on sale of commercial real estate		(1,213	)		-
Net (gains) losses on sales of Agency mortgage-backed securities and debentures		(80,718	)		(182,843	)
Stock compensation expense		-			817
Unrealized (gains) losses on interest rate swaps		348,942			(325,734	)
Net unrealized (gains) losses on interest-only Agency mortgage-backed securities		20,793			(80,127	)
Net (gains) losses on trading assets		146,228			14,829
Proceeds from repurchase agreements of RCap		329,649,937			237,569,485
Payments on repurchase agreements of RCap		(324,602,992	)		(238,600,415	)
Proceeds from reverse repurchase agreements		35,181,890			105,335,861
Payments on reverse repurchase agreements		(35,526,265	)		(108,458,231	)
Proceeds from securities borrowed		19,993,580			53,799,157
Payments on securities borrowed		(17,924,187	)		(54,326,700	)
Proceeds from securities loaned		37,178,735			110,725,140
Payments on securities loaned		(39,192,893	)		(110,203,395	)
Proceeds from U.S. Treasury securities		3,159,253			21,683,636
Payments on U.S. Treasury securities		(3,920,425	)		(22,157,117	)
Net payments on derivatives		(90,440	)		(1,490	)
Net change in:
Due to / from brokers		8,596			-
Other assets		3,439			(14,779	)
Accrued interest and dividends receivable		(16,035	)		22,616
Receivable for investment advisory income		341			4,913
Accrued interest payable		25,032			(11,147	)
Accounts payable and other liabilities		13,801			26,250
Net cash provided by (used in) operating activities		4,300,469			(3,882,254	)
Cash flows from investing activities:
Payments on purchases of Agency mortgage-backed securities and debentures		(9,367,034	)		(17,699,472	)
Proceeds from sales of Agency mortgage-backed securities and debentures		6,155,091			15,484,409
Principal payments on Agency mortgage-backed securities		1,675,575			8,514,074
Proceeds from Agency debentures called		-			847,205
Payments on purchases of corporate debt		(28,705	)		(3,483	)
Principal payments on corporate debt		1,051			911
Origination of commercial real estate investments, net		(125,949	)		-
Proceeds from sales of commercial real estate held for sale		20,740			-
Principal payments on commercial real estate investments		69,795			-
Proceeds from derivatives		-			7,465
Net cash provided by (used in) investing activities		(1,599,436	)		7,151,109

Statements continued on following page.

4

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Financial Statements

Cash flows from financing activities:
Proceeds from repurchase agreements		49,726,537			101,631,583
Principal payments on repurchase agreements		(52,010,534	)		(103,063,408	)
Proceeds from issuance of securitized debt		260,700			-
Payment of deferred financing cost		(4,288	)		-
Proceeds from exercise of stock options		-			265
Net proceeds from direct purchases and dividend reinvestments		607			761
Payments on participation sold		(72	)		-
Net payment on share repurchase		-			(141,149	)
Dividends paid		(302,222	)		(450,146	)
Net cash provided by (used in) financing activities		(2,329,272	)		(2,022,094	)
Net (decrease) increase in cash and cash equivalents		371,761			1,246,761
Cash and cash equivalents, beginning of period		552,436			615,789
Cash and cash equivalents, end of period	$	924,197		$	1,862,550
		-			-
Supplemental disclosure of cash flow information:
Interest received	$	769,627		$	1,188,202
Dividends received	$	13,045		$	7,097
Investment advisory income received	$	6,464		$	18,321
Interest paid (excluding interest paid on interest rate swaps)	$	118,131		$	184,426
Net interest paid on interest rate swaps	$	250,571		$	226,463
Taxes paid	$	2,137		$	2,382
Noncash investing activities:
Receivable for investments sold	$	19,116		$	1,292,478
Payable for investments purchased	$	1,898,507		$	3,203,461
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	$	660,454		$	(1,049,994	)
Noncash financing activities:
Dividends declared, not yet paid	$	284,247		$	426,173
Contingent beneficial conversion feature on 4% Convertible Senior Notes	$	4,186		$	3,963

See notes to consolidated financial statements.

5

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated 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 owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, agency callable debentures, other securities representing interests in or obligations backed by pools of mortgage loans, commercial real estate assets and corporate loans. The Company’s principal business objective is to generate net income for distribution to its stockholders from its investments. The Company’s business operations are primarily comprised of the following: -  Annaly, the parent company, which invests primarily in various types of Agency mortgage-backed securities and related derivatives to hedge these investments. -  Annaly Commercial Real Estate Group, Inc. (“ACREG,” formerly known as CreXus Investment Corp. (“CreXus”)), a wholly-owned subsidiary that was acquired during the second quarter of 2013 which specializes in acquiring, financing and managing commercial mortgage loans and other commercial real estate debt, commercial mortgage-backed securities and other commercial real estate-related assets. -  RCap Securities, Inc. (“RCap”), a wholly-owned subsidiary which operates as a broker-dealer, and is a member of the Financial Industry Regulatory Authority (“FINRA”). -  Fixed Income Discount Advisory Company (“FIDAC”), a wholly-owned subsidiary which manages an affiliated real estate investment trust (“REIT”) for which it earns fee income. -  Annaly Middle Market Lending LLC (formerly known as Charlesfort Capital Management LLC), a wholly-owned subsidiary which engages in corporate middle market lending transactions. -  Shannon Funding LLC (“Shannon”), a wholly-owned subsidiary which acquires residential mortgage loans and provides warehouse financing to residential mortgage originators in the United States. The Company has elected to be taxed as a REIT as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).  The Company is externally managed by Annaly Management Company LLC (the “Manager”). 2.     BASIS OF PRESENTATION The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("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. The consolidated financial information as of December 31, 2013 has been derived from audited consolidated financial statements not included herein. In the opinion of management, all normal, recurring adjustments have been included for a fair statement 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 Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation. The Company has evaluated all of its investments in legal entities in order to determine if they are variable interests in Variable Interest Entities ("VIEs"). 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 variable interest is an investment or other interest that will absorb portions of a VIE's expected losses or receive portions of the entity’s expected residual returns. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

6

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all facts and circumstances, including the Company’s role in establishing the VIE and the Company’s ongoing rights and responsibilities. This assessment includes first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE. To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of the Company’s economic interests, including debt and equity investments and other arrangements deemed to be variable interests in the VIE. This assessment requires that the Company applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company. 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 regarding the VIE to change.
  Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and cash held in money market funds on an overnight basis. RCap is a member of various clearing organizations with which it maintains cash required for the conduct of its day-to-day clearance activities. Cash and securities deposited with clearing organizations are carried at cost, which approximates fair value. The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to its interest rate swaps and other derivatives totaled $755.5 million and $371.8 million at March 31, 2014 and December 31, 2013, respectively. Fair Value Measurements – The Company carries various financial instruments at fair value.  A complete discussion of the methodology utilized by the Company to estimate the fair value of certain financial instruments is included in the notes to these consolidated financial statements. Revenue Recognition – The revenue recognition policy by asset class is discussed below. Agency Mortgage-Backed Securities and Agency Debentures – The Company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations and other mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans and certificates 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”).  These 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”). The Company also invests in Agency debentures issued by the Federal Home Loan Banks, Freddie Mac and Fannie Mae. Agency mortgage-backed securities and Agency debentures are referred to herein as “Investment Securities.” Although the Company generally intends to hold most of its Investment Securities until maturity, it may, from time to time, sell any of its Investment Securities as part of its overall management of its portfolio. Investment Securities are classified as available-for-sale and are reported at fair values estimated by management that are compared to independent sources for reasonableness, with unrealized gains and losses reported as a component of other comprehensive income (loss). Investment Securities transactions are recorded on trade date, including TBA securities that meet the regular-way securities scope exception from derivative accounting.  Realized gains and losses on sales of Investment Securities are determined using the average cost method. On April 1, 2011, the Company elected the fair value option for Agency interest-only mortgage-backed securities acquired on or after such date.  Interest-only securities and inverse interest-only securities are collectively referred to as “interest-only securities.” These Agency interest-only mortgage-backed securities represent the Company’s right to receive a specified proportion of the contractual interest flows of specific Agency mortgage-backed securities.  Agency interest-only mortgage-backed securities acquired on or after April 1, 2011 are measured at fair value with changes in fair value recorded as Net unrealized gains (losses) on interest-only Agency mortgage-backed securities in the Company’s Consolidated Statements of Comprehensive Income (Loss).  The interest-only securities are included in Agency mortgage-backed securities at fair value on the accompanying Consolidated Statements of Financial Condition. 

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Item 1.  Notes to Consolidated Financial Statements

Interest income from coupon payments is accrued based on the outstanding principal amounts of the Investment Securities and their contractual terms.  Premiums and discounts associated with the purchase of the Investment Securities are amortized or accreted into interest income over the projected lives of the securities using the interest method.  The Company’s policy for estimating prepayment speeds for calculating the effective yield is to evaluate historical performance, consensus prepayment speeds and current market conditions.  Adjustments are made for actual prepayment activity. Corporate Debt– The Company’s investments in corporate debt are designated as held for investment, and are carried at their principal balance outstanding plus any premiums or discounts less allowances for loan losses. No allowance for loan losses was deemed necessary as of March 31, 2014 and December 31, 2013. Equity Securities– The Company may invest in equity securities that are classified as available-for-sale or trading.  Equity securities classified as available-for-sale are reported at fair value, based on market quotes, with unrealized gains and losses reported as a component of other comprehensive income (loss). Equity securities classified as trading are reported at fair value, based on market quotes, with unrealized gains and losses reported in the Consolidated Statements of Comprehensive Income (Loss) as Net gains (losses) on trading assets.  Dividends are recorded in earnings based on the declaration date. Derivative Instruments – The Company may use a variety of derivative instruments to economically hedge some of its exposure to market risks, including interest rate and prepayment risk. These instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA securities with the intent to net settle (“TBA derivatives”), options on TBA securities (“MBS options”) and U.S. Treasury futures contracts.  The Company may also invest in other types of mortgage derivatives such as interest-only securities and synthetic total return swaps, such as the Markit IOS Synthetic Total Return Swap Index.  Derivatives are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, which requires recognition of all derivatives 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).  Some derivative agreements contain provisions that allow for netting or setting off by counterparty; however, beginning on September 30, 2013, the Company elected to present related assets and liabilities on a gross basis in the Consolidated Statements of Financial Condition. Prior to September 30, 2013, the Company presented in the Consolidated Statements of Financial Condition the fair value of interest rate swap contracts net, by counterparty, if the derivative agreements included netting provisions. Interest rate swap agreements - Interest rate swaps are the primary instrument used to mitigate interest rate risk.  In particular, the Company uses interest rate swaps to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings.  Swap agreements may be over-the-counter (“OTC”) agreements which are negotiated directly with a counterparty, or centrally cleared through a registered commodities exchange.  OTC swaps are fair valued using internal pricing models and compared to the counterparty market values.  Centrally cleared swaps are fair valued using internal pricing models and compared to the exchange market values. Interest rate swaptions - Interest rate swaptions are purchased to mitigate the potential impact of increases or decreases in interest rates.  Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future.  They are not centrally cleared.  The premium paid for interest rate swaptions is reported as an asset in the Consolidated Statement of Financial Position. The difference between the premium and the fair value of the swaption is reported in Net gain (loss) on trading assets in the Consolidated Statements of Comprehensive Income (Loss). If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium paid. If the Company sells or exercises a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid. The fair value of interest rate swaptions is estimated using internal pricing models and compared to the counterparty market value. TBA Dollar Rolls - TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on similar methods used to value Agency mortgage-backed securities with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

MBS Options – MBS options are generally options on TBA contracts, which help manage mortgage market risks and volatility while providing the potential to enhance returns.  MBS options are over-the-counter traded instruments and those written on current-coupon mortgage-backed securities are typically the most liquid.  MBS options are fair valued using internal pricing models and compared to the counterparty market value at the valuation date with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss). U.S. Treasury Futures- U.S. Treasury futures contracts are derivatives that track the prices of specific U.S. Treasury securities. Short sales of U.S. Treasury futures contracts help mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains a margin account which is settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss). Other-Than-Temporary Impairment – Management evaluates available-for-sale securities for other-than-temporary 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), while the balance of losses related to other factors will be recognized as a component of other comprehensive income (loss).  There was no other-than-temporary impairment recognized for the quarters ended March 31, 2014 and December 31, 2013. Loan Loss Reserves – 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 to verify they meet the covenants of the loan documents.  If based on the financial review it is deemed probable that the Company will be unable to collect contractual principal and interest amounts (e.g. financial performance and delinquencies), a loan loss provision would be recorded. No allowance for loan losses was deemed necessary as of March 31, 2014 and December 31, 2013. Repurchase Agreements – The Company finances the acquisition of a significant portion of its Agency mortgage-backed securities with repurchase agreements. The Company examines each of the specified criteria in ASC 860, Transfers and Servicing, at the inception of each transaction and has determined that each of the financings meet the specified criteria in this guidance. None of the Company’s repurchase agreements are accounted for as components of linked transactions. As a result, the Company separately accounts for the financial assets and related repurchase financings in the accompanying consolidated financial statements. Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements permit netting. The Company reports cash flows on repurchase agreements as financing activities in the Consolidated Statements of Cash Flows. The Company reports cash flows on reverse repurchase and repurchase agreements entered into by RCap and Shannon as operating activities in the Consolidated Statements of Cash Flows. Goodwill and Intangible Assets–The Company’s acquisitions of FIDAC, Merganser Capital Management, Inc. (“Merganser”) and CreXus were accounted for using the acquisition method. In October 2013, the Company sold the operations of Merganser. Under the acquisition method, net assets and results of operations of acquired companies are included in the consolidated financial statements from the date of acquisition. The costs of FIDAC, Merganser and CreXus were allocated to the assets acquired, including identifiable intangible assets, and the liabilities assumed based on their estimated fair values at the date of acquisition. The excess of purchase price over the fair value of the net assets acquired was recognized as goodwill. The Company tests goodwill for impairment on an annual basis and at interim periods when events or circumstances may make it more likely than not that an impairment has occurred. If a qualitative analysis indicates that there may be an impairment, a quantitative analysis is performed.  The quantitative impairment test for goodwill utilizes a two-step approach, whereby the Company compares the carrying value of each identified reporting unit to its fair value.  If the carrying value of the reporting unit is greater than its fair value, the second step is performed, where the implied fair value of goodwill is compared to its carrying value. The Company recognizes an impairment charge for the amount by which the carrying amount of goodwill exceeds its fair value.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

Intangible assets with an estimated useful life are amortized over the expected life. Convertible Senior Notes – The Company records the 4% Convertible Senior Notes and 5% Convertible Senior Notes (collectively, the “Convertible Senior Notes”) at their contractual amounts, adjusted by the effects of a beneficial conversion feature and a contingent beneficial conversion feature (collectively, the “Conversion Features”).  The Conversion Features’ intrinsic value is included in “Additional paid-in capital” on the Company’s Consolidated Statements of Financial Condition and reduces the recorded liability amount associated with the Convertible Senior Notes. A Conversion Feature may be recognized as a result of adjustments to the conversion price for dividends declared to common stockholders. Stock Based Compensation – The Company is required to measure and recognize in the consolidated financial statements the compensation cost relating to share-based payment transactions. The Company recognizes compensation expense on a straight-line basis over the requisite service period for the entire award. 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.  Accordingly, the Company will not be subjected to federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and stock ownership tests are met.  The Company and certain of its direct and indirect subsidiaries, including FIDAC, RCap and certain subsidiaries of ACREG, have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRS”).  As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon their taxable income. The provisions of ASC 740, Income Taxes, (“ASC 740”) clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial position.  Thus, no accruals for penalties and interest were necessary as of March 31, 2014 and December 31, 2013. Use of Estimates–The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Commercial Real Estate Investments
Commercial Real Estate Loans – The Company's commercial real estate mortgages and loans are comprised of fixed-rate and adjustable-rate loans. Commercial real estate mortgages and loans are designated as held for investment and are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less a reserve for estimated losses if necessary. Origination fees and costs, premiums and discounts are amortized or accreted into interest income over the estimated life of the loan. The difference between the principal amount of a loan and proceeds at acquisition is recorded as either a discount or premium.
Preferred Equity Interests Held for Investment – Preferred equity interests are designated as held for investment and are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less a reserve for estimated losses if necessary.  Origination fees and costs, premiums and discounts are amortized or accreted into interest income over the estimated life of the investment.
Allowance for Losses – The Company evaluates the need for a loss reserve on its commercial real estate mortgages, loans and preferred equity interests held for investment (collectively referred to as “CRE Debt and Preferred Equity Investments”). A provision for losses related to CRE Debt and Preferred Equity Investments, including those accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, may be established when it is probable the Company will not collect amounts contractually due or all amounts previously estimated to be collectable. 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 CRE Debt and Preferred Equity Investments 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. Because this determination is 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.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

The Company may be exposed to various levels of credit risk depending on the nature of its investments and the nature and level of the assets underlying the investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval of and periodic monitoring of credit risk and other risks associated with each investment.  The Company’s investment underwriting procedures include an evaluation of the borrower’s ability to manage and operate the properties.  Management reviews loan to value metrics upon either the origination or the acquisition of a new investment but generally does not update the loan to value metrics in the course of quarterly surveillance. Management generally reviews the most recent financial information produced by the borrower, which may include, but is not limited to net operating income (“NOI’), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s CRE Debt and Preferred Equity Investments, and may consider other factors management deems important. Management also reviews market pricing to determine the borrower’s ability to refinance the asset at the maturity of the loan.  Management also reviews economic trends, both macro as well as those directly affecting the property, and the supply and demand of competing projects in the sub-market in which the subject property is located. In connection with the quarterly surveillance review process, loans are assigned an internal rating of Performing Loans, Watch List Loans or Workout Loans.   Loans that are deemed Performing Loans meet all present contractual obligations.  Watch List Loans are defined as performing or nonperforming loans for which the timing of cost recovery is under review.  Workout Loans are defined as loans for which there is likelihood that we may not recover our cost basis. Investments in Commercial Real Estate– Investments in commercial real estate are carried at historical cost less accumulated depreciation. Costs directly related to acquisitions deemed to be business combinations are expensed. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and improvements that extend the useful life of the asset are capitalized and depreciated over their useful life. Investments in real estate are depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:   Category                              Term Building                                35-40 years Site improvements               2-7 years   The Company follows the acquisition method of accounting for acquisitions of operating real estate held for investment, where the purchase price of operating real estate is allocated to tangible assets such as land, building, site improvements and other identified intangibles such as above/below market and in-place leases.
The Company evaluates whether real estate acquired in connection with a foreclosure ("REO") or UCC/deed in lieu of foreclosure (herein collectively referred to as a foreclosure) constitutes a business and whether business combination accounting is applicable. Upon foreclosure of a property, the excess of the carrying value of a loan, if any, over the estimated fair value of the property, less estimated costs to sell, is charged to provision for loan losses.
Investments in commercial real estate, including REO, which do not meet the criteria to be classified as held for sale, are separately presented in the consolidated statements of financial condition as held for investment. Real estate held for sale is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Once a property is determined to be held for sale, depreciation is no longer recorded. In addition, if considered material to the overall consolidated financial statements, the results of operations are reclassified to income (loss) from discontinued operations in the consolidated statements of comprehensive income (loss).
The Company's real estate portfolio (REO and real estate held for investment) is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property's value is considered impaired if the Company's estimate of the aggregate future undiscounted cash flows to be generated by the property is less than the carrying value of the property. In conducting this review, the Company considers U.S. macroeconomic factors, including real estate sector conditions, together with asset specific and other factors. To the extent impairment has occurred and is considered to be other than temporary, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

Revenue Recognition – Commercial Real Estate Investments - Interest income is accrued based on the outstanding principal amount of the CRE Debt and Preferred Equity Investments and their contractual terms. Premiums and discounts associated with the purchase of the CRE Debt and Preferred Equity Investments are amortized or accreted into interest income over the projected lives of the CRE Debt and Preferred Equity Investments using the interest method based on the estimated recovery value. Broker Dealer Activities In January 2014, RCap ceased its trading activity in U.S. Treasury securities, derivatives and certain securities borrowed and loaned transactions. Reverse Repurchase Agreements – RCap enters into reverse repurchase agreements as part of its matched book trading activity. Reverse repurchase agreements are recorded on trade date at the contract amount and are collateralized by mortgage-backed or other securities. Margin calls are made by RCap as necessary based on the daily valuation of the underlying collateral as compared to the contract price. RCap generates income from the spread between what is earned on the reverse repurchase agreements and what is paid on the matched repurchase agreements. RCap’s policy is to obtain possession of collateral with a market value in excess of the principal amount loaned under reverse repurchase agreements. To ensure that the market value of the underlying collateral remains sufficient, collateral is valued daily, and RCap will require counterparties to deposit additional collateral, when necessary.  All reverse repurchase activities are transacted under master repurchase agreements that give RCap the right, in the event of default, to liquidate collateral held and in some instances, to offset receivables and payables with the same counterparty. Securities Borrowed and Loaned Transactions – RCap records securities borrowed and loaned transactions as collateralized financings.   Securities borrowed transactions require RCap to provide the counterparty with collateral in the form of cash, or other securities. RCap receives collateral in the form of cash or other securities for securities loaned transactions.  RCap monitors the fair value of the securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary.  Securities borrowed and securities loaned transactions are recorded at contract value.  For these transactions, the rebates accrued by RCap are recorded as interest income or expense. U.S. Treasury Securities – RCap traded in U.S. Treasury securities for its proprietary portfolio, which consisted of long and short positions on U.S Treasury notes and bonds. U.S. Treasury securities were classified as trading investments and were recorded on the trade date at cost. Changes in fair value are reflected in Net gains (losses) on trading assets in the Company’s Consolidated Statement of Comprehensive Income (Loss). Interest income or expense on U.S. Treasury notes and bonds was accrued based on the outstanding principal amount of those investments and their stated terms. Derivatives- RCap entered primarily into U.S. Treasury, Eurodollar, federal funds, German government and U.S. equity index and currency futures and options contracts. RCap maintained a margin account which was settled daily with FCMs. Changes in the unrealized gains or losses on the futures and options contracts as well as any foreign exchange gains and losses are reflected in Net gains (losses) on trading assets in the Company’s Consolidated Statements of Comprehensive Income (Loss).  Unrealized gains (losses) are excluded from net income (loss) in arriving at cash flows from operating activities in the Consolidated Statements of Cash Flows. A Summary of Recent Accounting Pronouncements Follows: Presentation Presentation of Financial Statements (ASC 205)/Property, Plant and Equipment (ASC 360) On April 10, 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which raises the threshold for a disposal to be treated as discontinued operations.  Under this update, the Company is required to report disposals that represent a strategic shift that has (or will have) a major effect on the Company’s operations and financial results if the component of the Company or group of components meets the criteria to be accounted for as held for sale or the component of the Company or group of components is disposed of by sale.  The ASU removes requirements that operations and cash flows have been (or will be eliminated) from the ongoing operations and that the Company will not have any significant continuing involvement with the component in order to be reported as discontinued operations.  Additionally, ASU 2014-08 also eliminates a number of scope exceptions and requires additional disclosures for transactions that meet the definition of a discontinued operations and significant items that are disposed of or held for sale that do not meet the discontinued operations criteria. The ASU is effective for reporting periods beginning after December 15, 2014 with early adoption permitted.  Adoption is not expected to have a significant impact on the consolidated financial statements.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

Balance Sheet (ASC 210) On December 23, 2011, the FASB released ASU 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities.  Under this update, the Company is required to disclose both gross information and net information about both instruments and transactions eligible for offset in the Company’s Consolidated Statements of Financial Condition and transactions subject to an agreement similar to a master netting arrangement.  The scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and securities lending arrangements.   This disclosure is intended to enable financial statement users to understand the effect of such arrangements on the Company’s financial position.  In January 2013, the FASB released ASU 2013-01 Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which served solely to clarify the scope of financial instruments included in ASU 2011-11 as there was concern about diversity in practice.  The objective of these updates is to support further convergence of GAAP and IFRS requirements.  The updates are effective for annual reporting periods beginning on or after January 1, 2013 and did not have a significant impact on the consolidated financial statements. Comprehensive Income (ASC 220) On December 23, 2011, the FASB issued ASU 2011-12, Comprehensive Income: Deferral of Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05, which defers those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. This was done to allow the FASB time to re-deliberate the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income.  No other requirements under ASU 2011-05 are affected by ASU 2011-12.  The FASB tentatively decided not to require presentation of reclassification adjustments out of accumulated other comprehensive income on the face of the financial statements and to propose new disclosures instead. In February 2013, the FASB issued ASU 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This update addresses the disclosure issue left open at the deferral under ASU 2011-12.  This update requires the provision of information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, it requires presentation, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, a cross-reference must be provided to other disclosures required under GAAP that provide additional detail about those amounts.  This update is effective for reporting periods beginning after December 15, 2012.  Adoption of ASU 2013-02 did not have a significant impact on the consolidated financial statements. Assets Receivables – Troubled Debt Restructurings by Creditors (ASC 310-40) In January 2014, the FASB issued ASU 2014-04, Receivables–Troubled Debt Restructurings by Creditors, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, which clarifies that an in substance repossession or foreclosure has occurred, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, when the creditor obtains legal title to the property upon completion of a foreclosure or the borrower conveys all interest in the property to the creditor through a deed in lieu of foreclosure or similar arrangement. ASU 2014-04 also requires disclosure of the amount of foreclosed residential real estate held by the creditor and the recorded investment in mortgage loans collateralized by residential real estate property in the process of foreclosure. The update is effective for reporting periods beginning after December 15, 2014. Adoption is not expected to have a significant impact on the consolidated financial statements.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

Broad Transactions Financial Services – Investment Companies (ASC 946) In June 2013, the FASB finalized ASU 2013-08 amending the scope, measurement and disclosure requirements under Topic 946 – Financial Services-Investment Companies.  In January 2014, the FASB has officially removed the Investment Companies: Real Estate Property Investments and the Investment Properties projects from its agenda. As stated in ASC 946-10-15-3, the guidance in Topic 946 does not apply to REITs, and thus has no effect on the Company’s consolidated financial statements.

4.    AGENCY MORTGAGE-BACKED SECURITIES

The following tables present the Company’s available-for-sale Agency mortgage-backed securities portfolio as of March 31, 2014 and December 31, 2013 which were carried at their fair value:

March 31, 2014	Freddie Mac			Fannie Mae			Ginnie Mae			Total
	(dollars in thousands)
Principal outstanding	$	24,875,914		$	47,149,481		$	113,744		$	72,139,139
Unamortized premium		1,697,704			3,367,828			22,465			5,087,997
Unamortized discount		(9,446	)		(11,341	)		(380	)		(21,167	)
Amortized cost		26,564,172			50,505,968			135,829			77,205,969
Gross unrealized gains		205,409			381,265			8,650			595,324
Gross unrealized losses		(1,013,503	)		(1,433,916	)		(3,486	)		(2,450,905	)
Estimated fair value	$	25,756,078		$	49,453,317		$	140,993		$	75,350,388

	Fixed Rate			Adjustable Rate			Total
	(dollars in thousands)
Amortized cost	$	73,655,761		$	3,550,208		$	77,205,969
Gross unrealized gains		455,048			140,276			595,324
Gross unrealized losses		(2,435,557	)		(15,348	)		(2,450,905	)
Estimated fair value	$	71,675,252		$	3,675,136		$	75,350,388

December 31, 2013	Freddie Mac			Fannie Mae			Ginnie Mae			Total
	(dollars in thousands)
Principal outstanding	$	24,458,925		$	43,564,657		$	120,739		$	68,144,321
Unamortized premium		1,627,966			2,970,813			27,085			4,625,864
Unamortized discount		(9,533	)		(11,568	)		(383	)		(21,484	)
Amortized cost		26,077,358			46,523,902			147,441			72,748,701
Gross unrealized gains		227,423			456,057			9,845			693,325
Gross unrealized losses		(1,267,106	)		(1,781,683	)		(4,288	)		(3,053,077	)
Estimated fair value	$	25,037,675		$	45,198,276		$	152,998		$	70,388,949

	Fixed Rate			Adjustable Rate			Total
	(dollars in thousands)
Amortized cost	$	68,784,424		$	3,964,277		$	72,748,701
Gross unrealized gains		538,556			154,769			693,325
Gross unrealized losses		(3,040,153	)		(12,924	)		(3,053,077	)
Estimated fair value	$	66,282,827		$	4,106,122		$	70,388,949

Actual maturities of Agency mortgage-backed securities are generally shorter than stated contractual maturities because actual maturities of Agency mortgage-backed securities are affected by periodic payments and prepayments of principal on the underlying mortgages.  The following table summarizes the Company’s Agency mortgage-backed securities as of March 31, 2014 and December 31, 2013, according to their estimated weighted average life classifications:

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Item 1.  Notes to Consolidated Financial Statements

	March 31, 2014				December 31, 2013
Weighted Average Life	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
	(dollars in thousands)
Less than one year	$	66,051	$	65,248	$	65,584	$	64,561
Greater than one year through five years		46,192,942		47,553,922		50,046,013		51,710,059
Greater than five years through ten years		22,833,176		23,099,356		14,915,716		15,292,973
Greater than ten years		6,258,219		6,487,443		5,361,636		5,681,108
Total	$	75,350,388	$	77,205,969	$	70,388,949	$	72,748,701

The weighted average lives of the Agency mortgage-backed securities at March 31, 2014 and December 31, 2013 in the table above are based upon principal prepayment rates for each security provided through subscription-based financial information services. The prepayment model considers current yield, forward yield, steepness of the yield curve, current mortgage rates, mortgage rate of the outstanding loans, loan age, margin, volatility and other factors.  The actual weighted average lives of the Agency mortgage-backed securities could be longer or shorter than estimated. The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities by length of time that such securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013.

	March 31, 2014							December 31, 2013
	Estimated Fair Value		Gross Unrealized Losses			Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
	(dollars in thousands)
Less than 12 Months	$	50,079,785	$	(2,046,126	)		642	$	47,677,197	$	(2,569,474	)		583
12 Months or More		6,055,285		(404,779	)		50		6,102,283		(483,603	)		55
Total	$	56,135,070	$	(2,450,905	)		692	$	53,779,480	$	(3,053,077	)		638

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 are “AAA” rated or carry an implied “AAA” rating.  The investments are not considered to be other-than-temporarily 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.  Also, the Company is guaranteed payment of the principal amount of the securities by the respective issuing government agency. During the quarter ended March 31, 2014, the Company disposed of $4.3 billion of Agency mortgage-backed securities, resulting in a net realized gain of $129.5 million.  During the quarter ended March 31, 2013, the Company sold $16.3 billion of Agency mortgage-backed securities, resulting in a net realized gain of $182.8 million.  Average cost is used as the basis on which the realized gain or loss on sale is determined. Agency interest-only mortgage-backed securities represent the right to receive a specified portion of the contractual interest flows of the underlying outstanding principal balance of specific Agency mortgage-backed securities.  Agency interest-only mortgage-backed securities in the Company’s portfolio as of March 31, 2014 and December 31, 2013 had net unrealized gains of $57.3 million and $78.1 million and an amortized cost of $1.1 billion and $1.0 billion, respectively. 5.    ACQUISITION OF CREXUS On April 17, 2013, the Company, through its wholly-owned subsidiary CXS Acquisition Corporation, obtained control of CreXus pursuant to the merger agreement dated January 30, 2013. CreXus owned a portfolio of commercial real estate assets which are now owned by the Company. Following the acquisition, CXS Acquisition Corporation was renamed Annaly Commercial Real Estate Group, Inc.

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Item 1.  Notes to Consolidated Financial Statements

The business combination was accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations, (“ASC 805”). Accordingly, goodwill was measured as the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the acquisition-date fair value of the Company’s previously held equity interest in CreXus over the fair value, at acquisition date, of the identifiable assets acquired net of assumed liabilities. The following table summarizes the aggregate consideration and preliminary fair value of the assets acquired and liabilities assumed at the acquisition date:

	April 17, 2013
	(dollars in thousands)
Cash consideration transferred	$	876,267
Fair value of equity interest in CreXus held before the business combination		106,521
	$	982,788
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	151,843
Commercial real estate investments		796,950
Accrued interest receivable		3,485
Other assets		5,617
Mortgages payable		(19,376	)
Participation sold		(14,352	)
Accounts payable and accrued expenses		(12,729	)
Total identifiable net assets		911,438
Goodwill		71,350
	$	982,788

The Company recorded $71.4 million of goodwill during the second quarter of 2013 associated with the acquisition of CreXus in the Consolidated Statements of Financial Condition. The Company recorded a $0.4 million adjustment to goodwill during the second half of 2013. The final goodwill recorded on the Consolidated Statements of Financial Condition may differ from that reflected herein as a result of future measurement period adjustments. In management’s opinion, the goodwill represents the synergies that will result from integrating CreXus’ commercial real estate platform into the Company, which the Company believes is complementary to its existing business and return profile. The acquisition-date fair value of the previously held equity interest in CreXus excluded the estimated fair value of the control premium that resulted from the merger transaction. The Company recognized a loss of $18.9 million during the second quarter of 2013 as a result of remeasuring the fair value of its equity interest in CreXus held before the business combination. Under ASC 805, merger-related transactions costs (such as advisory, legal, valuation and other professional fees) are not included as components of consideration transferred but are expensed in the periods in which the costs are incurred. Transaction costs of $7.3 million were incurred during 2013 and were included in other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss).

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Item 1.  Notes to Consolidated Financial Statements

6.        COMMERCIAL REAL ESTATE INVESTMENTS

At March 31, 2014 and December 31, 2013, commercial real estate investments were composed of the following:

CRE Debt and Preferred Equity Investments

	March 31, 2014							December 31, 2013
	Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)			Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)
	(dollars in thousands)							(dollars in thousands)
Senior mortgages	$	337,845	$	336,845		20.5	%	$	669,512	$	667,299		42.2	%
Senior securitized mortgages(3)		399,541		398,113		24.3	%		-		-		0.0	%
Subordinate notes		15,965		16,049		1.0	%		41,059		41,408		2.6	%
Mezzanine loans		641,253		641,887		39.0	%		626,883		628,102		39.5	%
Preferred equity		249,769		247,312		15.2	%		249,769		247,160		15.7	%
Total	$	1,644,373	$	1,640,206		100	%	$	1,587,223	$	1,583,969		100	%

  (1) Net carrying value includes unamortized origination fees of $4.9 million.

  (2) Based on outstanding principal.

  (3) Assets of consolidated VIE.

	March 31, 2014
	Senior Mortgages			Senior Securitized Mortgages(1)		Subordinate Notes			Mezzanine Loans			Preferred Equity		Total
	(dollars in thousands)
Beginning balance	$	667,299		$	-	$	41,408		$	628,102		$	247,160	$	1,583,969
Originations & advances (principal)		67,946			-		-			59,000			-		126,946
Principal payments		(72	)		-		(25,094	)		(44,630	)		-		(69,796	)
Sales (principal)		-			-		-			-			-		-
Amortization & accretion of (premium) discounts		(36	)		-		(265	)		(617	)		28		(890	)
Net (increase) decrease in origination fees		(1,012	)		-		-			15			1		(996	)
Amortization of net origination fees		698			135		-			17			123		973
Transfers		(397,978	)		397,978		-			-			-		-
Allowance for loan losses		-			-		-			-			-		-
Net carrying value	$	336,845		$	398,113	$	16,049		$	641,887		$	247,312	$	1,640,206
(1) Assets of consolidated VIE.

	December 31, 2013
	Senior Mortgages			Senior Securitized Mortgages(1)		Subordinate Notes			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	429,229		$	-	$	41,571		$	568,759		$	187,623		$	1,227,182
Originations & advances (principal)		240,150			-		-			136,040			60,000			436,190
Principal payments		(388	)		-		(90	)		(64,035	)		-			(64,513	)
Sales (principal)		(13,750	)		-		-			-			-			(13,750	)
Amortization & accretion of (premium) discounts		(37	)		-		(73	)		(192	)		31			(271	)
Net (increase) decrease in origination fees		(1,106	)		-		-			14			(601	)		(1,693	)
Amortization of net origination fees		701			-		-			16			107			824
Transfers		12,500			-		-			(12,500	)		-			-
Allowance for loan losses		-			-		-			-			-			-
Net carrying value	$	667,299		$	-	$	41,408		$	628,102		$	247,160		$	1,583,969
(1) Assets of consolidated VIE.

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Item 1.  Notes to Consolidated Financial Statements

Internal CRE Debt and Preferred Equity Investment Ratings

	March 31, 2014
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List Loans			Workout Loans
	(dollars in thousands)
Senior mortgages	$	337,845		20.5	%	$	312,372	$	25,473	(2)	$	-
Senior securitized mortgages(1)		399,541		24.3	%		399,541		-			-
Subordinate notes		15,965		1.0	%		15,965		-			-
Mezzanine loans		641,253		39.0	%		635,253		6,000			-
Preferred equity		249,769		15.2	%		249,769		-			-
	$	1,644,373		100	%	$	1,612,900	$	31,473		$	-

  (1) Assets of consolidated VIE.

  (2) Includes approximately $13 million related to one loan on non accrual status.

	December 31, 2013
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List Loans			Workout Loans
	(dollars in thousands)
Senior mortgages	$	669,512		42.2	%	$	644,039	$	25,473	(1)	$	-
Subordinate notes		41,059		2.6	%		41,059		-			-
Mezzanine loans		626,883		39.5	%		620,883		6,000			-
Preferred equity		249,769		15.7	%		249,769		-			-
	$	1,587,223		100	%	$	1,555,750	$	31,473		$	-
(1) Includes approximately $13 million related to one loan on non accrual status.

Total Commercial Real Estate Investment

	March 31, 2014			December 31, 2013
	(dollars in thousands)			(dollars in thousands)
Real estate held for investment, at amortized cost
Land	$	6,639		$	6,639
Buildings and improvements		31,100			31,100
Subtotal		37,739			37,739
Less: accumulated depreciation		(1,170	)		(877	)
Total real estate held for investment at amortized cost, net		36,569			36,862
Real estate held for sale at fair value		3,744			23,270
Total investment in commercial real estate, net		40,313			60,132
Net carrying value of CRE Debt and Preferred  Equity Investments		1,640,206			1,583,969
Total commercial real estate investments	$	1,680,519		$	1,644,101

Securitizations and VIEs In January 2014, the Company closed NLY Commercial Mortgage Trust 2014-FL1 (the “Trust”), a $399.5 million securitization financing transaction which provides permanent, non-recourse financing collateralized by floating-rate first mortgage debt investments originated or purchased by the Company and is not subject to margin calls. A total of $260.7 million of investment grade bonds were issued by the Trust, representing an advance rate of 65.3% at a weighted average coupon of LIBOR plus 1.74%. The Company is using the proceeds to originate commercial real estate investments. The Company retained bonds rated below investment grade and the only interest-only bond issued by the Trust, which are referred to as the subordinate bonds. The Company incurred approximately $4.3 million of costs in connection with the securitization that have been capitalized and are being amortized to interest expense.  Deferred financing costs are included in Other assets in the accompanying consolidated statements of financial condition.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

The Trust is structured as a pass through entity that receives principal and interest on the underlying collateral and distributes those payments to the certificate holders. The Trust is a VIE and the Company is the primary beneficiary as a result of its ability to replace the special servicer without cause through its ownership interest in the subordinate bonds. The Company’s exposure to the obligations of the VIE is generally limited to the Company’s investment in the Trust. Assets of the Trust may only be used to settle obligations of the Trust. Creditors of the Trust have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the Trust. No gain or loss was recognized upon initial consolidation of the Trust. As of March 31, 2014 the carrying value of the Trust’s assets was $398.1 million, net of $1.4 million of unamortized origination fees, which are included in Commercial real estate debt and preferred equity investments in the accompanying Consolidated Statements of Financial Condition. As of March 31, 2014, the carrying value of the Trust’s liabilities was $260.7 million, classified as Securitized debt in the accompanying Consolidated Statements of Financial Condition. 7.        FAIR VALUE MEASUREMENTS The Company follows fair value guidance in accordance with GAAP to account for its financial instruments. The fair value of a financial instrument is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP requires classification of the instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).  If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value on the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows: Level 1– inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets. Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value. The Company designates its financial instruments as available for sale or trading depending upon the type of instrument and the Company’s intent and ability to hold such instrument to maturity. Instruments classified as available for sale and trading are reported at fair value on a recurring basis. The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the three level fair value hierarchy, with the observability of inputs determining the appropriate level. U.S. Treasury securities and investment in affiliates are valued using quoted prices for identical instruments in active markets. Agency mortgage-backed securities, Agency debentures, interest rate swaps, swaptions and other derivatives are valued using quoted prices, including dealer quotes, or internally estimated prices for similar assets using internal models. The Company incorporates common market pricing methods, including a spread measurement to the Treasury curve as well as underlying characteristics of the particular security including coupon, prepayment speeds, periodic and life caps, rate reset period and expected life of the security in its estimates of fair value. Management reviews the fair values generated by the internal models to determine whether prices are reflective of the current market.  Management indirectly corroborates its estimates of the fair value derived using internal models by comparing its results to independent prices provided by dealers in the securities and/or third party pricing services. Certain liquid asset classes, such as Agency fixed-rate pass-throughs, may be priced using independent sources such as quoted prices for TBA securities.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

The Agency mortgage-backed securities, interest rate swap and swaption markets are considered to be active markets such that participants transact with sufficient frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of the Agency mortgage-backed securities, interest rate swaps and swaptions markets and the similarity of the Company’s securities to those actively traded enable the Company to observe quoted prices in the market and utilize those prices as a basis for formulating fair value measurements.  Consequently, the Company has classified Agency mortgage-backed securities, interest rate swaps, swaptions, TBA derivatives and MBS options as Level 2 inputs in the fair value hierarchy.   The following table presents the estimated fair values of financial instruments measured at fair value on a recurring basis.

	Level 1		Level 2		Level 3		Total
March 31, 2014	(dollars in thousands)
Assets:
Agency mortgage-backed securities	$	-	$	75,350,388	$	-	$	75,350,388
Agency debentures		-		2,408,259		-		2,408,259
Investment in affiliates		137,647		-		-		137,647
Interest rate swaps		-		340,890		-		340,890
Other derivatives		-		40,105		-		40,105
Total Assets	$	137,647	$	78,139,642	$	-	$	78,277,289
Liabilities:
Interest rate swaps	$	-	$	1,272,616	$	-	$	1,272,616
Other derivatives		-		6,045		-		6,045
Total Liabilities	$	-	$	1,278,661	$	-	$	1,278,661
	Level 1		Level 2		Level 3		Total
At December 31, 2013	(dollars in thousands)
Assets:
U.S. Treasury securities	$	1,117,915	$	-	$	-	$	1,117,915
Agency mortgage-backed securities		-		70,388,949		-		70,388,949
Agency debentures		-		2,969,885		-		2,969,885
Investment in affiliates		139,447		-		-		139,447
Interest rate swaps		-		559,044		-		559,044
Other derivatives		3,487		143,238		-		146,725
Total Assets	$	1,260,849	$	74,061,116	$	-	$	75,321,965
Liabilities:
U.S. Treasury securities sold, not yet purchased		1,918,394		-		-		1,918,394
Interest rate swaps		-		1,141,828		-		1,141,828
Other derivatives		439		55,079		-		55,518
Total Liabilities	$	1,918,833	$	1,196,907	$	-	$	3,115,740

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the financial statements, for which it is practical to estimate the value. In cases where quoted market prices are not available, fair values are based upon discounted cash flows using market yields or other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, fair values are not necessarily indicative of the amount the Company would realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts. The carrying value of short term instruments, including cash and cash equivalents, reverse repurchase agreements and repurchase agreements whose term is less than twelve months, and securities borrowed and securities loaned, generally approximates fair value due to the short term nature of the instruments. Instruments held-for-investment are recorded at their principal balance outstanding, plus any premiums or less discounts that are amortized or accreted over the estimated life of the instrument. The estimated fair value of commercial real estate debt and preferred equity investments takes into consideration changes in credit spreads and interest rates from the date of origination or purchase to the reporting date. The fair value also reflects consideration of asset-specific maturity dates and other items that could have an impact on the fair value as of the reporting date.

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Item 1.  Notes to Consolidated Financial Statements

Estimates of fair value of corporate debt require the use of judgments and inputs including, but not limited to, the enterprise value of the borrower (i.e., an estimate of the total fair value of the borrower's debt and equity), the nature and realizable value of any collateral, the borrower’s ability to make payments when due and its earnings history.  Management also considers factors that affect the macro and local economic markets in which the borrower operates.  The fair value of repurchase agreements with remaining maturities greater than one year or with embedded optionality are valued as structured notes, with term to maturity, LIBOR rates and the Treasury curve being primary determinants of estimated fair value. The fair value of mortgages payable is calculated using the estimated yield of a new par loan to value the remaining terms in place. A par loan is created using the identical terms of the existing loan; however, the coupon is derived by using the original spread against the interpolated Treasury. The fair value of mortgages payable also reflects consideration of the value of the underlying collateral and changes in credit risk from the time the debt was originated. The carrying value of participation sold is based on the loan’s amortized cost less an allowance for loan losses, if necessary. The fair value of participation sold is based on the fair value of the underlying related commercial loan. The fair value of convertible senior notes is determined using end of day quoted prices in active markets. The fair value of securitized debt of consolidated VIE is determined using the average of external vendor pricing services. The following table summarizes the estimated fair value for all financial assets and liabilities as of March 31, 2014 and December 31, 2013.

		March 31, 2014				December 31, 2013
	Level in Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:		(dollars in thousands)
Cash and cash equivalents	1	$	924,197	$	924,197	$	552,436	$	552,436
Reverse repurchase agreements	1		444,375		444,375		100,000		100,000
Securities borrowed	1		513,500		513,500		2,582,893		2,582,893
U.S. Treasury securities	1		-		-		1,117,915		1,117,915
Agency mortgage-backed securities	2		75,350,388		75,350,388		70,388,949		70,388,949
Agency debentures	2		2,408,259		2,408,259		2,969,885		2,969,885
Investment in affiliates	1		137,647		137,647		139,447		139,447
Commercial real estate debt and preferred equity	3		1,640,206		1,649,239		1,583,969		1,581,836
Corporate debt	2		145,394		145,912		117,687		118,362
Interest rate swaps	2		340,890		340,890		559,044		559,044
Other derivatives	1,2		40,105		40,105		146,725		146,725
Financial liabilities:
U.S. Treasury securities sold, not yet  purchased	1	$	-	$	-	$	1,918,394	$	1,918,394
Repurchase agreements	1,2		64,543,949		64,856,432		61,781,001		62,134,133
Securities loaned	1		513,510		513,510		2,527,668		2,527,668
Convertible Senior Notes	1		827,486		883,946		825,262		870,199
Securitized debt of consolidated VIE	2		260,700		262,105		-		-
Mortgages payable	2		19,317		19,240		19,332		19,240
Participation sold	3		13,963		13,882		14,065		14,050
Interest rate swaps	2		1,272,616		1,272,616		1,141,828		1,141,828
Other derivatives	1,2		6,045		6,045		55,518		55,518

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Item 1.  Notes to Consolidated Financial Statements

8.        SECURED FINANCING The Company had outstanding $64.5 billion and $61.8 billion of repurchase agreements with weighted average borrowing rates of 2.43% and 2.33%, after giving effect to the Company’s interest rate swaps, and weighted average remaining maturities of 187 days and 204 days as of March 31, 2014 and December 31, 2013, respectively.  Investment Securities and U.S. Treasury securities pledged as collateral under these repurchase agreements and interest rate swaps had an estimated fair value and accrued interest of $68.5 billion and $227.0 million, respectively, at March 31, 2014 and $67.9 billion and $222.1 million, respectively, at December 31, 2013. At March 31, 2014 and December 31, 2013, the repurchase agreements had the following remaining maturities and weighted average rates:

	March 31, 2014					December 31, 2013
	Repurchase Agreements		Weighted Average Rate			Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	6,065,530		0.29	%	$	-		0.00	%
2 to 29 days		12,308,123		0.34	%		21,171,574		0.36	%
30 to 59 days		17,122,926		0.43	%		13,373,921		0.43	%
60 to 89 days		3,842,791		0.42	%		3,592,266		0.44	%
90 to 119 days		6,941,938		0.55	%		4,010,334		0.52	%
Over 120 days(1)		18,262,641		1.26	%		19,632,906		1.29	%
Total	$	64,543,949		0.65	%	$	61,781,001		0.68	%
(1) Approximately 14% of the total repurchase agreements have a remaining maturity over 1 year.

Repurchase agreements and reverse repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements permit netting. The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition as of March 31, 2014 and December 31, 2013.

	March 31, 2014						December 31, 2013
	Reverse Repurchase Agreements			Repurchase Agreements			Reverse Repurchase Agreements			Repurchase Agreements
	(dollars in thousands)
Gross Amounts	$	1,766,563		$	65,866,137		$	2,524,980		$	64,205,981
Amounts Offset		(1,322,188	)		(1,322,188	)		(2,424,980	)		(2,424,980	)
Netted Amounts	$	444,375		$	64,543,949		$	100,000		$	61,781,001

9.        DERIVATIVE INSTRUMENTS

In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps, swaptions and U.S. Treasury futures contracts. The Company also enters into TBA derivatives and MBS options to economically hedge its exposure to market risks. The purpose of using derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders. These derivatives are subject to changes in market value resulting from changes in interest rates, volatility, Agency mortgage-backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives

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Item 1.  Notes to Consolidated Financial Statements

also creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative transactions, the amount which may vary based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by the counterparty, the Company could have difficulty obtaining its Investment Securities pledged as collateral as well as receiving payments in accordance with the terms of the derivative contracts. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. The table below summarizes fair value information about our derivative assets and liabilities as of March 31, 2014 and December 31, 2013:

Derivatives Instruments	Balance Sheet Location	March 31, 2014		December 31, 2013
Assets:		(dollars in thousands)
Interest rate swaps	Interest rate swaps, at fair value	$	340,890	$	559,044
Interest rate swaptions	Other derivative contracts, at fair value		36,965		110,361
TBA derivatives	Other derivative contracts, at fair value		3,140		20,693
MBS options	Other derivative contracts, at fair value		-		12,184
U.S. Treasury futures	Other derivative contracts, at fair value		-		3,487
		$	380,995	$	705,769
Liabilities:
Interest rate swaps	Interest rate swaps, at fair value	$	1,272,616		1,141,828
Interest rate swaptions	Other derivative contracts, at fair value		-		24,662
TBA derivatives	Other derivative contracts, at fair value		6,045		13,779
MBS options	Other derivative contracts, at fair value		-		16,638
U.S. Treasury futures	Other derivative contracts, at fair value		-		439
		$	1,278,661	$	1,197,346

The following table summarizes certain characteristics of the Company’s interest rate swaps at March 31, 2014 and December 31, 2013:

March 31, 2014
Maturity	Current Notional(1)		Weighted Average Pay Rate(2)(3)			Weighted Average Receive Rate(2)(4)			Weighted Average Years to Maturity(2)
(dollars in thousands)
0 - 3 years	$	24,516,550		1.78	%		0.17	%		1.84
3 - 6 years		8,723,500		2.07	%		0.19	%		4.60
6 - 10 years		17,179,700		2.49	%		0.23	%		7.83
Greater than 10 years		6,290,000		3.66	%		0.18	%		21.09
Total / Weighted Average	$	56,709,750		2.16	%		0.19	%		5.31

(1)	Notional amount includes $3.1 billion in forward starting pay fixed swaps, offset by $1.4 billion in forward starting receive fixed swaps.
(2)	Excludes forward starting swaps.
(3)	Weighted average fixed rate on forward starting pay fixed swaps was 3.00%.
(4)	Weighted average fixed rate on forward starting pay receive swaps was 1.18%.

December 31, 2013
Maturity	Current Notional		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	24,286,000		1.83	%		0.18	%		1.98
3 - 6 years		8,865,410		2.02	%		0.19	%		4.19
6 - 10 years		15,785,500		2.37	%		0.23	%		7.66
Greater than 10 years		3,490,000		3.62	%		0.20	%		19.93
Total / Weighted Average	$	52,426,910		2.14	%		0.20	%		5.26

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Item 1.  Notes to Consolidated Financial Statements

The following table summarizes certain characteristics of the Company’s interest rate swaptions at March 31, 2014 and December 31, 2013:

March 31, 2014	Current Underlying Notional		Weighted Average Underlying Pay Rate		Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
(dollars in thousands)
Long	$	4,100,000		3.14%	3M LIBOR		10.04		4.70
Short	$	-		-	-		-		-
December 31, 2013	Current Underlying Notional		Weighted Average Underlying Pay Rate		Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
(dollars in thousands)
Long	$	5,150,000		3.07%	3M LIBOR		10.10		4.26
Short	$	1,000,000	3M LIBOR		2.83%		5.96		23.71

The following table summarizes certain characteristics of the Company’s TBA derivatives as of March 31, 2014 and December 31, 2013:

March 31, 2014
Purchase and sale contracts for derivative TBAs	Notional			Cost Basis			Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	1,500,000		$	1,569,331		$	1,568,184		$	(1,147	)
Sale contracts		(2,125,000	)		(2,127,773	)		(2,129,531	)		(1,758	)
Net TBA derivatives	$	(625,000	)	$	(558,442	)	$	(561,347	)	$	(2,905	)

December 31, 2013
Purchase and sale contracts for derivative TBAs	Notional			Cost Basis			Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	2,625,000		$	2,733,682		$	2,722,324		$	(11,357	)
Sale contracts		(3,875,000	)		(3,923,213	)		(3,904,941	)		18,271
Net TBA derivatives	$	(1,250,000	)	$	(1,189,531	)	$	(1,182,617	)	$	6,914

Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty. Beginning on September 30, 2013, the Company elected to present derivative contracts on a gross basis on the Consolidated Statements of Financial Condition. Prior to September 30, 2013, the Company presented the fair value of derivative contracts net, by counterparty. The following tables present information about our derivative assets and liabilities that are subject to such provisions and can potentially be offset on our Consolidated Statements of Financial Condition as of March 31, 2014 and December 31, 2013, respectively.

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Item 1.  Notes to Consolidated Financial Statements

March 31, 2014	Gross Amounts		Amounts Eligible for Offset			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	340,890	$	(311,264	)	$	29,626
Interest rate swaptions, at fair value		36,965		-			36,965
TBA derivatives, at fair value		3,140		(1,304	)		1,836
Liabilities:
Interest rate swaps, at fair value		1,272,616		(311,264	)		961,352
Interest rate swaptions, at fair value		-		-			-
TBA derivatives, at fair value		6,045		(1,304	)		4,741
December 31, 2013	Gross Amounts		Amounts Eligible for Offset			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	559,044	$	(408,553	)	$	150,491
Interest rate swaptions, at fair value		110,361		(24,662	)		85,699
TBA derivatives, at fair value		20,693		(9,775	)		10,918
MBS options, at fair value		12,184		(3,292	)		8,892
U.S. Treasury futures, at fair value		3,487		(439	)		3,048
Liabilities:
Interest rate swaps, at fair value		1,141,828		(408,553	)		733,275
Interest rate swaptions, at fair value		24,662		(24,662	)		-
TBA derivatives, at fair value		13,779		(9,775	)		4,004
MBS options, at fair value		16,638		(3,292	)		13,346
U.S. Treasury futures, at fair value		439		(439	)		-

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

	Location on Consolidated Statements of Comprehensive Income (Loss)
	Realized Gains (Losses) on Interest Rate Swaps(1)			Realized Gains (Losses) on Termination of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
	(dollars in thousands)
For the Quarter Ended:
March 31, 2014	$	(260,435	)	$	(6,842	)	$	(348,942	)
March 31, 2013	$	(225,476	)	$	(16,378	)	$	325,734

(1) Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

As of March 31, 2014, the swap portfolio, excluding forward starting swaps, had a weighted average pay rate of 2.16% and a weighted average receive rate of 0.19%. The weighted average pay rate at December 31, 2013 was 2.14% and the weighted average receive rate was 0.20%. The effect of other derivative contracts on the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:

Three Months Ended March 31, 2014
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives (1)	$	(37,837	)	$	(11,410	)	$	(49,247	)
Net interest rate swaptions	$	(40,943	)	$	(52,917	)	$	(93,860	)
U.S. Treasury futures	$	(5,669	)	$	(3,048	)	$	(8,717	)
							$	(151,824	)

(1) Includes options on TBA securities.

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Item 1.  Notes to Consolidated Financial Statements

Three Months Ended March 31, 2013
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives	$	9,340	$	(1,875	)	$	7,465
Net interest rate swaptions	$	-	$	-		$	-
U.S. Treasury futures	$	12,702	$	(12,458	)	$	244
						$	7,709

Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements (“ISDA”) which may contain provisions that grant counterparties certain rights with respect to the applicable ISDA upon the occurrence of certain events such as (i) negative performance that results in a decline in net assets in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange (NYSE). Upon the occurrence of any one of items (i) through (iv), the counterparty to the applicable ISDA has a right to terminate the ISDA in accordance with its provisions. The aggregate fair value of all derivative instruments with the aforementioned features that are in a net liability position at March 31, 2014 is approximately $898 million, which represents the maximum amount the Company would be required to pay upon termination. This amount is fully collateralized. 10.      CONVERTIBLE SENIOR NOTES In 2010, the Company issued $600.0 million in aggregate principal amount of its 4% convertible senior notes due 2015 (“4% Convertible Senior Notes”) for net proceeds of approximately $582.0 million. The Company has repurchased $492.5 million in aggregate principal amount of its 4% Convertible Senior Notes as of March 31, 2014. Interest on the 4% Convertible Senior Notes is paid semi-annually at a rate of 4% per year and the 4% Convertible Senior Notes will mature on February 15, 2015 unless repurchased or converted earlier. The 4% Convertible Senior Notes are convertible into shares of Common Stock at a conversion rate for each $1,000 principal amount of 4% Convertible Senior Notes.  The initial conversion rate was 46.6070, which was equivalent to an initial conversion price of approximately $21.4560 per share of Common Stock. The conversion rate at March 31, 2014 was 81.9145, which is equivalent to a conversion price of approximately $12.2079 per share of Common Stock.  The conversion rate is subject to adjustment in certain circumstances.  There is no limit on the total number of shares of Common Stock that the Company would be required to issue upon a conversion. The intrinsic value of the contingent beneficial conversion feature was $97.4 million and $93.2 million at March 31, 2014 and December 31, 2013, respectively, which is reflected in Additional paid-in capital on the Company’s Consolidated Statements of Financial Condition, and reduces the recorded liability on the 4% Convertible Senior Notes. The unamortized contingent beneficial conversion feature of the 4% Convertible Senior Notes at March 31, 2014 and December 31, 2013 of $25.7 million and $26.9 million, respectively, is recognized in interest expense over the remaining life of the notes. In May 2012, the Company issued $750.0 million in aggregate principal amount of its 5% convertible senior notes due 2015 (“5% Convertible Senior Notes”) for net proceeds of approximately $727.5 million. Interest on the 5% Convertible Senior Notes is paid semi-annually at a rate of 5% per year and the 5% Convertible Senior Notes will mature on May 15, 2015 unless repurchased or converted earlier.  The 5% Convertible Senior Notes are convertible into shares of Common Stock at a conversion rate for each $1,000 principal amount of 5% Convertible Senior Notes.  The initial conversion rate and conversion rate at March 31, 2014 was 52.7969, which was equivalent to an initial conversion price of approximately $18.94 per share of Common Stock, subject to adjustment in certain circumstances.  Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s sole discretion. There is no limit on the total number of shares of Common Stock that the Company would be required to issue upon a conversion. At issuance, the Company determined that the 5% Convertible Senior Notes included an equity component of $11.7 million, which is reflected in Additional paid-in capital on the Company’s Consolidated Statements of Financial Condition, and reduces the recorded liability on the 5% Convertible Senior Notes.  The $11.7 million discount to the principal amount of the Convertible Senior Notes is recognized in interest expense over the remaining life of the notes. At March 31, 2014 and December 31, 2013, $4.4 million and $5.4 million, respectively, of the unamortized discount had not been reflected in interest expense.

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Item 1.  Notes to Consolidated Financial Statements

The 4% Convertible Senior Notes due 2015 and the 5% Convertible Senior Notes due 2015 rank pari-passu with each other. They are each a general corporate obligation and therefore rank junior to collateralized debt of the Company with respect to secured collateral. The 4% Convertible Senior Notes and the 5% Convertible Senior Notes rank senior to the 7.875% Series A Cumulative Redeemable Preferred Stock, 7.625% Series C Cumulative Redeemable Preferred Stock and 7.50% Series D Cumulative Redeemable Preferred Stock.  The 7.875% Series A Cumulative Redeemable Preferred Stock, 7.625% Series C Cumulative Redeemable Preferred Stock and 7.50% Series D Cumulative Redeemable Preferred Stock rank pari-passu with each other.  The 7.875% Series A Cumulative Redeemable Preferred Stock, 7.625% Series C Cumulative Redeemable Preferred Stock and 7.50% Series D Cumulative Redeemable Preferred Stock rank senior to the common stock of the Company. 11.     COMMON STOCK AND PREFERRED STOCK The Company’s authorized shares of capital stock, par value of $0.01 per share, consists of 1,956,937,500 shares classified as common stock, 7,412,500 shares classified as 7.875% Series A Cumulative Redeemable Preferred Stock, 4,600,000 shares classified as 6.00% Series B Cumulative Convertible Preferred Stock, 12,650,000 shares classified as 7.625% Series C Cumulative Redeemable Preferred Stock and 18,400,000 shares classified as 7.50% Series D Cumulative Redeemable Preferred Stock. (A)  Common Stock At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 947,488,945 and 947,432,862   shares of common stock, with a par value of $0.01 per share. No options were exercised during the quarter ended March 31, 2014.  During the quarter ended March 31, 2013, 20,000 options were exercised for an aggregate exercise price of $0.3 million. During the quarter ended March 31, 2014, the Company raised $0.6 million, by issuing 56,000 shares, through the Direct Purchase and Dividend Reinvestment Program.  During the quarter ended March 31, 2013, the Company raised $0.8 million, by issuing 50,000 shares, through the Direct Purchase and Dividend Reinvestment Program. In October 2012, the Company announced that its board of directors (“Board of Directors”) had authorized the repurchase of up to $1.5 billion of its outstanding common shares over a 12 month period. All common shares purchased were part of a publicly announced plan in open-market transactions. The repurchase plan expired in October 2013. There were no purchases made by the Company under this repurchase plan during the quarter ended March 31, 2013. In March 2012, the Company entered into six separate Distribution Agency Agreements (“Distribution Agency Agreements”) with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RCap Securities, Inc. (together, the Agents).  Pursuant to the terms of the Distribution Agency Agreements, the Company may sell from time to time through the Agents, as its sales agents, up to 125,000,000 shares of the Company’s common stock. The Company did not make any sales under the Distribution Agency Agreements during the quarters ended March 31, 2014 and 2013. (B) Preferred Stock At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 7,412,500 shares of Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”), with a par value of $0.01 per share and a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). The Series A Preferred Stock is entitled to a dividend at a rate of 7.875% per year based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Series A Preferred Stock is redeemable at $25.00 per share plus accrued and unpaid dividends (whether or not declared) exclusively at the Company's option commencing on April 5, 2009 (subject to the Company's right under limited circumstances to redeem the Series A Preferred Stock earlier in order to preserve its qualification as a REIT). Through March 31, 2014, the Company had declared and paid all required quarterly dividends on the Series A Preferred Stock.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 12,000,000 shares of Series C Preferred Stock, with a par value of $0.01 per share and a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). The Series C Preferred Stock is entitled to a dividend at a rate of 7.625% per year based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Series C Preferred Stock is redeemable at $25.00 per share plus accrued and unpaid dividends (whether or not declared) exclusively at the Company’s option commencing on May 16, 2017 (subject to the Company’s right under limited circumstances to redeem the Series C Preferred Stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change of control of the Company). Through March 31, 2014, the Company had declared and paid all required quarterly dividends on the Series C Preferred Stock. At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 18,400,000 shares of Series D Preferred Stock, with a par value of $0.01 per share and a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). The Series D Preferred Stock is entitled to a dividend at a rate of 7.50% per year based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Series D Preferred Stock is redeemable at $25.00 per share plus accrued and unpaid dividends (whether or not declared) exclusively at the Company’s option commencing on September 13, 2017 (subject to the Company’s right under limited circumstances to redeem the Series D Preferred Stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change of control of the Company). Through March 31, 2014, the Company had declared and paid all required quarterly dividends on the Series D Preferred Stock. (C) Distributions to Stockholders During the quarter ended March 31, 2014, the Company declared dividends to common stockholders totaling $284.2 million, or $0.30 per common share, paid to common stockholders on April 30, 2014. During the quarter ended March 31, 2014, the Company declared dividends to Series A Preferred stockholders totaling approximately $3.6 million, or $0.492 per share, Series C Preferred stockholders totaling approximately $5.7 million, or $0.477 per share, Series D Preferred stockholders totaling approximately $8.6 million, or $0.469 per share, which were paid to preferred stockholders on March 31, 2014. During the quarter ended March 31, 2013, the Company declared dividends to common stockholders totaling $426.2 million or $0.45 per share, which were paid to common stockholders on April 29, 2013.  During the quarter ended March 31, 2013, the Company declared dividends to Series A Preferred stockholders totaling approximately $3.6 million or $0.492 per share, Series C Preferred stockholders totaling approximately $5.7 million or $0.477 per share and Series D Preferred stockholders totaling approximately $8.6 million or $0.469 per share. 12.    GOODWILL At March 31, 2014 and December 31, 2013, goodwill totaled $94.8 million. 13.    INTEREST INCOME AND INTEREST EXPENSE The table below presents the components of the Company’s interest income and interest expense for the quarters ended March 31, 2014 and 2013.

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Item 1.  Notes to Consolidated Financial Statements

	For the quarters ended
	March 31,		March 31,
	2014		2013
Interest income:
Investment Securities	$	614,419	$	723,750
Commercial investment portfolio(1)		39,486		1,070
U.S. Treasury securities		1,329		5,996
Securities loaned		114		2,612
Reverse repurchase agreements		500		3,636
Other		53		153
Total interest income		655,901		737,217
Interest expense:
Repurchase agreements		103,131		157,064
Convertible Senior Notes		18,897		15,813
U.S. Treasury securities sold, not yet purchased		1,076		2,788
Securities borrowed		95		1,925
Securitized debt of consolidated VIE		1,611		-
Participation sold		161		-
Total interest expense		124,971		177,590
Net interest income	$	530,930	$	559,627
(1) Includes commercial real estate debt and preferred equity and corporate debt.

14.    NET INCOME (LOSS) PER COMMON SHARE

The following table presents a reconciliation of net income and shares used in calculating basic and diluted  earnings per share for the quarters ended March 31, 2014 and 2013.

	For the Quarter Ended
	March 31, 2014			March 31, 2013
	(dollars in thousands, except per share data)
Net income (loss)	$	(203,351	)	$	870,278
Less: Preferred stock dividends		17,992			17,992
Net income (loss) available to common shareholders, prior to adjustment for dilutive potential common shares, if necessary		(221,343	)		852,286
Add:  Interest on Convertible Senior Notes, if dilutive		-			10,450
Net income (loss) available to common shareholders, as adjusted		(221,343	)		862,736
Weighted average shares of common stock outstanding-basic		947,458,813			947,249,901
Add:  Effect of dilutive stock options and Convertible Senior Notes, if dilutive		-			47,565,268
Weighted average shares of common  stock outstanding-diluted		947,458,813			994,815,169
Net income (loss) per share available (related) to common share:
Basic	$	(0.23	)	$	0.90
Diluted	$	(0.23	)	$	0.87

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Item 1.  Notes to Consolidated Financial Statements

Options to purchase 3.2 million and 3.4 million shares of common stock were outstanding and considered anti-dilutive as their exercise price and option expense exceeded the average stock price for the quarters ended March 31, 2014 and 2013, respectively. 15.    LONG-TERM STOCK INCENTIVE PLAN The Company adopted the 2010 Equity Incentive Plan (the “Plan”), which authorizes the Compensation Committee of the Board of Directors to grant options, stock appreciation rights, dividend equivalent rights, or other share-based awards, including restricted shares up to an aggregate of 25,000,000 shares, subject to adjustments as provided in the 2010 Equity Incentive Plan.   The Company had previously adopted a long term stock incentive plan for executive officers, key employees and non-employee directors (the “Prior Plan”).  The Prior Plan authorized the Compensation Committee of the Board of Directors to grant awards, including non-qualified options as well as incentive stock options as defined under Section 422 of the Code.  The Prior Plan authorized the granting of options or other awards for an aggregate of the greater of 500,000 shares or 9.5% of the diluted outstanding shares of the Company’s common stock, up to a ceiling of 8,932,921 shares.  No further awards will be made under the Prior Plan, although existing awards remain effective. Stock options were issued at the market price on the date of grant, subject to an immediate or four year vesting in four equal installments with a contractual term of 5 or 10 years.  The following table sets forth activity related to the Company’s stock options awarded under the Plan as of March 31, 2014:

	For the Quarter Ended
	March 31, 2014
	Number of Shares			Weighted Average Exercise Price
Options outstanding at the beginning of period		3,581,752		$	15.44
Granted		-		$	-
Exercised		-		$	-
Forfeited		(353,417	)	$	14.94
Expired		-		$	-
Options outstanding at the end of period		3,228,335		$	15.49
Options exercisable at the end of the period		3,228,335		$	15.49

The weighted average remaining contractual term was approximately 3.5 years for stock options outstanding and exercisable as of March 31, 2014.  As of March 31, 2014, there was no unrecognized compensation cost related to nonvested share-based compensation awards. 16.    INCOME TAXES
For the quarter ended March 31, 2014 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860. As a REIT, the Company is not subject to federal income tax to the extent that it distributes its taxable income to its stockholders.  To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its stockholders and meet certain other requirements such as assets it may hold, income it may generate and its stockholder composition. It is generally the Company’s policy to distribute 100% of its REIT taxable income. To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within the next year as permitted by the Code. For years prior to 2013, the Company retained the amount of taxable income attributable to certain employee remuneration deductions disallowed for tax purposes pursuant to  Section 162(m) of the Code (“Section 162(m)”). As a result of the externalization of management effective as of July 1, 2013, the Company does not expect to be subject to the Section 162(m) disallowance. The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status as a REIT, and therefore, the Company generally does not pay income tax in such jurisdictions. The Company may, however, be subject to certain minimum state and local tax filing fees and the Company’s TRSs are subject to federal, state and local taxes. During the quarter ended March 31, 2014, the Company recorded $4.0 million of income tax expense for income attributable to its TRSs.  During the quarter ended March 31, 2013, the Company’s TRSs recorded $1.9 million of income tax expense for income attributable to those subsidiaries, and the portion of earnings retained based on Code Section 162(m) limitations. During the quarter ended March 31, 2013, the Company recorded $3.9 million of income tax expense for a portion of earnings retained based on Section 162(m) limitations. The Company’s 2012, 2011 and 2010 federal, state and local tax returns remain open for examination.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 1.  Notes to Consolidated Financial Statements

17.      LEASE COMMITMENTS AND CONTINGENCIES Commitments The Company has a non-cancelable lease for office space which commenced in May 2002 and expires in December 2014. FIDAC has a lease for office space which commenced in October 2010 and expires in February 2016.  The lease expense for the quarters ended March 31, 2014 and 2013 were $0.4 million and $0.6 million, respectively. The Company’s aggregate future minimum lease payments total $1.9 million.  The following table details the lease payments.

Year Ending December 31,	Lease Commitments
	(dollars in thousands)
2014 (remaining)	$	1,721
2015		159
2016		27
2017		-
2018		-
Later years		-
	$	1,907

The Company had no material unfunded loan commitments as of March 31, 2014 and December 31, 2013. Contingencies From time to time, the Company is involved in various claims and legal actions arising in the ordinary course of business.  In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated financial statements. No accrual for contingencies was required as of March 31, 2014 and December 31, 2013. 18.     RISK MANAGEMENT The primary risks to the Company are liquidity and investment/market risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest earning assets and the interest expense incurred in connection with the interest bearing liabilities, by affecting the spread between the interest earning assets and interest bearing liabilities. Changes in the level of interest rates can also affect the value of the interest earning assets and the Company’s ability to realize gains from the sale of these assets.  A decline in the value of the interest earning assets pledged as collateral for borrowings under repurchase agreements and derivative contracts could result in the counterparties demanding additional collateral pledges or liquidation of some of the existing collateral to reduce borrowing levels. The Company may seek to mitigate the potential financial impact by entering into interest rate agreements such as interest rate swaps, interest rate swaptions and other hedges. As of March 31, 2014 and December 31, 2013, the Company entered into interest rate swaps to pay a fixed rate and receive a floating rate of interest, with a total notional amount of $58.1 billion and $52.4 billion, respectively. As of March 31, 2014 the Company entered into interest rate swaps to receive a fixed rate and pay a floating rate of interest, with a total notional amount of $1.4 billion. The Company was not party to any receive fixed-rate interest rate swaps at December 31, 2013 Weakness in the mortgage market, the shape of the yield curve and changes in the expectations for the volatility of future interest rates may adversely affect the performance and market value of the Company’s investments. This could negatively impact the Company’s book value.  Furthermore, if many of the Company’s lenders are unwilling or unable to provide additional financing, the Company could be forced to sell its Investment Securities at an inopportune time when prices are depressed. The Company has established policies and procedures for mitigating risks, including conducting scenario analyses and utilizing a range of hedging strategies. The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities are guaranteed by those respective agencies and the payment of principal and interest on Ginnie Mae Agency mortgage-backed securities are backed by the full faith and credit of the U.S. government.  Principal and interest on Agency debentures are guaranteed by the agency issuing the debenture.  Substantially all of the Company’s Investment Securities have an actual or implied “AAA” rating.

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Item 1.  Notes to Consolidated Financial Statements

The Company faces credit risk on the portions of its portfolio which are not Agency mortgage-backed securities, Agency debentures or U.S. Treasury securities.  The Company is exposed to credit risk on CRE Debt and Preferred Equity Investments and corporate debt. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, maintaining qualifying collateral and continually assessing the creditworthiness of counterparties, borrowers and issuers. 19.   RCAP REGULATORY REQUIREMENTS RCap is subject to regulations of the securities business that include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and employees.  As a self-clearing, registered broker dealer, RCap is required to maintain minimum net capital by FINRA.  As of March 31, 2014 RCap had a minimum net capital requirement of $0.3 million. RCap consistently operates with capital in excess of its regulatory capital requirements. RCap’s regulatory net capital as defined by SEC Rule 15c3-1, as of March 31, 2014 was $397.2 million with excess net capital of $396.9 million. 20.   RELATED PARTY TRANSACTIONS Investment in Affiliate, Available-For-Sale Equity Security At March 31, 2014, the Company’s available-for-sale equity securities represented shares of Chimera Investment Corporation (“Chimera”), which are reported at fair value. The Company owned approximately 45.0 million shares of Chimera at a fair value of approximately $137.6 million at March 31, 2014 and approximately 45.0 million shares of Chimera at a fair value of approximately $139.4 million at December 31, 2013.  At March 31, 2014 and December 31, 2013, the investment in Chimera had an unrealized loss of $1.2 million and an unrealized gain of $0.6 million, respectively. The Company evaluates the near-term prospects of its current investment in Chimera in relation to the severity and length of time of impairment. As of March 31, 2014, management determined that its investment in Chimera was not considered to be other-than-temporarily impaired as the Company had the intent and ability to retain its investments for a period of time sufficient to allow for any anticipated recovery in market value. As of December 31, 2013, the Company’s investment in Chimera was in an unrealized gain position. Advisory fees For the quarter ended March 31, 2014, the Company recorded advisory fees from Chimera totaling $6.1 million.  For the quarter ended March 31, 2013, the Company recorded advisory fees from Chimera and CreXus totaling $9.3 million.  At March 31, 2014 and December 31, 2013, the Company had amounts receivable from Chimera of $6.5 million and $6.8 million, respectively. Management Agreement In June 2013, the Company and the Manager entered into a Management Agreement (the “Management Agreement”), effective as of July 1, 2013 and applicable for the entire 2013 calendar year, pursuant to which the Company’s management is conducted by the Manager through the authority delegated to it in the Management Agreement and pursuant to the policies established by the Board of Directors (the “Externalization”). Pursuant to the terms of the Management Agreement, the Company pays the Manager a monthly management fee in an amount equal to 1/12th of 1.05% of stockholders’ equity, as defined in the Management Agreement, for its management services. Effective July 1, 2013, a majority of the Company’s employees were terminated by the Company and were hired by the Manager.  The Company has a limited number of employees following the Externalization, all of whom are employees of the Company’s subsidiaries for regulatory or corporate efficiency reasons. All compensation expenses associated with such retained employees reduce the management fee. Pursuant to a pro forma calculation that computed the management fee as though it was in effect beginning January 1, 2013, the Company paid the Manager an amount equal to the pro forma calculation minus the actual compensation paid to the Company’s and its subsidiaries’ employees from January 1, 2013 to June 30, 2013. The Management Agreement may be amended or modified by agreement between the Company and the Manager. The initial term of the Management Agreement expires on December 31, 2014 and will be automatically renewed for a one year term each anniversary date thereafter unless previously terminated pursuant to the terms of the Management Agreement. There is no termination fee for a termination of the Management Agreement by either the Company or the Manager.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

ITEM 2.        MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Special Note Regarding Forward-Looking Statements Certain statements contained in this quarterly report, and certain statements contained in our future filings with the Securities and Exchange Commission (the SEC or the Commission), in our press releases or in our other public or stockholder communications may not be based on historical facts and are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking statements, which are based on various assumptions, (some of which are beyond our control) may be identified by reference to a future period or periods, or by the use of forward-looking terminology, such as "may," "will," "believe," "expect," "anticipate," "continue," or similar terms or variations on those terms, or the negative of those terms. Actual results could differ materially from those set forth in forward-looking statements due to a variety of factors, including, but not limited to, changes in interest rates, changes in the yield curve, changes in prepayment rates, the availability of mortgage-backed securities and other securities for purchase, the availability of financing, and, if available, the terms of any financing, changes in the market value of our assets, changes in business conditions and the general economy, our ability to grow the commercial mortgage business, credit risks related to our investments in commercial real estate assets and corporate debt, our ability to consummate any contemplated investment opportunities and other corporate transactions, changes in governmental regulations affecting our business, our ability to maintain our classification as a real estate investment trust (or REIT) for federal income tax purposes, our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended (or Investment Company Act), and risks associated with the business of our subsidiaries, including the investment advisory businesses of our subsidiary, and risks associated with the broker dealer business of our subsidiary. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see the information under the caption “Risk Factors” contained in our most recent annual report on Form 10-K. We do not undertake and specifically disclaim any obligation, to publicly release the result of any revisions which may be made to any forward-looking statements to reflect the occurrence of anticipated or unanticipated events or circumstances after the date of such statements. This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our most recent annual report on Form 10-K. All references to “Annaly,” “we,” “us” or “our” mean Annaly Capital Management, Inc. and all entities owned by us, except where it is made clear that the term means only the parent company.  Refer to the Glossary of Terms for definitions of commonly used terms in this quarterly report on Form 10-Q.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

INDEX TO ITEM 2.  MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Page
Overview	35
Business Environment	35
Economic Environment	35
Financial Regulatory Reform	36
Results of Operations	36
Net Income (Loss) Summary	36
Non-GAAP Financial Measures	37
Core Earnings Summary	38
Economic Interest Expense and Economic Net Interest Income	38
Interest Income and Average Earning Asset Yield	39
Economic Interest Expense and the Cost of Interest-Bearing Liabilities	39
Economic Net Interest Income	40
Other Income	40
General and Administrative Expenses	41
Unrealized Gains and Losses	42
Net Income (Loss) and Return on Average Equity	42
Financial Condition	42
Investment Securities	43
Contractual Obligations	44
Off-Balance Sheet Arrangements	45
Capital Management	45
Stockholders’ Equity	46
Common and Preferred Stock	46
Distributions to Stockholders	47
Leverage and Capital	47
Risk Management	47
Risk Appetite	47
Governance	48
Description of Risks	48
Liquidity Risk Management	49
Funding	49
Excess Liquidity	50
Maturity Profile	51
Stress Testing	52
Liquidity Management Policies	52
Investment/Market Risk Management	52
Credit and Counterparty Risk Management	53
Operational Risk Management	54
Compliance, Regulatory and Legal Risk Management	55
Critical Accounting Policies	55
Valuation of Financial Instruments	55
Agency Mortgage-backed Securities and Debentures	55
Interest Rate Swaps	55
Revenue Recognition	55
Use of Estimates	55
Glossary of Terms	56

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

Overview We are a leading mortgage REIT that is externally managed by Annaly Management Company LLC (or Manager). Our common stock is listed on the New York Stock Exchange under the symbol “NLY.” Since our founding in 1997, we have strived to generate net income for distribution to our stockholders through the prudent selection and management of our investments. We own a portfolio of real estate related investments. We use our capital coupled with borrowed funds to invest in real estate related investments, earning the spread between the yield on our assets and the cost of our borrowings and hedging activities. We are primarily organized around the following operations:

Annaly, the parent company	Invests primarily in various types of Agency mortgage-backed securities and related derivatives to hedge these investments.
Annaly Commercial Real Estate Group, Inc. (or ACREG) (formerly known as CreXus Investment Corp. (or CreXus))	Wholly-owned subsidiary that was acquired during the second quarter of 2013 and specializes in acquiring, financing and managing commercial mortgage loans and other commercial real estate debt, commercial mortgage-backed securities and other commercial real estate-related assets.
RCap Securities, Inc.	Wholly-owned subsidiary that operates as a broker-dealer, and is a member of the Financial Industry Regulatory Authority.
Fixed Income Discount Advisory Company (or FIDAC)	Wholly-owned subsidiary that manages an affiliated REIT for which it earns fee income.
Annaly Middle Market Lending LLC	Wholly-owned subsidiary that engages in corporate middle market lending transactions.
Shannon Funding LLC	Wholly-owned subsidiary that acquires residential mortgage loans and provides warehouse financing to residential mortgage originators in the United States.

Our asset portfolio totaled $79.5 billion as of March 31, 2014, which includes $398.1 million of commercial real estate securitized loans held in a consolidated trust, compared to $75.1 billion as of December 31, 2013, reflecting an increase in Investment Securities. ACREG represented approximately 2.1% of our asset portfolio as of March 31, 2014. We recorded a net loss of $203.4 million, or $0.23 per average basic common share, for the quarter ended March 31, 2014 compared to net income of $870.3 million, or $0.90 per basic share, for the same period in 2013. Leverage at March 31, 2014 and December 31, 2013 was 5.2:1 and 5.0:1, respectively. At March 31, 2014 and December 31, 2013 the Company’s capital ratio was 15.2% and 15.1%, respectively. At March 31, 2014 and December 31, 2013, the Company had a common stock book value per share of $12.30 and $12.13, respectively. Business Environment We have begun selectively adding Agency mortgage-backed securities to our portfolio in the first quarter of 2014. We remain somewhat cautious as the Federal Reserve (or Fed) has begun to wind down their purchases of Agency MBS. Additionally, further financial and housing regulatory reform is likely, and its effect on our business is unclear. Economic Environment Economic growth, as measured by real gross domestic product (or GDP), increased slightly by 0.1 percent on a seasonally-adjusted annualized rate in the first quarter of 2014.  The decline in pace of growth is likely partially due to unusually harsh weather conditions throughout the United States, with the recent trend of 1-3 percent growth intact. Employment growth was also steady throughout the quarter though similarly impacted by weather, averaging just below the recent trend of 200,000 jobs added per month, as measured by the Bureau of Labor Services. The annual growth in the

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

Fed’s preferred price measure, or core PCE which is defined as personal consumption expenditure prices excluding food and energy prices, continued to run below expectations at 1.1 percent in February 2014. The Federal Open Market Committee (FOMC or the Committee) continues to note that “inflation persistently below its 2 percent objective could pose risks to economic performance,” but expects that inflation will eventually trend back towards its objective. Noting the cumulative progress toward maximum employment and an improving labor market outlook, on January 29, 2014, the Fed announced that beginning in February 2014, it will add to its holdings of longer-term U.S. Treasury securities at a pace of $35 billion per month rather than $40 billion per month, and will add to its holdings of Agency mortgage-backed securities at a pace of $30 billion per month rather than $35 billion per month. The FOMC continued the slowing of their pace of asset purchases in their March 18-19, 2014 meeting, reducing their purchases of U.S. Treasuries to $30 billion per month, and Agency mortgage-backed securities to $25 billion per month. In their April 30 meeting, the FOMC elected to further reduce their purchases of U.S. Treasuries to $25 billion per month, and Agency mortgage-backed securities to $20 billion per month. In a further modification to their policy rate guidance, the FOMC removed the language surrounding a specific unemployment rate threshold altogether at their March meeting, in favor of a broader assessment of “a wide range of information.” In addition, they provided guidance on the expected future path of their federal funds rate target, saying they anticipate “even after employment and inflation are near mandate-consistent levels, economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.” In her first post-FOMC press conference Chairman Yellen reiterated the Committee’s commitment to accommodative monetary policy after a “series of years in which growth has proven disappointing” and a “shallower glide path” to the first federal funds increase. The 10-year Treasury, which closed to yield 3.03 percent on December 31, 2013 correspondingly fell to yield 2.72 percent on March 31, 2014. Volatility, as measured by the Merrill Lynch MOVE index, similarly declined during the same period from 73.55 to 61.81. In response to the Fed’s taper decision and improved economic outlook, long-term rates, benchmarked by the 10-year U.S. Treasury, initially rose through the end of the year before steadying in the first quarter of 2014. The mortgage basis, or spread between the 30-year Agency mortgage-backed securities current coupon and the 10-year U.S. Treasury, which had widened amidst volatility during the second quarter of 2013, steadied through the end of the year and first quarter of 2014. The higher level of mortgage rates resulted in decreased prepayment speeds and lower mortgage originations. Financial Regulatory Reform Uncertainty remains surrounding financial regulatory reform and its impact on the markets and the broader economy. In particular, the government is attempting to change its involvement through the Agencies in the mortgage market. There have been numerous legislative initiatives introduced regarding the Agencies, and it is unclear which approach, if any, may become law. In addition, regulators remain focused on the wholesale funding markets, bank capital levels and shadow banking. It is difficult to predict the ultimate legislative and other regulatory outcomes of these efforts. We continue to monitor these legislative and regulatory developments and evaluate their potential impact on our business. Results of Operations The results of our operations are affected by various factors, many of which are beyond our control. Certain of such risks and uncertainties are described herein (see “Special Note Regarding Forward-Looking Statements”) and in Part I, Item 1A. “Risk factors” of our most recent annual report on Form 10-K. Net Income (Loss) Summary For the quarter ended March 31, 2014, we recorded a net loss of $203.4 million, or $0.23 per average basic common share, as compared to net income of $870.3 million, or $0.90 per average basic common share, for the quarter ended March 31, 2013. We attribute the majority of the change in net income (loss) for the quarter ended March 31, 2014 from the quarter ended March 31, 2013 to the change in unrealized gains (losses) on interest rate swaps, which resulted in an unrealized loss of $348.9 million for the quarter ended March 31, 2014 compared to an unrealized gain of $325.7 million for the same period in 2013. The change in the fair value of interest rate swaps was primarily attributable to the downtrend in forward interest rates experienced during the quarter ended March 31, 2014 compared to rising interest rates during the same period in 2013. In addition, net gains (losses) on trading assets resulted in a loss of $146.2 million for the quarter ended March 31, 2014 compared to a gain of $1.5 million for the same period in 2013, net gains on

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

disposal of investments decreased $103.1 million for the same comparative period and the change in unrealized gains (losses) on interest-only Agency mortgage-backed securities resulted in an unrealized loss of 20.8 million for the quarter ended March 31, 2014 compared to an unrealized gain of $80.1 million for the same period in 2013. The following table presents our net income (loss) summary for the quarters ended March 31, 2014 and 2013.

	For the Quarter Ended March 31,
	2014			2013
	(dollars in thousands, except per share data)
Interest income	$	655,901		$	737,217
Interest expense		124,971			177,590
Net interest income		530,930			559,627
Other income (loss)		(682,902	)		368,370
General and administrative expenses		47,378			51,912
Income (loss) before income taxes		(199,350	)		876,085
Income taxes		4,001			5,807
Net income (loss)		(203,351	)		870,278
Dividends on preferred stock		17,992			17,992
Net income (loss) available (related) to common  stockholders	$	(221,343	)	$	852,286
Net income (loss) per share available (related) to common stockholders:
Basic	$	(0.23	)	$	0.90
Diluted	$	(0.23	)	$	0.89
Weighted average number of common shares outstanding:
Basic		947,458,813			947,249,901
Diluted		947,458,813			994,815,169
Other information:
Average total assets	$	82,168,619		$	129,477,076
Average equity	$	12,484,884		$	15,615,407
Return on average total assets		(0.99	%)		2.69	%
Return on average equity		(6.52	%)		22.29	%

We use daily balances to calculate average Interest Earning Assets and Interest Bearing Liabilities.  For the purpose of computing net interest income and ratios relating to cost of funds measures throughout this report, interest expense includes interest expense on interest rate swaps, which is recorded in the Consolidated Statements of Comprehensive Income (Loss) as Realized gains (losses) on interest rate swaps. Non-GAAP Financial Measures This Management Discussion and Analysis section contains analysis and discussion of non-GAAP measurements. The non-GAAP measurements include the following: ● core earnings; ● core earnings per average basic common share; ● economic interest expense; and ● economic net interest income. Core earnings is defined as net income (loss) excluding gains or losses on disposals of investments and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities and net gains and losses on trading assets. We believe that core earnings, core earnings per average basic common share, economic interest expense and economic net interest income provide meaningful information to consider, in addition to the respective amounts prepared in accordance with GAAP. The non-GAAP measures help us to evaluate our financial position and performance without the effects of certain transactions and GAAP adjustments that are not necessarily indicative of our current investment portfolio and operations. Our presentation of the economic value of our investment strategy has important limitations.  Other market participants may calculate core earnings, core earnings per average basic common share, economic interest expense and economic net interest income differently than we calculate them, making comparative analysis difficult.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

Although we believe that the calculation of the economic value of our investment strategy described above helps evaluate and measure our financial position and performance without the effects of certain transactions, it is of limited usefulness as an analytical tool.  Therefore, the economic value of our investment strategy should not be viewed in isolation and is not a substitute for net income (loss), net income (loss) per basic share available (related) to common stockholders, interest expense and net interest income computed in accordance with GAAP. Core Earnings Summary Our core earnings were $239.7 million, or $0.23 per average basic common share, for the quarter ended March 31, 2014 compared to $296.4 million, or $0.29 per average basic common share, for the same period in 2013. We attribute the majority of the decrease in core earnings for the quarter ended March 31, 2014 from the quarter ended March 31, 2013 to a decline in economic net interest income of $63.7 million for the quarter ended March 31, 2014 compared to the same period in 2013, primarily attributable to a decline in average Interest Earning Assets to $81.9 billion from $124.4 billion. The following table provides GAAP measures of net income (loss) and net income (loss) per basic share available to common stockholders for the quarters ended March 31, 2014 and 2013 and details with respect to reconciling the aforementioned line items on a non-GAAP basis:

	For the Quarter Ended March 31,
	2014			2013
	(dollars in thousands, except per share data)
GAAP net income (loss)	$	(203,351	)	$	870,278
Adjustments:
Realized (gains) losses on termination of interest rate swaps		6,842			16,378
Unrealized (gains) losses on interest rate swaps		348,942			(325,734	)
Net (gains) losses on disposal of investments		(79,710	)		(182,843	)
Net (gains) losses on trading assets		146,228			(1,549	)
Net unrealized (gains) losses on interest-only Agency mortgage-backed securities		20,793			(80,127	)
Core earnings	$	239,744		$	296,403
GAAP net income  per average basic common share	$	(0.23	)	$	0.90
Core earnings per average basic common share	$	0.23		$	0.29

Economic Interest Expense and Economic Net Interest Income We believe the economic value of our investment strategy is depicted by the economic net interest income we earn. We calculate economic net interest income by determining our GAAP net interest income and reducing it by interest expense on interest rate swaps.  Our economic interest expense, which is composed of interest expense on our Interest Bearing Liabilities plus interest expense on interest rate swaps, reflects total contractual interest payments. The following table provides GAAP measures of interest expense and net interest income and details with respect to reconciling the aforementioned line items on a non-GAAP basis for each respective period:

	GAAP Interest Expense		Add: Realized Losses on Interest Rate Swaps (1)		Economic Interest Expense		GAAP Net Interest Income		Less: Realized Losses on Interest Rate Swaps (1)		Economic Net Interest Income
For the Quarter Ended:	(dollars in thousands)
March 31, 2014	$	124,971	$	260,435	$	385,406	$	530,930	$	260,435	$	270,495
March 31, 2013	$	177,590	$	225,476	$	403,066	$	559,627	$	225,476	$	334,151
(1)  Economic interest expense includes interest expense on interest rate swaps.

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Item 2.  Management’s Discussion and Analysis

Interest Income and Average Earning Asset Yield Prepayment speeds, as reflected by the Constant Prepayment Rate, or CPR, and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds on our Agency mortgage-backed securities portfolio increase, related purchase premium amortization increases, thereby reducing the yield on such assets. The following table presents the CPR experienced on our Agency mortgage-backed securities portfolio for the periods presented.     Quarter Ended            CPR                 March 31, 2014           6%     March 31, 2013           19% Our interest income for the quarters ended March 31, 2014 and 2013 was $655.9 million and $737.2 million, respectively. We had average Interest Earning Assets of $81.9 billion and $124.4 billion, and the yield on our average Interest Earning Assets was 3.21% and 2.37% for the quarters ended March 31, 2014 and 2013, respectively. The decline in interest income of $81.3 million for the quarter ended March 31, 2014 compared to the quarter ended March 31, 2013 was primarily due to a $42.6 billion decrease in average Interest Earning Assets for the quarter ended March 31, 2014 compared to the same period in 2013. Economic Interest Expense and the Cost of Interest Bearing Liabilities Our largest expense is the cost of Interest Bearing Liabilities and interest expense on interest rate swaps, which is recorded in realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss). We had average Interest Bearing Liabilities of $66.9 billion and $110.7 billion for the quarters ended March 31, 2014 and 2013, respectively. Our total economic interest expense was $385.4 million, which included $260.4 million in interest expense on interest rate swaps, and $403.1 million, which included $225.5 million in interest expense on interest rate swaps, for the quarters ended March 31, 2014 and 2013, respectively. Our cost of funds on average Interest Bearing Liabilities was 2.31% and 1.46%, including interest expense on interest rate swaps, for the quarters ended March 31, 2014 and 2013, respectively. Economic interest expense, including interest expense on interest rate swaps, for the quarter ended March 31, 2014 decreased by $17.7 million when compared to the quarter ended March 31, 2013, primarily due to the $43.9 billion decline in average Interest Bearing Liabilities for the quarter ended March 31, 2014 compared to the same period in 2013, partially offset by a 85 basis point increase in the cost of Interest Bearing Liabilities, largely attributable to increased swap expense. The table below shows our average Interest Bearing Liabilities and cost of funds on average Interest Bearing Liabilities as compared to average one-month and average six month LIBOR for the periods presented.

	Average Interest Bearing Liabilities		Interest Bearing Liabilities at Period End		Economic Interest Expense(1)		Average Cost of Interest Bearing Liabilities			Average One- Month LIBOR			Average Six- Month LIBOR			Average One- Month LIBOR Relative to Average Six-Month LIBOR			Average Cost of Interest Bearing Liabilities Relative to Average One- Month LIBOR			Average Cost of  Interest Bearing Liabilities Relative to Average Six- Month LIBOR
For the Quarter Ended:	(dollars in thousands)
March 31, 2014	$	66,870,534	$	66,159,608	$	385,406		2.31	%		0.16	%		0.33	%		(0.17	%)		2.15	%		1.98	%
March 31, 2013	$	110,722,615	$	104,089,071	$	403,066		1.46	%		0.20	%		0.47	%		(0.27	%)		1.26	%		0.99	%
(1)  Economic interest expense includes interest expense on interest rate swaps.

We do not manage our portfolio to have a pre-designated amount of borrowings at quarter or year end.  Our borrowings at period end are a snapshot of our borrowings as of a date, and this number should be expected to differ from average borrowings over the period for a number of reasons.  The mortgage-backed securities we own pay principal and interest towards the end of each month and the mortgage-backed securities we purchase are typically settled during the beginning of the month.  As a result, depending on the amount of mortgage-backed securities we have committed to purchase, we may retain the principal and interest we receive in the prior month, or we may use it to pay down our borrowings. Moreover, we use interest rate swaps, swaptions and other derivative instruments to hedge our portfolio and as we pledge or receive collateral under these agreements, our borrowings on any given day may be increased or decreased.  Our average borrowings during a quarter will differ from period end borrowings as we implement our portfolio management strategies and risk management strategies over changing market conditions by increasing or decreasing leverage.  Additionally, these numbers will differ during periods when we conduct capital raises, as

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Item 2.  Management’s Discussion and Analysis

in certain instances we may purchase additional assets and increase leverage with the expectation of a successful capital raise.  Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings during a period provide a more accurate representation of our exposure to the risks associated with leverage. As of March 31, 2014 and December 31, 2013, 98% and 99%, respectively, of our debt consisted of borrowings collateralized by a pledge of our Investment Securities. These borrowings appear on our Consolidated Statements of Financial Condition as Repurchase Agreements. All of our Agency mortgage-backed securities and debentures are currently accepted as collateral for these borrowings. However, we limit our borrowings, and thus our potential asset growth, in order to maintain unused borrowing capacity and thus increase the liquidity and strength of our balance sheet. As of March 31, 2014, the term to maturity of our repurchase agreements ranged from one day to five years. Additionally, we have entered into borrowings giving the counterparty the right to call the balance prior to maturity. At March 31, 2014 and December 31, 2013, the weighted average cost of funds for all of our borrowings was 2.46% and 2.37%, respectively, including the effect of the interest rate swaps, 4% Convertible Senior Notes due 2015 and 5% Convertible Senior Notes due 2015 (collectively, the Convertible Senior Notes), and the weighted average days to maturity was 189 days and 208 days, respectively. Economic Net Interest Income Our economic net interest income, including interest paid on interest rate swaps, totaled $270.5 million and $334.2 million for the quarters ended March 31, 2014 and 2013, respectively. The decline for the quarter ended March 31, 2014 compared to the same period in 2013 was primarily due to lower interest income, as our average Interest Earning Assets decreased by $42.6 billion. The table below shows our average Interest Earning Assets, total interest income, yield on average Interest Earning Assets, average Interest Bearing Liabilities, economic interest expense, average cost of Interest Bearing Liabilities, economic net interest income and net interest rate spread for the periods presented.

	Average Interest Earning Assets(1)		Total Interest Income		Yield on Average Interest Earning Assets			Average Interest Bearing Liabilities		Economic Interest Expense(2)		Average Cost of Interest Bearing Liabilities			Economic Net Interest Income(3)		Net Interest Rate Spread
For the Quarter Ended:	(dollars in thousands)
March 31, 2014	$	81,852,609	$	655,901		3.21	%	$	66,870,534	$	385,406		2.31	%	$	270,495		0.90	%
March 31, 2013	$	124,414,754	$	737,217		2.37	%	$	110,722,615	$	403,066		1.46	%	$	334,151		0.91	%
(1)  Does not reflect unrealized gains/ (losses) or premium/ (discount).
(2)  Economic interest expense includes interest expense on interest rate swaps.
(3)  Economic net interest income includes interest expense on interest rate swaps.

Other Income Other income is largely comprised of net gains or losses on interest rate swaps, gains or losses from trading assets, net gains or losses on sales of Agency mortgage-backed securities and other investments, net unrealized gains (losses) on interest-only Agency mortgage-backed securities, dividend income from available-for-sale equity securities and investment advisory fees. The aggregate net gain (loss) on interest rate swaps was a loss of $616.2 million and a gain of $83.9 million for the quarters ended March 31, 2014 and 2013, respectively. The change in the aggregate net gain (loss) on interest rate swaps for the quarter ended March 31, 2014 as compared to the same period in 2013 was primarily attributable to the downward trend in forward interest rates experienced in the first quarter of 2014, coupled with a larger notional balance of swaps outstanding in the first quarter of 2014 compared to the same period in 2013. Our net loss from trading assets was $146.2 million for the quarter ended March 31, 2014 compared to a net gain of $1.5 million for the same period in 2013. The change for the quarter ended March 31, 2014 as compared to the same period in 2013 was primarily attributable to net losses from interest rate swaptions and TBA derivatives. For the quarters ended March 31, 2014 and 2013, we disposed of Investments Securities with a carrying value of $5.0 billion and $17.2 billion for an aggregate

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Item 2.  Management’s Discussion and Analysis

net gain of $80.7 million and $182.8 million, respectively.  We may from time to time sell existing assets to acquire new assets, which our management believes might have higher risk-adjusted returns, or to manage our balance sheet as part of our asset/liability management strategy. Our net unrealized loss on interest-only Agency mortgage-backed securities was $20.8 million for the quarter ended March 31, 2014 compared to a net gain of $80.1 million for the same period in 2013. The change was primarily attributable to the downward trend in forward interest rates experienced in the first quarter of 2014 compared to rising interest rates during the same period in 2013. Dividend income from our investments in Chimera Investment Corporation (or Chimera) totaled $13.0 million for the quarter ended March 31, 2014.  Dividend income from our investment in Chimera and CreXus (we held shares prior to our acquisition of CreXus, which closed during the second quarter of 2013), totaled$6.4 million for the quarter ended March 31, 2013. The increase in dividend income for the quarter ended March 31, 2014 compared to the same period in 2013 was due to a $9.0 million special dividend from our investment in Chimera recognized during the first quarter of 2014, partially offset by CreXus declaring a dividend during the first quarter of 2013 but not during the same period in 2014 as a result of its acquisition. Chimera is and CreXus was managed by our wholly-owned subsidiary FIDAC. FIDAC is a registered investment advisor specializing in managing fixed income securities. In October 2013, we sold the net assets and operations of Merganser Capital Management, Inc., a registered investment advisor specializing in managing fixed income securities, to a third party. Investment advisory income for the quarters ended March 31, 2014 and 2013 totaled $6.1 million and $13.4 million, respectively, net of fees paid to third parties pursuant to distribution service agreements for facilitating and promoting distribution of shares or units to FIDAC’s clients.  The decline in investment advisory income for the quarter ended March 31, 2014 compared to the same period in 2013 was due to lower advisory fees from affiliates and the sale of Merganser in October 2013. General and Administrative Expenses General and administrative (or G&A) expenses consists of compensation expense, the management fee and other expenses. G&A expenses were $47.4 million and $51.9 million for the quarters ended March 31, 2014 and 2013, respectively. For the quarter ended March 31, 2014, any compensation expense incurred by us reduced the amount of the management fee by the same amount. G&A expenses as a percentage of average total assets was 0.23% and 0.16% for the quarters ended March 31, 2014 and 2013, respectively. The decrease in G&A expenses of $4.5 million for the quarter ended March 31, 2014 compared to the same period in 2013 was the result of lower other general and administrative expenses, primarily lower professional fees and brokerage expenses. The table below shows our total G&A expenses as compared to average total assets and average equity for the periods presented.

G&A Expenses and Operating Expense Ratios

	Total G&A Expenses		Total G&A Expenses/Average Assets	Total G&A Expenses/Average Equity
For the Quarter Ended:	(dollars in thousands)
March 31, 2014	$	47,378	0.23%	1.52%
March 31, 2013	$	51,912	0.16%	1.33%

Unrealized Gains and Losses With our “available-for-sale” accounting treatment, unrealized fluctuations in market values of assets do not impact our GAAP or taxable income but rather are reflected on our balance sheet by changing the carrying value of the asset and stockholders’ equity under Accumulated Other Comprehensive Income (Loss). As a result of this fair value accounting treatment, our book value and book value per share are likely to fluctuate far more than if we used historical amortized cost accounting. As a result, comparisons with companies that use historical cost accounting for some or all of their balance sheet may not be meaningful.

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Item 2.  Management’s Discussion and Analysis

The table below shows cumulative unrealized gains and losses on our available-for-sale investments reflected in the Consolidated Statements of Financial Condition.

Unrealized Gains and Losses
	March 31, 2014			December 31, 2013
	(dollars in thousands)
Unrealized gain	$	519,935		$	600,034
Unrealized loss		(2,608,414	)		(3,348,967	)
Net unrealized gain (loss)	$	(2,088,479	)	$	(2,748,933	)

Unrealized changes in the estimated fair value of available-for-sale investments may have a direct effect on our potential earnings and dividends: positive changes will increase our equity base and allow us to increase our borrowing capacity while negative changes tend to limit borrowing capacity under our investment policy.  A very large negative change in the net fair value of our available-for-sale investment securities might impair our liquidity position, requiring us to sell assets with the likely result of realized losses upon sale. The fair value of these securities being below amortized cost for the quarter ended March 31, 2014 is solely due to market conditions and not the quality of the assets.  Substantially all of the Agency mortgage-backed securities are “AAA” rated or carry an implied “AAA” rating. The investments are not considered to be other-than-temporarily impaired because we currently have 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 we will be required to sell the investments before recovery of the amortized cost bases, which may be maturity. Also, we are guaranteed payment of the principal amount of the securities by the respective issuing government agency. Net Income (Loss) and Return on Average Equity We recorded a net loss of $203.4 million and net income of $870.3 million for the quarters ended March 31, 2014 and 2013, respectively. Our return (loss) on average equity was (6.52%) and 22.29% for the quarters ended March 31, 2014 and 2013, respectively. The table below shows the components of our return on average equity for the periods presented.

Components of Return of Average Equity

	Economic Net Interest Income/ Average Equity(1)			Net Investment Advisory and Service Fees/Average Equity			Realized and Unrealized Gains and Losses/Average Equity			Other Income (Loss)/Average Equity(2)			G&A Expenses/ Average Equity			Income Taxes/ Average Equity			Return on Average Equity
For the Quarter Ended:
March 31, 2014		8.67	%		0.20	%		(14.20	%)		0.46	%		(1.52	%)		(0.13	%)		(6.52	%)
March 31, 2013		8.56	%		0.35	%		14.70	%		0.16	%		(1.33	%)		(0.15	%)		22.29	%
(1) Economic net interest income includes interest expense on interest rate swaps.
(2)Other income (loss) includes dividend income from affiliates, impairment of goodwill, loss on previously held equity interest in CreXus and other income (loss).

Financial Condition Total assets were $82.4 billion and $81.9 billion as of March 31, 2014 and December 31, 2013, respectively. The change was primarily due to a $4.4 billion increase in Investments Securities partially offset by decreases in securities borrowed and U.S. Treasury securities as RCap, our broker-dealer subsidiary, ceased its trading activity in U.S. Treasury securities, derivatives and certain securities borrowed and loaned transactions activities during the first quarter of 2014.

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Item 2.  Management’s Discussion and Analysis

Investment Securities Substantially all of our Agency mortgage-backed securities at March 31, 2014 and December 31, 2013 were backed by single-family mortgage loans. Substantially all of the mortgage assets underlying these mortgage-backed securities were secured with a first lien position on the underlying single-family properties. Our mortgage-backed securities were largely Freddie Mac, Fannie Mae or Ginnie Mae pass through certificates or CMOs, which carry an actual or implied “AAA” rating. We carry all of our Agency mortgage-backed securities at fair value on the Consolidated Statements of Financial Condition.    We accrete discount balances as an increase to interest income over the expected life of the related Interest Earning Assets and we amortize premium balances as a decrease to interest income over the expected life of the related Interest Earning Assets.  At March 31, 2014 and December 31, 2013 we had on our Consolidated Statements of Financial Condition a total of $24.3 million and $25.7 million, respectively, of unamortized discount (which is the difference between the remaining principal amount and current amortized cost of our Investment Securities acquired at a price below principal value) and a total of $5.1 billion and $4.6 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Investment Securities acquired at a price above principal amount). We received mortgage principal repayments of $1.7 billion and $8.5 billion for the quarters ended March 31, 2014 and 2013, respectively. The average prepayment speed for the quarters ended March 31, 2014 and 2013 was 6% and 19%, respectively.  Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period.  Similarly, if mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net premium balance over a longer time period. The table below summarizes certain characteristics of our Agency mortgage-backed securities and Agency debentures, excluding interest-only securities, as of the dates presented.

Agency Mortgage-Backed Securities and Agency Debentures

	Principal Amount		Net Premium		Amortized Cost		Amortized Cost/Principal Amount			Carrying Value		Carrying Value/Principal Amount			Weighted Average Coupon Rate			Weighted Average Yield
	(dollars in thousands)
At March 31, 2014	$	74,724,887	$	3,921,391	$	78,646,278		105.25	%	$	76,559,004		102.45	%		3.68	%		2.96	%
At December 31, 2013	$	71,430,069	$	3,558,168	$	74,988,237		104.98	%	$	72,238,708		101.13	%		3.62	%		2.89	%

The tables below summarize certain characteristics of our Agency mortgage-backed securities and Agency debentures and interest-only securities, as of the dates presented. The index level for adjustable-rate Agency mortgage-backed securities and Agency debentures is the weighted average rate of the various short-term interest rate indices, which determine the coupon rate.

Adjustable-Rate Agency Mortgage-Backed Securities and Agency Debentures

	Principal Amount		Weighted Average Term to Next Adjustment	Weighted Average Lifetime Cap			Weighted Average Coupon Rate			Weighted Average Asset Yield			Principal Amount at Period End as % of Total Investment Securities
	(dollars in thousands)
At March 31, 2014	$	5,485,600	32 months		7.65	%		2.79	%		2.67	%		7.34	%
At December 31, 2013	$	6,719,599	33 months		6.44	%		2.81	%		2.80	%		9.41	%

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Item 2.  Management’s Discussion and Analysis

Fixed-Rate Agency Mortgage-Backed Securities and Agency Debentures Characteristics

	Principal Amount		Weighted Average Coupon Rate			Weighted Average Asset Yield			Principal Amount at Period End as % of Total Investment Securities
	(dollars in thousands)
At March 31, 2014	$	69,239,287		3.75	%		2.98	%		92.66	%
At December 31, 2013	$	64,710,470		3.71	%		2.90	%		90.59	%

Agency Interest-Only Mortgage-Backed Securities

	Notional Amount		Net Premium		Amortized Cost		Amortized Cost/Notional Amount			Carrying Value		Carrying Value/Notional Amount			Weighted Average Coupon Rate			Weighted Average Asset Yield
	(dollars in thousands)
At March 31, 2014	$	7,751,109	$	1,142,301	$	1,142,301		14.74	%	$	1,199,643		15.48	%		3.92	%		11.99	%
At December 31, 2013	$	7,374,675	$	1,041,990	$	1,041,990		14.13	%	$	1,120,126		15.19	%		3.82	%		9.00	%

At March 31, 2014 and December 31, 2013, we held Agency mortgage-backed securities and Agency debentures, excluding interest-only securities, with coupons linked to various indices. The following tables detail the portfolio characteristics by index.

Adjustable-Rate Agency Mortgage-Backed Securities and Agency Debentures by Index

March 31, 2014

	Six- Month Libor	Twelve Month Libor	12- Month Moving Average	11th District Cost of Funds	1-Year Treasury Index	Other Indices(1)
Weighted average term to next adjustment	3 mo.	40 mo.	1 mo.	1 mo.	16 mo.	29 mo.
Weighted average annual period cap	1.70%	2.00%	0.00%	0.00%	2.00%	0.00%
Weighted average lifetime cap at March 31, 2014	11.22%	9.87%	9.16%	10.79%	10.70%	4.66%
Investment principal value as percentage of Investment Securities at March 31, 2014	0.22%	3.36%	0.16%	0.21%	0.16%	3.23%
(1)  Combination of indices that account for less than 0.05% of total or adjust over time, without a reset index.

Adjustable-Rate Agency Mortgage-Backed Securities and Agency Debentures by Index

December 31, 2013

	Six Month Libor	Twelve Month Libor	12- Month Moving Average	11th District Cost of Funds	1-Year Treasury Index	Other Indices(1)
Weighted average term to next adjustment	4 mo.	40 mo.	1 mo.	1 mo.	18 mo.	34 mo.
Weighted average annual period cap	1.78%	2.00%	0.00%	0.00%	2.00%	0.00%
Weighted average lifetime cap at December 31, 2013	11.20%	9.81%	7.36%	10.80%	10.74%	2.36%
Investment principal value as percentage of Investment Securities at December 31, 2013	0.40%	4.04%	0.28%	0.23%	0.18%	4.28%
(1)  Combination of indices that account for less than 0.05% of total or adjust over time, without a reset index.

Contractual Obligations The following table summarizes the effect on our liquidity and cash flows from contractual obligations for repurchase agreements, Convertible Senior Notes, interest expense on repurchase agreements and Convertible Senior Notes, the non-cancelable office leases and employment agreements as of March 31, 2014.  The table does not include the effect of net interest rate payments under our interest rate swap agreements.  The net swap payments will fluctuate based on monthly changes in the receive rate.  As of

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Item 2.  Management’s Discussion and Analysis

March 31, 2014, the interest rate swaps had a net negative fair value of $931.7 million.

	Within One Year		One to Three Years		Three to Five Years		More than Five Years		Total
	(dollars in thousands)
Repurchase agreements	$	55,528,949	$	7,286,338	$	1,728,662	$	-	$	64,543,949
Interest expense on repurchase agreements, based on rates at March 31, 2014		239,666		273,574		21,583		-		534,823
Convertible Senior Notes		107,541		750,000		-		-		857,541
Securitized debt of consolidated VIE		84,180		176,520		-		-		260,700
Mortgages payable		178		19,139		-		-		19,317
Participation sold		-		-		13,963		-		13,963
Interest expense on Convertible Senior Notes		41,264		4,688		-		-		45,952
Long-term operating lease obligations		1,748		159		-		-		1,907
Employment contracts of our subsidiaries		1,888		-		-		-		1,888
Total	$	56,005,414	$	8,510,418	$	1,764,208	$	-	$	66,280,040

We had no material unfunded loan commitments issued as of March 31, 2014. In the coming periods, we expect to continue to finance our Agency mortgage-backed securities in a manner that is largely consistent with our current operations via repurchase agreements. We also intend to consider using Federal Home Loan Bank of Des Moines (FHLB Des Moines) advances, securitization structures or other term financing structures to finance certain of our assets. During the quarter ended March 31, 2014, we received $1.7 billion from principal repayments and $6.2 billion in cash from disposal of Investment Securities. During the quarter ended March 31, 2013, we received $8.5 billion from principal repayments and $16.3 billion in cash from disposal of Investment Securities. Off-Balance Sheet Arrangements We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.  Further, we have not guaranteed any obligations of unconsolidated entities nor do we have any commitment or intent to provide funding to any such entities.  As such, we are not materially exposed to any market, credit, liquidity or financing risk that could arise if we had engaged in such relationships. Capital Management Maintaining a strong balance sheet that can support the business even in times of economic stress and market volatility is of critical importance to our business strategy. A strong and robust capital position is essential to executing our investment strategy. The firm’s capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy regardless of the market environment. Our Internal Capital Adequacy Assessment Program (or ICAAP) framework supports capital and business performance measurement, and is integrated within the overall risk governance framework.  The ICAAP framework is designed to align capital measurement with the firm’s risk appetite. The firm’s objective is to maintain an active ICAAP that reflects sound governance, requires active assessment and reporting of internal capital adequacy, incorporates stress testing based on internal and external factors and identifies potential capital actions to ensure the firm’s capital and available financial resources remain in excess of internal capital requirements. The capital policy defines the parameters and principles supporting a comprehensive capital management practice, including processes that effectively identify, measure and monitor risks impacting capital adequacy.  The capital assessment process considers the precision in risk measures as well as the volatility of exposures and the relative activities producing risk. Parameters used in modeling economic capital must align with the firm’s risk appetite. Economic capital is our internal quantification of the risks inherent in our business and considers the amount of capital our firm needs as a buffer to protect against risk.  It is considered the capital needed to remain solvent under extreme scenarios. It is a probabilistic

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Item 2.  Management’s Discussion and Analysis

measure of potential future losses at a given confidence level over a given time horizon. The major risks impacting capital applicable to us are liquidity, investment/market, credit, counterparty, operational, and other risks such as compliance, legal and regulatory risks. For further discussion of the risks the firm is subject to, please see Part I, Item 1A. “Risk Factors” of our most recent annual report on Form 10-K. Capital requirements are based on maintaining levels above approved limits, ensuring the quality of our capital appropriately reflects our asset mix, market and funding structure. As such we use a complement of capital metrics and related threshold levels to measure and analyze our capital from a magnitude and composition perspective. Our policy is to maintain an appropriate amount of available financial resources over the aggregate economic capital requirements. Available Financial Resources (or AFR) is the actual capital held to protect against the unexpected losses measured in our capital management process and may include:
■ Common and preferred equity ■ Other forms of equity-like capital ■ Surplus credit reserves over expected losses ■ Other loss absorption instruments In the event we fall short of our internal limits we will take appropriate actions which may include asset sales, changes in asset mix, reductions in asset purchases or originations, issuance of capital or other capital enhancing or risk reduction strategies. Stockholders’ Equity The following table provides a summary of total stockholders’ equity as of March 31, 2014 and December 31, 2013:

	March 31, 2014			December 31, 2013
Stockholders’ Equity:	(dollars in thousands)
7.875% Series A Cumulative Redeemable Preferred Stock	$	177,088		$	177,088
7.625% Series C Cumulative Redeemable Preferred Stock		290,514			290,514
7.50% Series D Cumulative Redeemable Preferred Stock		445,457			445,457
Common stock		9,475			9,474
Additional paid-in capital		14,770,553			14,765,761
Accumulated other comprehensive income (loss)		(2,088,479	)		(2,748,933	)
Accumulated deficit		(1,039,896	)		(534,306	)
Total stockholders’ equity	$	12,564,712		$	12,405,055

Common and Preferred Stock Our authorized shares of capital stock, par value of $0.01 per share, consists of 1,956,937,500 shares classified as common stock, 7,412,500 shares classified as 7.875% Series A Cumulative Redeemable Preferred Stock, 4,600,000 shares classified as 6.00% Series B Cumulative Convertible Preferred Stock, 12,650,000 shares classified as 7.625% Series C Cumulative Redeemable Preferred Stock and 18,400,000 shares classified as 7.50% Series D Cumulative Redeemable Preferred Stock. During the quarter ended March 31, 2014, the Company raised $0.6 million, by issuing 56,000 shares, through the Direct Purchase and Dividend Reinvestment Program.  During the quarter ended March 31, 2013, the Company raised $0.8 million, by issuing 50,000 shares, through the Direct Purchase and Dividend Reinvestment Program. In October 2012, we announced that our board of directors authorized the repurchase of up to $1.5 billion of our outstanding common shares over a 12 month period. All common shares purchased were part of a publicly announced plan in open-market transactions. The repurchase plan expired in October 2013. We did not repurchase any shares of our outstanding common stock under this repurchase plan during the quarter ended March 31, 2013. In March 2012, we entered into six separate Distribution Agency Agreements (or Distribution Agency Agreements) with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RCap (together, the Agents).  Pursuant to the terms of the Distribution Agency Agreements, we may sell from time to time through the Agents, as our sales agents, up to 125,000,000 shares of our common stock. We did not make any sales under the Distribution Agency Agreements during the quarters ended March 31, 2014 and 2013.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

Distributions to Stockholders During the quarter ended March 31, 2014, we declared dividends to common stockholders totaling $284.2 million, or $0.30 per common share, which were paid to stockholders on April 30, 2014. During the quarter ended March 31, 2014, we declared dividends to Series A Preferred stockholders totaling approximately $3.6 million or $0.492 per share, Series C Preferred stockholders totaling approximately $5.7 million or $0.477 per share, Series D Preferred stockholders totaling approximately $8.6 million or $0.469 per share which were paid to preferred stockholders on March 31, 2014. During the quarter ended March 31, 2013, we declared dividends to common stockholders totaling $426.2 million or $0.45 per share, which were paid to stockholders on April 29, 2013. During the quarter ended March 31, 2013, we declared dividends to Series A Preferred stockholders totaling approximately $3.6 million or $0.492 per share, Series C Preferred stockholders totaling approximately $5.7 million or $0.477 per share and Series D Preferred stockholders totaling approximately $8.6 million or $0.469 per share which were paid to preferred stockholders on April 1, 2013. Our policy is to distribute 100% of our REIT taxable income. To the extent there is any undistributed REIT taxable income at the end of a year, we distribute such shortfall within the next year as permitted by the Code. Leverage and Capital We believe that it is prudent to maintain a conservative debt-to-equity ratio as there continues to be volatility in the mortgage and credit markets. Our capital policy governs our capital and leverage position including setting limits. Based on the guidelines, we generally expect to maintain a ratio of debt-to-equity of less than 12:1. Our actual leverage ratio varies from time to time based upon various factors, including our management’s opinion of the level of risk of our assets and liabilities, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-collateralization levels required by lenders when we pledge assets to secure borrowings and our assessment of domestic and international market conditions. Our debt-to-equity ratio at March 31, 2014 (including securitized debt of consolidated VIE, loan participation sold and mortgages payable which are non-recourse to us) and December 31, 2013 was 5.2:1 and 5.0:1, respectively. Our capital ratio, which represents our ratio of stockholders’ equity to total assets, was 15.2% and 15.1% at March 31, 2014 and December 31, 2013, respectively. Our net capital ratio was 15.4% and 15.9% at March 31, 2014 and December 31, 2013, respectively. Our net capital ratio represents our ratio of stockholders’ equity to total assets, adjusted to reflect net balances of U.S. Treasury securities and U.S. Treasury securities sold, not yet purchased, reverse repurchase agreements and repurchase agreements, and securities borrowed and securities loaned. Risk Management We are subject to a variety of risks in the ordinary conduct of our business. The effective management of these risks is of critical importance to the overall success of the firm. The objective of our risk management framework is to measure, monitor and manage these risks. Our risk management framework is intended to facilitate a holistic, enterprise wide view of risk. We have built a strong and collaborative risk culture throughout the firm focused on awareness which ensures the key risks are understood and managed appropriately. Each employee is accountable for monitoring and managing risk within their area of responsibility. Risk Appetite We maintain a firm-wide risk appetite statement which defines the types and levels of risk we are willing to take in order to achieve our business objectives, and reflects our risk management philosophy.  Fundamentally, we will only engage in risk activities based on our core expertise that enhance value for our stockholders. Our activities focus on capital preservation and income generation through proactive portfolio management, supported by a conservative liquidity and leverage posture. The risk appetite statement asserts the following key parameters to guide our risk management activities.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Item 2.  Management’s Discussion and Analysis

Portfolio composition	We will maintain a high quality asset portfolio with (1) at least 75% of the portfolio to be high quality mortgage-backed securities and short term investments (equivalency rating of AA+ or better) and (2) an aggregate weighted average equivalency rating of single “A” or better.
Leverage	We will operate at a debt-to-equity ratio no greater than 12:1.
Capital buffer	We will maintain an excess capital buffer, of which at least 25% will be invested in AAA rated mortgage-backed securities (or assets of similar or better liquidity characteristics), to meet the liquidity needs of the firm.
Interest rate risk	We will seek to manage interest rate risk to protect the portfolio from adverse rate movements.
Hedging	We will use swaps and other derivatives to hedge market risk, targeting both income and capital preservation.
Capital preservation	We will seek to protect our capital base through disciplined risk management practices.
Compliance	We will comply with regulatory requirements needed to maintain our REIT status and our exemption from registration under the Investment Company Act.

Governance Risk management begins with our board of directors, through the review and oversight of the risk management framework, and executive management, through the ongoing formulation of risk management practices and related execution in managing risk. The board of directors exercises its oversight of risk management primarily through the Board Risk Committee (or BRC) and Board Audit Committee (or BAC).  The BRC is responsible for oversight of our risk governance structure, risk management and risk assessment guidelines and policies, our risk tolerance and our capital, liquidity and funding. The BAC is responsible for oversight of the quality and integrity of our accounting, internal controls and financial reporting practices, including independent auditor selection, evaluation and review, and oversight of the internal audit function. Risk assessment and risk management are the responsibility of our management.  A series of management committees have oversight or decision-making responsibilities for risk management activities. Memberships of these committees are reviewed regularly to ensure the appropriate personnel are engaged in the risk management process. Three primary management committees have been established to provide a comprehensive framework for risk management. The management committees responsible for risk management of the firm include the Enterprise Risk Committee, Asset and Liability Committee and the Financial Reporting and Disclosure Committee. Audit Services is an independent function with reporting lines to the BAC. Audit Services is responsible for performing our internal audit activities, which includes independently assessing and validating key controls within the risk management framework. Description of Risks We are subject to a variety of risks due to the business we operate. Risk categories are an important component of a robust enterprise wide risk management framework. We have identified the following primary categories that are utilized throughout the firm to identify, assess, measure and monitor risk.

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Item 2.  Management’s Discussion and Analysis

Risk	Description
Liquidity Risk	Risk to earnings, capital or business arising from our inability to meet our obligations when they come due without incurring unacceptable losses because of inability to liquidate assets or obtain adequate funding.
Investment/Market Risk	Risk to earnings, capital or business resulting in the decline in value of our assets or an increase in the costs of financing caused from changes in market variables, such as interest rates, which affect the values of invested securities and other investment instruments.
Credit and Counterparty Risk	Risk to earnings, capital or business, resulting from an obligor’s or counterparty's failure to meet the terms of any contract or otherwise failure to perform as agreed. This risk is present in lending, investing, funding and hedging activities.
Operational Risk	Risk to earnings, capital, reputation or business arising from inadequate or failed internal processes or systems, human factors or external events. Model risk is included in operational risk.
Compliance, Regulatory and Legal Risk	Risk to earnings, capital, reputation or conduct of business arising from violations of, or nonconformance with internal and external applicable rules and regulations, losses resulting from lawsuits or adverse judgments, or from changes in the regulatory environment that may impact our business model.

Liquidity Risk Management Our liquidity risk management strategy is designed to ensure the availability of sufficient resources to support our business and meet our financial obligations under both normal and adverse market and business environments.  Our liquidity risk management practices consist of the following primary elements:

Funding	Availability of diverse and stable sources of funds.
Excess Liquidity	Excess liquidity primarily in the form of unencumbered assets.
Maturity Profile	Diversity and tenor of liabilities and modest use of leverage.
Stress Testing	Scenario modeling to measure the resiliency of our liquidity position.
Liquidity Management Policies	Comprehensive policies including monitoring, risk limits and a contingent funding plan (CFP).

Funding Our primary financing sources are repurchase agreements and various forms of equity. Through the judicious use of leverage, we maintain excess liquidity through investing in high quality unencumbered assets, which serve as our capital buffer. Repurchase agreements are our primary source of debt financing. We conservatively manage our repurchase agreement (or repo) funding position through a variety of methods including diversity, breadth and depth of counterparties and maintaining a staggered and longer-term maturity profile.  We have not at the present time entered into any commitment agreements under which the lender would be required to enter into new repurchase agreements during a specified period of time. Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on the same business day that a margin call is made.  Should prepayment speeds on the mortgages underlying our Agency mortgage-backed securities and/or market interest rates suddenly increase or market values decrease, margin calls on our repurchase agreements could result, causing an adverse change in our liquidity position. At March 31, 2014, we had total pledged collateral for repurchase agreements and interest rate swaps of $68.5 billion. The weighted average haircut was approximately 4% on repurchase agreements. The quality and character of the Agency mortgage-backed securities that we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change during the quarter ended March 31, 2014 compared to the quarter ended December 31, 2013, and our counterparties did not materially alter any requirements, including required haircuts, related to the collateral we pledge under repurchase agreements and interest rate swaps during the quarter ended March 31, 2014. We had repurchase agreements outstanding of $64.5 billion with a weighted average borrowing rate of 0.65% and weighted average remaining maturities of 187 days as of March 31, 2014. At March 31, 2014 the repurchase agreements had the following remaining maturities and weighted average rates:

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Item 2.  Management’s Discussion and Analysis

	March 31, 2014
	Repurchase Agreements		Weighted Average Rate			% of Total
	(dollars in thousands)
1 day	$	6,065,530		0.29	%		9.4	%
2 to 29 days		12,308,123		0.34	%		19.0	%
30 to 59 days		17,122,926		0.43	%		26.5	%
60 to 89 days		3,842,791		0.42	%		6.0	%
90 to 119 days		6,941,938		0.55	%		10.8	%
Over 120 days(1)		18,262,641		1.26	%		28.3	%
Total	$	64,543,949		0.65	%		100.0	%
(1) Approximately 14% of the total repurchase agreements have a remaining maturity over 1 year.

During the first quarter of 2014, a wholly-owned insurance subsidiary attained membership to the FHLB Des Moines.  Such membership is anticipated to provide an additional funding source for us. Such borrowing capacity is at the sole discretion and subject to conditions of FHLB Des Moines. Eligible collateral may include residential and commercial real estate debt securities. Excess Liquidity Our primary source of liquidity is the availability of unencumbered assets which may be provided as collateral to support additional funding needs. We target minimum thresholds of available, unencumbered assets to maintain excess liquidity. The following table illustrates our asset portfolio and those which are available to support potential collateral obligations and funding needs. Assets are considered encumbered if pledged as collateral against an existing liability, and therefore no longer available to support additional funding. An asset is considered unencumbered if it has not been pledged or securitized. The following table provides the carrying amount of our encumbered and unencumbered financial assets as of March 31, 2014:

	Encumbered		Unencumbered		Total
	(dollars in thousands)
Financial Assets:
Cash and cash equivalents	$	755,528	$	168,669	$	924,197
Investments, at fair value:
Agency mortgage-backed securities		66,110,869		7,292,483		73,403,352
Agency debentures		2,368,493		39,766		2,408,259
Commercial real estate debt and preferred equity		398,113		1,242,093		1,640,206
Corporate debt		-		145,394		145,394
Total financial assets	$	69,633,003	$	8,888,405	$	78,521,408

The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the Consolidated Statements of Financial Condition.

We maintain liquid assets in order to satisfy our current and future obligations in normal and stressed operating environments. These are held as the primary means of liquidity risk mitigation. The composition of our liquid assets is considered as well and is subject to certain parameters. The composition is monitored for concentration risk, asset type and ratings. We believe the assets we consider liquid can be readily converted into cash, through liquidation or used as collateral in financing arrangements. Our balance sheet also generates liquidity on an on-going basis through mortgage principal and interest repayments and net earnings held prior to payment of dividends.  Carrying value represents the market value of assets. The following table presents our liquid assets as a percentage of total assets as of March 31, 2014.

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Item 2.  Management’s Discussion and Analysis

Liquid Assets	Carrying Value
	(dollars in thousands)
Cash and cash equivalents	$	924,197
Investment Securities		77,758,647
Total liquid assets	$	78,682,844
Percentage of liquid assets to total assets		95.47	%

Maturity Profile We consider the profile of our assets, liabilities and derivatives when managing both liquidity risk as well as investment/market risk employing a measurement of both the maturity gap and interest rate gap. We determine the amount of liquid assets that are required to be held by monitoring several liquidity metrics.  We utilize several modeling techniques to analyze our current and potential obligations including the expected cash flows from our assets, liabilities and derivatives. The following table illustrates the expected maturities and cash flows of our assets, liabilities and derivatives. The table is based on a static portfolio and assumes no reinvestment of asset cash flows and no future liabilities are entered into. In assessing the maturity of our assets, liabilities and off balance sheet obligations we typically use the stated maturities or prepayment expectations for assets that exhibit prepayment characteristics.  Cash and cash equivalents are included in the ‘within 3 months’ maturity bucket, and not the contractual maturity as they are typically held for a short period of time. When measuring our maturity gap it is considered negative when the amount of liabilities exceeds assets in any given period.  A negative gap increases our liquidity risk as we must enter into future liabilities. Our interest rate sensitivity gap is the difference between Interest Earning Assets and Interest Bearing Liabilities maturing or re-pricing within a given time period. The effect of interest rate swaps is reflected in our interest rate gap. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if an institution were perfectly matched in each maturity category. The amount of assets and liabilities utilized to compute our interest rate sensitivity gap was determined in accordance with the contractual terms of the assets and liabilities, except adjustable-rate loans and securities are included in the period in which their interest rates are first scheduled to adjust and not in the period in which they mature. The effects of interest rate swaps, which effectively lock in our financing costs for a longer term is also reflected in our interest rate sensitivity gap. The interest rate sensitivity of our assets and liabilities in the table could vary substantially based on actual prepayment experience.

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Item 2.  Management’s Discussion and Analysis

	Less than 3 Months			3-12 Months			More than 1 Year to 3 Years			3 Years and Over			Total
Financial Assets:	(dollars in thousands)
Cash and cash equivalents	$	924,197		$	-		$	-		$	-		$	924,197
Reverse repurchase agreements		444,375			-			-			-			444,375
Securities borrowed		513,500			-			-			-			513,500
Agency Mortgage-backed securities (principal)		298			62,654			1,569,462			70,506,725			72,139,139
Agency debentures (principal)		-			-			319,950			2,265,798			2,585,748
Corporate debt (principal)		-			-			12,043			134,330			146,373
Commercial real estate debt and preferred equity (principal)		12,973			377,199			717,315			536,886			1,644,373
Total financial assets	$	1,895,343		$	439,853		$	2,618,770		$	73,443,739		$	78,397,705
Financial Liabilities:
Repurchase agreements	$	39,339,370		$	16,189,579		$	7,286,338		$	1,728,662		$	64,543,949
Securities loaned		513,510			-			-			-			513,510
Convertible Senior Notes (principal)		-			107,541			750,000			-			857,541
Securitized debt of consolidated VIE		-			84,180			176,520			-			260,700
Participations Sold		-			-			-			13,963			13,963
Total financial liabilities	$	39,852,880		$	16,381,300		$	8,212,858		$	1,742,625		$	66,189,663
Maturity gap	$	(37,957,537	)	$	(15,941,447	)	$	(5,594,088	)	$	71,701,114		$	12,208,042
Cumulative maturity gap	$	(37,957,537	)	$	(53,898,984	)	$	(59,493,072	)	$	12,208,042
Interest rate sensitivity gap	$	20,521,154		$	(17,415,022	)	$	(29,311,404	)	$	38,413,316		$	12,208,044
Cumulative rate sensitivity gap	$	20,521,154		$	3,106,132		$	(26,205,272	)	$	12,208,044
Cumulative rate sensitivity gap as a % of total rate sensitive assets		26.18	%		3.96	%		(33.43	%)		15.57	%

The methodologies we employ for evaluating interest rate risk include an analysis of our interest rate “gap,” measurement of the duration and convexity of our portfolio and sensitivities to interest rates and spreads. Stress Testing We utilize liquidity stress testing to ensure we have sufficient liquidity under a variety of scenarios and stresses. These stress tests are considered and assist with the management of our pool of liquid assets, and influence our current and future funding plans. Our stress tests are modeled over both short term and longer time horizons. The stresses applied include market-wide and firm-specific stresses. Liquidity Management Policies We utilize a comprehensive liquidity policy structure to inform our liquidity risk management practices including monitoring and measurement, along with well-defined key limits. Both quantitative and qualitative targets are utilized to measure the ongoing stability and condition of the liquidity position, and include the level and composition of unencumbered assets, as well as both short-term and long-term sustainability of the funding composition under stress conditions. We also monitor early warning metrics designed to measure the quality and depth of liquidity sources based upon both company-specific and macro environmental conditions. The metrics assess both the short-term and long-term liquidity conditions and are integrated into our CFP, with various liquidity ratings influencing management actions with respect to contingency planning and potential related actions. Investment/Market Risk Management One of the primary risks we are subject to is interest rate risk. Changes in the level of interest rates can affect our net interest income, which is the difference between the income we earn on our Interest Earning Assets and the interest expense incurred from Interest Bearing Liabilities and derivatives. Changes in the level of interest rates can also affect the value of our securities and our ability to realize gains from the sale of these assets. We may utilize a variety of financial instruments, including interest rate swaps, swaptions, options, futures and other hedges, in order to limit the effects of interest rates on our results. Our portfolio and the value of our portfolio, including derivatives, may be adversely affected as a result of changing interest rates and spreads.

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Item 2.  Management’s Discussion and Analysis

We simulate a wide variety of interest rate scenarios in evaluating our risk. Scenarios are run to capture our sensitivity to interest rates, spreads and the shape of the yield curve. We also consider assumptions affecting our analysis such as prepayments. In addition to predefined interest rate scenarios, we utilize Value-at-Risk measures to estimate potential losses in the portfolio over various time horizons utilizing various confidence levels. The following tables estimate the potential changes in economic net interest income over a twelve month period and the immediate effect on our portfolio market value, should interest rates increase or decrease by 25, 50 or 75 basis points, and mortgage option adjusted spreads increase or decrease by 5, 15 or 25 basis points, assuming the shocks will be parallel and instantaneous. All changes to income and portfolio market value are measured as percentage changes from the projected net interest income and portfolio value at the base interest rate scenario. The base interest rate scenario assumes interest rates at March 31, 2014 and various estimates regarding prepayments and all activities are made at each level of rate shock. Actual results could differ significantly from these estimates.

Change in Interest Rate	Projected Percentage Change in Economic Net Interest Income(1)		Change in Portfolio Value, with Effect of Interest Rate Swaps		Estimated Change as a % on NAV(2)
-75 Basis Points		(21.4%)		0.4%		2.4%
-50 Basis Points		(16.0%)		0.4%		2.4%
-25 Basis Points		(7.7%)		0.2%		1.6%
Base Interest Rate		-		-		-
+25 Basis Points		4.9%		(0.3%)		(2.2%)
+50 Basis Points		10.2%		(0.7%)		(4.7%)
+75 Basis Points		14.7%		(1.1%)		(7.5%)
MBS Spread Shock	Estimated Change in Portfolio Market Value		Estimated Change as a % on NAV(2)
-25 Basis points		1.3%		9.0%
-15 Basis points		0.8%		5.4%
-5 Basis points		0.3%		1.8%
Base Interest Rate		-		-
+5 Basis points		(0.3%)		(1.8%)
+15 Basis points		(0.8%)		(5.3%)
+25 Basis points		(1.3%)		(8.8%)
(1)  Scenarios include Investment Securities, repurchase agreements and interest rate swaps only. Economic net interest income includes interest expense on interest rate swaps.
(2)  NAV includes common stock, additional paid-in capital, accumulated other comprehensive loss, and accumulated deficit.

Credit and Counterparty Risk Management Key risk parameters have been established to specify Annaly’s credit risk appetite. We will maintain a high quality asset portfolio with at least 75% of the portfolio to be high quality mortgage-backed securities and short term investments (equivalency rating of AA+ or better), and an aggregate weighted average equivalency rating of single “A” or better. While we do not expect to encounter credit risk in our Agency investments, we face credit risk on the non-Agency portions of our portfolio. We are exposed to credit risk on commercial real estate investments and corporate debt. We generally face more credit risk on investments where we hold subordinated debt or equity positions. We are exposed to risk of loss if an issuer, borrower or  counterparty fails to perform its contractual obligations. We have established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, maintaining qualifying collateral and continually assessing the creditworthiness of counterparties, borrowers and issuers. We only originate or purchase commercial investments that meet our comprehensive underwriting process and credit standards and are approved by the appropriate committee. Once a commercial investment is made, our ongoing surveillance process includes regular reviews, analysis and oversight of investments by our investment personnel and appropriate committee. We review credit and other risks of loss associated with each investment and determine the appropriate allocation of capital to apply to each investment under our capital policy. Our management will monitor the overall portfolio risk and determine levels of provision for loss. Our portfolio composition as of March 31, 2014 and December 31, 2013 was as follows:

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Item 2.  Management’s Discussion and Analysis

Asset Portfolio (using balance sheet values)
Category	March 31, 2014			December 31, 2013
Agency mortgage-backed securities(1)		94.7	%		93.7	%
Agency debentures		3.0	%		4.0	%
Commercial real estate debt and preferred equity(2)		2.1	%		2.1	%
Corporate debt, held for investment		0.2	%		0.2	%
(1) Including TBAs held for delivery.
(2) Net of unamortized origination fees.

Our use of repurchase and derivative agreements create exposure to credit risk relating to potential losses that could be recognized if the counterparties to these agreements fail to perform their obligations under the contracts. In the event of default by a counterparty, we could have difficulty obtaining our assets pledged as collateral. A significant portion of our Agency securities are financed with repurchase agreements by pledging our agency securities as collateral to the lender. The collateral we pledge exceeds the amount of the borrowings under each agreement. If the counterparty to the repurchase agreement defaults on its obligations and we are not able to recover our pledged asset, we are at risk of losing the over-collateralization or haircut. The amount of this exposure is the difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest receivable on such collateral. We also use interest rate swaps and other derivatives to manage interest rate risk. Under these agreements, we pledge securities and cash as collateral as part of a margin arrangement. If a counterparty were to default on its obligations, we would be exposed to a loss to a derivative counterparty to the extent that the amount of our securities or cash pledged exceeded the unrealized loss on the associated derivative and we were not able to recover the excess collateral. We monitor our exposure to counterparties across several dimensions including by type of arrangement, collateral type, counterparty type, ratings and geography. The following table summarizes our exposure to counterparties by geography as of March 31, 2014:

Country	Number of Counterparties		Repurchase Agreement Financing		Interest Rate Swaps at Fair Value			Exposure(1)
(dollars in thousands)
North America		16	$	42,754,190	$	(688,852	)	$	3,040,516
Europe		11		17,302,514		(242,874	)		1,019,009
Asia (non-Japan)		1		1,007,100		-			55,370
Japan		4		3,480,145		-			221,262
Total		32	$	64,543,949	$	(931,726	)	$	4,336,157

(1)  Represents the amount of cash and/or securities pledged as collateral to each counterparty less the aggregate of repurchase agreement financing and unrealized loss on swaps for each counterparty.

Operational Risk Management We are subject to operational risk in each of our business and support functions. Operational risk may arise from internal or external sources including human error, fraud, systems issues, process change, vendors, business interruptions and other external events. Model risk considers potential errors with a model’s results due to uncertainty in model parameters and inappropriate methodologies used. The result of these risks may include financial loss and reputational damage. We manage operational risk through a variety of tools including policies and procedures which cover topics such as business continuity, personal conduct and vendor management.  Other tools include training, on topics such as cyber security awareness; testing, including disaster recovery testing; systems controls, including access controls; and monitoring, which includes the use of key risk indicators.  Employee level lines of defense against operational risk include the

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Item 2.  Management’s Discussion and Analysis

empowerment of business units to identify and mitigate operational risk sources, an independent operational risk group which reports to the Chief Risk Officer of our Manager, testing by our internal audit staff, and our overall governance framework.    Compliance, Regulatory and Legal Risk Management Our business is organized as a REIT and we plan to continue to meet the requirements for taxation as a REIT.  The determination that we are a REIT requires an analysis of various factual matters and circumstances.  Accordingly, we closely monitor our REIT status within our risk management program.  The financial services industry is highly regulated and continues to receive increasing attention from regulators which may impact both our company as well as our business strategy. We proactively monitor the potential impact regulation may have both directly and indirectly on our firm.  In conjunction with the legal department we maintain a process to actively monitor both actual and potential legal action that may affect us.  Our risk management framework is designed to identify, monitor and manage these risks under the oversight of the Enterprise Risk Committee. We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act and  we plan to continue to meet the requirements for this exemption from registration.  The determination that we qualify for this exemption from registration depends on various factual matters and circumstances.  Accordingly, in conjunction with the legal department, we closely monitor our compliance with Section 3(c)(5)(C) within our risk management program.  The monitoring of this risk is also under the oversight of the Enterprise Risk Committee. Critical Accounting Policies Our critical accounting policies are as follows: Valuation of Financial Instruments Agency mortgage-backed securities and debentures There is an active market for Agency mortgage-backed securities and debentures.  Since we primarily invest in securities that can be measured from actively quoted prices, there is a high degree of observable inputs and less subjectivity in measuring fair value.  Internal market values are determined using quoted prices from the To-Be-Announced (or TBA) security market, the Treasury curve and the underlying characteristics of the individual securities, which may include coupon, periodic and life caps, reset dates and the expected life of the security.  All internal market values are compared to external sources or dealer quotes to determine reasonableness.  Additionally, securities used as collateral for repurchase agreements are priced daily by counterparties to ensure sufficient collateralization, providing additional verification of our internal pricing. Interest rate swaps We use the overnight indexed swap (or OIS) curve as an input to value substantially all of our interest rate swaps. We believe using the OIS curve, which reflects the interest rate typically paid on cash collateral, enables us to most accurately determine the fair value of interest rate swaps.  Consistent with market practice, we have negotiated agreements with certain counterparties to exchange collateral (or margining) based on the level of fair values of the interest rate swaps. Through this margining process, one party or each party to a derivative contract provides the other party with information about the fair value of the derivative contract to calculate the amount of collateral required, providing additional verification of our recorded fair value of the interest rate swaps. Revenue Recognition Interest income on Agency mortgage-backed securities and debentures is recognized over the projected life of the securities using the interest method. The projected life of the securities is determined based on expected prepayment speeds, past prepayment history of the security, government initiatives that would affect the Agency mortgage-backed securities market and market consensus. Adjustments are made for actual prepayment activity as it relates to calculating the effective yield. Gains or losses on investment securities are recorded on trade date based on the average cost of the security. Use of Estimates The use of GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

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Item 2.  Management’s Discussion and Analysis

Glossary of Terms

A Adjustable-Rate Mortgage (ARM) A mortgage loan on which interest rates are adjusted at regular intervals according to predetermined criteria. An ARM’s interest rate is tied to an objective, published interest rate index. Agency Refers to a federally chartered corporation, such as the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation, or an agency of the U.S. Government, such as the Government National Mortgage Association. Agency Debentures Debt issued by a federal agency or a government-sponsored enterprise (GSE) for financing purposes. These types of debentures are not backed by collateral, but by the integrity and credit worthiness of the issuer.  Agency debentures issued by a GSE are backed only by that GSE's ability to pay.  The callable feature allows the agency to repay the bond prior to maturity. Agency Mortgage-Backed Securities Refers to residential mortgage-backed securities that are issued or guaranteed by an Agency. Amortization Liquidation of a debt through installment payments.  Amortization also refers to the process of systematically reducing a recognized asset or liability (e.g., a purchase premium or discount for a debt security) with an offset to earnings. Average Life On a mortgage-backed security, the average time to receipt of each dollar of principal, weighted by the amount of each principal prepayment, based on prepayment assumptions. B Basis Point Smallest measure used in quoting yields on bonds and notes. One basis point is 0.01% of yield. For example, a bond’s yield that changed from 6.52% to 7.19% would be said to have moved 67 basis points. Benchmark A bond whose terms are used for comparison with other bonds of similar maturity. The global financial market typically looks to U.S. Treasury securities as benchmarks. Beneficial Owner One who benefits from owning a security, even if the security’s title of ownership is in the name of a broker or bank ("street name"). B-Note Subordinate mortgage notes and/or subordinate mortgage loan participations. B-Piece The most subordinate commercial mortgage-backed security bond class. Bond (1) The written evidence of debt, bearing a stated rate or stated rates of interest, or stating a formula for determining that rate, and maturing on a date certain, on which date and upon presentation a fixed sum of money plus interest (usually represented by interest coupons attached to the bond) is payable to the holder or owner. (2) For purposes of computations tied in to “per bond,” a $1,000 increment of an issue is used (no matter what the actual denominations are); (3) Bonds are long-term securities with an original maturity of greater than one year. Book Value Per Share Calculated by summing common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit and dividing that number by the total common shares outstanding. Broker Generic name for a securities firm engaged in both buying and selling securities on behalf of customers on its own account. C Capital Buffer Includes unencumbered financial assets which can be utilized as collateral to meet liquidity needs. Capital Ratio Calculated as total stockholders’ equity divided by total assets. Carry The cost of borrowing funds to finance an underwriting or trading position. A positive carry happens when the rate on the securities being financed is greater than the rate on the funds borrowed. A negative carry is when

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Item 2.  Management’s Discussion and Analysis

the rate on the funds borrowed is greater than the rate on the securities that are being financed. Collateral Securities, cash or property pledged by a borrower to secure payment of a loan or derivative. If the borrower fails to repay the loan, the lender may take ownership of the collateral. Collateralized Mortgage Obligation (CMO) A multiclass bond backed by a pool of mortgage pass-through securities or mortgage loans. Commodity Futures Trading Commission (CFTC) An independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. The CFTC regulates the commodity futures and options markets. Its goals include the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices and fraud. Constant Prepayment Rate (CPR) The percentage of outstanding mortgage loan principal that prepays in one year, based on the annualization of the Single Monthly Mortality, which reflects the outstanding mortgage loan principal that prepays in one month. Contingent Funding Plan (CFP) An action plan used for responding to a liquidity crisis.  It is to be enacted when we experience heightened concerns regarding our liquidity position. Conventional Mortgage Loan A mortgage loan granted by a bank or thrift institution that is based solely on real estate as security and is not insured or guaranteed by a government agency. Convertible Securities Securities which may be converted into shares of another security under stated terms, often into the issuing company's common stock. Convexity A measure of the change in a security’s duration with respect to changes in interest rates. The more convex a security is, the more its duration will change with interest rate changes. Core Earnings and Core Earnings Per Basic Share Non-GAAP financial measures that represent GAAP net income and GAAP basic earnings per share adjusted for gains or losses on disposals of investments, trading assets and termination of interest rate swaps, unrealized gains or losses on interest rate swaps and Agency interest-only mortgage-backed securities, net loss on extinguishment of the 4% Convertible Senior Notes due 2015, net gains and losses on trading assets, impairment losses and loss on previously held equity interest in CreXus. Corporate Debt Non-government debt instruments. Long-term corporate debt can be issued as bonds or loans. Counterparty One of two entities in a transaction. For example, in the bond market a counterparty can be a state or local government, a broker-dealer or a corporation. Coupon The interest rate on a bond that is used to compute the amount of interest due on a periodic basis. Credit and Counterparty Risk Risk to earnings, capital or business, resulting from an obligor’s or counterparty's failure to meet the terms of any contract or otherwise failure to perform as agreed. Credit and counterparty risk is present in lending, investing, funding and hedging activities. Current Face The current remaining monthly principal on a mortgage security. Current face is computed by multiplying the original face value of the security by the current principal balance factor. D Dealer Person or organization that underwrites, trades and sells securities, e.g., a principal market-maker in securities. Default Risk Possibility that a bond issuer will fail to pay principal or interest when due. Derivative A financial product that derives its value from the price, price fluctuations and price expectations of an underlying instrument (e.g. futures contracts, options, interest rate swaps, interest rate swaptions and certain to-be-announced securities). Discount Price When the dollar price is below face value, it is said to be selling at a discount.

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Item 2.  Management’s Discussion and Analysis

Discount Rate The rate the Federal Reserve charges on loans to member banks. Duration The weighted maturity of a fixed-income investment’s cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates. E Economic Capital A measure of the risk a firm is subject to.  It is the amount of capital a firm needs as a buffer to protect against risk.  It is a probabilistic measure of potential future losses at a given confidence level over a given time horizon. Economic Interest Expense Non-GAAP financial measure that is composed of GAAP interest expense adjusted for gains or losses on interest rate swaps. Economic Net Interest Income Non-GAAP financial measure that is composed of GAAP net interest income adjusted for gains or losses on interest rate swaps. Encumbered Assets Assets on the company’s balance sheet which have been pledged as collateral against an existing liability. F Face Amount The par value (i.e., principal or maturity value) of a security appearing on the face of the instrument. Factor A decimal value reflecting the proportion of the outstanding principal balance of a mortgage security, which changes over time, in relation to its original principal value. Fannie Mae Federal National Mortgage Association. Federal Deposit Insurance Corporation (FDIC) An independent agency created by the U.S. Congress to maintain stability and public confidence in the nation's financial system by insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection, and managing receiverships. Federal Funds Rate The interest rate charged by banks on overnight loans of their excess reserve funds to other banks. Fixed-Rate Mortgage A mortgage featuring level monthly payments, determined at the outset, which remain constant over the life of the mortgage. Floating Rate Bond A bond for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index. Floating Rate CMO A CMO tranche which pays an adjustable rate of interest tied to a representative interest rate index such as the LIBOR, the Constant Maturity Treasury or the Cost of Funds Index. Freddie Mac Federal Home Loan Mortgage Corporation. Futures Contract A legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon at the initiation of the contract by the buyer and seller. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. A futures contract differs from an option in that an option gives one of the counterparties a right and the other an obligation to buy or sell, while a futures contract represents an obligation of both counterparties, one to deliver and the other to accept delivery. A futures contract is part of a class of financial instruments called derivatives. G GAAP Accounting principles generally accepted in the United States of America. Ginnie Mae Government National Mortgage Association. H Hedge An investment made with the intention of minimizing the impact of adverse movements in interest rates or securities prices.

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Item 2.  Management’s Discussion and Analysis

I In-the-Money Description for an option that has intrinsic value and can be sold or exercised for a profit; a call option is in-the-money when the strike price is below the market price of the underlying security. Interest Bearing Liabilities Refers to repurchase agreements, convertible senior notes, securitized debt of consolidated VIE, participation sold, U.S. Treasury securities sold, not yet purchased and securities loaned. Interest Earning Assets Refers to Investment Securities, securities borrowed, U.S. Treasury securities, reverse repurchase agreements, cash and cash equivalents and commercial real estate debt and preferred equity interests. Interest Only (IO) Bond The interest portion of mortgage, Treasury or bond payments, which is separated and sold individually from the principal portion of those same payments. Interest Rate Risk The risk that an investment's value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. As market interest rates rise, the value of current fixed income investment holdings declines. Diversifying, deleveraging and hedging techniques are utilized to mitigate this risk. Interest rate risk is a form of market risk. Interest Rate Swap A binding agreement between counterparties to exchange periodic interest payments on some predetermined dollar principal, which is called the notional principal amount. For example, one party will pay fixed and receive a variable rate. Interest Rate Swaption Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate swap agreement at some specified date in the future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer. The writer of the swaption becomes the counterparty to the swap if the buyer exercises. Internal Capital Adequacy Assessment Program (ICAAP) The ongoing assessment and measurement of our risks, and the amount of capital which is necessary to hold against those risks.  The objective is to ensure that the firm is appropriately capitalized relative to the risks in our business. International Swaps and Derivatives Association (ISDA) Master Agreements Standardized contract developed by ISDA used as an umbrella under which bilateral derivatives contracts are entered into. Inverse IO Bond An interest-only bond whose coupon is determined by a formula expressing an inverse relationship to a benchmark rate, such as LIBOR. As the benchmark rate changes, the IO coupon adjusts in the opposite direction.   When the benchmark rate is relatively low, the IO pays a relatively high coupon payment, and vice versa. Investment/Market Risk Risk to earnings, capital or business resulting in the decline in value of our assets caused from changes in market variables, such as interest rates, which affect the values of invested securities and other investment instruments. Investment Securities Refers to Agency mortgage-backed securities and Agency debentures. L Leverage The use of borrowed money to increase investing power. Leverage Ratio Calculated as total debt to total stockholders' equity. Includes non-recourse loan participations and mortgages payable. LIBOR (London Interbank Offered Rate) The rate banks charge each other for short-term Eurodollar loans. LIBOR is frequently used as the base for resetting rates on floating-rate securities. Liquidity Risk Risk to earnings, capital or business arising from our inability to meet our obligations when they come due without incurring unacceptable losses because of inability to liquidate assets or obtain adequate funding. Long-Term Debt Debt which matures in more than one year.

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Item 2.  Management’s Discussion and Analysis

M Master Netting Agreement An agreement between two counterparties who have multiple derivative contracts or repurchase / reverse repurchase agreements with each other that provides for the net settlement of all contracts, as well as cash collateral, through a single payment, in a single currency, in the event of default on or termination of any one contract. Monetary Policy Action taken by the Board of Governors of the Federal Reserve System to influence the money supply or interest rates. Mortgage-Backed Securities (MBS) A security representing a direct interest in a pool of mortgage loans. The pass-through issuer or servicer collects the payments on the loans in the pool and "passes through" the principal and interest to the security holders on a pro rata basis. N NAV Net asset value. Net Capital Ratio Calculated by taking total stockholders’ equity divided by total assets less the net balances of U.S. Treasury securities and U.S. Treasury securities sold, not yet purchased, reverse repurchase agreements and repurchase agreements, and securities borrowed and securities loaned. Net Equity Yield Calculated using GAAP net income, excluding depreciation and amortization expense, divided by average net equity. Net Interest Income Represents interest income earned on our portfolio investments, less interest expense paid for borrowings. Net Interest Spread Calculated by taking the annualized yield on average interest earning assets minus the annualized cost of funds on average interest bearing liabilities, including the net interest payments on interest rate swaps.  Interest earning assets includes Investment Securities (includes Agency mortgage-backed securities and Agency debentures), U.S. Treasury securities, securities loaned, commercial real estate debt and preferred equity, reverse repurchase agreements and cash and cash equivalents. Notional Amount A stated principal amount in a derivative contract on which the contract is based. O Option Contract A contract in which the buyer has the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Buyers of call options bet that a security will be worth more than the price set by the option (the strike price), plus the price they pay for the option itself. Buyers of put options bet that the security’s price will drop below the price set by the option. An option is part of a class of financial instruments called derivatives, which means these financial instruments derive their value from the worth of an underlying investment. Operational Risk Risk to earnings, capital, reputation or business arising from inadequate or failed internal processes or systems, human factors or external events. Original Face The face value or original principal amount of a security on its issue date. Other Income Represents gains and losses on assets sold, gains and losses on trading assets and investment advisory and dividend income. Out-of-the-Money Description for an option that has no intrinsic value and would be worthless if it expired today; for a call option, this situation occurs when the strike price is higher than the market price of the underlying security; for a put option, this situation occurs when the strike price is less than the market price of the underlying security. Over-The-Counter (OTC) Market A securities market that is conducted by dealers throughout the country through negotiation of price rather than through the use of an auction system as represented by a stock exchange. P Pass Through Security The securitization structure where a GSE or other entity “passes” the amount collected from the borrowers every month to the investor, after deducting fees and expenses.

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Item 2.  Management’s Discussion and Analysis

Principal and Interest The term used to refer to regularly scheduled payments or prepayments of principal and of interest on a mortgage or other security. Par Price equal to the face amount of a security; 100%. Par Amount The principal amount of a bond or note due at maturity. Also known as par value. Pool A collection of mortgage loans assembled by an originator or master servicer as the basis for a security. In the case of Ginnie Mae, Fannie Mae, or Freddie Mac mortgage pass-through securities, pools are identified by a number assigned by the issuing agency. Premium The amount by which the price of a security exceeds its principal amount. When the dollar price of a bond is above its face value, it is said to be selling at a premium. Prepayment The unscheduled partial or complete payment of the principal amount outstanding on a mortgage loan or other debt before it is due. Prepayment Risk The risk that falling interest rates will lead to heavy prepayments of mortgage or other loans, forcing the investor to reinvest at lower prevailing rates. Prime Rate The indicative interest rate on loans that banks quote to their best commercial customers. R Rate Reset The adjustment of the interest rate on a floating-rate security according to a prescribed formula. Real Estate Investment Trust (REIT) A special purpose investment vehicle that provides investors with the ability to participate directly in the ownership or financing of real-estate related assets by pooling their capital to purchase and manage mortgage loans and/or  income property. Reinvestment Risk The risk that interest income or principal repayments will have to be reinvested at lower rates in a declining rate environment. Repurchase Agreement The sale of securities to investors with the agreement to buy them back at a higher price after a specified time period; a form of short-term borrowing. For the party on the other end of thetransaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement. Residual In a CMO, the residual is that tranche which collects any cash flow from the collateral that remains after obligations to the other tranches have been met. Return on Average Equity Calculated by taking earnings divided by average stockholders' equity excluding preferred shares. Reverse Repurchase Agreement Refer to Repurchase Agreement. From the customer's perspective, the customer provides a collateralized loan to the seller. Risk Appetite Statement Defines the types and levels of risk we are willing to take in order to achieve our business objectives, and reflects our risk management philosophy. S Secondary Market Ongoing market for bonds previously offered or sold in the primary market. Settlement Date The date securities must be delivered and paid for to complete a transaction. Short-Term Debt Generally, debt which matures in one year or less. However, certain securities that mature in up to three years may be considered short-term debt. Spread When buying or selling a bond through a brokerage firm, an individual investor will be charged a commission or spread, which is the difference between the market price and cost of purchase, and sometimes a service fee. Spreads differ based on several factors including liquidity. T Target Assets Includes Agency mortgage-backed securities, to-be-announced forward contracts, agency debentures, commercial real estate investments, other mortgage-backed securities and corporate debt.

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Item 2.  Management’s Discussion and Analysis

To-Be-Announced Securities (TBAs) A contract for the purchase or sale of a mortgage-backed security to be delivered at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date but does not include a specified pool number and number of pools. Total Return Investment performance measure over a stated time period which includes coupon interest, interest on interest, and any realized and unrealized gains or losses. Total Return Swap A financial contract that transfers both the credit risk and market risk of an underlying asset. U Unencumbered Assets Assets on our balance sheet which have not been pledged as collateral against an existing liability. U.S. Government-Sponsored Enterprise (GSE) Obligations Obligations of agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government. U.S. Treasury U.S. Department of the Treasury. V Value-at-Risk (VaR) A statistical technique which measures the potential loss in value of an asset or portfolio over a defined period for a given confidence interval. Volatility A statistical measure of the variance of price or yield over time. Volatility is low if the price does not change very much over a short period of time, and high if there is a greater change. W Warehouse Lending A line of credit extended to a loan originator to fund mortgages extended by the loan originators to property purchasers. The loan typically lasts from the time the mortgage is originated to when the mortgage is sold into the secondary market, whether directly or through a securitization.  Warehouse lending can provide liquidity to the loan origination market. Weighted Average Coupon The weighted average interest rate of the underlying mortgage loans or pools that serve as collateral for a security, weighted by the size of the principal loan balances. Weighted Average Life (WAL) The assumed weighted average amount of time that will elapse from the date of a security’s issuance until each dollar of principal is repaid to the investor. The WAL will change as the security ages and depending on the actual realized rate at which principal, scheduled and unscheduled, is paid to the loans underlying the MBS. Y Yield-to-Maturity The expected rate of return of a bond if it is held to its maturity date; calculated by taking into account the current market price, stated redemption value, coupon payments and time to maturity and assuming all coupons are reinvested at the same rate; equivalent to the internal rate of return.

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ITEM 3.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Quantitative and qualitative disclosures about market risk are contained within the section titled “Risk Management” of Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 4.      CONTROLS AND PROCEDURES

Our management, including our Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO), reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act) as of the end of the period covered by this quarterly report.  Based on that review and evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed and implemented, (1) were effective in ensuring that information regarding the Company and its subsidiaries is accumulated and communicated to our management, including our CEO and CFO, by our employees, as appropriate to allow timely decisions regarding required disclosure and (2) were effective in providing reasonable assurance that information the Company must disclose in its periodic reports under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods prescribed by the SEC’s rules and forms. There have been no changes in our internal controls over financial reporting that occurred during the quarter ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1.     LEGAL PROCEEDINGS

From time-to-time, we are involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on our consolidated financial statements.

ITEM 1A.  RISK FACTORS

There have been no material changes to the risk factors disclosed in Item 1A – Risk Factors of our most recent annual report on Form 10-K. The materialization of any risks and uncertainties identified in our Special Note Regarding Forward-Looking Statements contained in this report together with those previously disclosed in our most recent annual report on Form 10-K or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Special Note Regarding Forward-Looking Statements” in this quarterly report or our most recent annual report on Form 10-K.

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Item 6. Exhibits

ITEM 6.    EXHIBITS

Exhibits:

The exhibits required by this item are set forth on the Exhibit Index attached hereto.

Exhibit Number	Exhibit Description
3.1	Articles of Amendment and Restatement of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.2 to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-32913) filed on August 5, 1997).
3.2	Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant’s Registration Statement on Form S-3 (Registration Statement 333-74618) filed on September 12, 2002).
3.3	Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on August 3, 2006).
3.4	Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.4 of the Registrant's Quarterly Report on Form 10-Q filed on May 7, 2008).
3.5	Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated by reference to Exhibit 3.1 of the Registrant's Current Report on Form 8-K filed on September 23, 2011).
3.6	Form of Articles Supplementary designating the Registrant’s 7.875% Series A Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.3 to the Registrant’s Registration Statement on Form 8-A filed on April 1, 2004).
3.7	Articles Supplementary of the Registrant’s designating an additional 2,750,000 shares of the Company’s 7.875% Series A Cumulative Redeemable Preferred Stock, as filed with the State Department of Assessments and Taxation of Maryland on October 15, 2004 (incorporated by reference to Exhibit 3.2 to the Registrant’s Current Report on Form 8-K filed on October 4, 2004).
3.8	Articles Supplementary designating the Registrant’s 6% Series B Cumulative Convertible Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on April 10, 2006).
3.9	Articles Supplementary designating the Registrant’s 7.625% Series C Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on May 16, 2012).
3.10	Articles Supplementary designating the Registrant’s 7.50% Series D Cumulative Redeemable Preferred Stock, liquidation preference $25.00 per share (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on September 13, 2012).
3.11	Amended and Restated Bylaws of the Registrant, as amended (incorporated by reference to Exhibit 3.1 to the Registrant’s Current Report on Form 8-K filed on March 22, 2011).
3.12	Amendment to the Amended and Restated Bylaws of the Registrant (incorporated by reference to Exhibit 3.12 to the Registrant’s Quarterly Report on Form 10-Q filed on August 8, 2013).

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Item 6. Exhibits

4.1	Specimen Common Stock Certificate (incorporated by reference to Exhibit 4.1 to Amendment No. 1 to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-32913) filed on September 17, 1997).
4.2	Specimen Preferred Stock Certificate (incorporated by reference to Exhibit 4.2 to the Registrant’s Registration Statement on Form S-3 (Registration No. 333-74618) filed on December 5, 2001).
4.3	Specimen Series A Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 of the Registrant's Registration Statement on Form 8-A filed on April 1, 2004).
4.4	Specimen Series B Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Current Report on Form 8-K filed on April 10, 2006).
4.5	Specimen Series C Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on May 16, 2012).
4.6	Specimen Series D Preferred Stock Certificate (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on September 13, 2012).
4.7	Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.1 to the Registrant’s Form 8-K filed on February 12, 2010).
4.8	Supplemental Indenture, dated as of February 12, 2010, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-K filed on February 12, 2010).
4.9	Form of 4.00% Convertible Senior Note due 2015 (included in Exhibit 4.6).
4.10	Second Supplemental Indenture, dated as of May 14, 2012, between the Registrant and Wells Fargo Bank, National Association (incorporated by reference to Exhibit 4.2 to the Registrant’s Form 8-K filed on May 14, 2012).
4.11	Form of 5.00% Convertible Senior Note due 2015 (included in Exhibit 4.10).
31.1	Certification of Wellington J. Denahan, Chairman and Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Glenn A. Votek, Chief Financial Officer (Principal Financial Officer) of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Wellington J. Denahan, Chairman and Chief Executive Officer of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Glenn A. Votek, Chief Financial Officer of the Registrant, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit 101.INS XBRL	Instance Document*
Exhibit 101.SCH XBRL	Taxonomy Extension Schema Document*
Exhibit 101.CAL XBRL	Taxonomy Extension Calculation Linkbase Document*
Exhibit 101.DEF XBRL	Additional Taxonomy Extension Definition Linkbase Document Created*
Exhibit 101.LAB XBRL	Taxonomy Extension Label Linkbase Document*
Exhibit 101.PRE XBRL	Taxonomy Extension Presentation Linkbase Document*

*  Submitted electronically herewith. Attached as Exhibit 101 to this report are the following documents formatted in XBRL (Extensible Business Reporting Language): (i) Consolidated Statements of Financial Condition at March 31, 2014 (Unaudited) and December 31, 2013 (Derived from the audited Consolidated Statement of Financial Condition at December 31, 2013); (ii) Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the quarters ended March 31, 2014 and 2013; (iii) Consolidated Statement of Stockholders' Equity (Unaudited) for the quarters ended March 31, 2014 and 2013; (iv) Consolidated Statements of Cash Flows (Unaudited) for the quarters ended March 31, 2014 and 2013; and (v) Notes to Consolidated Financial Statements (Unaudited).  Users of this data are advised pursuant to Rule 406T of Regulation S-T that this interactive data file is deemed not filed or part of a registration statement or prospectus for purposes of sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of section 18 of the Securities and Exchange Act of 1934, and otherwise is not subject to liability under these sections.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Signatures

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of New York, State of New York.

	ANNALY CAPITAL MANAGEMENT, INC.
Dated: May 8, 2014	By: /s/ Wellington J. Denahan
	Wellington J. Denahan
	(Chief Executive Officer, and authorized officer of registrant)
Dated: May 8, 2014	By: /s/ Glenn A. Votek
	Glenn A. Votek
	(Chief Financial Officer and
	principal financial officer of the registrant)

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EX-31.1

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit 31.1

CERTIFICATIONS

I, Wellington J. Denahan, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Annaly Capital Management, Inc.;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 8, 2014

/s/Wellington J. Denahan

Chairman and Chief Executive Officer

EX-31.2

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit 31.2

CERTIFICATIONS

I, Glenn A. Votek, certify that:

1.		I have reviewed this quarterly report on Form 10-Q of Annaly Capital Management, Inc.;
2.		Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3.		Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4.		The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
	a)	Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
	b)	Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
	c)	Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
	d)	Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5.		The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
	a)		All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
	b)		Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting

Date: May 8, 2014

/s/Glenn A. Votek

Chief Financial Officer (Principal Financial Officer)

EX-32.1

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit 32.1

ANNALY CAPITAL MANAGEMENT, INC.

1211 AVENUE OF THE AMERICAS

SUITE 2902

NEW YORK, NEW YORK 10036

CERTIFICATION

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350

In connection with the quarterly report on Form 10-Q of Annaly Capital Management, Inc. (the “Company”) for the period ended March 31, 2014 to be filed with Securities and Exchange Commission on or about the date hereof (the “Report”), I, Wellington J. Denahan, Chief Executive Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates of, and for the periods covered by, the Report.

It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.

/s/ Wellington J. Denahan

Wellington J. Denahan

Chairman and Chief Executive Officer

May 8, 2014

EX-32.2

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

ANNALY CAPITAL MANAGEMENT, INC.

1211 AVENUE OF THE AMERICAS

SUITE 2902

NEW YORK, NEW YORK 10036

CERTIFICATION

PURSUANT TO SECTION 906 OF THE

SARBANES-OXLEY ACT OF 2002, 10 U.S.C. SECTION 1350

In connection with the quarterly report on Form 10-Q of Annaly Capital Management, Inc. (the “Company”) for the period ended March 31, 2014 to be filed with Securities and Exchange Commission on or about the date hereof (the “Report”), I, Glenn A. Votek, Chief Financial Officer of the Company, certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350, that:

1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company at the dates of, and for the periods covered by, the Report.

It is not intended that this statement be deemed to be filed for purposes of the Securities Exchange Act of 1934.

/s/ Glenn A. Votek

Glenn A. Votek

Chief Financial Officer (Principal Financial Officer)

May 8, 2014

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Organization and Significant Accounting Policies - Narrative (Detail) (USD $)	Mar. 31, 2014	Dec. 31, 2013
Schedule Of Significant Accounting Policies [Line Items]
Allowance for loan losses	$ 0	$ 0
Interest Rate Swaps
Schedule Of Significant Accounting Policies [Line Items]
Cash on margin with counterparty to interest rate swaps	$ 755,500,000	$ 371,800,000

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Fair Value Measurements (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Assets:
U.S. Treasury securities		$ 1,117,915
Agency mortgage-backed securities	75,350,388	70,388,949
Agency debentures	2,408,259	2,969,885
Investment in affiliates	137,647	139,447
Other derivatives	40,105	146,725
Interest rate swaps	340,890	559,044	[1]
Total Assets	78,277,289	75,321,965
Liabilities:
Interest rate swaps	1,272,616	1,141,828	[1]
Other derivatives	6,045	55,518
Total Liabilities	1,278,661	3,115,740
U.S. Treasury securities sold, not yet purchased		1,918,394
Interest Rate Swaps
Assets:
Interest rate swaps	340,890	559,044
Liabilities:
Interest rate swaps	1,272,616	1,141,828
Level 1
Assets:
U.S. Treasury securities		1,117,915
Investment in affiliates	137,647	139,447
Other derivatives		3,487
Total Assets	137,647	1,260,849
Liabilities:
Other derivatives		439
Total Liabilities		1,918,833
U.S. Treasury securities sold, not yet purchased		1,918,394
Level 2
Assets:
Agency mortgage-backed securities	75,350,388	70,388,949
Agency debentures	2,408,259	2,969,885
Other derivatives	40,105	143,238
Total Assets	78,139,642	74,061,116
Liabilities:
Other derivatives	6,045	55,079
Total Liabilities	1,278,661	1,196,907
Level 2 | Interest Rate Swaps
Assets:
Interest rate swaps	340,890	559,044
Liabilities:
Interest rate swaps	$ 1,272,616	$ 1,141,828

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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CRE Debt and Preferred Equity Investments (Parenthetical) (Detail) (Commercial Mortgage, USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Mar. 31, 2013
Commercial Mortgage
Transaction to Real Estate Investments [Line Items]
Net origination fees	$ 4.9	$ 4.9

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Common Stock and Preferred Stock - Narrative (Detail) (USD $)	0 Months Ended	3 Months Ended				0 Months Ended	3 Months Ended				3 Months Ended							3 Months Ended
	Oct. 16, 2012	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013		Apr. 30, 2014 Subsequent Event [Member]	Mar. 31, 2014 7.875% Series A Cumulative Redeemable Preferred Stock	Mar. 31, 2013 7.875% Series A Cumulative Redeemable Preferred Stock	Dec. 31, 2013 7.875% Series A Cumulative Redeemable Preferred Stock		Mar. 31, 2014 7.625% Series C Cumulative Redeemable Preferred Stock	Mar. 31, 2013 7.625% Series C Cumulative Redeemable Preferred Stock	Dec. 31, 2013 7.625% Series C Cumulative Redeemable Preferred Stock		Mar. 31, 2014 7.50% Series D Cumulative Redeemable Preferred Stock	Dec. 31, 2013 7.50% Series D Cumulative Redeemable Preferred Stock		Mar. 31, 2014 Series D Preferred Stock	Mar. 31, 2013 Series D Preferred Stock	Mar. 31, 2014 7.50% Series D Cumulative Redeemable Preferred Stock	Mar. 31, 2013 7.50% Series D Cumulative Redeemable Preferred Stock
Class of Stock [Line Items]
Common Stock, par value		$ 0.01		$ 0.01	[1]
Common Stock, shares authorized		1,956,937,500		1,956,937,500	[1]
Preferred Stock, shares authorized		4,600,000					7,412,500		7,412,500	[1]	12,650,000		12,650,000	[1]	18,400,000	18,400,000	[1]
Common Stock, shares issued		947,488,945		947,432,862	[1]
Common Stock, shares outstanding		947,488,945		947,432,862	[1]
Options exercised under incentive plans, shares		0	20,000
Aggregate exercise price of options exercised under incentive plans		$ 0	$ 300,000
Direct purchase and dividend reinvestment program - value raised		607,000	761,000
Direct purchase and dividend reinvestment program - issued shares		56,000	50,000
Common stock repurchase program, authorized amount	1,500,000,000
Common stock repurchase program, repurchased share			0
Common stock repurchase program, repurchased value			0
Description of common stock equity distribution agreement		In March 2012, the Company entered into six separate Distribution Agency Agreements ("Distribution Agency Agreements") with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RCap Securities, Inc. (together, the Agents).
Date of Distribution Agency Agreement with six separate Agents		March 2012
Number of common shares authorized for issuance under the Distribution Agency Agreement		125,000,000	125,000,000
Preferred Stock, shares issued							7,412,500	7,412,500	7,412,500	[1]	12,000,000	12,000,000	12,000,000	[1]	18,400,000	18,400,000	[1]	18,400,000	18,400,000
Preferred Stock, shares outstanding							7,412,500	7,412,500	7,412,500	[1]	12,000,000	12,000,000	12,000,000	[1]	18,400,000	18,400,000	[1]	18,400,000	18,400,000
Preferred Stock, par value							$ 0.01	$ 0.01			$ 0.01	$ 0.01						$ 0.01	$ 0.01
Preferred Stock liquidation preference, per share							$ 25.00	$ 25.00			$ 25.00	$ 25.00						$ 25.00	$ 25.00
Preferred Stock dividend rate, percentage							7.875%				7.625%	7.625%						7.50%	7.50%
Preferred Stock redeemable price, per share							$ 25.00	$ 25.00			$ 25.00	$ 25.00						$ 25.00	$ 25.00
Preferred Stock redemption date							Apr. 05, 2009				May 16, 2017							Sep. 13, 2017
Common stock - dividend declared		284,247,000	426,173,000
Dividends Declared Per Share of Common Stock		$ 0.30	$ 0.45			$ 0.30
Preferred dividends declared							$ 3,648,000	$ 3,648,000			$ 5,719,000	$ 5,719,000						$ 8,625,000	$ 8,625,000	$ 8,600,000	$ 8,625,000
Preferred series dividends declared, per share							$ 0.492	$ 0.492			$ 0.477	$ 0.477						$ 0.469	$ 0.469	$ 0.469	$ 0.469

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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Estimated Fair Value for All Financial Assets and Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Jan. 31, 2014	Dec. 31, 2013
Financial assets:
U.S. Treasury securities			$ 1,117,915
Agency mortgage-backed securities	75,350,388		70,388,949
Agency debentures	2,408,259		2,969,885
Investment in affiliates	137,647		139,447
Interest rate swaps	380,995		705,769
Other derivatives	40,105		146,725
Financial liabilities:
U.S. Treasury securities sold, not yet purchased			1,918,394
Securities loaned	513,510	260,700	2,527,668	[1]
Securitized debt of consolidated VIE	260,700
Interest rate swaps	1,278,661		1,197,346
Other derivatives	6,045		55,518
Level 1
Financial assets:
U.S. Treasury securities			1,117,915
Investment in affiliates	137,647		139,447
Other derivatives			3,487
Financial liabilities:
U.S. Treasury securities sold, not yet purchased			1,918,394
Other derivatives			439
Level 2
Financial assets:
Agency mortgage-backed securities	75,350,388		70,388,949
Agency debentures	2,408,259		2,969,885
Other derivatives	40,105		143,238
Financial liabilities:
Other derivatives	6,045		55,079
Estimate of Fair Value, Fair Value Disclosure | Level 1
Financial assets:
Cash and cash equivalents	924,197		552,436
Reverse repurchase agreements	444,375		100,000
Securities borrowed	513,500		2,582,893
U.S. Treasury securities			1,117,915
Investment in affiliates	137,647		139,447
Financial liabilities:
U.S. Treasury securities sold, not yet purchased			1,918,394
Securities loaned	513,510		2,527,668
Convertible Senior Notes	883,946		870,199
Estimate of Fair Value, Fair Value Disclosure | Level 2
Financial assets:
Agency mortgage-backed securities	75,350,388		70,388,949
Agency debentures	2,408,259		2,969,885
Corporate debt	145,912		118,362
Interest rate swaps	340,890		559,044
Financial liabilities:
Securitized debt of consolidated VIE	262,105
Mortgages payable	19,240		19,240
Interest rate swaps	1,272,616		1,141,828
Estimate of Fair Value, Fair Value Disclosure | Level 3
Financial assets:
Commercial real estate debt and preferred equity	1,649,239		1,581,836
Financial liabilities:
Participation sold	13,882		14,050
Estimate of Fair Value, Fair Value Disclosure | Level 1, Level 2
Financial assets:
Other derivatives	40,105		146,725
Financial liabilities:
Repurchase agreements	64,856,432		62,134,133
Other derivatives	6,045		55,518
Carrying (Reported) Amount, Fair Value Disclosure | Level 1
Financial assets:
Cash and cash equivalents	924,197		552,436
Reverse repurchase agreements	444,375		100,000
Securities borrowed	513,500		2,582,893
U.S. Treasury securities			1,117,915
Investment in affiliates	137,647		139,447
Financial liabilities:
U.S. Treasury securities sold, not yet purchased			1,918,394
Securities loaned	513,510		2,527,668
Convertible Senior Notes	827,486		825,262
Carrying (Reported) Amount, Fair Value Disclosure | Level 2
Financial assets:
Agency mortgage-backed securities	75,350,388		70,388,949
Agency debentures	2,408,259		2,969,885
Corporate debt	145,394		117,687
Interest rate swaps	340,890		559,044
Financial liabilities:
Securitized debt of consolidated VIE	260,700
Mortgages payable	19,317		19,332
Interest rate swaps	1,272,616		1,141,828
Carrying (Reported) Amount, Fair Value Disclosure | Level 3
Financial assets:
Commercial real estate debt and preferred equity	1,640,206		1,583,969
Financial liabilities:
Participation sold	13,963		14,065
Carrying (Reported) Amount, Fair Value Disclosure | Level 1, Level 2
Financial assets:
Other derivatives	40,105		146,725
Financial liabilities:
Repurchase agreements	64,543,949		61,781,001
Other derivatives	$ 6,045		$ 55,518

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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Lease Commitments And Contingencies - Narrative (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Lease Commitments and Contingencies:
Aggregate future net minimum lease payments	$ 1.9
Lease expense	$ 0.4	$ 0.6

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Summary of Aggregate Consideration and Preliminary Fair Value of Assets Acquired and Liabilities Assumed Recognized at Acquisition Date (Detail) (USD $) In Thousands, unless otherwise specified				3 Months Ended
	Mar. 31, 2014	Dec. 31, 2013		Mar. 31, 2014 CreXus	Mar. 31, 2014 CreXus Commercial real estate investments	Mar. 31, 2014 CreXus Accrued interest receivable	Mar. 31, 2014 CreXus Participation sold
Business Acquisition [Line Items]
Cash consideration transferred				$ 876,267
Fair value of equity interest in CreXus held before the business combination				106,521
Business Combination, Consideration Transferred, Including Equity Interest in Acquiree Held Prior to Combination				982,788
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents				151,843
Recognized amounts of identifiable assets					796,950	3,485
Other assets				5,617
Mortgages payable				(19,376)
Participation sold							(14,352)
Accounts payable and accrued expenses				(12,729)
Total identifiable net assets				911,438
Goodwill	94,781	94,781	[1]	71,350
Recognized amounts of identifiable assets				$ 982,788

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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SECURED FINANCING (Tables)

3 Months Ended

Mar. 31, 2014

Schedule of Repurchase Agreements Remaining Maturity and Weighted Average Rates

At March 31, 2014 and December 31, 2013, the repurchase agreements had the following remaining maturities and weighted average rates:

	March 31, 2014					December 31, 2013
	Repurchase Agreements		Weighted Average Rate			Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	6,065,530		0.29	%	$	-		0.00	%
2 to 29 days		12,308,123		0.34	%		21,171,574		0.36	%
30 to 59 days		17,122,926		0.43	%		13,373,921		0.43	%
60 to 89 days		3,842,791		0.42	%		3,592,266		0.44	%
90 to 119 days		6,941,938		0.55	%		4,010,334		0.52	%
Over 120 days(1)		18,262,641		1.26	%		19,632,906		1.29	%
Total	$	64,543,949		0.65	%	$	61,781,001		0.68	%

Summary of Gross Amounts, Amounts Offset and net Amounts of Repurchase Agreement and Reverse Repurchase Agreement

The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition as of March 31, 2014 and December 31, 2013.

	March 31, 2014						December 31, 2013
	Reverse Repurchase Agreements			Repurchase Agreements			Reverse Repurchase Agreements			Repurchase Agreements
	(dollars in thousands)
Gross Amounts	$	1,766,563		$	65,866,137		$	2,524,980		$	64,205,981
Amounts Offset		(1,322,188	)		(1,322,188	)		(2,424,980	)		(2,424,980	)
Netted Amounts	$	444,375		$	64,543,949		$	100,000		$	61,781,001

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Lease Commitments And Contingencies (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014
Lease Commitments and Contingencies:
Lease Commitment - 2014	$ 1,721
Lease Commitment - 2015	159
Lease Commitment - 2016	27
Lease Commitment - 2017
Lease Commitment - 2018
Lease Commitment - Later years
Aggregate future minimum lease payments	$ 1,907

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Net Income Per Common Share (Detail) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Net Income Per Common Share:
Net income (loss)	$ (203,351)	$ 870,278
Less: Preferred stock dividends	17,992	17,992
Net income (loss) available to common shareholders, prior to adjustment for dilutive potential common shares, if necessary	(221,343)	852,286
Add: Interest on Convertible Senior Notes, if dilutive		10,450
Net income (loss) available to common shareholders, as adjusted	$ (221,343)	$ 862,736
Weighted average shares of common stock outstanding-basic	947,458,813	947,249,901
Add: Effect of dilutive stock options and Convertible Senior Notes, if dilutive		47,565,268
Weighted average shares of common stock outstanding-diluted	947,458,813	994,815,169
Net income (loss) per share available (related) to common share:
Basic	$ (0.23)	$ 0.90
Diluted	$ (0.23)	$ 0.87

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Repurchase Agreements - Remaining Maturities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Jan. 31, 2014	Dec. 31, 2013
Repurchase Agreements:
Repurchase agreements	$ 64,543,949	$ 399,500	$ 61,781,001	[1]
Weighted average rate	0.65%		0.68%
1 day
Repurchase Agreements:
Repurchase agreements	6,065,530
Weighted average rate	0.29%		0.00%
2 to 29 days
Repurchase Agreements:
Repurchase agreements	12,308,123		21,171,574
Weighted average rate	0.34%		0.36%
30 to 59 days
Repurchase Agreements:
Repurchase agreements	17,122,926		13,373,921
Weighted average rate	0.43%		0.43%
60 to 89 days
Repurchase Agreements:
Repurchase agreements	3,842,791		3,592,266
Weighted average rate	0.42%		0.44%
90 to 119 days
Repurchase Agreements:
Repurchase agreements	6,941,938		4,010,334
Weighted average rate	0.55%		0.52%
Over 120 days
Repurchase Agreements:
Repurchase agreements	$ 18,262,641		$ 19,632,906
Weighted average rate	1.26%		1.29%

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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Issued and Outstanding Stock Options (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Long-Term Stock Incentive Plans:
Options outstanding at the beginning of period	3,581,752
Granted
Exercised	0	20,000
Forfeited	(353,417)
Expired
Options outstanding at the end of period	3,228,335
Options exercisable at the end of the period	3,228,335
Options outstanding at the beginning of year, weighted average exercise price	$ 15.44
Granted
Exercised
Forfeited	$ 14.94
Expired
Options outstanding at the end of year, weighted average exercise price	$ 15.49
Options exercisable at the end of the year, exercise price	$ 15.49

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RCap Regulatory Requirements - Narrative (Detail) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014
RCAP Regulatory Requirements:
Minimum net capital requirement	$ 0.3
Regulatory net capital	397.2
Regulatory net capital, excess net capital	$ 396.9

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Income Taxes - Narrative (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Income Taxes:
Income tax expense for income and the portion of earnings retained based on 162(m) limitations		$ 3.9
Years federal and state tax returns remain open for examination	2012, 2011 and 2010
Real Estate Investment Trust
Income Taxes:
REIT Taxable income distributed	100.00%
Income tax expense for income and the portion of earnings retained based on 162(m) limitations	$ 4.0	$ 1.9

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Goodwill - Narrative (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Goodwill and Intangible Assets Disclosure [Line Items]
Goodwill	$ 94,781	$ 94,781	[1]

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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RISK MANAGEMENT

3 Months Ended

Mar. 31, 2014

RISK MANAGEMENT

18.     RISK MANAGEMENT

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

The Company may seek to mitigate the potential financial impact by entering into interest rate agreements such as interest rate swaps, interest rate swaptions and other hedges. As of March 31, 2014 and December 31, 2013, the Company entered into interest rate swaps to pay a fixed rate and receive a floating rate of interest, with a total notional amount of $58.1 billion and $52.4 billion, respectively. As of March 31, 2014 the Company entered into interest rate swaps to receive a fixed rate and pay a floating rate of interest, with a total notional amount of $1.4 billion. The Company was not party to any receive fixed-rate interest rate swaps at December 31, 2013

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

The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities are guaranteed by those respective agencies and the payment of principal and interest on Ginnie Mae Agency mortgage-backed securities are backed by the full faith and credit of the U.S. government.  Principal and interest on Agency debentures are guaranteed by the agency issuing the debenture.  Substantially all of the Company’s Investment Securities have an actual or implied “AAA” rating.

The Company faces credit risk on the portions of its portfolio which are not Agency mortgage-backed securities, Agency debentures or U.S. Treasury securities.  The Company is exposed to credit risk on CRE Debt and Preferred Equity Investments and corporate debt. The Company is exposed to risk of loss if an issuer, borrower or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, maintaining qualifying collateral and continually assessing the creditworthiness of counterparties, borrowers and issuers.

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Internal CRE Debt and Preferred Equity Ratings (Detail) (Commercial Mortgage, USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Transaction to Real Estate Investments [Line Items]
Performing Loans	$ 1,612,900		$ 1,555,750
Internal Ratings Watch List Loans	31,473		31,473
Senior Mortgages
Transaction to Real Estate Investments [Line Items]
Performing Loans	312,372		644,039
Internal Ratings Watch List Loans	25,473	[1]	25,473	[2]
Senior Securitized Mortgages
Transaction to Real Estate Investments [Line Items]
Performing Loans	399,541	[3]
Subordinated Notes
Transaction to Real Estate Investments [Line Items]
Performing Loans	15,965		41,059
Mezzanine Loans
Transaction to Real Estate Investments [Line Items]
Performing Loans	635,253		620,883
Internal Ratings Watch List Loans	6,000		6,000
Preferred Equity Interests
Transaction to Real Estate Investments [Line Items]
Performing Loans	$ 249,769		$ 249,769

[1] (2) Includes approximately $13 million related to one loan on non accrual status.

[2] (1) Includes approximately $13 million related to one loan on non accrual status.

[3] (1) Assets of consolidated VIE.

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Agency Mortgage-Backed Securities - Weighted Average Life (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Fair Value of Agency Mortgage-Backed Securities according to their estimated weighted-average life:
Estimated fair value	$ 75,350,388	$ 70,388,949	[1]
Agency Mortgage Backed Securities
Fair Value of Agency Mortgage-Backed Securities according to their estimated weighted-average life:
Less than one year	66,051	65,584
Greater than one year through five years	46,192,942	50,046,013
Greater than five years through ten years	22,833,176	14,915,716
Greater than ten years	6,258,219	5,361,636
Estimated fair value	75,350,388	70,388,949
Amortized Cost of Agency Mortgage-Backed Securities according to their estimated weighted-average life:
Less than one year	65,248	64,561
Greater than one year through five years	47,553,922	51,710,059
Greater than five years through ten years	23,099,356	15,292,973
Greater than ten years	6,487,443	5,681,108
Total	$ 77,205,969	$ 72,748,701

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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Long-Term Stock Incentive Plans - Narrative (Detail)	3 Months Ended
	Mar. 31, 2014
Long-Term Stock Incentive Plans:
Weighted average remaining contractual term of stock options outstanding, years	3 years 6 months
Weighted average remaining contractual term of stock options exercisable, years	3 years 6 months
Stock Options
Long-Term Stock Incentive Plans:
Long-term stock compensation - vesting period	4 years
Long-term stock compensation - vesting installments	4 years
Long-term stock compensation - minimum contractual term	5 years
Long-term stock compensation - maximum contractual term	10 years
Equity Incentive Plan 2010
Long-Term Stock Incentive Plans:
Long-term stock compensation - ceiling shares	25,000,000
The Prior Plan | Minimum
Long-Term Stock Incentive Plans:
Long-term stock compensation - ceiling shares	500,000
Long-term stock compensation - granting of options authorized, percent of diluted outstanding common stock	9.50%
The Prior Plan | Maximum
Long-Term Stock Incentive Plans:
Long-term stock compensation - ceiling shares	8,932,921

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LONG-TERM STOCK INCENTIVE PLAN (Tables)

3 Months Ended

Mar. 31, 2014

Schedule of Issued and Outstanding Stock Options

The following table sets forth activity related to the Company’s stock options awarded under the Plan as of March 31, 2014:

	For the Quarter Ended
	March 31, 2014
	Number of Shares			Weighted Average Exercise Price
Options outstanding at the beginning of period		3,581,752		$	15.44
Granted		-		$	-
Exercised		-		$	-
Forfeited		(353,417	)	$	14.94
Expired		-		$	-
Options outstanding at the end of period		3,228,335		$	15.49
Options exercisable at the end of the period		3,228,335		$	15.49

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Total Real Estate Held for Investment (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Real estate held for investment, at amortized cost
Total investment in commercial real estate, net	$ 40,313		$ 60,132	[1]
Net carrying value of CRE Debt and Preferred Equity Investments	1,640,206	[2]	1,583,969	[1],[2]
Real Estate Investment
Real estate held for investment, at amortized cost
Real estate held for investment, at amortized cost	37,739		37,739
Less: accumulated depreciation	(1,170)		(877)
Total real estate held for investment at amortized cost, net	36,569		36,862
Real estate held for sale at fair value	3,744		23,270
Total investment in commercial real estate, net	40,313		60,132
Net carrying value of CRE Debt and Preferred Equity Investments	1,640,206		1,583,969
Total commercial real estate investments	1,680,519		1,644,101
Land | Real Estate Investment
Real estate held for investment, at amortized cost
Real estate held for investment, at amortized cost	6,639		6,639
Building Improvements | Real Estate Investment
Real estate held for investment, at amortized cost
Real estate held for investment, at amortized cost	$ 31,100		$ 31,100

[1] Derived from the audited consolidated financial statements at December 31, 2013.

[2] Includes senior securitized mortgages of consolidated VIE with a carrying value of $398.1 million.

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Derivative Instruments - Narrative (Detail) (USD $) In Millions, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Derivative Instruments:
Interest rate swaps - weighted average pay rate, percentage	2.16%	2.14%
Interest rate swaps - weighted average receive rate, percentage	0.19%	0.20%
Derivative instruments, net liability position, aggregate fair value	$ 898

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Summary of Characteristics of Interest Rate Swaps (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2014		Dec. 31, 2013
Derivative Instruments:
Weighted Average Pay Rate	2.16%		2.14%
Weighted Average Receive Rate	0.19%		0.20%
Interest Rate Swaps
Derivative Instruments:
Current Notional	$ 56,709,750	[1]	$ 52,426,910	[1]
Weighted Average Pay Rate	2.16%	[2],[3]	2.14%	[2],[3]
Weighted Average Receive Rate	0.19%	[3],[4]	0.20%	[3],[4]
Average Years to Maturity	5 years 3 months 22 days	[3]	5 years 3 months 4 days	[3]
Interest Rate Swaps | 0 - 3 years
Derivative Instruments:
Derivative Instruments minimum maturity period	0 years		0 years
Derivative Instruments maximum maturity period	3 years		3 years
Current Notional	24,516,550	[1]	24,286,000	[1]
Weighted Average Pay Rate	1.78%	[2],[3]	1.83%	[2],[3]
Weighted Average Receive Rate	0.17%	[3],[4]	0.18%	[3],[4]
Average Years to Maturity	1 year 10 months 2 days	[3]	1 year 11 months 23 days	[3]
Interest Rate Swaps | 3 - 6 years
Derivative Instruments:
Derivative Instruments minimum maturity period	3 years		3 years
Derivative Instruments maximum maturity period	6 years		6 years
Current Notional	8,723,500	[1]	8,865,410	[1]
Weighted Average Pay Rate	2.07%	[2],[3]	2.02%	[2],[3]
Weighted Average Receive Rate	0.19%	[3],[4]	0.19%	[3],[4]
Average Years to Maturity	4 years 7 months 6 days	[3]	4 years 2 months 9 days	[3]
Interest Rate Swaps | 6 - 10 years
Derivative Instruments:
Derivative Instruments minimum maturity period	6 years		6 years
Derivative Instruments maximum maturity period	10 years		10 years
Current Notional	17,179,700	[1]	15,785,500	[1]
Weighted Average Pay Rate	2.49%	[2],[3]	2.37%	[2],[3]
Weighted Average Receive Rate	0.23%	[3],[4]	0.23%	[3],[4]
Average Years to Maturity	7 years 9 months 29 days	[3]	7 years 7 months 28 days	[3]
Interest Rate Swaps | Greater than 10 years
Derivative Instruments:
Derivative Instruments minimum maturity period	10 years		10 years
Current Notional	$ 6,290,000	[1]	$ 3,490,000	[1]
Weighted Average Pay Rate	3.66%	[2],[3]	3.62%	[2],[3]
Weighted Average Receive Rate	0.18%	[3],[4]	0.20%	[3],[4]
Average Years to Maturity	21 years 1 month 2 days	[3]	19 years 11 months 5 days	[3]

[1] Notional amount includes $3.1 billion in forward starting pay fixed swaps, offset by $1.4 billion in forward starting receive fixed swaps.

[2] Weighted average fixed rate on forward starting pay fixed swaps was 3.00%

[3] Excludes forward starting swaps.

[4] Weighted average fixed rate on forward starting pay receive swaps was 1.81%

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CRE Debt and Preferred Equity Investments (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
Transaction to Real Estate Investments [Line Items]
Carrying Value	$ 1,640,206		$ 1,583,969
Commercial Mortgage
Transaction to Real Estate Investments [Line Items]
Outstanding Principal	1,644,373		1,587,223
Carrying Value	1,640,206	[1]	1,583,969	[1]
Percentage of Loan Portfolio	100.00%	[2]	100.00%	[2]
Commercial Mortgage | Senior Mortgages
Transaction to Real Estate Investments [Line Items]
Outstanding Principal	337,845		669,512
Carrying Value	336,845	[1]	667,299	[1]
Percentage of Loan Portfolio	20.50%	[2]	42.20%	[2]
Commercial Mortgage | Senior Securitized Mortgages
Transaction to Real Estate Investments [Line Items]
Outstanding Principal	399,541	[3]
Carrying Value	398,113	[1],[3],[4]
Percentage of Loan Portfolio	24.30%	[2],[3]	0.00%	[2],[3]
Commercial Mortgage | Subordinated Notes
Transaction to Real Estate Investments [Line Items]
Outstanding Principal	15,965		41,059
Carrying Value	16,049	[1]	41,408	[1]
Percentage of Loan Portfolio	1.00%	[2]	2.60%	[2]
Commercial Mortgage | Mezzanine Loans
Transaction to Real Estate Investments [Line Items]
Outstanding Principal	641,253		626,883
Carrying Value	641,887	[1]	628,102	[1]
Percentage of Loan Portfolio	39.00%	[2]	39.50%	[2]
Commercial Mortgage | Preferred Equity Interests
Transaction to Real Estate Investments [Line Items]
Outstanding Principal	249,769		249,769
Carrying Value	$ 247,312	[1]	$ 247,160	[1]
Percentage of Loan Portfolio	15.20%	[2]	15.70%	[2]

[1] (1) Net carrying value includes unamortized origination fees of $4.9 million.

[2] (2) Based on outstanding principal.

[3] (3) Assets of consolidated VIE.

[4] (1) Assets of consolidated VIE.

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BASIS OF PRESENTATION

3 Months Ended

Mar. 31, 2014

BASIS OF PRESENTATION

2.     BASIS OF PRESENTATION

The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("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. The consolidated financial information as of December 31, 2013 has been derived from audited consolidated financial statements not included herein.

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

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Summary of Characteristics of Interest Rate Swaps (Parenthetical) (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Derivative Instruments:
Weighted average fixed rate	2.16%	2.14%
Weighted average fixed rate	0.19%	0.20%
Forward Starting Pay Fixed Swaps [Member]
Derivative Instruments:
Notional amount	$ 3,100,000
Weighted average fixed rate	3.00%
Forward Starting Receive Fixed Swaps [Member]
Derivative Instruments:
Notional amount	$ 1,400,000
Weighted average fixed rate	1.18%

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Agency Mortgage-Backed Securities - Unrealized Loss Position (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014 Securities	Dec. 31, 2013 Securities
Unrealized Loss Position For:
Estimated Fair Value	$ 56,135,070	$ 53,779,480
Gross Unrealized Losses	(2,450,905)	(3,053,077)
Number of Securities	692	638
Available For Sale Securities, Continuous Unrealized Loss Positions, Less Than 12 Months
Unrealized Loss Position For:
Estimated Fair Value	50,079,785	47,677,197
Gross Unrealized Losses	(2,046,126)	(2,569,474)
Number of Securities	642	583
Available For Sale Securities, Continuous Unrealized Loss Positions, Greater Than 12 Months
Unrealized Loss Position For:
Estimated Fair Value	6,055,285	6,102,283
Gross Unrealized Losses	$ (404,779)	$ (483,603)
Number of Securities	50	55

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AGENCY MORTGAGE-BACKED SECURITIES (Tables)

3 Months Ended

Mar. 31, 2014

Schedule of Available-for-sale Securities Reconciliation

The following tables present the Company’s available-for-sale Agency mortgage-backed securities portfolio as of March 31, 2014 and December 31, 2013 which were carried at their fair value:

March 31, 2014	Freddie Mac			Fannie Mae			Ginnie Mae			Total
	(dollars in thousands)
Principal outstanding	$	24,875,914		$	47,149,481		$	113,744		$	72,139,139
Unamortized premium		1,697,704			3,367,828			22,465			5,087,997
Unamortized discount		(9,446	)		(11,341	)		(380	)		(21,167	)
Amortized cost		26,564,172			50,505,968			135,829			77,205,969
Gross unrealized gains		205,409			381,265			8,650			595,324
Gross unrealized losses		(1,013,503	)		(1,433,916	)		(3,486	)		(2,450,905	)
Estimated fair value	$	25,756,078		$	49,453,317		$	140,993		$	75,350,388

	Fixed Rate			Adjustable Rate			Total
	(dollars in thousands)
Amortized cost	$	73,655,761		$	3,550,208		$	77,205,969
Gross unrealized gains		455,048			140,276			595,324
Gross unrealized losses		(2,435,557	)		(15,348	)		(2,450,905	)
Estimated fair value	$	71,675,252		$	3,675,136		$	75,350,388

December 31, 2013	Freddie Mac			Fannie Mae			Ginnie Mae			Total
	(dollars in thousands)
Principal outstanding	$	24,458,925		$	43,564,657		$	120,739		$	68,144,321
Unamortized premium		1,627,966			2,970,813			27,085			4,625,864
Unamortized discount		(9,533	)		(11,568	)		(383	)		(21,484	)
Amortized cost		26,077,358			46,523,902			147,441			72,748,701
Gross unrealized gains		227,423			456,057			9,845			693,325
Gross unrealized losses		(1,267,106	)		(1,781,683	)		(4,288	)		(3,053,077	)
Estimated fair value	$	25,037,675		$	45,198,276		$	152,998		$	70,388,949

	Fixed Rate			Adjustable Rate			Total
	(dollars in thousands)
Amortized cost	$	68,784,424		$	3,964,277		$	72,748,701
Gross unrealized gains		538,556			154,769			693,325
Gross unrealized losses		(3,040,153	)		(12,924	)		(3,053,077	)
Estimated fair value	$	66,282,827		$	4,106,122		$	70,388,949

Schedule of Agency Mortgage Backed Securities by Estimated Weighted Average Life Classification

The following table summarizes the Company’s Agency mortgage-backed securities as of March 31, 2014 and December 31, 2013, according to their estimated weighted average life classifications:

	March 31, 2014				December 31, 2013
Weighted Average Life	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
	(dollars in thousands)
Less than one year	$	66,051	$	65,248	$	65,584	$	64,561
Greater than one year through five years		46,192,942		47,553,922		50,046,013		51,710,059
Greater than five years through ten years		22,833,176		23,099,356		14,915,716		15,292,973
Greater than ten years		6,258,219		6,487,443		5,361,636		5,681,108
Total	$	75,350,388	$	77,205,969	$	70,388,949	$	72,748,701

Schedule of Continuous Unrealized Loss Position

The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities by length of time that such securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013.

	March 31, 2014							December 31, 2013
	Estimated Fair Value		Gross Unrealized Losses			Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
	(dollars in thousands)
Less than 12 Months	$	50,079,785	$	(2,046,126	)		642	$	47,677,197	$	(2,569,474	)		583
12 Months or More		6,055,285		(404,779	)		50		6,102,283		(483,603	)		55
Total	$	56,135,070	$	(2,450,905	)		692	$	53,779,480	$	(3,053,077	)		638

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SIGNIFICANT ACCOUNTING POLICIES (Policies)

3 Months Ended

Mar. 31, 2014

Principles of Consolidation

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Company has evaluated all of its investments in legal entities in order to determine if they are variable interests in Variable Interest Entities ("VIEs"). 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 variable interest is an investment or other interest that will absorb portions of a VIE's expected losses or receive portions of the entity’s expected residual returns. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all facts and circumstances, including the Company’s role in establishing the VIE and the Company’s ongoing rights and responsibilities. This assessment includes first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of the Company’s economic interests, including debt and equity investments and other arrangements deemed to be variable interests in the VIE. This assessment requires that the Company applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company.

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 regarding the VIE to change.

Cash and Cash Equivalents

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and cash held in money market funds on an overnight basis. RCap is a member of various clearing organizations with which it maintains cash required for the conduct of its day-to-day clearance activities. Cash and securities deposited with clearing organizations are carried at cost, which approximates fair value. The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to its interest rate swaps and other derivatives totaled $755.5 million and $371.8 million at March 31, 2014 and December 31, 2013, respectively.

Fair Value Measurements

Fair Value Measurements – The Company carries various financial instruments at fair value.  A complete discussion of the methodology utilized by the Company to estimate the fair value of certain financial instruments is included in the notes to these consolidated financial statements.

Revenue Recognition

Revenue Recognition – The revenue recognition policy by asset class is discussed below.

Agency Mortgage-Backed Securities and Agency Debentures – The Company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations and other mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans and certificates 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”).  These 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”). The Company also invests in Agency debentures issued by the Federal Home Loan Banks, Freddie Mac and Fannie Mae.

Agency mortgage-backed securities and Agency debentures are referred to herein as “Investment Securities.”

Although the Company generally intends to hold most of its Investment Securities until maturity, it may, from time to time, sell any of its Investment Securities as part of its overall management of its portfolio. Investment Securities are classified as available-for-sale and are reported at fair values estimated by management that are compared to independent sources for reasonableness, with unrealized gains and losses reported as a component of other comprehensive income (loss). Investment Securities transactions are recorded on trade date, including TBA securities that meet the regular-way securities scope exception from derivative accounting.  Realized gains and losses on sales of Investment Securities are determined using the average cost method.

On April 1, 2011, the Company elected the fair value option for Agency interest-only mortgage-backed securities acquired on or after such date.  Interest-only securities and inverse interest-only securities are collectively referred to as “interest-only securities.” These Agency interest-only mortgage-backed securities represent the Company’s right to receive a specified proportion of the contractual interest flows of specific Agency mortgage-backed securities.  Agency interest-only mortgage-backed securities acquired on or after April 1, 2011 are measured at fair value with changes in fair value recorded as Net unrealized gains (losses) on interest-only Agency mortgage-backed securities in the Company’s Consolidated Statements of Comprehensive Income (Loss).  The interest-only securities are included in Agency mortgage-backed securities at fair value on the accompanying Consolidated Statements of Financial Condition. 

Interest income from coupon payments is accrued based on the outstanding principal amounts of the Investment Securities and their contractual terms.  Premiums and discounts associated with the purchase of the Investment Securities are amortized or accreted into interest income over the projected lives of the securities using the interest method.  The Company’s policy for estimating prepayment speeds for calculating the effective yield is to evaluate historical performance, consensus prepayment speeds and current market conditions.  Adjustments are made for actual prepayment activity.

Corporate Debt

Corporate Debt– The Company’s investments in corporate debt are designated as held for investment, and are carried at their principal balance outstanding plus any premiums or discounts less allowances for loan losses. No allowance for loan losses was deemed necessary as of March 31, 2014 and December 31, 2013.

Equity Securities

Equity Securities– The Company may invest in equity securities that are classified as available-for-sale or trading.  Equity securities classified as available-for-sale are reported at fair value, based on market quotes, with unrealized gains and losses reported as a component of other comprehensive income (loss). Equity securities classified as trading are reported at fair value, based on market quotes, with unrealized gains and losses reported in the Consolidated Statements of Comprehensive Income (Loss) as Net gains (losses) on trading assets.  Dividends are recorded in earnings based on the declaration date.

Derivative Instruments

Derivative Instruments – The Company may use a variety of derivative instruments to economically hedge some of its exposure to market risks, including interest rate and prepayment risk. These instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA securities with the intent to net settle (“TBA derivatives”), options on TBA securities (“MBS options”) and U.S. Treasury futures contracts.  The Company may also invest in other types of mortgage derivatives such as interest-only securities and synthetic total return swaps, such as the Markit IOS Synthetic Total Return Swap Index.  Derivatives are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, which requires recognition of all derivatives 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). 

Some derivative agreements contain provisions that allow for netting or setting off by counterparty; however, beginning on September 30, 2013, the Company elected to present related assets and liabilities on a gross basis in the Consolidated Statements of Financial Condition. Prior to September 30, 2013, the Company presented in the Consolidated Statements of Financial Condition the fair value of interest rate swap contracts net, by counterparty, if the derivative agreements included netting provisions.

Interest rate swap agreements - Interest rate swaps are the primary instrument used to mitigate interest rate risk.  In particular, the Company uses interest rate swaps to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings.  Swap agreements may be over-the-counter (“OTC”) agreements which are negotiated directly with a counterparty, or centrally cleared through a registered commodities exchange.  OTC swaps are fair valued using internal pricing models and compared to the counterparty market values.  Centrally cleared swaps are fair valued using internal pricing models and compared to the exchange market values.

Interest rate swaptions - Interest rate swaptions are purchased to mitigate the potential impact of increases or decreases in interest rates.  Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future.  They are not centrally cleared.  The premium paid for interest rate swaptions is reported as an asset in the Consolidated Statement of Financial Position. The difference between the premium and the fair value of the swaption is reported in Net gain (loss) on trading assets in the Consolidated Statements of Comprehensive Income (Loss). If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium paid. If the Company sells or exercises a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid.

The fair value of interest rate swaptions is estimated using internal pricing models and compared to the counterparty market value.

TBA Dollar Rolls - TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on similar methods used to value Agency mortgage-backed securities with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

MBS Options – MBS options are generally options on TBA contracts, which help manage mortgage market risks and volatility while providing the potential to enhance returns.  MBS options are over-the-counter traded instruments and those written on current-coupon mortgage-backed securities are typically the most liquid.  MBS options are fair valued using internal pricing models and compared to the counterparty market value at the valuation date with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

U.S. Treasury Futures- U.S. Treasury futures contracts are derivatives that track the prices of specific U.S. Treasury securities. Short sales of U.S. Treasury futures contracts help mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains a margin account which is settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

Other-Than-Temporary Impairment

Other-Than-Temporary Impairment – Management evaluates available-for-sale securities for other-than-temporary 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), while the balance of losses related to other factors will be recognized as a component of other comprehensive income (loss).  There was no other-than-temporary impairment recognized for the quarters ended March 31, 2014 and December 31, 2013.

Loan Loss Reserves

Loan Loss Reserves – 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 to verify they meet the covenants of the loan documents.  If based on the financial review it is deemed probable that the Company will be unable to collect contractual principal and interest amounts (e.g. financial performance and delinquencies), a loan loss provision would be recorded. No allowance for loan losses was deemed necessary as of March 31, 2014 and December 31, 2013.

Repurchase Agreements

Repurchase Agreements – The Company finances the acquisition of a significant portion of its Agency mortgage-backed securities with repurchase agreements. The Company examines each of the specified criteria in ASC 860, Transfers and Servicing, at the inception of each transaction and has determined that each of the financings meet the specified criteria in this guidance. None of the Company’s repurchase agreements are accounted for as components of linked transactions. As a result, the Company separately accounts for the financial assets and related repurchase financings in the accompanying consolidated financial statements.

Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements permit netting. The Company reports cash flows on repurchase agreements as financing activities in the Consolidated Statements of Cash Flows. The Company reports cash flows on reverse repurchase and repurchase agreements entered into by RCap and Shannon as operating activities in the Consolidated Statements of Cash Flows.

Goodwill and Intangible Assets

Goodwill and Intangible Assets–The Company’s acquisitions of FIDAC, Merganser Capital Management, Inc. (“Merganser”) and CreXus were accounted for using the acquisition method. In October 2013, the Company sold the operations of Merganser. Under the acquisition method, net assets and results of operations of acquired companies are included in the consolidated financial statements from the date of acquisition. The costs of FIDAC, Merganser and CreXus were allocated to the assets acquired, including identifiable intangible assets, and the liabilities assumed based on their estimated fair values at the date of acquisition. The excess of purchase price over the fair value of the net assets acquired was recognized as goodwill.

The Company tests goodwill for impairment on an annual basis and at interim periods when events or circumstances may make it more likely than not that an impairment has occurred. If a qualitative analysis indicates that there may be an impairment, a quantitative analysis is performed.  The quantitative impairment test for goodwill utilizes a two-step approach, whereby the Company compares the carrying value of each identified reporting unit to its fair value.  If the carrying value of the reporting unit is greater than its fair value, the second step is performed, where the implied fair value of goodwill is compared to its carrying value. The Company recognizes an impairment charge for the amount by which the carrying amount of goodwill exceeds its fair value.

Intangible assets with an estimated useful life are amortized over the expected life.

Convertible Senior Notes

Convertible Senior Notes – The Company records the 4% Convertible Senior Notes and 5% Convertible Senior Notes (collectively, the “Convertible Senior Notes”) at their contractual amounts, adjusted by the effects of a beneficial conversion feature and a contingent beneficial conversion feature (collectively, the “Conversion Features”).  The Conversion Features’ intrinsic value is included in “Additional paid-in capital” on the Company’s Consolidated Statements of Financial Condition and reduces the recorded liability amount associated with the Convertible Senior Notes. A Conversion Feature may be recognized as a result of adjustments to the conversion price for dividends declared to common stockholders.

Stock Based Compensation

Stock Based Compensation – The Company is required to measure and recognize in the consolidated financial statements the compensation cost relating to share-based payment transactions. The Company recognizes compensation expense on a straight-line basis over the requisite service period for the entire award.

Income Taxes

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.  Accordingly, the Company will not be subjected to federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and stock ownership tests are met.  The Company and certain of its direct and indirect subsidiaries, including FIDAC, RCap and certain subsidiaries of ACREG, have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRS”).  As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon their taxable income.

The provisions of ASC 740, Income Taxes, (“ASC 740”) clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial position.  Thus, no accruals for penalties and interest were necessary as of March 31, 2014 and December 31, 2013.

Use of Estimates

Use of Estimates–The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Commercial Real Estate Investments

Commercial Real Estate Investments

Commercial Real Estate Loans – The Company's commercial real estate mortgages and loans are comprised of fixed-rate and adjustable-rate loans. Commercial real estate mortgages and loans are designated as held for investment and are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less a reserve for estimated losses if necessary. Origination fees and costs, premiums and discounts are amortized or accreted into interest income over the estimated life of the loan. The difference between the principal amount of a loan and proceeds at acquisition is recorded as either a discount or premium.

Preferred Equity Interests Held for Investment – Preferred equity interests are designated as held for investment and are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less a reserve for estimated losses if necessary. Origination fees and costs, premiums and discounts are amortized or accreted into interest income over the estimated life of the investment.

Allowance for Losses – The Company evaluates the need for a loss reserve on its commercial real estate mortgages, loans and preferred equity interests held for investment (collectively referred to as “CRE Debt and Preferred Equity Investments”). A provision for losses related to CRE Debt and Preferred Equity Investments, including those accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, may be established when it is probable the Company will not collect amounts contractually due or all amounts previously estimated to be collectable. 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 CRE Debt and Preferred Equity Investments 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. Because this determination is 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 the nature and level of the assets underlying the investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval of and periodic monitoring of credit risk and other risks associated with each investment. The Company’s investment underwriting procedures include an evaluation of the borrower’s ability to manage and operate the properties. Management reviews loan to value metrics upon either the origination or the acquisition of a new investment but generally does not update the loan to value metrics in the course of quarterly surveillance. Management generally reviews the most recent financial information produced by the borrower, which may include, but is not limited to net operating income (“NOI’), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s CRE Debt and Preferred Equity Investments, and may consider other factors management deems important. Management also reviews market pricing to determine the borrower’s ability to refinance the asset at the maturity of the loan. Management also reviews economic trends, both macro as well as those directly affecting the property, and the supply and demand of competing projects in the sub-market in which the subject property is located.

In connection with the quarterly surveillance review process, loans are assigned an internal rating of Performing Loans, Watch List Loans or Workout Loans. Loans that are deemed Performing Loans meet all present contractual obligations. Watch List Loans are defined as performing or nonperforming loans for which the timing of cost recovery is under review. Workout Loans are defined as loans for which there is likelihood that we may not recover our cost basis.

Investments in Commercial Real Estate – Investments in commercial real estate are carried at historical cost less accumulated depreciation. Costs directly related to acquisitions deemed to be business combinations are expensed. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and improvements that extend the useful life of the asset are capitalized and depreciated over their useful life.

Investments in real estate are depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:

Category	Term
Building	35-40 years
Site improvements	2-7 years

The Company follows the acquisition method of accounting for acquisitions of operating real estate held for investment, where the purchase price of operating real estate is allocated to tangible assets such as land, building, site improvements and other identified intangibles such as above/below market and in-place leases.

The Company evaluates whether real estate acquired in connection with a foreclosure ("REO") or UCC/deed in lieu of foreclosure (herein collectively referred to as a foreclosure) constitutes a business and whether business combination accounting is applicable. Upon foreclosure of a property, the excess of the carrying value of a loan, if any, over the estimated fair value of the property, less estimated costs to sell, is charged to provision for loan losses.

Investments in commercial real estate, including REO, which do not meet the criteria to be classified as held for sale, are separately presented in the consolidated statements of financial condition as held for investment. Real estate held for sale is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Once a property is determined to be held for sale, depreciation is no longer recorded. In addition, if considered material to the overall consolidated financial statements, the results of operations are reclassified to income (loss) from discontinued operations in the consolidated statements of comprehensive income (loss).

The Company's real estate portfolio (REO and real estate held for investment) is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property's value is considered impaired if the Company's estimate of the aggregate future undiscounted cash flows to be generated by the property is less than the carrying value of the property. In conducting this review, the Company considers U.S. macroeconomic factors, including real estate sector conditions, together with asset specific and other factors. To the extent impairment has occurred and is considered to be other than temporary, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.

Revenue Recognition – Commercial Real Estate Investments - Interest income is accrued based on the outstanding principal amount of the CRE Debt and Preferred Equity Investments and their contractual terms. Premiums and discounts associated with the purchase of the CRE Debt and Preferred Equity Investments are amortized or accreted into interest income over the projected lives of the CRE Debt and Preferred Equity Investments using the interest method based on the estimated recovery value.

Revenue Recognition – Commercial Real Estate Investments - Interest income is accrued based on the outstanding principal amount of the CRE Debt and Preferred Equity Investments and their contractual terms. Premiums and discounts associated with the purchase of the CRE Debt and Preferred Equity Investments are amortized or accreted into interest income over the projected lives of the CRE Debt and Preferred Equity Investments using the interest method based on the estimated recovery value.

Broker Dealer Activities

Broker Dealer Activities

In January 2014, RCap ceased its trading activity in U.S. Treasury securities, derivatives and certain securities borrowed and loaned transactions.

Reverse Repurchase Agreements

Reverse Repurchase Agreements – RCap enters into reverse repurchase agreements as part of its matched book trading activity. Reverse repurchase agreements are recorded on trade date at the contract amount and are collateralized by mortgage-backed or other securities. Margin calls are made by RCap as necessary based on the daily valuation of the underlying collateral as compared to the contract price. RCap generates income from the spread between what is earned on the reverse repurchase agreements and what is paid on the matched repurchase agreements. RCap’s policy is to obtain possession of collateral with a market value in excess of the principal amount loaned under reverse repurchase agreements. To ensure that the market value of the underlying collateral remains sufficient, collateral is valued daily, and RCap will require counterparties to deposit additional collateral, when necessary.  All reverse repurchase activities are transacted under master repurchase agreements that give RCap the right, in the event of default, to liquidate collateral held and in some instances, to offset receivables and payables with the same counterparty.

Securities Borrowed and Loaned Transactions

Securities Borrowed and Loaned Transactions – RCap records securities borrowed and loaned transactions as collateralized financings.   Securities borrowed transactions require RCap to provide the counterparty with collateral in the form of cash, or other securities. RCap receives collateral in the form of cash or other securities for securities loaned transactions.  RCap monitors the fair value of the securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary.  Securities borrowed and securities loaned transactions are recorded at contract value.  For these transactions, the rebates accrued by RCap are recorded as interest income or expense.

U.S. Treasury Securities

U.S. Treasury Securities – RCap traded in U.S. Treasury securities for its proprietary portfolio, which consists of long and short positions on U.S Treasury notes and bonds. U.S. Treasury securities were classified as trading investments and were recorded on the trade date at cost. Changes in fair value are reflected in Net gains (losses) on trading assets in the Company’s Consolidated Statement of Comprehensive Income (Loss). Interest income or expense on U.S. Treasury notes and bonds was accrued based on the outstanding principal amount of those investments and their stated terms.

Derivatives - RCap entered primarily into U.S. Treasury, Eurodollar, federal funds, German government and U.S. equity index and currency futures and options contracts. RCap maintained a margin account which was settled daily with FCMs. Changes in the unrealized gains or losses on the futures and options contracts as well as any foreign exchange gains and losses are reflected in Net gains (losses) on trading assets in the Company’s Consolidated Statements of Comprehensive Income (Loss). Unrealized gains (losses) are excluded from net income (loss) in arriving at cash flows from operating activities in the Consolidated Statements of Cash Flows.

A Summary of Recent Accounting Pronouncements

A Summary of Recent Accounting Pronouncements Follows:

Presentation

Presentation of Financial Statements (ASC 205)/Property, Plant and Equipment (ASC 360)

On April 10, 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which raises the threshold for a disposal to be treated as discontinued operations.  Under this update, the Company is required to report disposals that represent a strategic shift that has (or will have) a major effect on the Company’s operations and financial results if the component of the Company or group of components meets the criteria to be accounted for as held for sale or the component of the Company or group of components is disposed of by sale.  The ASU removes requirements that operations and cash flows have been (or will be eliminated) from the ongoing operations and that the Company will not have any significant continuing involvement with the component in order to be reported as discontinued operations.  Additionally, ASU 2014-08 also eliminates a number of scope exceptions and requires additional disclosures for transactions that meet the definition of a discontinued operations and significant items that are disposed of or held for sale that do not meet the discontinued operations criteria. The ASU is effective for reporting periods beginning after December 15, 2014 with early adoption permitted.  Adoption is not expected to have a significant impact on the consolidated financial statements.

Balance Sheet (ASC 210)

On December 23, 2011, the FASB released ASU 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities.  Under this update, the Company is required to disclose both gross information and net information about both instruments and transactions eligible for offset in the Company’s Consolidated Statements of Financial Condition and transactions subject to an agreement similar to a master netting arrangement.  The scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and securities lending arrangements.   This disclosure is intended to enable financial statement users to understand the effect of such arrangements on the Company’s financial position.  In January 2013, the FASB released ASU 2013-01 Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which served solely to clarify the scope of financial instruments included in ASU 2011-11 as there was concern about diversity in practice.  The objective of these updates is to support further convergence of GAAP and IFRS requirements.  The updates are effective for annual reporting periods beginning on or after January 1, 2013 and did not have a significant impact on the consolidated financial statements.

Comprehensive Income (ASC 220)

On December 23, 2011, the FASB issued ASU 2011-12, Comprehensive Income: Deferral of Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05, which defers those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. This was done to allow the FASB time to re-deliberate the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income.  No other requirements under ASU 2011-05 are affected by ASU 2011-12.  The FASB tentatively decided not to require presentation of reclassification adjustments out of accumulated other comprehensive income on the face of the financial statements and to propose new disclosures instead.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income.  This update addresses the disclosure issue left open at the deferral under ASU 2011-12.  This update requires the provision of information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, it requires presentation, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, a cross-reference must be provided to other disclosures required under GAAP that provide additional detail about those amounts.  This update is effective for reporting periods beginning after December 15, 2012.  Adoption of ASU 2013-02 did not have a significant impact on the consolidated financial statements.

Assets

Receivables – Troubled Debt Restructurings by Creditors (ASC 310-40)

In January 2014, the FASB issued ASU 2014-04, Receivables–Troubled Debt Restructurings by Creditors, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, which clarifies that an in substance repossession or foreclosure has occurred, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, when the creditor obtains legal title to the property upon completion of a foreclosure or the borrower conveys all interest in the property to the creditor through a deed in lieu of foreclosure or similar arrangement. ASU 2014-04 also requires disclosure of the amount of foreclosed residential real estate held by the creditor and the recorded investment in mortgage loans collateralized by residential real estate property in the process of foreclosure. The update is effective for reporting periods beginning after December 15, 2014. Adoption is not expected to have a significant impact on the consolidated financial statements.

Broad Transactions

Financial Services – Investment Companies (ASC 946)

In June 2013, the FASB finalized ASU 2013-08 amending the scope, measurement and disclosure requirements under Topic 946 – Financial Services-Investment Companies.  In January 2014, the FASB has officially removed the Investment Companies: Real Estate Property Investments and the Investment Properties projects from its agenda. As stated in ASC 946-10-15-3, the guidance in Topic 946 does not apply to REITs, and thus has no effect on the Company’s consolidated financial statements.

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Repurchase Agreements - Narrative (Detail) (USD $)	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013		Jan. 31, 2014
Repurchase Agreements:
Repurchase agreements - outstanding	$ 64,543,949,000	$ 61,781,001,000	[1]	$ 399,500,000
Repurchase agreements - weighted average borrowing rates	2.43%	2.33%
Repurchase agreements - weighted average remaining maturities (in days)	187 days	204 days
Repurchase agreements - collateral held, fair value	68,500,000,000	67,900,000,000
Repurchase agreements - accrued interest	$ 227,000,000	$ 222,100,000

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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Agency Mortgage-Backed Securities - Narrative (Detail) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Mar. 31, 2014 Interest-only securities	Dec. 31, 2013 Interest-only securities	Mar. 31, 2014 Accumulated Other Comprehensive Income (Loss) Interest-only securities	Dec. 31, 2013 Accumulated Other Comprehensive Income (Loss) Interest-only securities
Mortgage-Backed Securities Sold:
Mortgage-Backed securities sold, carrying value	$ 4,300,000,000	$ 16,300,000,000
Mortgage-Backed securities sold, realized gain	129,500,000	182,800,000
Unrealized gains					57,300,000	78,100,000
Amortized cost			$ 1,100,000,000	$ 1,000,000,000

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ACQUISITION OF CREXUS (Tables)

3 Months Ended

Mar. 31, 2014

Summary of Aggregate Consideration and Preliminary Fair Value of Assumed Assets and Liabilities

The following table summarizes the aggregate consideration and preliminary fair value of the assets acquired and liabilities assumed at the acquisition date:

	April 17, 2013
	(dollars in thousands)
Cash consideration transferred	$	876,267
Fair value of equity interest in CreXus held before the business combination		106,521
	$	982,788
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	151,843
Commercial real estate investments		796,950
Accrued interest receivable		3,485
Other assets		5,617
Mortgages payable		(19,376	)
Participation sold		(14,352	)
Accounts payable and accrued expenses		(12,729	)
Total identifiable net assets		911,438
Goodwill		71,350
	$	982,788

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COMMERCIAL REAL ESTATE INVESTMENTS (Tables)

3 Months Ended

Mar. 31, 2014

CRE Debt and Preferred Equity Investments

CRE Debt and Preferred Equity Investments

	March 31, 2014							December 31, 2013
	Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)			Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)
	(dollars in thousands)							(dollars in thousands)
Senior mortgages	$	337,845	$	336,845		20.5	%	$	669,512	$	667,299		42.2	%
Senior securitized mortgages(3)		399,541		398,113		24.3	%		-		-		0.0	%
Subordinate notes		15,965		16,049		1.0	%		41,059		41,408		2.6	%
Mezzanine loans		641,253		641,887		39.0	%		626,883		628,102		39.5	%
Preferred equity		249,769		247,312		15.2	%		249,769		247,160		15.7	%
Total	$	1,644,373	$	1,640,206		100	%	$	1,587,223	$	1,583,969		100	%

(1) Net carrying value includes unamortized origination fees of $4.9 million.

(2) Based on outstanding principal.

(3) Assets of consolidated VIE.

	March 31, 2014
	Senior Mortgages			Senior Securitized Mortgages(1)		Subordinate Notes			Mezzanine Loans			Preferred Equity		Total
	(dollars in thousands)
Beginning balance	$	667,299		$	-	$	41,408		$	628,102		$	247,160	$	1,583,969
Originations & advances (principal)		67,946			-		-			59,000			-		126,946
Principal payments		(72	)		-		(25,094	)		(44,630	)		-		(69,796	)
Sales (principal)		-			-		-			-			-		-
Amortization & accretion of (premium) discounts		(36	)		-		(265	)		(617	)		28		(890	)
Net (increase) decrease in origination fees		(1,012	)		-		-			15			1		(996	)
Amortization of net origination fees		698			135		-			17			123		973
Transfers		(397,978	)		397,978		-			-			-		-
Allowance for loan losses		-			-		-			-			-		-
Net carrying value	$	336,845		$	398,113	$	16,049		$	641,887		$	247,312	$	1,640,206
(1) Assets of consolidated VIE.

	December 31, 2013
	Senior Mortgages			Senior Securitized Mortgages(1)		Subordinate Notes			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	429,229		$	-	$	41,571		$	568,759		$	187,623		$	1,227,182
Originations & advances (principal)		240,150			-		-			136,040			60,000			436,190
Principal payments		(388	)		-		(90	)		(64,035	)		-			(64,513	)
Sales (principal)		(13,750	)		-		-			-			-			(13,750	)
Amortization & accretion of (premium) discounts		(37	)		-		(73	)		(192	)		31			(271	)
Net (increase) decrease in origination fees		(1,106	)		-		-			14			(601	)		(1,693	)
Amortization of net origination fees		701			-		-			16			107			824
Transfers		12,500			-		-			(12,500	)		-			-
Allowance for loan losses		-			-		-			-			-			-
Net carrying value	$	667,299		$	-	$	41,408		$	628,102		$	247,160		$	1,583,969
(1) Assets of consolidated VIE.

Internal Loan and Preferred Equity Ratings

Internal CRE Debt and Preferred Equity Investment Ratings

	March 31, 2014
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List Loans			Workout Loans
	(dollars in thousands)
Senior mortgages	$	337,845		20.5	%	$	312,372	$	25,473	(2)	$	-
Senior securitized mortgages(1)		399,541		24.3	%		399,541		-			-
Subordinate notes		15,965		1.0	%		15,965		-			-
Mezzanine loans		641,253		39.0	%		635,253		6,000			-
Preferred equity		249,769		15.2	%		249,769		-			-
	$	1,644,373		100	%	$	1,612,900	$	31,473		$	-

(1) Assets of consolidated VIE.

(2) Includes approximately $13 million related to one loan on non accrual status.

	December 31, 2013
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List Loans			Workout Loans
	(dollars in thousands)
Senior mortgages	$	669,512		42.2	%	$	644,039	$	25,473	(1)	$	-
Subordinate notes		41,059		2.6	%		41,059		-			-
Mezzanine loans		626,883		39.5	%		620,883		6,000			-
Preferred equity		249,769		15.7	%		249,769		-			-
	$	1,587,223		100	%	$	1,555,750	$	31,473		$	-
(1) Includes approximately $13 million related to one loan on non accrual status.

Total Commercial Real Estate Held for Investment

Total Commercial Real Estate Investment

	March 31, 2014			December 31, 2013
	(dollars in thousands)			(dollars in thousands)
Real estate held for investment, at amortized cost
Land	$	6,639		$	6,639
Buildings and improvements		31,100			31,100
Subtotal		37,739			37,739
Less: accumulated depreciation		(1,170	)		(877	)
Total real estate held for investment at amortized cost, net		36,569			36,862
Real estate held for sale at fair value		3,744			23,270
Total investment in commercial real estate, net		40,313			60,132
Net carrying value of CRE Debt and Preferred Equity Investments		1,640,206			1,583,969
Total commercial real estate investments	$	1,680,519		$	1,644,101

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DESCRIPTION OF BUSINESS

3 Months Ended

Mar. 31, 2014

DESCRIPTION OF BUSINESS

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 owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, agency callable debentures, other securities representing interests in or obligations backed by pools of mortgage loans, commercial real estate assets and corporate loans. The Company’s principal business objective is to generate net income for distribution to its stockholders from its investments.

The Company’s business operations are primarily comprised of the following:

-   Annaly, the parent company, which invests primarily in various types of Agency mortgage-backed securities and related derivatives to hedge these investments.

-   Annaly Commercial Real Estate Group, Inc. (“ACREG,” formerly known as CreXus Investment Corp. (“CreXus”)), a wholly-owned subsidiary that was acquired during the second quarter of 2013 which specializes in acquiring, financing and managing commercial mortgage loans and other commercial real estate debt, commercial mortgage-backed securities and other commercial real estate-related assets.

-   RCap Securities, Inc. (“RCap”), a wholly-owned subsidiary which operates as a broker-dealer, and is a member of the Financial Industry Regulatory Authority (“FINRA”).

-   Fixed Income Discount Advisory Company (“FIDAC”), a wholly-owned subsidiary which manages an affiliated real estate investment trust (“REIT”) for which it earns fee income.

-   Annaly Middle Market Lending LLC (formerly known as Charlesfort Capital Management LLC), a wholly-owned subsidiary which engages in corporate middle market lending transactions.

-   Shannon Funding LLC (“Shannon”), a wholly-owned subsidiary which acquires residential mortgage loans and provides warehouse financing to residential mortgage originators in the United States.

The Company has elected to be taxed as a REIT as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”).  The Company is externally managed by Annaly Management Company LLC (the “Manager”).

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FAIR VALUE MEASUREMENTS (Tables)

3 Months Ended

Mar. 31, 2014

Schedule of Fair Value, Assets and Liabilities Measured on Recurring Basis

The following table presents the estimated fair values of financial instruments measured at fair value on a recurring basis.

	Level 1		Level 2		Level 3		Total
March 31, 2014	(dollars in thousands)
Assets:
Agency mortgage-backed securities	$	-	$	75,350,388	$	-	$	75,350,388
Agency debentures		-		2,408,259		-		2,408,259
Investment in affiliates		137,647		-		-		137,647
Interest rate swaps		-		340,890		-		340,890
Other derivatives		-		40,105		-		40,105
Total Assets	$	137,647	$	78,139,642	$	-	$	78,277,289
Liabilities:
Interest rate swaps	$	-	$	1,272,616	$	-	$	1,272,616
Other derivatives		-		6,045		-		6,045
Total Liabilities	$	-	$	1,278,661	$	-	$	1,278,661
	Level 1		Level 2		Level 3		Total
At December 31, 2013	(dollars in thousands)
Assets:
U.S. Treasury securities	$	1,117,915	$	-	$	-	$	1,117,915
Agency mortgage-backed securities		-		70,388,949		-		70,388,949
Agency debentures		-		2,969,885		-		2,969,885
Investment in affiliates		139,447		-		-		139,447
Interest rate swaps		-		559,044		-		559,044
Other derivatives		3,487		143,238		-		146,725
Total Assets	$	1,260,849	$	74,061,116	$	-	$	75,321,965
Liabilities:
U.S. Treasury securities sold, not yet purchased		1,918,394		-		-		1,918,394
Interest rate swaps		-		1,141,828		-		1,141,828
Other derivatives		439		55,079		-		55,518
Total Liabilities	$	1,918,833	$	1,196,907	$	-	$	3,115,740

Schedule of Estimated Fair Value for All Financial Assets and Liabilities

The following table summarizes the estimated fair value for all financial assets and liabilities as of March 31, 2014 and December 31, 2013.

		March 31, 2014				December 31, 2013
	Level in Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:		(dollars in thousands)
Cash and cash equivalents	1	$	924,197	$	924,197	$	552,436	$	552,436
Reverse repurchase agreements	1		444,375		444,375		100,000		100,000
Securities borrowed	1		513,500		513,500		2,582,893		2,582,893
U.S. Treasury securities	1		-		-		1,117,915		1,117,915
Agency mortgage-backed securities	2		75,350,388		75,350,388		70,388,949		70,388,949
Agency debentures	2		2,408,259		2,408,259		2,969,885		2,969,885
Investment in affiliates	1		137,647		137,647		139,447		139,447
Commercial real estate debt and preferred equity	3		1,640,206		1,649,239		1,583,969		1,581,836
Corporate debt	2		145,394		145,912		117,687		118,362
Interest rate swaps	2		340,890		340,890		559,044		559,044
Other derivatives	1,2		40,105		40,105		146,725		146,725
Financial liabilities:
U.S. Treasury securities sold, not yet  purchased	1	$	-	$	-	$	1,918,394	$	1,918,394
Repurchase agreements	1,2		64,543,949		64,856,432		61,781,001		62,134,133
Securities loaned	1		513,510		513,510		2,527,668		2,527,668
Convertible Senior Notes	1		827,486		883,946		825,262		870,199
Securitized debt of consolidated VIE	2		260,700		262,105		-		-
Mortgages payable	2		19,317		19,240		19,332		19,240
Participation sold	3		13,963		13,882		14,065		14,050
Interest rate swaps	2		1,272,616		1,272,616		1,141,828		1,141,828
Other derivatives	1,2		6,045		6,045		55,518		55,518

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Summary of Estimated Useful Lives of Assets (Detail)	3 Months Ended
	Mar. 31, 2014
Building | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets	35 years
Building | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets	40 years
Site Improvement | Minimum
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets	2 years
Site Improvement | Maximum
Property, Plant and Equipment [Line Items]
Estimated useful lives of assets	7 years

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Commercial Real Estate Investments - Additional Information (Detail) (USD $)	1 Months Ended	3 Months Ended
	Jan. 31, 2014	Mar. 31, 2014	Dec. 31, 2013
Real Estate Properties [Line Items]
Securitization financing transaction, purchase	$ 399,500,000	$ 64,543,949,000	$ 61,781,001,000	[1]
Securitization financing transaction, total	260,700,000	513,510,000	2,527,668,000	[1]
Securitization financing transaction, weighted average rate	65.30%
Securitization financing transaction, variable interest rate	1.74%
Securitization financing transaction, variable interest rate description		LIBOR plus 1.74%
Assets carrying value		398,100,000
Unamortized origination fees		1,400,000
Liabilities carrying value		260,700,000
Other Assets
Real Estate Properties [Line Items]
Securitization cost	$ 4,300,000

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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Components of Company's Interest Income and Interest Expense (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Interest income:
Investment Securities	$ 614,419		$ 723,750
Commercial investment portfolio	39,486	[1]	1,070	[1]
U.S. Treasury securities	1,329		5,996
Securities loaned	114		2,612
Reverse repurchase agreements	500		3,636
Other	53		153
Total interest income	655,901		737,217
Interest expense:
Repurchase agreements	103,131		157,064
Convertible Senior Notes	18,897		15,813
U.S. Treasury securities sold, not yet purchased	1,076		2,788
Securities borrowed	95		1,925
Securitized debt of consolidated VIE	1,611
Participation sold	161
Total interest expense	124,971		177,590
Net interest income	$ 530,930		$ 559,627

[1] Includes commercial real estate debt and preferred equity and corporate debt.

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014		Dec. 31, 2013
ASSETS
Cash and cash equivalents	$ 924,197		$ 552,436	[1]
Reverse repurchase agreements	444,375		100,000	[1]
Securities borrowed	513,500		2,582,893	[1]
Investments, at fair value:
U.S. Treasury securities (including pledged assets of $0 and $1,113,027, respectively)			1,117,915	[1]
Agency mortgage-backed securities (including pledged assets of $66,110,869 and $63,897,873, respectively)	75,350,388		70,388,949	[1]
Agency debentures (including pledged assets of $2,368,493 and $2,931,261, respectively)	2,408,259		2,969,885	[1]
Investment in affiliates	137,647		139,447	[1]
Commercial real estate debt and preferred equity	1,640,206	[2]	1,583,969	[1],[2]
Investments in commercial real estate	40,313		60,132	[1]
Corporate debt, held for investment	145,394		117,687	[1]
Receivable for investments sold	19,116		1,193,730	[1]
Accrued interest and dividends receivable	276,007		273,079	[1]
Receivable for investment advisory income (including from affiliates of $6,498 and $6,839, respectively)	6,498		6,839	[1]
Goodwill	94,781		94,781	[1]
Interest rate swaps, at fair value	340,890		559,044	[1]
Other derivatives, at fair value	40,105		146,725	[1]
Other assets	33,101		34,949	[1]
Total assets	82,414,777		81,922,460	[1]
Liabilities:
U.S. Treasury securities sold, not yet purchased, at fair value			1,918,394	[1]
Repurchase agreements	64,543,949		61,781,001	[1]
Securities loaned	513,510		2,527,668	[1]
Payable for investments purchased	1,898,507		764,131	[1]
Convertible Senior Notes	827,486		825,262	[1]
Securitized debt of consolidated VIE	260,700
Mortgages payable	19,317		19,332	[1]
Participation sold	13,963		14,065	[1]
Accrued interest payable	170,644		160,921	[1]
Dividends payable	284,247		284,230	[1]
Interest rate swaps, at fair value	1,272,616		1,141,828	[1]
Other derivatives, at fair value	6,045		55,518	[1]
Accounts payable and other liabilities	39,081		25,055	[1]
Total liabilities	69,850,065		69,517,405	[1]
Stockholders' Equity:
Common stock, par value $0.01 per share, 1,956,937,500 authorized, 947,488,945 and 947,432,862 issued and outstanding, respectively	9,475		9,474	[1]
Additional paid-in capital	14,770,553		14,765,761	[1]
Accumulated other comprehensive income (loss)	(2,088,479)		(2,748,933)	[1]
Accumulated deficit	(1,039,896)		(534,306)	[1]
Total stockholders' equity	12,564,712		12,405,055	[1]
Total liabilities and stockholders' equity	82,414,777		81,922,460	[1]
7.875% Series A Cumulative Redeemable Preferred Stock
Stockholders' Equity:
Cumulative Redeemable Preferred Stock	177,088		177,088	[1]
7.625% Series C Cumulative Redeemable Preferred Stock
Stockholders' Equity:
Cumulative Redeemable Preferred Stock	290,514		290,514	[1]
7.50% Series D Cumulative Redeemable Preferred Stock
Stockholders' Equity:
Cumulative Redeemable Preferred Stock	$ 445,457		$ 445,457	[1]

[1] Derived from the audited consolidated financial statements at December 31, 2013.

[2] Includes senior securitized mortgages of consolidated VIE with a carrying value of $398.1 million.

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Acquisition of Crexus - Narrative (Detail) (USD $) In Millions, unless otherwise specified	3 Months Ended	6 Months Ended
	Mar. 31, 2014	Jun. 30, 2013
Business Acquisition [Line Items]
Business acquisition agreement date	Jan. 30, 2013
Goodwill		$ 71.4
Goodwill adjustment	0.4
Business combination loss recognized		18.9
Business acquisition transaction cost	$ 7.3

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (Parenthetical) (USD $)	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Dividends Declared Per Share of Common Stock	$ 0.30	$ 0.45
7.875% Series A Cumulative Redeemable Preferred Stock
Preferred series dividends declared, per share	$ 0.492	$ 0.492
7.625% Series C Cumulative Redeemable Preferred Stock
Preferred series dividends declared, per share	$ 0.477	$ 0.477
Series D Preferred Stock
Preferred series dividends declared, per share	$ 0.469	$ 0.469

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Summary of Gross Amounts, Amounts Offset and net Amounts of Repurchase Agreement and Reverse Repurchase Agreement (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013		Jan. 31, 2014
Repurchase Agreements:
Gross amounts -reverse repurchase agreements	$ 1,766,563	$ 2,524,980
Amounts offset - reverse repurchase agreement	(1,322,188)	(2,424,980)
Netted amounts -reverse repurchase	444,375	100,000	[1]
Gross amounts -repurchase agreement	65,866,137	64,205,981
Amounts offset -repurchase agreement	(1,322,188)	(2,424,980)
Netted amounts -repurchase agreement	$ 64,543,949	$ 61,781,001	[1]	$ 399,500

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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INTEREST INCOME AND INTEREST EXPENSE (Tables)

3 Months Ended

Mar. 31, 2014

Components of Company's Interest Income and Interest Expense

The table below presents the components of the Company’s interest income and interest expense for the quarters ended March 31, 2014 and 2013.

	For the quarters ended
	March 31,		March 31,
	2014		2013
Interest income:
Investment Securities	$	614,419	$	723,750
Commercial investment portfolio(1)		39,486		1,070
U.S. Treasury securities		1,329		5,996
Securities loaned		114		2,612
Reverse repurchase agreements		500		3,636
Other		53		153
Total interest income		655,901		737,217
Interest expense:
Repurchase agreements		103,131		157,064
Convertible Senior Notes		18,897		15,813
U.S. Treasury securities sold, not yet purchased		1,076		2,788
Securities borrowed		95		1,925
Securitized debt of consolidated VIE		1,611		-
Participation sold		161		-
Total interest expense		124,971		177,590
Net interest income	$	530,930	$	559,627
(1) Includes commercial real estate debt and preferred equity and corporate debt.

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Offsetting of Derivative Assets and Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Interest Rate Swaps
Offsetting Assets [Line Items]
Gross Amounts, Assets	$ 340,890	$ 559,044
Amounts Eligible for Offset, Assets	(311,264)	(408,553)
Net Amounts, Assets	29,626	150,491
Gross Amounts, Liabilities	1,272,616	1,141,828
Amounts Eligible for Offset, Liabilities	(311,264)	(408,553)
Net Amounts, Liabilities	961,352	733,275
Interest Rate Swaption
Offsetting Assets [Line Items]
Gross Amounts, Assets	36,965	110,361
Amounts Eligible for Offset, Assets		(24,662)
Net Amounts, Assets	36,965	85,699
Gross Amounts, Liabilities		24,662
Amounts Eligible for Offset, Liabilities		(24,662)
TBA Derivatives
Offsetting Assets [Line Items]
Gross Amounts, Assets	3,140	20,693
Amounts Eligible for Offset, Assets	(1,304)	(9,775)
Net Amounts, Assets	1,836	10,918
Gross Amounts, Liabilities	6,045	13,779
Amounts Eligible for Offset, Liabilities	(1,304)	(9,775)
Net Amounts, Liabilities	4,741	4,004
Collateralized Mortgage Backed Securities
Offsetting Assets [Line Items]
Gross Amounts, Assets		12,184
Amounts Eligible for Offset, Assets		(3,292)
Net Amounts, Assets		8,892
Gross Amounts, Liabilities		16,638
Amounts Eligible for Offset, Liabilities		(3,292)
Net Amounts, Liabilities		13,346
Us Treasury futures
Offsetting Assets [Line Items]
Gross Amounts, Assets		3,487
Amounts Eligible for Offset, Assets		(439)
Net Amounts, Assets		3,048
Gross Amounts, Liabilities		439
Amounts Eligible for Offset, Liabilities		$ (439)

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LONG-TERM STOCK INCENTIVE PLAN

3 Months Ended

Mar. 31, 2014

LONG-TERM STOCK INCENTIVE PLAN

15.    LONG-TERM STOCK INCENTIVE PLAN

The Company adopted the 2010 Equity Incentive Plan (the “Plan”), which authorizes the Compensation Committee of the Board of Directors to grant options, stock appreciation rights, dividend equivalent rights, or other share-based awards, including restricted shares up to an aggregate of 25,000,000 shares, subject to adjustments as provided in the 2010 Equity Incentive Plan.   The Company had previously adopted a long term stock incentive plan for executive officers, key employees and non-employee directors (the “Prior Plan”).  The Prior Plan authorized the Compensation Committee of the Board of Directors to grant awards, including non-qualified options as well as incentive stock options as defined under Section 422 of the Code.  The Prior Plan authorized the granting of options or other awards for an aggregate of the greater of 500,000 shares or 9.5% of the diluted outstanding shares of the Company’s common stock, up to a ceiling of 8,932,921 shares.  No further awards will be made under the Prior Plan, although existing awards remain effective.

Stock options were issued at the market price on the date of grant, subject to an immediate or four year vesting in four equal installments with a contractual term of 5 or 10 years. 

The following table sets forth activity related to the Company’s stock options awarded under the Plan as of March 31, 2014:

	For the Quarter Ended
	March 31, 2014
	Number of Shares			Weighted Average Exercise Price
Options outstanding at the beginning of period		3,581,752		$	15.44
Granted		-		$	-
Exercised		-		$	-
Forfeited		(353,417	)	$	14.94
Expired		-		$	-
Options outstanding at the end of period		3,228,335		$	15.49
Options exercisable at the end of the period		3,228,335		$	15.49

The weighted average remaining contractual term was approximately 3.5 years for stock options outstanding and exercisable as of March 31, 2014. 

As of March 31, 2014, there was no unrecognized compensation cost related to nonvested share-based compensation awards.

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NET INCOME (LOSS) PER COMMON SHARE (Tables)

3 Months Ended

Mar. 31, 2014

Schedule of Earnings Per Share Reconciliation

The following table presents a reconciliation of net income and shares used in calculating basic and diluted earnings per share for the quarters ended March 31, 2014 and 2013.

	For the Quarter Ended
	March 31, 2014			March 31, 2013
	(dollars in thousands, except per share data)
Net income (loss)	$	(203,351	)	$	870,278
Less: Preferred stock dividends		17,992			17,992
Net income (loss) available to common shareholders, prior to adjustment for dilutive potential common shares, if necessary		(221,343	)		852,286
Add:  Interest on Convertible Senior Notes, if dilutive		-			10,450
Net income (loss) available to common shareholders, as adjusted		(221,343	)		862,736
Weighted average shares of common stock outstanding-basic		947,458,813			947,249,901
Add:  Effect of dilutive stock options and Convertible Senior Notes, if dilutive		-			47,565,268
Weighted average shares of common  stock outstanding-diluted		947,458,813			994,815,169
Net income (loss) per share available (related) to common share:
Basic	$	(0.23	)	$	0.90
Diluted	$	(0.23	)	$	0.87

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LEASE COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2014

LEASE COMMITMENTS AND CONTINGENCIES

17. LEASE COMMITMENTS AND CONTINGENCIES

Commitments

The Company has a non-cancelable lease for office space which commenced in May 2002 and expires in December 2014. FIDAC has a lease for office space which commenced in October 2010 and expires in February 2016. The lease expense for the quarters ended March 31, 2014 and 2013 were $0.4 million and $0.6 million, respectively. The Company’s aggregate future minimum lease payments total $1.9 million. The following table details the lease payments.

Year Ending December 31,	Lease Commitments
	(dollars in thousands)
2014 (remaining)	$	1,721
2015		159
2016		27
2017		-
2018		-
Later years		-
	$	1,907

The Company had no material unfunded loan commitments as of March 31, 2014 and December 31, 2013.

Contingencies

From time to time, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated financial statements. No accrual for contingencies was required as of March 31, 2014 and December 31, 2013.

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Effect of Other Derivative Contracts on the Consolidated Statements of Operations and Comprehensive Income (Loss) (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Derivative Instruments:
Unrealized Gain (Loss)	$ (348,942)		$ 325,734
Net Gains (Losses) on Trading Assets	(151,824)		7,709
Other Derivative Contracts | TBA Derivatives
Derivative Instruments:
Realized Gain (Loss)	(37,837)	[1]	9,340
Unrealized Gain (Loss)	(11,410)	[1]	(1,875)
Net Gains (Losses) on Trading Assets	(49,247)	[1]	7,465
Other Derivative Contracts | Interest Rate Swaption
Derivative Instruments:
Realized Gain (Loss)	(40,943)
Unrealized Gain (Loss)	(52,917)
Net Gains (Losses) on Trading Assets	(93,860)
Other Derivative Contracts | Us Treasury futures
Derivative Instruments:
Realized Gain (Loss)	(5,669)		12,702
Unrealized Gain (Loss)	(3,048)		(12,458)
Net Gains (Losses) on Trading Assets	$ (8,717)		$ 244

[1] Includes options on TBA securities.

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CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Cash flows from operating activities:
Net income (loss)	$ (203,351)		$ 870,278
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities:
Amortization of Investment Securities premiums and discounts, net	118,988		421,057
Amortization of commercial real estate investment premiums and discounts, net	792
Amortization of intangibles	99		323
Amortization of deferred financing costs	2,813		2,038
Amortization of net origination fees and costs, net	(973)
Amortization of contingent beneficial conversion feature and equity component of Convertible Senior Notes	6,410		3,324
Depreciation expense	292
Net gain on sale of commercial real estate	(1,213)
Net (gains) losses on sales of Agency mortgage-backed securities and debentures	(80,718)		(182,843)
Stock compensation expense			817
Unrealized (gains) losses on interest rate swaps	348,942		(325,734)
Net unrealized (gains) losses on interest-only Agency mortgage-backed securities	20,793		(80,127)
Net (gains) losses on trading assets	146,228		14,829
Proceeds from repurchase agreements of RCap	329,649,937		237,569,485
Payments on repurchase agreements of RCap	(324,602,992)		(238,600,415)
Proceeds from reverse repurchase agreements	35,181,890		105,335,861
Payments on reverse repurchase agreements	(35,526,265)		(108,458,231)
Proceeds from securities borrowed	19,993,580		53,799,157
Payments on securities borrowed	(17,924,187)		(54,326,700)
Proceeds from securities loaned	37,178,735		110,725,140
Payments on securities loaned	(39,192,893)		(110,203,395)
Proceeds from U.S. Treasury securities	3,159,253		21,683,636
Payments on U.S. Treasury securities	(3,920,425)		(22,157,117)
Net payments on derivatives	(90,440)		(1,490)
Net change in:
Due to / from brokers	8,596
Other assets	3,439		(14,779)
Accrued interest and dividends receivable	(16,035)		22,616
Receivable for investment advisory income	341		4,913
Accrued interest payable	25,032		(11,147)
Accounts payable and other liabilities	13,801		26,250
Net cash provided by (used in) operating activities	4,300,469		(3,882,254)
Cash flows from investing activities:
Payments on purchases of Agency mortgage-backed securities and debentures	(9,367,034)		(17,699,472)
Proceeds from sales of Agency mortgage-backed securities and debentures	6,155,091		15,484,409
Principal payments on Agency mortgage-backed securities	1,675,575		8,514,074
Proceeds from Agency debentures called			847,205
Payments on purchases of corporate debt	(28,705)		(3,483)
Principal payments on corporate debt	1,051		911
Origination of commercial real estate investments, net	(125,949)
Proceeds from sales of commercial real estate held for sale	20,740
Principal payments on commercial real estate investments	69,795
Proceeds from derivatives			7,465
Net cash provided by (used in) investing activities	(1,599,436)		7,151,109
Cash flows from financing activities:
Proceeds from repurchase agreements	49,726,537		101,631,583
Principal payments on repurchase agreements	(52,010,534)		(103,063,408)
Proceeds from issuance of securitized debt	260,700
Payment of deferred financing cost	(4,288)
Proceeds from exercise of stock options			265
Net proceeds from direct purchases and dividend reinvestments	607		761
Payments on participation sold	(72)
Net payment on share repurchase			(141,149)
Dividends paid	(302,222)		(450,146)
Net cash provided by (used in) financing activities	(2,329,272)		(2,022,094)
Net (decrease) increase in cash and cash equivalents	371,761		1,246,761
Cash and cash equivalents, beginning of period	552,436	[1]	615,789
Cash and cash equivalents, end of period	924,197		1,862,550
Supplemental disclosure of cash flow information:
Interest received	769,627		1,188,202
Dividends received	13,045		7,097
Investment advisory income received	6,464		18,321
Interest paid (excluding interest paid on interest rate swaps)	118,131		184,426
Net interest paid on interest rate swaps	250,571		226,463
Taxes paid	2,137		2,382
Noncash investing activities:
Receivable for investments sold	19,116		1,292,478
Payable for investments purchased	1,898,507		3,203,461
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment	660,454		(1,049,994)
Noncash financing activities:
Dividends declared, not yet paid	284,247		426,173
Contingent beneficial conversion feature on 4% Convertible Senior Notes	$ 4,186		$ 3,963

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION (Parenthetical) (USD $) In Thousands, except Share data, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
U.S. Treasury securities, pledged assets	$ 0	$ 1,113,027	[1]
Agency mortgage-backed securities, pledged assets	66,110,869	63,897,873	[1]
Agency debentures, pledged assets	2,368,493	2,931,261	[1]
Receivable for investment advisory income, from affiliates	6,498	6,839	[1]
Preferred Stock, shares authorized	4,600,000
Common Stock, par value	$ 0.01	$ 0.01	[1]
Common Stock, shares authorized	1,956,937,500	1,956,937,500	[1]
Common Stock, shares issued	947,488,945	947,432,862	[1]
Common Stock, shares outstanding	947,488,945	947,432,862	[1]
Senior Secured mortgages of Consolidated VIE	1,640,206	1,583,969
Senior Securitized Mortgages
Senior Secured mortgages of Consolidated VIE	$ 398,100
7.875% Series A Cumulative Redeemable Preferred Stock
Preferred Stock, shares authorized	7,412,500	7,412,500	[1]
Preferred Stock, shares issued	7,412,500	7,412,500	[1]
Preferred Stock, shares outstanding	7,412,500	7,412,500	[1]
7.625% Series C Cumulative Redeemable Preferred Stock
Preferred Stock, shares authorized	12,650,000	12,650,000	[1]
Preferred Stock, shares issued	12,000,000	12,000,000	[1]
Preferred Stock, shares outstanding	12,000,000	12,000,000	[1]
7.50% Series D Cumulative Redeemable Preferred Stock
Preferred Stock, shares authorized	18,400,000	18,400,000	[1]
Preferred Stock, shares issued	18,400,000	18,400,000	[1]
Preferred Stock, shares outstanding	18,400,000	18,400,000	[1]

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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CONVERTIBLE SENIOR NOTES

3 Months Ended

Mar. 31, 2014

CONVERTIBLE SENIOR NOTES

10.      CONVERTIBLE SENIOR NOTES

In 2010, the Company issued $600.0 million in aggregate principal amount of its 4% convertible senior notes due 2015 (“4% Convertible Senior Notes”) for net proceeds of approximately $582.0 million. The Company has repurchased $492.5 million in aggregate principal amount of its 4% Convertible Senior Notes as of March 31, 2014. Interest on the 4% Convertible Senior Notes is paid semi-annually at a rate of 4% per year and the 4% Convertible Senior Notes will mature on February 15, 2015 unless repurchased or converted earlier. The 4% Convertible Senior Notes are convertible into shares of Common Stock at a conversion rate for each $1,000 principal amount of 4% Convertible Senior Notes.  The initial conversion rate was 46.6070, which was equivalent to an initial conversion price of approximately $21.4560 per share of Common Stock. The conversion rate at March 31, 2014 was 81.9145, which is equivalent to a conversion price of approximately $12.2079 per share of Common Stock.  The conversion rate is subject to adjustment in certain circumstances.  There is no limit on the total number of shares of Common Stock that the Company would be required to issue upon a conversion.

The intrinsic value of the contingent beneficial conversion feature was $97.4 million and $93.2 million at March 31, 2014 and December 31, 2013, respectively, which is reflected in Additional paid-in capital on the Company’s Consolidated Statements of Financial Condition, and reduces the recorded liability on the 4% Convertible Senior Notes. The unamortized contingent beneficial conversion feature of the 4% Convertible Senior Notes at March 31, 2014 and December 31, 2013 of $25.7 million and $26.9 million, respectively, is recognized in interest expense over the remaining life of the notes.

In May 2012, the Company issued $750.0 million in aggregate principal amount of its 5% convertible senior notes due 2015 (“5% Convertible Senior Notes”) for net proceeds of approximately $727.5 million. Interest on the 5% Convertible Senior Notes is paid semi-annually at a rate of 5% per year and the 5% Convertible Senior Notes will mature on May 15, 2015 unless repurchased or converted earlier.  The 5% Convertible Senior Notes are convertible into shares of Common Stock at a conversion rate for each $1,000 principal amount of 5% Convertible Senior Notes.  The initial conversion rate and conversion rate at March 31, 2014 was 52.7969, which was equivalent to an initial conversion price of approximately $18.94 per share of Common Stock, subject to adjustment in certain circumstances.  Upon conversion, the Company will pay or deliver, as the case may be, cash, shares of Common Stock or a combination of cash and shares of Common Stock, at the Company’s sole discretion. There is no limit on the total number of shares of Common Stock that the Company would be required to issue upon a conversion.

At issuance, the Company determined that the 5% Convertible Senior Notes included an equity component of $11.7 million, which is reflected in Additional paid-in capital on the Company’s Consolidated Statements of Financial Condition, and reduces the recorded liability on the 5% Convertible Senior Notes.  The $11.7 million discount to the principal amount of the Convertible Senior Notes is recognized in interest expense over the remaining life of the notes. At March 31, 2014 and December 31, 2013, $4.4 million and $5.4 million, respectively, of the unamortized discount had not been reflected in interest expense.

The 4% Convertible Senior Notes due 2015 and the 5% Convertible Senior Notes due 2015 rank pari-passu with each other. They are each a general corporate obligation and therefore rank junior to collateralized debt of the Company with respect to secured collateral.

The 4% Convertible Senior Notes and the 5% Convertible Senior Notes rank senior to the 7.875% Series A Cumulative Redeemable Preferred Stock, 7.625% Series C Cumulative Redeemable Preferred Stock and 7.50% Series D Cumulative Redeemable Preferred Stock.  The 7.875% Series A Cumulative Redeemable Preferred Stock, 7.625% Series C Cumulative Redeemable Preferred Stock and 7.50% Series D Cumulative Redeemable Preferred Stock rank pari-passu with each other. 

The 7.875% Series A Cumulative Redeemable Preferred Stock, 7.625% Series C Cumulative Redeemable Preferred Stock and 7.50% Series D Cumulative Redeemable Preferred Stock rank senior to the common stock of the Company.

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Document and Entity Information	3 Months Ended
	Mar. 31, 2014	Apr. 30, 2014
Document Information [Line Items]
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2014
Document Fiscal Year Focus	2014
Document Fiscal Period Focus	Q1
Trading Symbol	NLY
Entity Registrant Name	ANNALY CAPITAL MANAGEMENT INC
Entity Central Index Key	0001043219
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		947,503,334

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COMMON STOCK AND PREFERRED STOCK

3 Months Ended

Mar. 31, 2014

COMMON STOCK AND PREFERRED STOCK

11.     COMMON STOCK AND PREFERRED STOCK

The Company’s authorized shares of capital stock, par value of $0.01 per share, consists of 1,956,937,500 shares classified as common stock, 7,412,500 shares classified as 7.875% Series A Cumulative Redeemable Preferred Stock, 4,600,000 shares classified as 6.00% Series B Cumulative Convertible Preferred Stock, 12,650,000 shares classified as 7.625% Series C Cumulative Redeemable Preferred Stock and 18,400,000 shares classified as 7.50% Series D Cumulative Redeemable Preferred Stock.

(A)  Common Stock

At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 947,488,945 and 947,432,862   shares of common stock, with a par value of $0.01 per share.

No options were exercised during the quarter ended March 31, 2014.  During the quarter ended March 31, 2013, 20,000 options were exercised for an aggregate exercise price of $0.3 million.

During the quarter ended March 31, 2014, the Company raised $0.6 million, by issuing 56,000 shares, through the Direct Purchase and Dividend Reinvestment Program.  During the quarter ended March 31, 2013, the Company raised $0.8 million, by issuing 50,000 shares, through the Direct Purchase and Dividend Reinvestment Program.

In October 2012, the Company announced that its board of directors (“Board of Directors”) had authorized the repurchase of up to $1.5 billion of its outstanding common shares over a 12 month period. All common shares purchased were part of a publicly announced plan in open-market transactions. The repurchase plan expired in October 2013. There were no purchases made by the Company under this repurchase plan during the quarter ended March 31, 2013.

In March 2012, the Company entered into six separate Distribution Agency Agreements (“Distribution Agency Agreements”) with each of Merrill Lynch, Pierce, Fenner & Smith Incorporated, Credit Suisse Securities (USA) LLC, Goldman, Sachs & Co., J.P. Morgan Securities LLC, Morgan Stanley & Co. LLC and RCap Securities, Inc. (together, the Agents).  Pursuant to the terms of the Distribution Agency Agreements, the Company may sell from time to time through the Agents, as its sales agents, up to 125,000,000 shares of the Company’s common stock. The Company did not make any sales under the Distribution Agency Agreements during the quarters ended March 31, 2014 and 2013.

(B) Preferred Stock

At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 7,412,500 shares of Series A Cumulative Redeemable Preferred Stock (“Series A Preferred Stock”), with a par value of $0.01 per share and a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). The Series A Preferred Stock is entitled to a dividend at a rate of 7.875% per year based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Series A Preferred Stock is redeemable at $25.00 per share plus accrued and unpaid dividends (whether or not declared) exclusively at the Company's option commencing on April 5, 2009 (subject to the Company's right under limited circumstances to redeem the Series A Preferred Stock earlier in order to preserve its qualification as a REIT). Through March 31, 2014, the Company had declared and paid all required quarterly dividends on the Series A Preferred Stock.

At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 12,000,000 shares of Series C Preferred Stock, with a par value of $0.01 per share and a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). The Series C Preferred Stock is entitled to a dividend at a rate of 7.625% per year based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Series C Preferred Stock is redeemable at $25.00 per share plus accrued and unpaid dividends (whether or not declared) exclusively at the Company’s option commencing on May 16, 2017 (subject to the Company’s right under limited circumstances to redeem the Series C Preferred Stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change of control of the Company). Through March 31, 2014, the Company had declared and paid all required quarterly dividends on the Series C Preferred Stock.

At March 31, 2014 and December 31, 2013, the Company had issued and outstanding 18,400,000 shares of Series D Preferred Stock, with a par value of $0.01 per share and a liquidation preference of $25.00 per share plus accrued and unpaid dividends (whether or not declared). The Series D Preferred Stock is entitled to a dividend at a rate of 7.50% per year based on the $25.00 liquidation preference before the common stock is entitled to receive any dividends. The Series D Preferred Stock is redeemable at $25.00 per share plus accrued and unpaid dividends (whether or not declared) exclusively at the Company’s option commencing on September 13, 2017 (subject to the Company’s right under limited circumstances to redeem the Series D Preferred Stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change of control of the Company). Through March 31, 2014, the Company had declared and paid all required quarterly dividends on the Series D Preferred Stock.

(C) Distributions to Stockholders

During the quarter ended March 31, 2014, the Company declared dividends to common stockholders totaling $284.2 million, or $0.30 per common share, paid to common stockholders on April 30, 2014. During the quarter ended March 31, 2014, the Company declared dividends to Series A Preferred stockholders totaling approximately $3.6 million, or $0.492 per share, Series C Preferred stockholders totaling approximately $5.7 million, or $0.477 per share, Series D Preferred stockholders totaling approximately $8.6 million, or $0.469 per share, which were paid to preferred stockholders on March 31, 2014.

During the quarter ended March 31, 2013, the Company declared dividends to common stockholders totaling $426.2 million or $0.45 per share, which were paid to common stockholders on April 29, 2013.  During the quarter ended March 31, 2013, the Company declared dividends to Series A Preferred stockholders totaling approximately $3.6 million or $0.492 per share, Series C Preferred stockholders totaling approximately $5.7 million or $0.477 per share and Series D Preferred stockholders totaling approximately $8.6 million or $0.469 per share.

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Interest Rate Risk - Narrative (Detail) (USD $) In Billions, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Interest Rate Risk:
Derivative instruments, notional amount	$ 58.1	$ 52.4

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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Unaudited) (USD $) In Thousands, except Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Net interest income:	$ 530,930		$ 559,627
Interest income	655,901		737,217
Interest expense	124,971		177,590
Other income (loss):
Realized gains (losses) on interest rate swaps	(260,435)	[1],[2]	(225,476)	[1],[2]
Realized gains (losses) on termination of interest rate swaps	(6,842)		(16,378)
Unrealized gains (losses) on interest rate swaps	(348,942)		325,734
Subtotal	(616,219)		83,880
Investment advisory income	6,123		13,408
Net gains (losses) on disposal of investments	79,710		182,843
Dividend income from affiliates	13,045		6,431
Net gains (losses) on trading assets	(146,228)		1,549
Net unrealized gains (losses) on interest-only Agency mortgage-backed securities	(20,793)		80,127
Other income (loss)	1,460		132
Subtotal	(66,683)		284,490
Total other income (loss)	(682,902)		368,370
General and administrative expenses:
Compensation and management fee	38,521		38,443
Other general and administrative expenses	8,857		13,469
Total general and administrative expenses	47,378		51,912
Income (loss) before income taxes	(199,350)		876,085
Income taxes	4,001		5,807
Net income (loss)	(203,351)		870,278
Dividends on preferred stock	17,992		17,992
Net income (loss) available (related) to common stockholders	(221,343)		852,286
Net income (loss) per share available (related) to common stockholders:
Basic	$ (0.23)		$ 0.90
Diluted	$ (0.23)		$ 0.87
Weighted average number of common shares outstanding:
Basic	947,458,813		947,249,901
Diluted	947,458,813		994,815,169
Dividends Declared Per Share of Common Stock	$ 0.30		$ 0.45
Net income (loss)	(203,351)		870,278
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities	741,172		(867,151)
Reclassification adjustment for net (gains) losses included in net income (loss)	(80,718)		(182,843)
Other comprehensive income (loss)	660,454		(1,049,994)
Comprehensive income (loss)	$ 457,103		$ (179,716)

[1] Interest expense related to the Company's interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

[2] Interest expense related to the Company's interest rate swaps is recorded in Realized gains (losses) on interest rate swaps.

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ACQUISITION OF CREXUS

3 Months Ended

Mar. 31, 2014

ACQUISITION OF CREXUS

5.    ACQUISITION OF CREXUS

On April 17, 2013, the Company, through its wholly-owned subsidiary CXS Acquisition Corporation, obtained control of CreXus pursuant to the merger agreement dated January 30, 2013. CreXus owned a portfolio of commercial real estate assets which are now owned by the Company. Following the acquisition, CXS Acquisition Corporation was renamed Annaly Commercial Real Estate Group, Inc.

The business combination was accounted for under the acquisition method of accounting in accordance with ASC 805, Business Combinations, (“ASC 805”). Accordingly, goodwill was measured as the excess of the aggregate of the acquisition-date fair value of the consideration transferred and the acquisition-date fair value of the Company’s previously held equity interest in CreXus over the fair value, at acquisition date, of the identifiable assets acquired net of assumed liabilities. The following table summarizes the aggregate consideration and preliminary fair value of the assets acquired and liabilities assumed at the acquisition date:

	April 17, 2013
	(dollars in thousands)
Cash consideration transferred	$	876,267
Fair value of equity interest in CreXus held before the business combination		106,521
	$	982,788
Recognized amounts of identifiable assets acquired and liabilities assumed
Cash and cash equivalents	$	151,843
Commercial real estate investments		796,950
Accrued interest receivable		3,485
Other assets		5,617
Mortgages payable		(19,376	)
Participation sold		(14,352	)
Accounts payable and accrued expenses		(12,729	)
Total identifiable net assets		911,438
Goodwill		71,350
	$	982,788

The Company recorded $71.4 million of goodwill during the second quarter of 2013 associated with the acquisition of CreXus in the Consolidated Statements of Financial Condition. The Company recorded a $0.4 million adjustment to goodwill during the second half of 2013. The final goodwill recorded on the Consolidated Statements of Financial Condition may differ from that reflected herein as a result of future measurement period adjustments. In management’s opinion, the goodwill represents the synergies that will result from integrating CreXus’ commercial real estate platform into the Company, which the Company believes is complementary to its existing business and return profile.

The acquisition-date fair value of the previously held equity interest in CreXus excluded the estimated fair value of the control premium that resulted from the merger transaction. The Company recognized a loss of $18.9 million during the second quarter of 2013 as a result of remeasuring the fair value of its equity interest in CreXus held before the business combination.

Under ASC 805, merger-related transactions costs (such as advisory, legal, valuation and other professional fees) are not included as components of consideration transferred but are expensed in the periods in which the costs are incurred. Transaction costs of $7.3 million were incurred during 2013 and were included in other general and administrative expenses in the Consolidated Statements of Comprehensive Income (Loss).

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AGENCY MORTGAGE-BACKED SECURITIES

3 Months Ended

Mar. 31, 2014

AGENCY MORTGAGE-BACKED SECURITIES

4.    AGENCY MORTGAGE-BACKED SECURITIES

The following tables present the Company’s available-for-sale Agency mortgage-backed securities portfolio as of March 31, 2014 and December 31, 2013 which were carried at their fair value:

March 31, 2014	Freddie Mac			Fannie Mae			Ginnie Mae			Total
	(dollars in thousands)
Principal outstanding	$	24,875,914		$	47,149,481		$	113,744		$	72,139,139
Unamortized premium		1,697,704			3,367,828			22,465			5,087,997
Unamortized discount		(9,446	)		(11,341	)		(380	)		(21,167	)
Amortized cost		26,564,172			50,505,968			135,829			77,205,969
Gross unrealized gains		205,409			381,265			8,650			595,324
Gross unrealized losses		(1,013,503	)		(1,433,916	)		(3,486	)		(2,450,905	)
Estimated fair value	$	25,756,078		$	49,453,317		$	140,993		$	75,350,388

	Fixed Rate			Adjustable Rate			Total
	(dollars in thousands)
Amortized cost	$	73,655,761		$	3,550,208		$	77,205,969
Gross unrealized gains		455,048			140,276			595,324
Gross unrealized losses		(2,435,557	)		(15,348	)		(2,450,905	)
Estimated fair value	$	71,675,252		$	3,675,136		$	75,350,388

December 31, 2013	Freddie Mac			Fannie Mae			Ginnie Mae			Total
	(dollars in thousands)
Principal outstanding	$	24,458,925		$	43,564,657		$	120,739		$	68,144,321
Unamortized premium		1,627,966			2,970,813			27,085			4,625,864
Unamortized discount		(9,533	)		(11,568	)		(383	)		(21,484	)
Amortized cost		26,077,358			46,523,902			147,441			72,748,701
Gross unrealized gains		227,423			456,057			9,845			693,325
Gross unrealized losses		(1,267,106	)		(1,781,683	)		(4,288	)		(3,053,077	)
Estimated fair value	$	25,037,675		$	45,198,276		$	152,998		$	70,388,949

	Fixed Rate			Adjustable Rate			Total
	(dollars in thousands)
Amortized cost	$	68,784,424		$	3,964,277		$	72,748,701
Gross unrealized gains		538,556			154,769			693,325
Gross unrealized losses		(3,040,153	)		(12,924	)		(3,053,077	)
Estimated fair value	$	66,282,827		$	4,106,122		$	70,388,949

Actual maturities of Agency mortgage-backed securities are generally shorter than stated contractual maturities because actual maturities of Agency mortgage-backed securities are affected by periodic payments and prepayments of principal on the underlying mortgages.  The following table summarizes the Company’s Agency mortgage-backed securities as of March 31, 2014 and December 31, 2013, according to their estimated weighted average life classifications:

	March 31, 2014				December 31, 2013
Weighted Average Life	Estimated Fair Value		Amortized Cost		Estimated Fair Value		Amortized Cost
	(dollars in thousands)
Less than one year	$	66,051	$	65,248	$	65,584	$	64,561
Greater than one year through five years		46,192,942		47,553,922		50,046,013		51,710,059
Greater than five years through ten years		22,833,176		23,099,356		14,915,716		15,292,973
Greater than ten years		6,258,219		6,487,443		5,361,636		5,681,108
Total	$	75,350,388	$	77,205,969	$	70,388,949	$	72,748,701

The weighted average lives of the Agency mortgage-backed securities at March 31, 2014 and December 31, 2013 in the table above are based upon principal prepayment rates for each security provided through subscription-based financial information services. The prepayment model considers current yield, forward yield, steepness of the yield curve, current mortgage rates, mortgage rate of the outstanding loans, loan age, margin, volatility and other factors.  The actual weighted average lives of the Agency mortgage-backed securities could be longer or shorter than estimated.

The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities by length of time that such securities have been in a continuous unrealized loss position at March 31, 2014 and December 31, 2013.

	March 31, 2014							December 31, 2013
	Estimated Fair Value		Gross Unrealized Losses			Number of Securities		Estimated Fair Value		Gross Unrealized Losses			Number of Securities
	(dollars in thousands)
Less than 12 Months	$	50,079,785	$	(2,046,126	)		642	$	47,677,197	$	(2,569,474	)		583
12 Months or More		6,055,285		(404,779	)		50		6,102,283		(483,603	)		55
Total	$	56,135,070	$	(2,450,905	)		692	$	53,779,480	$	(3,053,077	)		638

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 are “AAA” rated or carry an implied “AAA” rating.  The investments are not considered to be other-than-temporarily 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.  Also, the Company is guaranteed payment of the principal amount of the securities by the respective issuing government agency.

During the quarter ended March 31, 2014, the Company disposed of $4.3 billion of Agency mortgage-backed securities, resulting in a net realized gain of $129.5 million.  During the quarter ended March 31, 2013, the Company sold $16.3 billion of Agency mortgage-backed securities, resulting in a net realized gain of $182.8 million.  Average cost is used as the basis on which the realized gain or loss on sale is determined.

Agency interest-only mortgage-backed securities represent the right to receive a specified portion of the contractual interest flows of the underlying outstanding principal balance of specific Agency mortgage-backed securities.  Agency interest-only mortgage-backed securities in the Company’s portfolio as of March 31, 2014 and December 31, 2013 had net unrealized gains of $57.3 million and $78.1 million and an amortized cost of $1.1 billion and $1.0 billion, respectively.

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INCOME TAXES

3 Months Ended

Mar. 31, 2014

INCOME TAXES

16.        INCOME TAXES

For the quarter ended March 31, 2014 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860. As a REIT, the Company is not subject to federal income tax to the extent that it distributes its taxable income to its stockholders.  To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its stockholders and meet certain other requirements such as assets it may hold, income it may generate and its stockholder composition. It is generally the Company’s policy to distribute 100% of its REIT taxable income. To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within the next year as permitted by the Code. For years prior to 2013, the Company retained the amount of taxable income attributable to certain employee remuneration deductions disallowed for tax purposes pursuant to Section 162(m) of the Code (“Section 162(m)”). As a result of the externalization of management effective as of July 1, 2013, the Company does not expect to be subject to the Section 162(m) disallowance.

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

During the quarter ended March 31, 2014, the Company recorded $4.0 million of income tax expense for income attributable to its TRSs.  During the quarter ended March 31, 2013, the Company’s TRSs recorded $1.9 million of income tax expense for income attributable to those subsidiaries, and the portion of earnings retained based on Code Section 162(m) limitations. During the quarter ended March 31, 2013, the Company recorded $3.9 million of income tax expense for a portion of earnings retained based on Section 162(m) limitations.

The Company’s 2012, 2011 and 2010 federal, state and local tax returns remain open for examination.

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GOODWILL

3 Months Ended

Mar. 31, 2014

GOODWILL

12.    GOODWILL

At March 31, 2014 and December 31, 2013, goodwill totaled $94.8 million.

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SECURED FINANCING

3 Months Ended

Mar. 31, 2014

SECURED FINANCING

8.        SECURED FINANCING

The Company had outstanding $64.5 billion and $61.8 billion of repurchase agreements with weighted average borrowing rates of 2.43% and 2.33%, after giving effect to the Company’s interest rate swaps, and weighted average remaining maturities of 187 days and 204 days as of March 31, 2014 and December 31, 2013, respectively.  Investment Securities and U.S. Treasury securities pledged as collateral under these repurchase agreements and interest rate swaps had an estimated fair value and accrued interest of $68.5 billion and $227.0 million, respectively, at March 31, 2014 and $67.9 billion and $222.1 million, respectively, at December 31, 2013.

At March 31, 2014 and December 31, 2013, the repurchase agreements had the following remaining maturities and weighted average rates:

	March 31, 2014					December 31, 2013
	Repurchase Agreements		Weighted Average Rate			Repurchase Agreements		Weighted Average Rate
	(dollars in thousands)
1 day	$	6,065,530		0.29	%	$	-		0.00	%
2 to 29 days		12,308,123		0.34	%		21,171,574		0.36	%
30 to 59 days		17,122,926		0.43	%		13,373,921		0.43	%
60 to 89 days		3,842,791		0.42	%		3,592,266		0.44	%
90 to 119 days		6,941,938		0.55	%		4,010,334		0.52	%
Over 120 days(1)		18,262,641		1.26	%		19,632,906		1.29	%
Total	$	64,543,949		0.65	%	$	61,781,001		0.68	%
(1) Approximately 14% of the total repurchase agreements have a remaining maturity over 1 year.

Repurchase agreements and reverse repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements permit netting. The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition as of March 31, 2014 and December 31, 2013.

	March 31, 2014						December 31, 2013
	Reverse Repurchase Agreements			Repurchase Agreements			Reverse Repurchase Agreements			Repurchase Agreements
	(dollars in thousands)
Gross Amounts	$	1,766,563		$	65,866,137		$	2,524,980		$	64,205,981
Amounts Offset		(1,322,188	)		(1,322,188	)		(2,424,980	)		(2,424,980	)
Netted Amounts	$	444,375		$	64,543,949		$	100,000		$	61,781,001

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Summary of Fair Value Information about Derivative Assets and Liabilities (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Derivatives, Fair Value [Line Items]
Derivative assets	$ 380,995	$ 705,769
Derivative liabilities	1,278,661	1,197,346
Interest Rate Swaps
Derivatives, Fair Value [Line Items]
Derivative assets	340,890	559,044
Derivative liabilities	1,272,616	1,141,828
Other Derivative Contracts | Interest Rate Swaption
Derivatives, Fair Value [Line Items]
Derivative assets	36,965	110,361
Derivative liabilities		24,662
Other Derivative Contracts | TBA Derivatives
Derivatives, Fair Value [Line Items]
Derivative assets	3,140	20,693
Derivative liabilities	6,045	13,779
Other Derivative Contracts | Collateralized Mortgage Backed Securities
Derivatives, Fair Value [Line Items]
Derivative assets		12,184
Derivative liabilities		16,638
Other Derivative Contracts | Us Treasury futures
Derivatives, Fair Value [Line Items]
Derivative assets		3,487
Derivative liabilities		$ 439

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COMMERCIAL REAL ESTATE INVESTMENTS

3 Months Ended

Mar. 31, 2014

COMMERCIAL REAL ESTATE INVESTMENTS

6. COMMERCIAL REAL ESTATE INVESTMENTS

At March 31, 2014 and December 31, 2013, commercial real estate investments were composed of the following:

CRE Debt and Preferred Equity Investments

	March 31, 2014							December 31, 2013
	Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)			Outstanding Principal		Carrying Value(1)		Percentage of Loan Portfolio(2)
	(dollars in thousands)							(dollars in thousands)
Senior mortgages	$	337,845	$	336,845		20.5	%	$	669,512	$	667,299		42.2	%
Senior securitized mortgages(3)		399,541		398,113		24.3	%		-		-		0.0	%
Subordinate notes		15,965		16,049		1.0	%		41,059		41,408		2.6	%
Mezzanine loans		641,253		641,887		39.0	%		626,883		628,102		39.5	%
Preferred equity		249,769		247,312		15.2	%		249,769		247,160		15.7	%
Total	$	1,644,373	$	1,640,206		100	%	$	1,587,223	$	1,583,969		100	%

(1) Net carrying value includes unamortized origination fees of $4.9 million.

(2) Based on outstanding principal.

(3) Assets of consolidated VIE.

	March 31, 2014
	Senior Mortgages			Senior Securitized Mortgages(1)		Subordinate Notes			Mezzanine Loans			Preferred Equity		Total
	(dollars in thousands)
Beginning balance	$	667,299		$	-	$	41,408		$	628,102		$	247,160	$	1,583,969
Originations & advances (principal)		67,946			-		-			59,000			-		126,946
Principal payments		(72	)		-		(25,094	)		(44,630	)		-		(69,796	)
Sales (principal)		-			-		-			-			-		-
Amortization & accretion of (premium) discounts		(36	)		-		(265	)		(617	)		28		(890	)
Net (increase) decrease in origination fees		(1,012	)		-		-			15			1		(996	)
Amortization of net origination fees		698			135		-			17			123		973
Transfers		(397,978	)		397,978		-			-			-		-
Allowance for loan losses		-			-		-			-			-		-
Net carrying value	$	336,845		$	398,113	$	16,049		$	641,887		$	247,312	$	1,640,206
(1) Assets of consolidated VIE.

	December 31, 2013
	Senior Mortgages			Senior Securitized Mortgages(1)		Subordinate Notes			Mezzanine Loans			Preferred Equity			Total
	(dollars in thousands)
Beginning balance	$	429,229		$	-	$	41,571		$	568,759		$	187,623		$	1,227,182
Originations & advances (principal)		240,150			-		-			136,040			60,000			436,190
Principal payments		(388	)		-		(90	)		(64,035	)		-			(64,513	)
Sales (principal)		(13,750	)		-		-			-			-			(13,750	)
Amortization & accretion of (premium) discounts		(37	)		-		(73	)		(192	)		31			(271	)
Net (increase) decrease in origination fees		(1,106	)		-		-			14			(601	)		(1,693	)
Amortization of net origination fees		701			-		-			16			107			824
Transfers		12,500			-		-			(12,500	)		-			-
Allowance for loan losses		-			-		-			-			-			-
Net carrying value	$	667,299		$	-	$	41,408		$	628,102		$	247,160		$	1,583,969
(1) Assets of consolidated VIE.

Internal CRE Debt and Preferred Equity Investment Ratings

	March 31, 2014
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List Loans			Workout Loans
	(dollars in thousands)
Senior mortgages	$	337,845		20.5	%	$	312,372	$	25,473	(2)	$	-
Senior securitized mortgages(1)		399,541		24.3	%		399,541		-			-
Subordinate notes		15,965		1.0	%		15,965		-			-
Mezzanine loans		641,253		39.0	%		635,253		6,000			-
Preferred equity		249,769		15.2	%		249,769		-			-
	$	1,644,373		100	%	$	1,612,900	$	31,473		$	-

(1) Assets of consolidated VIE.

(2) Includes approximately $13 million related to one loan on non accrual status.

	December 31, 2013
			Percentage of CRE Debt and			Internal Ratings
Investment Type	Outstanding Principal		Preferred Equity Portfolio			Performing		Watch List Loans			Workout Loans
	(dollars in thousands)
Senior mortgages	$	669,512		42.2	%	$	644,039	$	25,473	(1)	$	-
Subordinate notes		41,059		2.6	%		41,059		-			-
Mezzanine loans		626,883		39.5	%		620,883		6,000			-
Preferred equity		249,769		15.7	%		249,769		-			-
	$	1,587,223		100	%	$	1,555,750	$	31,473		$	-
(1) Includes approximately $13 million related to one loan on non accrual status.

Total Commercial Real Estate Investment

	March 31, 2014			December 31, 2013
	(dollars in thousands)			(dollars in thousands)
Real estate held for investment, at amortized cost
Land	$	6,639		$	6,639
Buildings and improvements		31,100			31,100
Subtotal		37,739			37,739
Less: accumulated depreciation		(1,170	)		(877	)
Total real estate held for investment at amortized cost, net		36,569			36,862
Real estate held for sale at fair value		3,744			23,270
Total investment in commercial real estate, net		40,313			60,132
Net carrying value of CRE Debt and Preferred Equity Investments		1,640,206			1,583,969
Total commercial real estate investments	$	1,680,519		$	1,644,101

Securitizations and VIEs

In January 2014, the Company closed NLY Commercial Mortgage Trust 2014-FL1 (the “Trust”), a $399.5 million securitization financing transaction which provides permanent, non-recourse financing collateralized by floating-rate first mortgage debt investments originated or purchased by the Company and is not subject to margin calls. A total of $260.7 million of investment grade bonds were issued by the Trust, representing an advance rate of 65.3% at a weighted average coupon of LIBOR plus 1.74%. The Company is using the proceeds to originate commercial real estate investments. The Company retained bonds rated below investment grade and the only interest-only bond issued by the Trust, which are referred to as the subordinate bonds.

The Company incurred approximately $4.3 million of costs in connection with the securitization that have been capitalized and are being amortized to interest expense. Deferred financing costs are included in Other assets in the accompanying consolidated statements of financial condition.

The Trust is structured as a pass through entity that receives principal and interest on the underlying collateral and distributes those payments to the certificate holders. The Trust is a VIE and the Company is the primary beneficiary as a result of its ability to replace the special servicer without cause through its ownership interest in the subordinate bonds. The Company’s exposure to the obligations of the VIE is generally limited to the Company’s investment in the Trust. Assets of the Trust may only be used to settle obligations of the Trust. Creditors of the Trust have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the Trust. No gain or loss was recognized upon initial consolidation of the Trust.

As of March 31, 2014 the carrying value of the Trust’s assets was $398.1 million, net of $1.4 million of unamortized origination fees, which are included in Commercial real estate debt and preferred equity investments in the accompanying Consolidated Statements of Financial Condition. As of March 31, 2014, the carrying value of the Trust’s liabilities was $260.7 million, classified as Securitized debt in the accompanying Consolidated Statements of Financial Condition.

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FAIR VALUE MEASUREMENTS

3 Months Ended

Mar. 31, 2014

FAIR VALUE MEASUREMENTS

7. FAIR VALUE MEASUREMENTS

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

GAAP requires classification of the instruments into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). If the inputs used to measure the financial instruments fall within different levels of the hierarchy, the categorization is based on the lowest level input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value on the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows:

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

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

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

The Company designates its financial instruments as available for sale or trading depending upon the type of instrument and the Company’s intent and ability to hold such instrument to maturity. Instruments classified as available for sale and trading are reported at fair value on a recurring basis.

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

U.S. Treasury securities and investment in affiliates are valued using quoted prices for identical instruments in active markets. Agency mortgage-backed securities, Agency debentures, interest rate swaps, swaptions and other derivatives are valued using quoted prices, including dealer quotes, or internally estimated prices for similar assets using internal models. The Company incorporates common market pricing methods, including a spread measurement to the Treasury curve as well as underlying characteristics of the particular security including coupon, prepayment speeds, periodic and life caps, rate reset period and expected life of the security in its estimates of fair value. Management reviews the fair values generated by the internal models to determine whether prices are reflective of the current market. Management indirectly corroborates its estimates of the fair value derived using internal models by comparing its results to independent prices provided by dealers in the securities and/or third party pricing services. Certain liquid asset classes, such as Agency fixed-rate pass-throughs, may be priced using independent sources such as quoted prices for TBA securities.

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

The following table presents the estimated fair values of financial instruments measured at fair value on a recurring basis.

	Level 1		Level 2		Level 3		Total
March 31, 2014	(dollars in thousands)
Assets:
Agency mortgage-backed securities	$	-	$	75,350,388	$	-	$	75,350,388
Agency debentures		-		2,408,259		-		2,408,259
Investment in affiliates		137,647		-		-		137,647
Interest rate swaps		-		340,890		-		340,890
Other derivatives		-		40,105		-		40,105
Total Assets	$	137,647	$	78,139,642	$	-	$	78,277,289
Liabilities:
Interest rate swaps	$	-	$	1,272,616	$	-	$	1,272,616
Other derivatives		-		6,045		-		6,045
Total Liabilities	$	-	$	1,278,661	$	-	$	1,278,661
	Level 1		Level 2		Level 3		Total
At December 31, 2013	(dollars in thousands)
Assets:
U.S. Treasury securities	$	1,117,915	$	-	$	-	$	1,117,915
Agency mortgage-backed securities		-		70,388,949		-		70,388,949
Agency debentures		-		2,969,885		-		2,969,885
Investment in affiliates		139,447		-		-		139,447
Interest rate swaps		-		559,044		-		559,044
Other derivatives		3,487		143,238		-		146,725
Total Assets	$	1,260,849	$	74,061,116	$	-	$	75,321,965
Liabilities:
U.S. Treasury securities sold, not yet purchased		1,918,394		-		-		1,918,394
Interest rate swaps		-		1,141,828		-		1,141,828
Other derivatives		439		55,079		-		55,518
Total Liabilities	$	1,918,833	$	1,196,907	$	-	$	3,115,740

GAAP requires disclosure of fair value information about financial instruments, whether or not recognized in the financial statements, for which it is practical to estimate the value. In cases where quoted market prices are not available, fair values are based upon discounted cash flows using market yields or other valuation methodologies. Considerable judgment is necessary to interpret market data and develop estimated fair values. Accordingly, fair values are not necessarily indicative of the amount the Company would realize on disposition of the financial instruments. The use of different market assumptions or estimation methodologies could have a material effect on the estimated fair value amounts.

The carrying value of short term instruments, including cash and cash equivalents, reverse repurchase agreements and repurchase agreements whose term is less than twelve months, and securities borrowed and securities loaned, generally approximates fair value due to the short term nature of the instruments.

Instruments held-for-investment are recorded at their principal balance outstanding, plus any premiums or less discounts that are amortized or accreted over the estimated life of the instrument.

The estimated fair value of commercial real estate debt and preferred equity investments takes into consideration changes in credit spreads and interest rates from the date of origination or purchase to the reporting date. The fair value also reflects consideration of asset-specific maturity dates and other items that could have an impact on the fair value as of the reporting date.

Estimates of fair value of corporate debt require the use of judgments and inputs including, but not limited to, the enterprise value of the borrower (i.e., an estimate of the total fair value of the borrower's debt and equity), the nature and realizable value of any collateral, the borrower’s ability to make payments when due and its earnings history. Management also considers factors that affect the macro and local economic markets in which the borrower operates.

The fair value of repurchase agreements with remaining maturities greater than one year or with embedded optionality are valued as structured notes, with term to maturity, LIBOR rates and the Treasury curve being primary determinants of estimated fair value.

The fair value of mortgages payable is calculated using the estimated yield of a new par loan to value the remaining terms in place. A par loan is created using the identical terms of the existing loan; however, the coupon is derived by using the original spread against the interpolated Treasury. The fair value of mortgages payable also reflects consideration of the value of the underlying collateral and changes in credit risk from the time the debt was originated.

The carrying value of participation sold is based on the loan’s amortized cost less an allowance for loan losses, if necessary. The fair value of participation sold is based on the fair value of the underlying related commercial loan.

The fair value of convertible senior notes is determined using end of day quoted prices in active markets.

The fair value of securitized debt of consolidated VIE is determined using the average of external vendor pricing services.

The following table summarizes the estimated fair value for all financial assets and liabilities as of March 31, 2014 and December 31, 2013.

		March 31, 2014				December 31, 2013
	Level in Fair Value Hierarchy	Carrying Value		Fair Value		Carrying Value		Fair Value
Financial assets:		(dollars in thousands)
Cash and cash equivalents	1	$	924,197	$	924,197	$	552,436	$	552,436
Reverse repurchase agreements	1		444,375		444,375		100,000		100,000
Securities borrowed	1		513,500		513,500		2,582,893		2,582,893
U.S. Treasury securities	1		-		-		1,117,915		1,117,915
Agency mortgage-backed securities	2		75,350,388		75,350,388		70,388,949		70,388,949
Agency debentures	2		2,408,259		2,408,259		2,969,885		2,969,885
Investment in affiliates	1		137,647		137,647		139,447		139,447
Commercial real estate debt and preferred equity	3		1,640,206		1,649,239		1,583,969		1,581,836
Corporate debt	2		145,394		145,912		117,687		118,362
Interest rate swaps	2		340,890		340,890		559,044		559,044
Other derivatives	1,2		40,105		40,105		146,725		146,725
Financial liabilities:
U.S. Treasury securities sold, not yet purchased	1	$	-	$	-	$	1,918,394	$	1,918,394
Repurchase agreements	1,2		64,543,949		64,856,432		61,781,001		62,134,133
Securities loaned	1		513,510		513,510		2,527,668		2,527,668
Convertible Senior Notes	1		827,486		883,946		825,262		870,199
Securitized debt of consolidated VIE	2		260,700		262,105		-		-
Mortgages payable	2		19,317		19,240		19,332		19,240
Participation sold	3		13,963		13,882		14,065		14,050
Interest rate swaps	2		1,272,616		1,272,616		1,141,828		1,141,828
Other derivatives	1,2		6,045		6,045		55,518		55,518

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DERIVATIVE INSTRUMENTS

3 Months Ended

Mar. 31, 2014

DERIVATIVE INSTRUMENTS

9. DERIVATIVE INSTRUMENTS

In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps, swaptions and U.S. Treasury futures contracts. The Company also enters into TBA derivatives and MBS options to economically hedge its exposure to market risks. The purpose of using derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders. These derivatives are subject to changes in market value resulting from changes in interest rates, volatility, Agency mortgage-backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives also creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative transactions, the amount which may vary based on the market value, notional amount and remaining term of the derivative contract. In the event of a default by the counterparty, the Company could have difficulty obtaining its Investment Securities pledged as collateral as well as receiving payments in accordance with the terms of the derivative contracts. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes.

The table below summarizes fair value information about our derivative assets and liabilities as of March 31, 2014 and December 31, 2013:

Derivatives Instruments	Balance Sheet Location	March 31, 2014		December 31, 2013
Assets:		(dollars in thousands)
Interest rate swaps	Interest rate swaps, at fair value	$	340,890	$	559,044
Interest rate swaptions	Other derivative contracts, at fair value		36,965		110,361
TBA derivatives	Other derivative contracts, at fair value		3,140		20,693
MBS options	Other derivative contracts, at fair value		-		12,184
U.S. Treasury futures	Other derivative contracts, at fair value		-		3,487
		$	380,995	$	705,769
Liabilities:
Interest rate swaps	Interest rate swaps, at fair value	$	1,272,616		1,141,828
Interest rate swaptions	Other derivative contracts, at fair value		-		24,662
TBA derivatives	Other derivative contracts, at fair value		6,045		13,779
MBS options	Other derivative contracts, at fair value		-		16,638
U.S. Treasury futures	Other derivative contracts, at fair value		-		439
		$	1,278,661	$	1,197,346

The following table summarizes certain characteristics of the Company’s interest rate swaps at March 31, 2014 and December 31, 2013:

March 31, 2014
Maturity	Current Notional(1)		Weighted Average Pay Rate(2)(3)			Weighted Average Receive Rate(2)(4)			Weighted Average Years to Maturity(2)
(dollars in thousands)
0 - 3 years	$	24,516,550		1.78	%		0.17	%		1.84
3 - 6 years		8,723,500		2.07	%		0.19	%		4.60
6 - 10 years		17,179,700		2.49	%		0.23	%		7.83
Greater than 10 years		6,290,000		3.66	%		0.18	%		21.09
Total / Weighted Average	$	56,709,750		2.16	%		0.19	%		5.31

(1)	Notional amount includes $3.1 billion in forward starting pay fixed swaps, offset by $1.4 billion in forward starting receive fixed swaps.
(2)	Excludes forward starting swaps.
(3)	Weighted average fixed rate on forward starting pay fixed swaps was 3.00%
(4)	Weighted average fixed rate on forward starting pay receive swaps was 1.81%

December 31, 2013
Maturity	Current Notional		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	24,286,000		1.83	%		0.18	%		1.98
3 - 6 years		8,865,410		2.02	%		0.19	%		4.19
6 - 10 years		15,785,500		2.37	%		0.23	%		7.66
Greater than 10 years		3,490,000		3.62	%		0.20	%		19.93
Total / Weighted Average	$	52,426,910		2.14	%		0.20	%		5.26

The following table summarizes certain characteristics of the Company’s interest rate swaptions at March 31, 2014 and December 31, 2013:

March 31, 2014	Current Underlying Notional		Weighted Average Underlying Pay Rate		Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
(dollars in thousands)
Long	$	4,100,000		3.14%	3M LIBOR		10.04		4.70
Short	$	-		-	-		-		-
December 31, 2013	Current Underlying Notional		Weighted Average Underlying Pay Rate		Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
(dollars in thousands)
Long	$	5,150,000		3.07%	3M LIBOR		10.10		4.26
Short	$	1,000,000	3M LIBOR		2.83%		5.96		23.71

The following table summarizes certain characteristics of the Company’s TBA derivatives as of March 31, 2014 and December 31, 2013:

March 31, 2014
Purchase and sale contracts for derivative TBAs	Notional			Cost Basis			Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	1,500,000		$	1,569,331		$	1,568,184		$	(1,147	)
Sale contracts		(2,125,000	)		(2,127,773	)		(2,129,531	)		(1,758	)
Net TBA derivatives	$	(625,000	)	$	(558,442	)	$	(561,347	)	$	(2,905	)

December 31, 2013
Purchase and sale contracts for derivative TBAs	Notional			Cost Basis			Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	2,625,000		$	2,733,682		$	2,722,324		$	(11,357	)
Sale contracts		(3,875,000	)		(3,923,213	)		(3,904,941	)		18,271
Net TBA derivatives	$	(1,250,000	)	$	(1,189,531	)	$	(1,182,617	)	$	6,914

Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty. Beginning on September 30, 2013, the Company elected to present derivative contracts on a gross basis on the Consolidated Statements of Financial Condition. Prior to September 30, 2013, the Company presented the fair value of derivative contracts net, by counterparty. The following tables present information about our derivative assets and liabilities that are subject to such provisions and can potentially be offset on our Consolidated Statements of Financial Condition as of March 31, 2014 and December 31, 2013, respectively.

March 31, 2014	Gross Amounts		Amounts Eligible for Offset			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	340,890	$	(311,264	)	$	29,626
Interest rate swaptions, at fair value		36,965		-			36,965
TBA derivatives, at fair value		3,140		(1,304	)		1,836
Liabilities:
Interest rate swaps, at fair value		1,272,616		(311,264	)		961,352
Interest rate swaptions, at fair value		-		-			-
TBA derivatives, at fair value		6,045		(1,304	)		4,741
December 31, 2013	Gross Amounts		Amounts Eligible for Offset			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	559,044	$	(408,553	)	$	150,491
Interest rate swaptions, at fair value		110,361		(24,662	)		85,699
TBA derivatives, at fair value		20,693		(9,775	)		10,918
MBS options, at fair value		12,184		(3,292	)		8,892
U.S. Treasury futures, at fair value		3,487		(439	)		3,048
Liabilities:
Interest rate swaps, at fair value		1,141,828		(408,553	)		733,275
Interest rate swaptions, at fair value		24,662		(24,662	)		-
TBA derivatives, at fair value		13,779		(9,775	)		4,004
MBS options, at fair value		16,638		(3,292	)		13,346
U.S. Treasury futures, at fair value		439		(439	)		-

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

	Location on Consolidated Statements of Comprehensive Income (Loss)
	Realized Gains (Losses) on Interest Rate Swaps(1)			Realized Gains (Losses) on Termination of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
	(dollars in thousands)
For the Quarter Ended:
March 31, 2014	$	(260,435	)	$	(6,842	)	$	(348,942	)
March 31, 2013	$	(225,476	)	$	(16,378	)	$	325,734

(1) Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

As of March 31, 2014, the swap portfolio, excluding forward starting swaps, had a weighted average pay rate of 2.16% and a weighted average receive rate of 0.19%. The weighted average pay rate at December 31, 2013 was 2.14% and the weighted average receive rate was 0.20%.

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

Three Months Ended March 31, 2014
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives (1)	$	(37,837	)	$	(11,410	)	$	(49,247	)
Net interest rate swaptions	$	(40,943	)	$	(52,917	)	$	(93,860	)
U.S. Treasury futures	$	(5,669	)	$	(3,048	)	$	(8,717	)
							$	(151,824	)

(1) Includes options on TBA securities.

Three Months Ended March 31, 2013
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives	$	9,340	$	(1,875	)	$	7,465
Net interest rate swaptions	$	-	$	-		$	-
U.S. Treasury futures	$	12,702	$	(12,458)		$	244
						$	7,709

Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements (“ISDA”) which may contain provisions that grant counterparties certain rights with respect to the applicable ISDA upon the occurrence of certain events such as (i) negative performance that results in a decline in net assets in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange (NYSE). Upon the occurrence of any one of items (i) through (iv), the counterparty to the applicable ISDA has a right to terminate the ISDA in accordance with its provisions. The aggregate fair value of all derivative instruments with the aforementioned features that are in a net liability position at March 31, 2014 is approximately $898 million, which represents the maximum amount the Company would be required to pay upon termination. This amount is fully collateralized.

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Summary of Characteristics of TBA Derivatives (Detail) (TBA Derivatives, USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Derivative Instruments:
Notional	$ (625,000)	$ (1,250,000)
Cost Basis	(558,442)	(1,189,531)
Market Value	(561,347)	(1,182,617)
Carrying Value	(2,905)	6,914
Purchase Contracts
Derivative Instruments:
Notional	1,500,000	2,625,000
Cost Basis	1,569,331	2,733,682
Market Value	1,568,184	2,722,324
Carrying Value	(1,147)	(11,357)
Sales Contracts
Derivative Instruments:
Notional	(2,125,000)	(3,875,000)
Cost Basis	(2,127,773)	(3,923,213)
Market Value	(2,129,531)	(3,904,941)
Carrying Value	$ (1,758)	$ 18,271

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Derivative Instruments - Effect of Interest Rate Swaps on Consolidated Statements of Comprehensive Income Loss (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2014		Mar. 31, 2013
Effect of Derivatives on Statement of Operations and Comprehensive Income:
Realized gains (losses) on interest rate swaps	$ (260,435)	[1],[2]	$ (225,476)	[1],[2]
Realized gain (losses) on termination of interest rate swaps	(6,842)		(16,378)
Unrealized gains (losses) on interest rate swaps	$ (348,942)		$ 325,734

[1] Interest expense related to the Company's interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

[2] Interest expense related to the Company's interest rate swaps is recorded in Realized gains (losses) on interest rate swaps.

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Summary of Characteristics of Interest Rate Swaptions (Detail) (Interest Rate Swaption, USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2014	Dec. 31, 2013
Long
Derivative Instruments:
Current Underlying Notional	$ 4,100,000	$ 5,150,000
Underlying Pay RateXX	3.14	3.07
Underlying Receive Rate	3M LIBOR	3M LIBOR
Years to Maturity	10 years 15 days	10 years 1 month 6 days
Months to Expiration	4 years 8 months 12 days	4 years 3 months 4 days
Short
Derivative Instruments:
Current Underlying Notional		$ 1,000,000
Underlying Pay RateXX	-	3M LIBOR
Underlying Receive Rate	-	2.83
Years to Maturity	0 years	5 years 11 months 16 days
Months to Expiration	0 years	23 years 8 months 16 days

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DERIVATIVE INSTRUMENTS (Tables)

3 Months Ended

Mar. 31, 2014

Summarizes Fair Value Information about Derivative Assets Liabilities

The table below summarizes fair value information about our derivative assets and liabilities as of March 31, 2014 and December 31, 2013:

Derivatives Instruments	Balance Sheet Location	March 31, 2014		December 31, 2013
Assets:		(dollars in thousands)
Interest rate swaps	Interest rate swaps, at fair value	$	340,890	$	559,044
Interest rate swaptions	Other derivative contracts, at fair value		36,965		110,361
TBA derivatives	Other derivative contracts, at fair value		3,140		20,693
MBS options	Other derivative contracts, at fair value		-		12,184
U.S. Treasury futures	Other derivative contracts, at fair value		-		3,487
		$	380,995	$	705,769
Liabilities:
Interest rate swaps	Interest rate swaps, at fair value	$	1,272,616		1,141,828
Interest rate swaptions	Other derivative contracts, at fair value		-		24,662
TBA derivatives	Other derivative contracts, at fair value		6,045		13,779
MBS options	Other derivative contracts, at fair value		-		16,638
U.S. Treasury futures	Other derivative contracts, at fair value		-		439
		$	1,278,661	$	1,197,346

Offsetting of Derivative Assets and Liabilities

The following tables present information about our derivative assets and liabilities that are subject to such provisions and can potentially be offset on our Consolidated Statements of Financial Condition as of March 31, 2014 and December 31, 2013, respectively.

March 31, 2014	Gross Amounts		Amounts Eligible for Offset			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	340,890	$	(311,264	)	$	29,626
Interest rate swaptions, at fair value		36,965		-			36,965
TBA derivatives, at fair value		3,140		(1,304	)		1,836
Liabilities:
Interest rate swaps, at fair value		1,272,616		(311,264	)		961,352
Interest rate swaptions, at fair value		-		-			-
TBA derivatives, at fair value		6,045		(1,304	)		4,741
December 31, 2013	Gross Amounts		Amounts Eligible for Offset			Net Amounts
Assets:	(dollars in thousands)
Interest rate swaps, at fair value	$	559,044	$	(408,553	)	$	150,491
Interest rate swaptions, at fair value		110,361		(24,662	)		85,699
TBA derivatives, at fair value		20,693		(9,775	)		10,918
MBS options, at fair value		12,184		(3,292	)		8,892
U.S. Treasury futures, at fair value		3,487		(439	)		3,048
Liabilities:
Interest rate swaps, at fair value		1,141,828		(408,553	)		733,275
Interest rate swaptions, at fair value		24,662		(24,662	)		-
TBA derivatives, at fair value		13,779		(9,775	)		4,004
MBS options, at fair value		16,638		(3,292	)		13,346
U.S. Treasury futures, at fair value		439		(439	)		-

Schedule of Derivative Instruments in Statement of Operations and Comprehensive Income Loss

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

	Location on Consolidated Statements of Comprehensive Income (Loss)
	Realized Gains (Losses) on Interest Rate Swaps(1)			Realized Gains (Losses) on Termination of Interest Rate Swaps			Unrealized Gains (Losses) on Interest Rate Swaps
	(dollars in thousands)
For the Quarter Ended:
March 31, 2014	$	(260,435	)	$	(6,842	)	$	(348,942	)
March 31, 2013	$	(225,476	)	$	(16,378	)	$	325,734

(1) Interest expense related to the Company’s interest rate swaps is recorded in Realized gains (losses) on interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss).

Effect of Other Derivative Contracts on the Consolidated Statements of Operations and Comprehensive Income (Loss)

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

Three Months Ended March 31, 2014
Derivative Instruments	Realized Gain (Loss)			Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives (1)	$	(37,837	)	$	(11,410	)	$	(49,247	)
Net interest rate swaptions	$	(40,943	)	$	(52,917	)	$	(93,860	)
U.S. Treasury futures	$	(5,669	)	$	(3,048	)	$	(8,717	)
							$	(151,824	)

(1) Includes options on TBA securities.

Three Months Ended March 31, 2013
Derivative Instruments	Realized Gain (Loss)		Unrealized Gain (Loss)			Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Trading Assets
(dollars in thousands)
Net TBA derivatives	$	9,340	$	(1,875	)	$	7,465
Net interest rate swaptions	$	-	$	-		$	-
U.S. Treasury futures	$	12,702	$	(12,458)		$	244
						$	7,709

Interest Rate Swaps

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaps at March 31, 2014 and December 31, 2013:

March 31, 2014
Maturity	Current Notional		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	24,516,550		1.78	%		0.17	%		1.84
3 - 6 years		8,723,500		2.07	%		0.19	%		4.60
6 - 10 years		17,179,700		2.49	%		0.23	%		7.83
Greater than 10 years		6,290,000		3.66	%		0.18	%		21.09
Total / Weighted Average	$	56,709,750		2.16	%		0.19	%		5.31
December 31, 2013
Maturity	Current Notional		Weighted Average Pay Rate			Weighted Average Receive Rate			Weighted Average Years to Maturity
(dollars in thousands)
0 - 3 years	$	24,286,000		1.83	%		0.18	%		1.98
3 - 6 years		8,865,410		2.02	%		0.19	%		4.19
6 - 10 years		15,785,500		2.37	%		0.23	%		7.66
Greater than 10 years		3,490,000		3.62	%		0.20	%		19.93
Total / Weighted Average	$	52,426,910		2.14	%		0.20	%		5.26

Interest Rate Swaption

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s interest rate swaptions at March 31, 2014 and December 31, 2013:

March 31, 2014	Current Underlying Notional		Weighted Average Underlying Pay Rate		Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
(dollars in thousands)
Long	$	4,100,000		3.14%	3M LIBOR		10.04		4.70
Short	$	-		-	-		-		-
December 31, 2013	Current Underlying Notional		Weighted Average Underlying Pay Rate		Weighted Average Underlying Receive Rate	Weighted Average Underlying Years to Maturity		Weighted Average Months to Expiration
(dollars in thousands)
Long	$	5,150,000		3.07%	3M LIBOR		10.10		4.26
Short	$	1,000,000	3M LIBOR		2.83%		5.96		23.71

TBA Derivatives

Summary of Certain Characteristics of Derivatives

The following table summarizes certain characteristics of the Company’s TBA derivatives as of March 31, 2014 and December 31, 2013:

March 31, 2014
Purchase and sale contracts for derivative TBAs	Notional			Cost Basis			Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	1,500,000		$	1,569,331		$	1,568,184		$	(1,147	)
Sale contracts		(2,125,000	)		(2,127,773	)		(2,129,531	)		(1,758	)
Net TBA derivatives	$	(625,000	)	$	(558,442	)	$	(561,347	)	$	(2,905	)

December 31, 2013
Purchase and sale contracts for derivative TBAs	Notional			Cost Basis			Market Value			Net Carrying Value
(dollars in thousands)
Purchase contracts	$	2,625,000		$	2,733,682		$	2,722,324		$	(11,357	)
Sale contracts		(3,875,000	)		(3,923,213	)		(3,904,941	)		18,271
Net TBA derivatives	$	(1,250,000	)	$	(1,189,531	)	$	(1,182,617	)	$	6,914

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Internal CRE Debt and Preferred Equity Ratings (Parenthetical) (Detail) (Commercial Mortgage, USD $)	Mar. 31, 2014		Dec. 31, 2013
Transaction to Real Estate Investments [Line Items]
Internal Ratings Watch List Loans	$ 31,473,000		$ 31,473,000
Senior Mortgages
Transaction to Real Estate Investments [Line Items]
Internal Ratings Watch List Loans	25,473,000	[1]	25,473,000	[2]
Non Accrual Loans | Senior Mortgages
Transaction to Real Estate Investments [Line Items]
Internal Ratings Watch List Loans	13,000,000
Internal Ratings Watch List Loans			$ 13,000,000

[1] (2) Includes approximately $13 million related to one loan on non accrual status.

[2] (1) Includes approximately $13 million related to one loan on non accrual status.

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NET INCOME (LOSS) PER COMMON SHARE

3 Months Ended

Mar. 31, 2014

NET INCOME (LOSS) PER COMMON SHARE

14.    NET INCOME (LOSS) PER COMMON SHARE

The following table presents a reconciliation of net income and shares used in calculating basic and diluted earnings per share for the quarters ended March 31, 2014 and 2013.

	For the Quarter Ended
	March 31, 2014			March 31, 2013
	(dollars in thousands, except per share data)
Net income (loss)	$	(203,351	)	$	870,278
Less: Preferred stock dividends		17,992			17,992
Net income (loss) available to common shareholders, prior to adjustment for dilutive potential common shares, if necessary		(221,343	)		852,286
Add:  Interest on Convertible Senior Notes, if dilutive		-			10,450
Net income (loss) available to common shareholders, as adjusted		(221,343	)		862,736
Weighted average shares of common stock outstanding-basic		947,458,813			947,249,901
Add:  Effect of dilutive stock options and Convertible Senior Notes, if dilutive		-			47,565,268
Weighted average shares of common  stock outstanding-diluted		947,458,813			994,815,169
Net income (loss) per share available (related) to common share:
Basic	$	(0.23	)	$	0.90
Diluted	$	(0.23	)	$	0.87

Options to purchase 3.2 million and 3.4 million shares of common stock were outstanding and considered anti-dilutive as their exercise price and option expense exceeded the average stock price for the quarters ended March 31, 2014 and 2013, respectively.

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RCAP REGULATORY REQUIREMENTS

3 Months Ended

Mar. 31, 2014

RCAP REGULATORY REQUIREMENTS

19.   RCAP REGULATORY REQUIREMENTS

RCap is subject to regulations of the securities business that include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and employees. 

As a self-clearing, registered broker dealer, RCap is required to maintain minimum net capital by FINRA.  As of March 31, 2014 RCap had a minimum net capital requirement of $0.3 million. RCap consistently operates with capital in excess of its regulatory capital requirements. RCap’s regulatory net capital as defined by SEC Rule 15c3-1, as of March 31, 2014 was $397.2 million with excess net capital of $396.9 million.

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CRE Debt and Preferred Equity Investments -Based on Outstanding Principal (Detail) (USD $) In Thousands, unless otherwise specified	3 Months Ended		12 Months Ended
	Mar. 31, 2014		Dec. 31, 2013
Transaction to Real Estate Investments [Line Items]
Beginning balance	$ 1,583,969		$ 1,227,182
Originations & advances (principal)	126,946		436,190
Principal payments	(69,796)		(64,513)
Sales (principal)			(13,750)
Amortization & accretion of (premium) discounts	(890)
Amortization & accretion of (premium) discounts	792		(271)
Net (increase) decrease in origination fees	(996)		(1,693)
Amortization of net origination fees	973
Amortization of net origination fees	(973)		824
Allowance for loan losses
Net carrying value	1,640,206		1,583,969
Commercial Mortgage
Transaction to Real Estate Investments [Line Items]
Net carrying value	1,640,206	[1]	1,583,969	[1]
Commercial Mortgage | Senior Mortgages
Transaction to Real Estate Investments [Line Items]
Beginning balance	667,299		429,229
Originations & advances (principal)	67,946		240,150
Principal payments	(72)		(388)
Sales (principal)			(13,750)
Amortization & accretion of (premium) discounts	(36)
Amortization & accretion of (premium) discounts			(37)
Net (increase) decrease in origination fees	(1,012)		(1,106)
Amortization of net origination fees	698
Amortization of net origination fees			701
Transfers	(397,978)		12,500
Allowance for loan losses
Net carrying value	336,845	[1]	667,299	[1]
Commercial Mortgage | Senior Securitized Mortgages
Transaction to Real Estate Investments [Line Items]
Amortization of net origination fees	135	[2]
Transfers	397,978	[2]
Allowance for loan losses		[2]		[2]
Net carrying value	398,113	[1],[2],[3]
Commercial Mortgage | Subordinated Notes
Transaction to Real Estate Investments [Line Items]
Beginning balance	41,408		41,571
Principal payments	(25,094)		(90)
Amortization & accretion of (premium) discounts	(265)
Amortization & accretion of (premium) discounts			(73)
Allowance for loan losses
Net carrying value	16,049	[1]	41,408	[1]
Commercial Mortgage | Mezzanine Loans
Transaction to Real Estate Investments [Line Items]
Beginning balance	628,102		568,759
Originations & advances (principal)	59,000		136,040
Principal payments	(44,630)		(64,035)
Amortization & accretion of (premium) discounts	(617)
Amortization & accretion of (premium) discounts			(192)
Net (increase) decrease in origination fees	15		14
Amortization of net origination fees	17
Amortization of net origination fees			16
Transfers			(12,500)
Allowance for loan losses
Net carrying value	641,887	[1]	628,102	[1]
Commercial Mortgage | Preferred Equity Interests
Transaction to Real Estate Investments [Line Items]
Beginning balance	247,160		187,623
Originations & advances (principal)			60,000
Amortization & accretion of (premium) discounts	28
Amortization & accretion of (premium) discounts			31
Net (increase) decrease in origination fees	1		(601)
Amortization of net origination fees	123
Amortization of net origination fees			107
Allowance for loan losses
Net carrying value	$ 247,312	[1]	$ 247,160	[1]

[1] (1) Net carrying value includes unamortized origination fees of $4.9 million.

[2] (1) Assets of consolidated VIE.

[3] (3) Assets of consolidated VIE.

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Agency Mortgage-Backed Securities - Portfolio (Detail) (USD $) In Thousands, unless otherwise specified	Mar. 31, 2014	Dec. 31, 2013
Mortgage-Backed Securities Portfolio:
Estimated fair value	$ 75,350,388	$ 70,388,949	[1]
Agency Mortgage Backed Securities
Mortgage-Backed Securities Portfolio:
Principal outstanding	72,139,139	68,144,321
Unamortized premium	5,087,997	4,625,864
Unamortized discount	(21,167)	(21,484)
Amortized cost	77,205,969	72,748,701
Gross unrealized gains	595,324	693,325
Gross unrealized losses	(2,450,905)	(3,053,077)
Estimated fair value	75,350,388	70,388,949
Agency Mortgage Backed Securities | Fixed Rate
Mortgage-Backed Securities Portfolio:
Amortized cost	73,655,761	68,784,424
Gross unrealized gains	455,048	538,556
Gross unrealized losses	(2,435,557)	(3,040,153)
Estimated fair value	71,675,252	66,282,827
Agency Mortgage Backed Securities | Adjustable Rate
Mortgage-Backed Securities Portfolio:
Amortized cost	3,550,208	3,964,277
Gross unrealized gains	140,276	154,769
Gross unrealized losses	(15,348)	(12,924)
Estimated fair value	3,675,136	4,106,122
Agency Mortgage Backed Securities | Freddie Mac
Mortgage-Backed Securities Portfolio:
Principal outstanding	24,875,914	24,458,925
Unamortized premium	1,697,704	1,627,966
Unamortized discount	(9,446)	(9,533)
Amortized cost	26,564,172	26,077,358
Gross unrealized gains	205,409	227,423
Gross unrealized losses	(1,013,503)	(1,267,106)
Estimated fair value	25,756,078	25,037,675
Agency Mortgage Backed Securities | Fannie Mae
Mortgage-Backed Securities Portfolio:
Principal outstanding	47,149,481	43,564,657
Unamortized premium	3,367,828	2,970,813
Unamortized discount	(11,341)	(11,568)
Amortized cost	50,505,968	46,523,902
Gross unrealized gains	381,265	456,057
Gross unrealized losses	(1,433,916)	(1,781,683)
Estimated fair value	49,453,317	45,198,276
Agency Mortgage Backed Securities | Ginnie Mae
Mortgage-Backed Securities Portfolio:
Principal outstanding	113,744	120,739
Unamortized premium	22,465	27,085
Unamortized discount	(380)	(383)
Amortized cost	135,829	147,441
Gross unrealized gains	8,650	9,845
Gross unrealized losses	(3,486)	(4,288)
Estimated fair value	$ 140,993	$ 152,998

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited) (USD $) In Thousands	Total		7.875% Series A Cumulative Redeemable Preferred Stock	7.625% Series C Cumulative Redeemable Preferred Stock	Series D Preferred Stock	Common Stock Par Value	Additional Paid-In Capital	Accumulated Other Comprehensive Income (Loss)	Accumulated Deficit	Accumulated Deficit 7.875% Series A Cumulative Redeemable Preferred Stock	Accumulated Deficit 7.625% Series C Cumulative Redeemable Preferred Stock	Accumulated Deficit Series D Preferred Stock	7.875% Series A Cumulative Redeemable Preferred Stock	7.625% Series C Cumulative Redeemable Preferred Stock	7.50% Series D Cumulative Redeemable Preferred Stock
Beginning balance at Dec. 31, 2012	$ 15,924,444					$ 9,472	$ 14,740,774	$ 3,053,242	$ (2,792,103)				$ 177,088	$ 290,514	$ 445,457
Net income (loss)	870,278								870,278
Unrealized gains (losses) on available-for-sale securities	(867,151)							(867,151)
Reclassification adjustment for net (gains) losses included in net income (loss)	(182,843)							(182,843)
Exercise of stock options	265						265
Stock compensation expense	817						817
Net proceeds from direct purchase and dividend reinvestment	761					1	760
Contingent beneficial conversion feature on 4% Convertible Senior Notes	3,963						3,963
Preferred dividends declared			(3,648)	(5,719)	(8,625)					(3,648)	(5,719)	(8,625)
Common dividends declared, $0.30 per share	(426,173)								(426,173)
Ending balance at Mar. 31, 2013	15,306,369					9,473	14,746,579	2,003,248	(2,365,990)				177,088	290,514	445,457
Beginning balance at Dec. 31, 2013	12,405,055	[1]				9,474	14,765,761	(2,748,933)	(534,306)				177,088	290,514	445,457
Net income (loss)	(203,351)								(203,351)
Unrealized gains (losses) on available-for-sale securities	741,172							741,172
Reclassification adjustment for net (gains) losses included in net income (loss)	(80,718)							(80,718)
Net proceeds from direct purchase and dividend reinvestment	607					1	606
Contingent beneficial conversion feature on 4% Convertible Senior Notes	4,186						4,186
Preferred dividends declared			(3,648)	(5,719)	(8,625)					(3,648)	(5,719)	(8,625)
Common dividends declared, $0.30 per share	(284,247)								(284,247)
Ending balance at Mar. 31, 2014	$ 12,564,712					$ 9,475	$ 14,770,553	$ (2,088,479)	$ (1,039,896)				$ 177,088	$ 290,514	$ 445,457

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2014

SIGNIFICANT ACCOUNTING POLICIES

3. SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation – The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated in consolidation.

The Company has evaluated all of its investments in legal entities in order to determine if they are variable interests in Variable Interest Entities ("VIEs"). 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 variable interest is an investment or other interest that will absorb portions of a VIE's expected losses or receive portions of the entity’s expected residual returns. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that (i) has the power to control the activities that most significantly impact the VIE’s economic performance and (ii) has the obligation to absorb losses of the VIE that could potentially be significant to the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, the Company considers all facts and circumstances, including the Company’s role in establishing the VIE and the Company’s ongoing rights and responsibilities. This assessment includes first, identifying the activities that most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, the parties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have the power to direct the activities of a VIE.

To assess whether the Company has the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to the VIE, the Company considers all of the Company’s economic interests, including debt and equity investments and other arrangements deemed to be variable interests in the VIE. This assessment requires that the Company applies judgment in determining whether these interests, in the aggregate, are considered potentially significant to the VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests; payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by the Company.

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 regarding the VIE to change.

Cash and Cash Equivalents – Cash and cash equivalents include cash on hand and cash held in money market funds on an overnight basis. RCap is a member of various clearing organizations with which it maintains cash required for the conduct of its day-to-day clearance activities. Cash and securities deposited with clearing organizations are carried at cost, which approximates fair value. The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to its interest rate swaps and other derivatives totaled $755.5 million and $371.8 million at March 31, 2014 and December 31, 2013, respectively.

Fair Value Measurements – The Company carries various financial instruments at fair value. A complete discussion of the methodology utilized by the Company to estimate the fair value of certain financial instruments is included in the notes to these consolidated financial statements.

Revenue Recognition – The revenue recognition policy by asset class is discussed below.

Agency Mortgage-Backed Securities and Agency Debentures – The Company invests primarily in mortgage pass-through certificates, collateralized mortgage obligations and other mortgage-backed securities representing interests in or obligations backed by pools of mortgage loans and certificates 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”). These 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”). The Company also invests in Agency debentures issued by the Federal Home Loan Banks, Freddie Mac and Fannie Mae.

Agency mortgage-backed securities and Agency debentures are referred to herein as “Investment Securities.”

Although the Company generally intends to hold most of its Investment Securities until maturity, it may, from time to time, sell any of its Investment Securities as part of its overall management of its portfolio. Investment Securities are classified as available-for-sale and are reported at fair values estimated by management that are compared to independent sources for reasonableness, with unrealized gains and losses reported as a component of other comprehensive income (loss). Investment Securities transactions are recorded on trade date, including TBA securities that meet the regular-way securities scope exception from derivative accounting. Realized gains and losses on sales of Investment Securities are determined using the average cost method.

On April 1, 2011, the Company elected the fair value option for Agency interest-only mortgage-backed securities acquired on or after such date. Interest-only securities and inverse interest-only securities are collectively referred to as “interest-only securities.” These Agency interest-only mortgage-backed securities represent the Company’s right to receive a specified proportion of the contractual interest flows of specific Agency mortgage-backed securities. Agency interest-only mortgage-backed securities acquired on or after April 1, 2011 are measured at fair value with changes in fair value recorded as Net unrealized gains (losses) on interest-only Agency mortgage-backed securities in the Company’s Consolidated Statements of Comprehensive Income (Loss). The interest-only securities are included in Agency mortgage-backed securities at fair value on the accompanying Consolidated Statements of Financial Condition.

Interest income from coupon payments is accrued based on the outstanding principal amounts of the Investment Securities and their contractual terms. Premiums and discounts associated with the purchase of the Investment Securities are amortized or accreted into interest income over the projected lives of the securities using the interest method. The Company’s policy for estimating prepayment speeds for calculating the effective yield is to evaluate historical performance, consensus prepayment speeds and current market conditions. Adjustments are made for actual prepayment activity.

Corporate Debt – The Company’s investments in corporate debt are designated as held for investment, and are carried at their principal balance outstanding plus any premiums or discounts less allowances for loan losses. No allowance for loan losses was deemed necessary as of March 31, 2014 and December 31, 2013.

Equity Securities – The Company may invest in equity securities that are classified as available-for-sale or trading. Equity securities classified as available-for-sale are reported at fair value, based on market quotes, with unrealized gains and losses reported as a component of other comprehensive income (loss). Equity securities classified as trading are reported at fair value, based on market quotes, with unrealized gains and losses reported in the Consolidated Statements of Comprehensive Income (Loss) as Net gains (losses) on trading assets. Dividends are recorded in earnings based on the declaration date.

Derivative Instruments – The Company may use a variety of derivative instruments to economically hedge some of its exposure to market risks, including interest rate and prepayment risk. These instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA securities with the intent to net settle (“TBA derivatives”), options on TBA securities (“MBS options”) and U.S. Treasury futures contracts. The Company may also invest in other types of mortgage derivatives such as interest-only securities and synthetic total return swaps, such as the Markit IOS Synthetic Total Return Swap Index. Derivatives are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, which requires recognition of all derivatives 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).

Some derivative agreements contain provisions that allow for netting or setting off by counterparty; however, beginning on September 30, 2013, the Company elected to present related assets and liabilities on a gross basis in the Consolidated Statements of Financial Condition. Prior to September 30, 2013, the Company presented in the Consolidated Statements of Financial Condition the fair value of interest rate swap contracts net, by counterparty, if the derivative agreements included netting provisions.

Interest rate swap agreements - Interest rate swaps are the primary instrument used to mitigate interest rate risk. In particular, the Company uses interest rate swaps to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. Swap agreements may be over-the-counter (“OTC”) agreements which are negotiated directly with a counterparty, or centrally cleared through a registered commodities exchange. OTC swaps are fair valued using internal pricing models and compared to the counterparty market values. Centrally cleared swaps are fair valued using internal pricing models and compared to the exchange market values.

Interest rate swaptions - Interest rate swaptions are purchased to mitigate the potential impact of increases or decreases in interest rates. Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future. They are not centrally cleared. The premium paid for interest rate swaptions is reported as an asset in the Consolidated Statement of Financial Position. The difference between the premium and the fair value of the swaption is reported in Net gain (loss) on trading assets in the Consolidated Statements of Comprehensive Income (Loss). If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium paid. If the Company sells or exercises a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid.

The fair value of interest rate swaptions is estimated using internal pricing models and compared to the counterparty market value.

TBA Dollar Rolls - TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on similar methods used to value Agency mortgage-backed securities with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

MBS Options – MBS options are generally options on TBA contracts, which help manage mortgage market risks and volatility while providing the potential to enhance returns. MBS options are over-the-counter traded instruments and those written on current-coupon mortgage-backed securities are typically the most liquid. MBS options are fair valued using internal pricing models and compared to the counterparty market value at the valuation date with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

U.S. Treasury Futures - U.S. Treasury futures contracts are derivatives that track the prices of specific U.S. Treasury securities. Short sales of U.S. Treasury futures contracts help mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains a margin account which is settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing with gains and losses recorded in Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

Other-Than-Temporary Impairment – Management evaluates available-for-sale securities for other-than-temporary 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), while the balance of losses related to other factors will be recognized as a component of other comprehensive income (loss). There was no other-than-temporary impairment recognized for the quarters ended March 31, 2014 and December 31, 2013.

Loan Loss Reserves – 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 to verify they meet the covenants of the loan documents. If based on the financial review it is deemed probable that the Company will be unable to collect contractual principal and interest amounts (e.g. financial performance and delinquencies), a loan loss provision would be recorded. No allowance for loan losses was deemed necessary as of March 31, 2014 and December 31, 2013.

Repurchase Agreements – The Company finances the acquisition of a significant portion of its Agency mortgage-backed securities with repurchase agreements. The Company examines each of the specified criteria in ASC 860, Transfers and Servicing, at the inception of each transaction and has determined that each of the financings meet the specified criteria in this guidance. None of the Company’s repurchase agreements are accounted for as components of linked transactions. As a result, the Company separately accounts for the financial assets and related repurchase financings in the accompanying consolidated financial statements.

Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements permit netting. The Company reports cash flows on repurchase agreements as financing activities in the Consolidated Statements of Cash Flows. The Company reports cash flows on reverse repurchase and repurchase agreements entered into by RCap and Shannon as operating activities in the Consolidated Statements of Cash Flows.

Goodwill and Intangible Assets – The Company’s acquisitions of FIDAC, Merganser Capital Management, Inc. (“Merganser”) and CreXus were accounted for using the acquisition method. In October 2013, the Company sold the operations of Merganser. Under the acquisition method, net assets and results of operations of acquired companies are included in the consolidated financial statements from the date of acquisition. The costs of FIDAC, Merganser and CreXus were allocated to the assets acquired, including identifiable intangible assets, and the liabilities assumed based on their estimated fair values at the date of acquisition. The excess of purchase price over the fair value of the net assets acquired was recognized as goodwill.

The Company tests goodwill for impairment on an annual basis and at interim periods when events or circumstances may make it more likely than not that an impairment has occurred. If a qualitative analysis indicates that there may be an impairment, a quantitative analysis is performed. The quantitative impairment test for goodwill utilizes a two-step approach, whereby the Company compares the carrying value of each identified reporting unit to its fair value. If the carrying value of the reporting unit is greater than its fair value, the second step is performed, where the implied fair value of goodwill is compared to its carrying value. The Company recognizes an impairment charge for the amount by which the carrying amount of goodwill exceeds its fair value.

Intangible assets with an estimated useful life are amortized over the expected life.

Convertible Senior Notes – The Company records the 4% Convertible Senior Notes and 5% Convertible Senior Notes (collectively, the “Convertible Senior Notes”) at their contractual amounts, adjusted by the effects of a beneficial conversion feature and a contingent beneficial conversion feature (collectively, the “Conversion Features”). The Conversion Features’ intrinsic value is included in “Additional paid-in capital” on the Company’s Consolidated Statements of Financial Condition and reduces the recorded liability amount associated with the Convertible Senior Notes. A Conversion Feature may be recognized as a result of adjustments to the conversion price for dividends declared to common stockholders.

Stock Based Compensation – The Company is required to measure and recognize in the consolidated financial statements the compensation cost relating to share-based payment transactions. The Company recognizes compensation expense on a straight-line basis over the requisite service period for the entire award.

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. Accordingly, the Company will not be subjected to federal income tax to the extent of its distributions to stockholders and as long as certain asset, income and stock ownership tests are met. The Company and certain of its direct and indirect subsidiaries, including FIDAC, RCap and certain subsidiaries of ACREG, have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRS”). As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon their taxable income.

The provisions of ASC 740, Income Taxes, (“ASC 740”) clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial position. Thus, no accruals for penalties and interest were necessary as of March 31, 2014 and December 31, 2013.

Use of Estimates – The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Commercial Real Estate Investments

Commercial Real Estate Loans – The Company's commercial real estate mortgages and loans are comprised of fixed-rate and adjustable-rate loans. Commercial real estate mortgages and loans are designated as held for investment and are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less a reserve for estimated losses if necessary. Origination fees and costs, premiums and discounts are amortized or accreted into interest income over the estimated life of the loan. The difference between the principal amount of a loan and proceeds at acquisition is recorded as either a discount or premium.

Preferred Equity Interests Held for Investment – Preferred equity interests are designated as held for investment and are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less a reserve for estimated losses if necessary. Origination fees and costs, premiums and discounts are amortized or accreted into interest income over the estimated life of the investment.

Allowance for Losses – The Company evaluates the need for a loss reserve on its commercial real estate mortgages, loans and preferred equity interests held for investment (collectively referred to as “CRE Debt and Preferred Equity Investments”). A provision for losses related to CRE Debt and Preferred Equity Investments, including those accounted for under ASC 310-30, Loans and Debt Securities Acquired with Deteriorated Credit Quality, may be established when it is probable the Company will not collect amounts contractually due or all amounts previously estimated to be collectable. 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 CRE Debt and Preferred Equity Investments 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. Because this determination is 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 the nature and level of the assets underlying the investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval of and periodic monitoring of credit risk and other risks associated with each investment. The Company’s investment underwriting procedures include an evaluation of the borrower’s ability to manage and operate the properties. Management reviews loan to value metrics upon either the origination or the acquisition of a new investment but generally does not update the loan to value metrics in the course of quarterly surveillance. Management generally reviews the most recent financial information produced by the borrower, which may include, but is not limited to net operating income (“NOI’), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s CRE Debt and Preferred Equity Investments, and may consider other factors management deems important. Management also reviews market pricing to determine the borrower’s ability to refinance the asset at the maturity of the loan. Management also reviews economic trends, both macro as well as those directly affecting the property, and the supply and demand of competing projects in the sub-market in which the subject property is located.

In connection with the quarterly surveillance review process, loans are assigned an internal rating of Performing Loans, Watch List Loans or Workout Loans. Loans that are deemed Performing Loans meet all present contractual obligations. Watch List Loans are defined as performing or nonperforming loans for which the timing of cost recovery is under review. Workout Loans are defined as loans for which there is likelihood that we may not recover our cost basis.

Investments in Commercial Real Estate – Investments in commercial real estate are carried at historical cost less accumulated depreciation. Costs directly related to acquisitions deemed to be business combinations are expensed. Ordinary repairs and maintenance which are not reimbursed by the tenants are expensed as incurred. Major replacements and improvements that extend the useful life of the asset are capitalized and depreciated over their useful life.

Investments in real estate are depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:

Category	Term
Building	35-40 years
Site improvements	2-7 years

The Company follows the acquisition method of accounting for acquisitions of operating real estate held for investment, where the purchase price of operating real estate is allocated to tangible assets such as land, building, site improvements and other identified intangibles such as above/below market and in-place leases.

The Company evaluates whether real estate acquired in connection with a foreclosure ("REO"), UCC/deed in lieu of foreclosure or a consensual modification of a loan (herein collectively referred to as a foreclosure) constitutes a business and whether business combination accounting is applicable. Upon foreclosure of a property, the excess of the carrying value of a loan, if any, over the estimated fair value of the property, less estimated costs to sell, is charged to provision for loan losses.

Investments in commercial real estate, including REO, which do not meet the criteria to be classified as held for sale, are separately presented in the consolidated statements of financial condition as held for investment. Real estate held for sale is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Once a property is determined to be held for sale, depreciation is no longer recorded. In addition, if considered material to the overall consolidated financial statements, the results of operations are reclassified to income (loss) from discontinued operations in the consolidated statements of comprehensive income (loss).

The Company's real estate portfolio (REO and real estate held for investment) is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property's value is considered impaired if the Company's estimate of the aggregate future undiscounted cash flows to be generated by the property is less than the carrying value of the property. In conducting this review, the Company considers U.S. macroeconomic factors, including real estate sector conditions, together with asset specific and other factors. To the extent impairment has occurred and is considered to be other than temporary, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.

Revenue Recognition – Commercial Real Estate Investments - Interest income is accrued based on the outstanding principal amount of the CRE Debt and Preferred Equity Investments and their contractual terms. Premiums and discounts associated with the purchase of the CRE Debt and Preferred Equity Investments are amortized or accreted into interest income over the projected lives of the CRE Debt and Preferred Equity Investments using the interest method based on the estimated recovery value.

Revenue Recognition – Commercial Real Estate Investments - Interest income is accrued based on the outstanding principal amount of the CRE Debt and Preferred Equity Investments and their contractual terms. Premiums and discounts associated with the purchase of the CRE Debt and Preferred Equity Investments are amortized or accreted into interest income over the projected lives of the CRE Debt and Preferred Equity Investments using the interest method based on the estimated recovery value.

Broker Dealer Activities

In January 2014, RCap ceased its trading activity in U.S. Treasury securities, derivatives and certain securities borrowed and loaned transactions.

Reverse Repurchase Agreements – RCap enters into reverse repurchase agreements as part of its matched book trading activity. Reverse repurchase agreements are recorded on trade date at the contract amount and are collateralized by mortgage-backed or other securities. Margin calls are made by RCap as necessary based on the daily valuation of the underlying collateral as compared to the contract price. RCap generates income from the spread between what is earned on the reverse repurchase agreements and what is paid on the matched repurchase agreements. RCap’s policy is to obtain possession of collateral with a market value in excess of the principal amount loaned under reverse repurchase agreements. To ensure that the market value of the underlying collateral remains sufficient, collateral is valued daily, and RCap will require counterparties to deposit additional collateral, when necessary. All reverse repurchase activities are transacted under master repurchase agreements that give RCap the right, in the event of default, to liquidate collateral held and in some instances, to offset receivables and payables with the same counterparty.

Securities Borrowed and Loaned Transactions – RCap records securities borrowed and loaned transactions as collateralized financings. Securities borrowed transactions require RCap to provide the counterparty with collateral in the form of cash, or other securities. RCap receives collateral in the form of cash or other securities for securities loaned transactions. RCap monitors the fair value of the securities borrowed and loaned on a daily basis, with additional collateral obtained or refunded as necessary. Securities borrowed and securities loaned transactions are recorded at contract value. For these transactions, the rebates accrued by RCap are recorded as interest income or expense.

U.S. Treasury Securities – RCap traded in U.S. Treasury securities for its proprietary portfolio, which consists of long and short positions on U.S Treasury notes and bonds. U.S. Treasury securities were classified as trading investments and were recorded on the trade date at cost. Changes in fair value are reflected in Net gains (losses) on trading assets in the Company’s Consolidated Statement of Comprehensive Income (Loss). Interest income or expense on U.S. Treasury notes and bonds was accrued based on the outstanding principal amount of those investments and their stated terms.

Derivatives - RCap entered primarily into U.S. Treasury, Eurodollar, federal funds, German government and U.S. equity index and currency futures and options contracts. RCap maintained a margin account which was settled daily with FCMs. Changes in the unrealized gains or losses on the futures and options contracts as well as any foreign exchange gains and losses are reflected in Net gains (losses) on trading assets in the Company’s Consolidated Statements of Comprehensive Income (Loss). Unrealized gains (losses) are excluded from net income (loss) in arriving at cash flows from operating activities in the Consolidated Statements of Cash Flows.

A Summary of Recent Accounting Pronouncements Follows:

Presentation

Presentation of Financial Statements (ASC 205)/Property, Plant and Equipment (ASC 360)

On April 10, 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant and Equipment (Topic 360) Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, which raises the threshold for a disposal to be treated as discontinued operations. Under this update, the Company is required to report disposals that represent a strategic shift that has (or will have) a major effect on the Company’s operations and financial results if the component of the Company or group of components meets the criteria to be accounted for as held for sale or the component of the Company or group of components is disposed of by sale. The ASU removes requirements that operations and cash flows have been (or will be eliminated) from the ongoing operations and that the Company will not have any significant continuing involvement with the component in order to be reported as discontinued operations. Additionally, ASU 2014-08 also eliminates a number of scope exceptions and requires additional disclosures for transactions that meet the definition of a discontinued operations and significant items that are disposed of or held for sale that do not meet the discontinued operations criteria. The ASU is effective for reporting periods beginning after December 15, 2014 with early adoption permitted. Adoption is not expected to have a significant impact on the consolidated financial statements.

Balance Sheet (ASC 210)

On December 23, 2011, the FASB released ASU 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities. Under this update, the Company is required to disclose both gross information and net information about both instruments and transactions eligible for offset in the Company’s Consolidated Statements of Financial Condition and transactions subject to an agreement similar to a master netting arrangement. The scope includes derivatives, sale and repurchase agreements and reverse sale and repurchase agreements and securities borrowing and securities lending arrangements. This disclosure is intended to enable financial statement users to understand the effect of such arrangements on the Company’s financial position. In January 2013, the FASB released ASU 2013-01 Balance Sheet: Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which served solely to clarify the scope of financial instruments included in ASU 2011-11 as there was concern about diversity in practice. The objective of these updates is to support further convergence of GAAP and IFRS requirements. The updates are effective for annual reporting periods beginning on or after January 1, 2013 and did not have a significant impact on the consolidated financial statements.

Comprehensive Income (ASC 220)

On December 23, 2011, the FASB issued ASU 2011-12, Comprehensive Income: Deferral of Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in ASU No. 2011-05, which defers those changes in ASU 2011-05 that relate to the presentation of reclassification adjustments out of accumulated other comprehensive income. This was done to allow the FASB time to re-deliberate the presentation on the face of the financial statements the effects of reclassifications out of accumulated other comprehensive income on the components of net income and other comprehensive income. No other requirements under ASU 2011-05 are affected by ASU 2011-12. The FASB tentatively decided not to require presentation of reclassification adjustments out of accumulated other comprehensive income on the face of the financial statements and to propose new disclosures instead.

In February 2013, the FASB issued ASU 2013-02, Comprehensive Income: Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income. This update addresses the disclosure issue left open at the deferral under ASU 2011-12. This update requires the provision of information about the amounts reclassified out of accumulated other comprehensive income by component. In addition, it requires presentation, either on the face of the statement where net income is presented or in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net income but only if the amount reclassified is required under GAAP to be reclassified to net income in its entirety in the same reporting period. For other amounts that are not required under GAAP to be reclassified in their entirety to net income, a cross-reference must be provided to other disclosures required under GAAP that provide additional detail about those amounts. This update is effective for reporting periods beginning after December 15, 2012. Adoption of ASU 2013-02 did not have a significant impact on the consolidated financial statements.

Assets

Receivables – Troubled Debt Restructurings by Creditors (ASC 310-40)

In January 2014, the FASB issued ASU 2014-04, Receivables–Troubled Debt Restructurings by Creditors, Reclassification of Residential Real Estate Collateralized Consumer Mortgage Loans upon Foreclosure, which clarifies that an in substance repossession or foreclosure has occurred, and a creditor is considered to have received physical possession of residential real estate property collateralizing a consumer mortgage loan, when the creditor obtains legal title to the property upon completion of a foreclosure or the borrower conveys all interest in the property to the creditor through a deed in lieu of foreclosure or similar arrangement. ASU 2014-04 also requires disclosure of the amount of foreclosed residential real estate held by the creditor and the recorded investment in mortgage loans collateralized by residential real estate property in the process of foreclosure. The update is effective for reporting periods beginning after December 15, 2014. Adoption is not expected to have a significant impact on the consolidated financial statements.

Broad Transactions

Financial Services – Investment Companies (ASC 946)

In June 2013, the FASB finalized ASU 2013-08 amending the scope, measurement and disclosure requirements under Topic 946 – Financial Services-Investment Companies. In January 2014, the FASB has officially removed the Investment Companies: Real Estate Property Investments and the Investment Properties projects from its agenda. As stated in ASC 946-10-15-3, the guidance in Topic 946 does not apply to REITs, and thus has no effect on the Company’s consolidated financial statements.

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Repurchase Agreements - Remaining Maturities (Parenthetical) (Detail)	3 Months Ended
	Mar. 31, 2014
Repurchase Agreements:
Percentage of repurchase agreement	14.00%

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Related Party Transactions (Detail) (USD $) Share data in Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013	Dec. 31, 2013
Receivable for advisory and service fees, from affiliates	$ 6,498,000		$ 6,839,000	[1]
Management Agreement
Basis for management fee	Amount equal to 1/12th of 1.05% of stockholders' equity,
Initial term of management agreement expiration date	Dec. 31, 2014
Chimera
Investments with affiliate, available-for-sale equity securities - shares	45.0		45.0
Investments with affiliate, available-for-sale equity securities - fair value	137,600,000		139,400,000
Investments with affiliate, available-for-sale equity securities - unrealized gains	1,200,000		600,000
Automatic Renewal | Management Agreement
Renewal term	1 year
Chimera and CreXus
Advisory fees from affiliate	6,100,000	9,300,000
Receivable for advisory and service fees, from affiliates	$ 6,500,000		$ 6,800,000

[1] Derived from the audited consolidated financial statements at December 31, 2013.

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Convertible Senior Notes - Narrative (Detail) (USD $)	3 Months Ended	12 Months Ended		1 Months Ended	3 Months Ended
	Mar. 31, 2014 Convertible Senior Notes 4.00 Percent Due 2015	Dec. 31, 2010 Convertible Senior Notes 4.00 Percent Due 2015	Dec. 31, 2013 Convertible Senior Notes 4.00 Percent Due 2015	May 31, 2012 Convertible Senior Notes 5.00 Percent Due 2015	Mar. 31, 2014 Convertible Senior Notes 5.00 Percent Due 2015	Dec. 31, 2013 Convertible Senior Notes 5.00 Percent Due 2015
Convertible Senior Notes:
Issued convertible senior notes, aggregate principal amount		$ 600,000,000		$ 750,000,000
Senior debt maturity date		Feb. 15, 2015		May 15, 2015
Issued convertible senior notes, interest rate		4.00%		5.00%
Issued convertible senior notes, frequency of interest payments per year	Semi-annually				Semi-annually
Issued convertible senior notes, net proceeds following underwriting expenses		582,000,000		727,500,000
Repurchase of Convertible senior notes	492,500,000
Convertible senior notes convertible into common stock, initial conversion rate, number of shares		46.6070			52.7969
Convertible senior notes convertible into common stock, subsequent conversion rate, number of shares	81.9145
Convertible senior notes, principal amount applicable for conversion rate		1,000		1,000
Convertible senior notes convertible into common stock, initial conversion price		$ 21.4560			$ 18.94
Convertible senior notes convertible into common stock, subsequent conversion price	$ 12.2079
Intrinsic value of the contingent beneficial conversion feature	97,400,000		93,200,000
Convertible senior notes, unamortized discount	25,700,000		26,900,000		4,400,000	5,400,000
Convertible senior notes, contingent beneficial conversion feature				$ 11,700,000

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RELATED PARTY TRANSACTIONS

3 Months Ended

Mar. 31, 2014

RELATED PARTY TRANSACTIONS

20.   RELATED PARTY TRANSACTIONS

Investment in Affiliate, Available-For-Sale Equity Security

At March 31, 2014, the Company’s available-for-sale equity securities represented shares of Chimera Investment Corporation (“Chimera”), which are reported at fair value. The Company owned approximately 45.0 million shares of Chimera at a fair value of approximately $137.6 million at March 31, 2014 and approximately 45.0 million shares of Chimera at a fair value of approximately $139.4 million at December 31, 2013.  At March 31, 2014 and December 31, 2013, the investment in Chimera had an unrealized loss of $1.2 million and an unrealized gain of $0.6 million, respectively.

The Company evaluates the near-term prospects of its current investment in Chimera in relation to the severity and length of time of impairment. As of March 31, 2014, management determined that its investment in Chimera was not considered to be other-than-temporarily impaired as the Company had the intent and ability to retain its investments for a period of time sufficient to allow for any anticipated recovery in market value. As of December 31, 2013, the Company’s investment in Chimera was in an unrealized gain position.

Advisory fees

For the quarter ended March 31, 2014, the Company recorded advisory fees from Chimera totaling $6.1 million.  For the quarter ended March 31, 2013, the Company recorded advisory fees from Chimera and CreXus totaling $9.3 million.  At March 31, 2014 and December 31, 2013, the Company had amounts receivable from Chimera of $6.5 million and $6.8 million, respectively.

Management Agreement

In June 2013, the Company and the Manager entered into a Management Agreement (the “Management Agreement”), effective as of July 1, 2013 and applicable for the entire 2013 calendar year, pursuant to which the Company’s management is conducted by the Manager through the authority delegated to it in the Management Agreement and pursuant to the policies established by the Board of Directors (the “Externalization”). Pursuant to the terms of the Management Agreement, the Company pays the Manager a monthly management fee in an amount equal to 1/12th of 1.05% of stockholders’ equity, as defined in the Management Agreement, for its management services.

Effective July 1, 2013, a majority of the Company’s employees were terminated by the Company and were hired by the Manager.  The Company has a limited number of employees following the Externalization, all of whom are employees of the Company’s subsidiaries for regulatory or corporate efficiency reasons. All compensation expenses associated with such retained employees reduce the management fee. Pursuant to a pro forma calculation that computed the management fee as though it was in effect beginning January 1, 2013, the Company paid the Manager an amount equal to the pro forma calculation minus the actual compensation paid to the Company’s and its subsidiaries’ employees from January 1, 2013 to June 30, 2013.

The Management Agreement may be amended or modified by agreement between the Company and the Manager. The initial term of the Management Agreement expires on December 31, 2014 and will be automatically renewed for a one year term each anniversary date thereafter unless previously terminated pursuant to the terms of the Management Agreement. There is no termination fee for a termination of the Management Agreement by either the Company or the Manager.

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Net Income Per Common Share - Narrative (Detail) In Millions, unless otherwise specified	3 Months Ended
	Mar. 31, 2014	Mar. 31, 2013
Net Income Per Common Share:
Options to purchase common stock outstanding that would be considered anti-dilutive	3.2	3.4

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LEASE COMMITMENTS AND CONTINGENCIES (Tables)

3 Months Ended

Mar. 31, 2014

Lease Commitments and Contingencies

The following table details the lease payments.

Year Ending December 31,	Lease Commitments
	(dollars in thousands)
2014 (remaining)	$	1,721
2015		159
2016		27
2017		-
2018		-
Later years		-
	$	1,907

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INTEREST INCOME AND INTEREST EXPENSE

3 Months Ended

Mar. 31, 2014

INTEREST INCOME AND INTEREST EXPENSE

13.    INTEREST INCOME AND INTEREST EXPENSE

The table below presents the components of the Company’s interest income and interest expense for the quarters ended March 31, 2014 and 2013.

	For the quarters ended
	March 31,		March 31,
	2014		2013
Interest income:
Investment Securities	$	614,419	$	723,750
Commercial investment portfolio(1)		39,486		1,070
U.S. Treasury securities		1,329		5,996
Securities loaned		114		2,612
Reverse repurchase agreements		500		3,636
Other		53		153
Total interest income		655,901		737,217
Interest expense:
Repurchase agreements		103,131		157,064
Convertible Senior Notes		18,897		15,813
U.S. Treasury securities sold, not yet purchased		1,076		2,788
Securities borrowed		95		1,925
Securitized debt of consolidated VIE		1,611		-
Participation sold		161		-
Total interest expense		124,971		177,590
Net interest income	$	530,930	$	559,627
(1) Includes commercial real estate debt and preferred equity and corporate debt.