8-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

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

Date of Report (Date of earliest event reported)
February 14, 2018

Annaly Capital Management, Inc.

(Exact Name of Registrant as Specified in its Charter)

Maryland	1-13447	22-3479661
(State or Other Jurisdiction Of Incorporation)	(Commission File Number)	(I.R.S. Employer Identification No.)

1211 Avenue of the Americas New York, New York	10036
(Address of Principal Executive Offices)	(Zip Code)

Registrant’s telephone number, including area code: (212) 696-0100

(Former Name or Former Address, if Changed Since Last Report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).

Emerging growth company  o

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

Item 2.02. Results of Operations and Financial Condition

On February 14, 2018, the registrant issued a press release announcing its financial results for the quarter and year ended December 31, 2017. A copy of the press release is furnished as Exhibit 99.1 to this report. In addition, the registrant posted a financial summary in the Investors section of its website (www.annaly.com). A copy of the financial summary is furnished as Exhibit 99.2 to this report and incorporated herein by reference.

Item 9.01 Financial Statements and Exhibits

(d) Exhibits

99.1Press Release, dated February 14, 2018, issued by Annaly Capital Management, Inc.

99.2Fourth Quarter 2017 Financial Summary

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

ANNALY CAPITAL MANAGEMENT, INC.

By: /s/ Glenn A. Votek_____________________    

    Name: Glenn A. Votek

    Title: Chief Financial Officer

Dated: February 14, 2018

EX-99.1

ANNALY CAPITAL MANAGEMENT, INC. REPORTS 4th QUARTER 2017 RESULTS

NEW YORK—February 14, 2018 —Annaly Capital Management, Inc. (NYSE: NLY) (the “Company” or “Annaly”) today announced its financial results for the quarter and year ended December 31, 2017.

Quarterly Financial Highlights

• GAAP net income of $746.8 million, $0.62 per average common share

• Core earnings (excluding PAA) were $387.0 million, $0.31 per average common share

• GAAP return on average equity was 20.58% and core return on average equity (excluding PAA) was 10.67%

• Book value per common share of $11.34

• Economic leverage of 6.6x as compared to 6.9x at September 30, 2017

• Net interest margin (excluding PAA) of 1.51%, up from 1.47% in the prior quarter

• Declared common stock dividend of $0.30 per share for the 17^th consecutive fiscal quarter

• 2017 annual economic return of 12.4%

Business Highlights

• Total 2017 shareholder return of 32% is ~50% better than both the S&P 500 and the Bloomberg Mortgage REIT Index

• Raised $2.4 billion through a series of common and preferred equity offerings in 2017, along with an additional $425.0 million of preferred equity issued in January 2018

• Proceeds from preferred equity issuances used, in part, to redeem $597.8 million of outstanding preferred shares, of which $412.5 million settled in February 2018, lowering our cost of preferred capital from 7.62% to 7.05%

• Continued growth of credit businesses, representing 24% of dedicated capital at year-end 2017 compared to 20% in the prior year; corporate debt investments exceeded and residential mortgage loans approached the $1.0 billion milestone

• Appointed Chief Executive Officer and President Kevin Keyes as Chairman of the Board of Directors, effective January 1, 2018

• Appointed two new independent members to the Board of Directors effective January 1, 2018; female representation on the Board now at 36%

• Created Public Responsibility Committee to assist the Company's Board of Directors in its oversight and review of corporate social responsibility initiatives

• Recognized in the 2018 Bloomberg Gender-Equality Index, reflecting the Company’s commitment to creating a gender equal workplace

• Established joint venture with Capital Impact Partners, a prominent community development financial institution

• Senior executive team voluntarily increased their stock ownership commitments beyond applicable ownership guidelines, with such positions to be achieved solely through open market purchases by July 2020

“We concluded 2017 having made significant progress on a number of key goals and initiatives that further strengthen Annaly’s industry leading position,” commented Kevin Keyes, Chairman, Chief Executive Officer and President. “We accomplished a record breaking return to the capital markets, raising $2.8 billion in the common and preferred equity markets over the past six months and we further diversified our portfolio, growing our allocation to credit to 24% of equity while broadening our investment options.  Additionally, in 2017 we expanded our institutional relationships with investment partners across our four businesses and through our continued ESG endeavors.  These strategic initiatives, combined with our prudent risk management and portfolio positioning, contributed to our outperformance last year, evidenced by a total shareholder return of 32%, an economic return of 12.4% and $1.4 billion of dividends paid to our Annaly shareholders.”

Mr. Keyes continued, “Entering into 2018, we reduced leverage to enhance our liquidity in order to quickly take advantage of future market dislocations and we have increased our hedging activity within the portfolio to preserve our earnings power and protect book value as rates have risen.  As we look ahead, we are confident in our seasoned investment teams, our diversification strategy and our unique ability to continue to generate attractive risk-adjusted returns in a more volatile market environment.”

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Financial Performance

The following table summarizes certain key performance indicators as of and for the quarters ended December 31, 2017, September 30, 2017 and December 31, 2016:

	December 31, 2017			September 30, 2017			December 31, 2016
Book value per common share	$	11.34		$	11.42		$	11.16
Economic leverage at period-end (1)	6.6:1			6.9:1			6.4:1
GAAP net income (loss) per average common share (2)	$	0.62		$	0.31		$	1.79
Annualized GAAP return (loss) on average equity	20.58		%	10.98		%	57.23		%
Net interest margin (3)	1.47		%	1.33		%	2.49		%
Average yield on interest earning assets (4)	2.97		%	2.79		%	3.81		%
Average cost of interest bearing liabilities (5)	1.83		%	1.82		%	1.53		%
Net interest spread	1.14		%	0.97		%	2.28		%
Core Earnings Metrics: *
Core earnings (excluding PAA) per average common share (2)(6)	$	0.31		$	0.30		$	0.30
Core earnings per average common share (2)(6)	$	0.30		$	0.26		$	0.53
PAA cost (benefit) per average common share	$	0.01		$	0.04		$	(0.23	)
Annualized core return on average equity (excluding PAA)	10.67		%	10.57		%	10.13		%
Net interest margin (excluding PAA) (3)	1.51		%	1.47		%	1.53		%
Average yield on interest earning assets (excluding PAA) (4)	3.02		%	2.97		%	2.68		%
Net interest spread (excluding PAA)	1.19		%	1.15		%	1.15		%

* Represents non-GAAP financial measures. Please refer to the ‘Non-GAAP Financial Measures’ section for additional information.

(1) Computed as the sum of recourse debt, to-be-announced (“TBA”) derivative notional outstanding and net forward purchases of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing. Securitized debt, participation sold and mortgages payable are non-recourse to the Company and are excluded from this measure.

(2) Net of dividends on preferred stock. The quarter ended December 31, 2017 excludes, and the quarter ended September 30, 2017 includes, cumulative and undeclared dividends of $8.3 million on the Company's Series F Preferred Stock as of September 30, 2017.

(3) Represents the sum of the Company’s annualized economic net interest income (inclusive of interest expense on interest rate swaps used to hedge cost of funds) plus TBA dollar roll income (less interest expense on swaps used to hedge TBA dollar roll transactions) divided by the sum of its average interest earning assets plus average outstanding TBA derivative balances.

(4) Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).

(5) Includes interest expense on interest rate swaps used to hedge cost of funds.

(6) 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 investments measured at fair value through earnings, net gains and losses on trading assets, impairment losses, net income (loss) attributable to noncontrolling interest, corporate acquisition related expenses and certain other non-recurring gains or losses, and inclusive of TBA dollar roll income (a component of Net gains (losses) on trading assets) and realized amortization of mortgage servicing rights ("MSR") (a component of net unrealized gains (losses) on investments measured at fair value through earnings). Core earnings (excluding PAA) excludes the premium amortization adjustment (“PAA”) representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities.

Other Information

The Company continues to analyze the overall effects of tax reform legislation, the Tax Cuts and Jobs Act, to our operations, our industry and the economy in general. While we do not expect to see a material impact on our operations, we anticipate certain of our individual taxable shareholders may benefit by receiving a 20% deduction on the portion of our dividends characterized as ordinary income. The Company has posted 'Tax Cuts and Jobs Act Treatment of REIT Dividends' on its website (www.annaly.com) in the Investors section under Tax Information. The Company also advises its shareholders to contact their individual tax advisor to determine how their individual tax profile is affected.

This news release and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms. 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 our commercial real estate business; our ability to grow our residential mortgage credit business; our ability to grow our middle market lending business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets, commercial real estate assets and corporate debt; risks related to investments in mortgage servicing rights;

2

our ability to consummate any contemplated investment opportunities; changes in government regulations and policy affecting our business; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; and our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. 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, except as required by law.

Annaly is a leading diversified capital manager that invests in and finances residential and commercial assets. Annaly’s principal business objective is to generate net income for distribution to its stockholders and to preserve capital through prudent selection of investments and continuous management of its portfolio. Annaly has elected to be taxed as a real estate investment trust, or REIT, for federal income tax purposes. Annaly is externally managed by Annaly Management Company LLC. Additional information on the Company can be found at www.annaly.com.

The Company prepares a supplemental investor presentation and a financial summary for the benefit of its shareholders. Both the Fourth Quarter 2017 Investor Presentation and the Fourth Quarter 2017 Financial Summary can be found at the Company’s website (www.annaly.com) in the Investors section under Investor Presentations.

Conference Call

The Company will hold the fourth quarter 2017 earnings conference call on February 15, 2018 at 10:00 a.m. Eastern Time. The number to call is 888-317-6003 for domestic calls and 412-317-6061 for international calls. The conference passcode is 5565471. There will also be an audio webcast of the call on www.annaly.com. The replay of the call will be available for one week following the conference call. The replay number is 877-344-7529 for domestic calls and 412-317-0088 for international calls and the conference passcode is 10115830. If you would like to be added to the e-mail distribution list, please visit www.annaly.com, click on Investors, then select Email Alerts and complete the email notification form.

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Financial Statements

ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION

(dollars in thousands, except per share data)

	December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016 (1)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
ASSETS
Cash and cash equivalents (2)	$	706,589		$	867,840		$	700,692		$	819,421		$	1,539,746
Investments, at fair value:
Agency mortgage-backed securities	90,551,763			85,889,131			73,963,998			72,708,490			75,589,873
Credit risk transfer securities	651,764			582,938			605,826			686,943			724,722
Non-Agency mortgage-backed securities	1,097,294			1,227,235			1,234,053			1,409,093			1,401,307
Residential mortgage loans (3)	1,438,322			895,919			779,685			682,416			342,289
Mortgage servicing rights	580,860			570,218			605,653			632,166			652,216
Commercial real estate debt investments (4)	3,089,108			3,869,110			3,972,560			4,102,613			4,321,739
Commercial real estate debt and preferred equity, held for investment	1,029,327			981,748			928,181			985,091			970,505
Commercial loans held for sale, net	—			—			—			—			114,425
Investments in commercial real estate	485,953			470,928			474,510			462,760			474,567
Corporate debt	1,011,275			856,110			773,957			841,265			773,274
Interest rate swaps, at fair value (2)	30,272			12,250			10,472			19,195			68,194
Other derivatives, at fair value	283,613			266,249			154,004			196,935			171,266
Receivable for investments sold	1,232			340,033			9,784			354,126			51,461
Accrued interest and dividends receivable	323,526			293,207			263,217			266,887			270,400
Other assets	384,117			353,708			399,456			388,224			333,063
Goodwill	71,815			71,815			71,815			71,815			71,815
Intangible assets, net	23,220			25,742			28,715			31,517			34,184
Total assets	$	101,760,050		$	97,574,181		$	84,976,578		$	84,658,957		$	87,905,046
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Repurchase agreements	$	77,696,343		$	69,430,268		$	62,497,400		$	62,719,087		$	65,215,810
Other secured financing	3,837,528			3,713,256			3,785,543			3,876,150			3,884,708
Securitized debt of consolidated VIEs (5)	2,971,771			3,357,929			3,438,675			3,477,059			3,655,802
Participation sold	—			—			—			12,760			12,869
Mortgages payable	309,686			311,886			311,810			311,707			311,636
Interest rate swaps, at fair value (2)	569,129			606,960			614,589			572,419			1,443,765
Other derivatives, at fair value	38,725			75,529			99,380			52,496			86,437
Dividends payable	347,876			326,425			305,709			305,691			305,674
Payable for investments purchased	656,581			5,243,868			1,043,379			340,383			65,041
Accrued interest payable	253,068			231,611			185,720			182,478			163,013
Accounts payable and other liabilities	207,770			121,231			84,948			161,378			184,319
Total liabilities	86,888,477			83,418,963			72,367,153			72,011,608			75,329,074
Stockholders’ Equity:
7.875% Series A Cumulative Redeemable Preferred Stock (6)	—			—			177,088			177,088			177,088
7.625% Series C Cumulative Redeemable Preferred Stock (7)	290,514			290,514			290,514			290,514			290,514
7.50% Series D Cumulative Redeemable Preferred Stock (8)	445,457			445,457			445,457			445,457			445,457
7.625% Series E Cumulative Redeemable Preferred Stock (9)	287,500			287,500			287,500			287,500			287,500
6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (10)	696,910			696,910			—			—			—
Common stock, par value $0.01 per share (11)	11,596			10,881			10,190			10,190			10,189
Additional paid-in capital	17,221,265			16,377,805			15,581,760			15,580,038			15,579,342
Accumulated other comprehensive income (loss)	(1,126,020		)	(640,149		)	(850,767		)	(1,126,091		)	(1,085,893		)
Accumulated deficit	(2,961,749		)	(3,320,160		)	(3,339,228		)	(3,024,670		)	(3,136,017		)
Total stockholders’ equity	14,865,473			14,148,758			12,602,514			12,640,026			12,568,180
Noncontrolling interest	6,100			6,460			6,911			7,323			7,792
Total equity	14,871,573			14,155,218			12,609,425			12,647,349			12,575,972
Total liabilities and equity	$	101,760,050		$	97,574,181		$	84,976,578		$	84,658,957		$	87,905,046

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(1) Derived from the audited consolidated financial statements at December 31, 2016.

(2) As a result of a change to a clearing organization’s rulebook effective January 3, 2017, beginning with the first quarter 2017 and in subsequent periods the Company is presenting the fair value of centrally cleared interest rate swaps net of variation margin pledged under such transactions. The variation margin was previously reported under cash and cash equivalents and is currently reported as a reduction to interest rate swaps, at fair value. Balances reported prior to the effective date will not be adjusted.

(3) Includes securitized residential mortgage loans of a consolidated variable interest entity (“VIE”) carried at fair value of $478.8 million, $139.8 million, $150.9 million, $155.6 million and $165.9 million at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

(4) Includes senior securitized commercial mortgage loans of consolidated VIEs with a carrying value of $2.8 billion, $3.6 billion, $3.7 billion, $3.7 billion and $3.9 billion at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

(5) Includes securitized debt of consolidated VIEs carried at fair value of $3.0 billion, $3.4 billion, $3.4 billion, $3.5 billion and $3.7 billion at December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, respectively.

(6) Includes 0 shares authorized, issued and outstanding at December 31, 2017. Includes 7,412,500 authorized shares and 0 shares issued and outstanding at September 30, 2017.  Includes 7,412,500 shares authorized, issued and outstanding at each of June 30, 2017, March 31, 2017 and December 31, 2016.

(7) Includes 12,000,000 shares authorized, issued and outstanding at December 31, 2017.  Includes 12,650,00 shares authorized and 12,000,000 shares issued and outstanding at each of September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016.

(8) Includes 18,400,000 shares authorized, issued and outstanding.

(9) Includes 11,500,000 shares authorized, issued and outstanding.

(10) Includes 28,800,000 shares authorized, issued and outstanding at December 31, 2017.  Includes 32,200,000 shares authorized and 28,800,000 shares issued and outstanding at September 30, 2017.  Includes 0 shares authorized, issued and outstanding at each of June 30, 2017, March 31, 2017 and December 31, 2016.

(11) Includes 1,929,300,000 shares authorized and 1,159,585,078 issued and outstanding at December 31, 2017.  Includes 1,917,837,500 shares authorized and 1,088,083,794 issued and outstanding at September 30, 2017.  Includes 1,945,437,500 shares authorized and 1,019,027,880 shares issued and outstanding at June 30, 2017.  Includes 1,945,437,500 shares authorized and 1,018,971,441 shares issued and outstanding at March 31, 2017.  Includes 1,945,437,500 shares authorized and 1,018,913,249 shares issued and outstanding at December 31, 2016.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited)

(dollars in thousands, except per share data)

	For the quarters ended
	December 31, 2017			September 30, 2017			June 30, 2017			March 31, 2017			December 31, 2016
Net interest income:
Interest income	$	745,423		$	622,550		$	537,426		$	587,727		$	807,022
Interest expense	318,711			268,937			222,281			198,425			183,396
Net interest income	426,712			353,613			315,145			389,302			623,626
Realized and unrealized gains (losses):
Realized gains (losses) on interest rate swaps (1)	(82,271		)	(88,211		)	(96,470		)	(104,156		)	(103,872		)
Realized gains (losses) on termination of interest rate swaps	(160,075		)	—			(58		)	—			(55,214		)
Unrealized gains (losses) on interest rate swaps	484,447			56,854			(177,567		)	149,184			1,430,668
Subtotal	242,101			(31,357		)	(274,095		)	45,028			1,271,582
Net gains (losses) on disposal of investments	7,895			(11,552		)	(5,516		)	5,235			7,782
Net gains (losses) on trading assets	121,334			154,208			(14,423		)	319			(139,470		)
Net unrealized gains (losses) on investments measured at fair value through earnings	(12,115		)	(67,492		)	16,240			23,683			110,742
Subtotal	117,114			75,164			(3,699		)	29,237			(20,946		)
Total realized and unrealized gains (losses)	359,215			43,807			(277,794		)	74,265			1,250,636
Other income (loss)	25,064			28,282			30,865			31,646			30,918
General and administrative expenses:
Compensation and management fee	44,129			41,993			38,938			39,262			39,845
Other general and administrative expenses	15,128			15,023			15,085			14,566			15,608
Total general and administrative expenses	59,257			57,016			54,023			53,828			55,453
Income (loss) before income taxes	751,734			368,686			14,193			441,385			1,849,727
Income taxes	4,963			1,371			(329		)	977			1,244
Net income (loss)	746,771			367,315			14,522			440,408			1,848,483
Net income (loss) attributable to noncontrolling interest	(151		)	(232		)	(102		)	(103		)	(87		)
Net income (loss) attributable to Annaly	746,922			367,547			14,624			440,511			1,848,570
Dividends on preferred stock (2)	32,334			30,355			23,473			23,473			23,473
Net income (loss) available (related) to common stockholders	$	714,588		$	337,192		$	(8,849	)	$	417,038		$	1,825,097
Net income (loss) per share available (related) to common stockholders:
Basic	$	0.62		$	0.31		$	(0.01	)	$	0.41		$	1.79
Diluted	$	0.62		$	0.31		$	(0.01	)	$	0.41		$	1.79
Weighted average number of common shares outstanding:
Basic	1,151,653,296			1,072,566,395			1,019,000,817			1,018,942,746			1,018,886,380
Diluted	1,152,138,887			1,073,040,637			1,019,000,817			1,019,307,379			1,019,251,111
Net income (loss)	$	746,771		$	367,315		$	14,522		$	440,408		$	1,848,483
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities	(487,597		)	195,251			261,964			(59,615		)	(2,206,288		)
Reclassification adjustment for net (gains) losses included in net income (loss)	1,726			15,367			13,360			19,417			718
Other comprehensive income (loss)	(485,871		)	210,618			275,324			(40,198		)	(2,205,570		)
Comprehensive income (loss)	260,900			577,933			289,846			400,210			(357,087		)
Comprehensive income (loss) attributable to noncontrolling interest	(151		)	(232		)	(102		)	(103		)	(87		)
Comprehensive income (loss) attributable to Annaly	261,051			578,165			289,948			400,313			(357,000		)
Dividends on preferred stock	32,334			30,355			23,473			23,473			23,473
Comprehensive income (loss) attributable to common stockholders	$	228,717		$	547,810		$	266,475		$	376,840		$	(380,473	)

(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.

(2) The quarter ended December 31, 2017 excludes, and the quarter ended September 30, 2017 includes, cumulative and undeclared dividends of $8.3 million on the Company's Series F Preferred Stock as of September 30, 2017.

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ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(dollars in thousands, except per share data)

(Unaudited)

	For the years ended
	December 31, 2017			December 31, 2016
Net interest income:
Interest income	$	2,493,126		$	2,210,951
Interest expense	1,008,354			657,752
Net interest income	1,484,772			1,553,199
Realized and unrealized gains (losses):
Realized gains (losses) on interest rate swaps (1)	(371,108		)	(506,681		)
Realized gains (losses) on termination of interest rate swaps	(160,133		)	(113,941		)
Unrealized gains (losses) on interest rate swaps	512,918			282,190
Subtotal	(18,323		)	(338,432		)
Net gains (losses) on disposal of investments	(3,938		)	33,089
Net gains (losses) on trading assets	261,438			230,580
Net unrealized gains (losses) on investments measured at fair value through earnings	(39,684		)	86,391
Bargain purchase gain	—			72,576
Subtotal	217,816			422,636
Total realized and unrealized gains (losses)	199,493			84,204
Other income (loss)	115,857			44,144
General and administrative expenses:
Compensation and management fee	164,322			151,599
Other general and administrative expenses	59,802			98,757
Total general and administrative expenses	224,124			250,356
Income (loss) before income taxes	1,575,998			1,431,191
Income taxes	6,982			(1,595		)
Net income (loss)	1,569,016			1,432,786
Net income (loss) attributable to noncontrolling interest	(588		)	(970		)
Net income (loss) attributable to Annaly	1,569,604			1,433,756
Dividends on preferred stock	109,635			82,260
Net income (loss) available (related) to common stockholders	$	1,459,969		$	1,351,496
Net income (loss) per share available (related) to common stockholders:
Basic	$	1.37		$	1.39
Diluted	$	1.37		$	1.39
Weighted average number of common shares outstanding:
Basic	1,065,923,652			969,787,583
Diluted	1,066,351,616			970,102,353
Net income (loss)	$	1,569,016		$	1,432,786
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities	(89,997		)	(686,414		)
Reclassification adjustment for net (gains) losses included in net income (loss)	49,870			(21,883		)
Other comprehensive income (loss)	(40,127		)	(708,297		)
Comprehensive income (loss)	1,528,889			724,489
Comprehensive income (loss) attributable to noncontrolling interest	(588		)	(970		)
Comprehensive income (loss) attributable to Annaly	1,529,477			725,459
Dividends on preferred stock	109,635			82,260
Comprehensive income (loss) attributable to common stockholders	$	1,419,842		$	643,199

(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.

7

Key Metrics

The following table presents key metrics of the Company’s portfolio, liabilities and hedging positions, and performance as of and for the quarters ended December 31, 2017, September 30, 2017, and December 31, 2016:

	December 31, 2017			September 30, 2017			December 31, 2016
Portfolio Related Metrics:
Fixed-rate Residential Investment Securities as a percentage of total Residential Investment Securities	90		%	89		%	83		%
Adjustable-rate and floating-rate Residential Investment Securities as a percentage of total Residential Investment Securities	10		%	11		%	17		%
Weighted average experienced CPR for the period	9.8		%	10.3		%	15.6		%
Weighted average projected long-term CPR at period-end	10.4		%	10.4		%	10.1		%
Liabilities and Hedging Metrics:
Weighted average days to maturity on repurchase agreements outstanding at period-end	58			65			96
Hedge ratio (1)	70		%	67		%	56		%
Weighted average pay rate on interest rate swaps at period-end (2)	2.22		%	2.27		%	2.22		%
Weighted average receive rate on interest rate swaps at period-end (2)	1.58		%	1.35		%	1.02		%
Weighted average net rate on interest rate swaps at period-end (2)	0.64		%	0.92		%	1.20		%
Leverage at period-end (3)	5.7:1			5.4:1			5.8:1
Economic leverage at period-end (4)	6.6:1			6.9:1			6.4:1
Capital ratio at period-end	12.9		%	12.3		%	13.1		%
Performance Related Metrics:
Book value per common share	$	11.34		$	11.42		$	11.16
GAAP net income (loss) per average common share (5)	$	0.62		$	0.31		$	1.79
Annualized GAAP return (loss) on average equity	20.58		%	10.98		%	57.23		%
Net interest margin	1.47		%	1.33		%	2.49		%
Average yield on interest earning assets (6)	2.97		%	2.79		%	3.81		%
Average cost of interest bearing liabilities (7)	1.83		%	1.82		%	1.53		%
Net interest spread	1.14		%	0.97		%	2.28		%
Dividend declared per common share	$	0.30		$	0.30		$	0.30
Annualized dividend yield (8)	10.09		%	9.84		%	12.04		%
Core Earnings Metrics *
Core earnings (excluding PAA) per average common share (5)	$	0.31		$	0.30		$	0.30
Core earnings per average common share (5)	$	0.30		$	0.26		$	0.53
PAA cost (benefit) per average common share	$	0.01		$	0.04		$	(0.23	)
Annualized core return on average equity (excluding PAA)	10.67		%	10.57		%	10.13		%
Net interest margin (excluding PAA)	1.51		%	1.47		%	1.53		%
Average yield on interest earning assets (excluding PAA) (6)	3.02		%	2.97		%	2.68		%
Net interest spread (excluding PAA)	1.19		%	1.15		%	1.15		%

* Represents non-GAAP financial measures. Please refer to the ‘Non-GAAP Financial Measures’ section for additional information.

(1) Measures total notional balances of interest rate swaps, interest rate swaptions and futures relative to repurchase agreements, other secured financing and TBA notional outstanding;  excludes MSRs and the effects of term financing, both of which serve to reduce interest rate risk. Additionally, the hedge ratio does not take into consideration differences in duration between assets and liabilities.

(2) Excludes forward starting swaps.

(3) Debt consists of repurchase agreements, other secured financing, securitized debt, participation sold and mortgages payable. Securitized debt, participation sold and mortgages payable are non-recourse to the Company.

(4) Computed as the sum of recourse debt, TBA derivative notional outstanding and net forward purchases of investments divided by total equity.

(5) Net of dividends on preferred stock. The quarter ended December 31, 2017 excludes, and the quarter ended September 30, 2017 includes, the cumulative and undeclared dividends as of September 30, 2017 on the Company's Series F Preferred Stock of $8.3 million.

(6) Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).

(7) Included interest expense on interest rate swaps used to hedge cost of funds.

(8) Based on the closing price of the Company’s common stock of $11.89, $12.19 and $9.97 at December 31, 2017, September 30, 2017 and December 31, 2016, respectively.

8

Non-GAAP Financial Measures

To supplement its consolidated financial statements, which are prepared and presented in accordance with U.S. generally accepted accounting principles (“GAAP”), the Company provides the following non-GAAP measures:

• core earnings and core earnings (excluding PAA);

• core earnings and core earnings (excluding PAA) per average common share;

• annualized core return on average equity (excluding PAA);

• interest income (excluding PAA);

• economic interest expense;

• economic net interest income (excluding PAA);

• average yield on interest earning assets (excluding PAA);

• net interest margin (excluding PAA); and

• net interest spread (excluding PAA).

These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with GAAP. While intended to offer a fuller understanding of the Company’s results and operations, non-GAAP financial measures also have limitations. For example, the Company may calculate its non-GAAP metrics, such as core earnings, or the PAA, differently than its peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which the Company will amortize the remaining unamortized premium. Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results.

These non-GAAP measures provide additional detail to enhance investor understanding of the Company’s period-over-period operating performance and business trends, as well as for assessing the Company’s performance versus that of industry peers. Additional information pertaining to the Company’s use of these non-GAAP financial measures, including discussion of how each such measure is useful to investors, and reconciliations to their most directly comparable GAAP results are provided below.

Amortization

In accordance with GAAP, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities, excluding interest-only securities, taking into account estimates of future principal prepayments in the calculation of the effective yield. The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third-party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.

The Company’s GAAP metrics include the unadjusted impact of amortization and accretion associated with this method. Certain of the Company’s non-GAAP metrics exclude the effect of the PAA, which quantifies the component of premium amortization representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term CPR.

The following table illustrates the impact of the PAA on premium amortization expense for the Company’s Residential Investment Securities portfolio for the quarters ended December 31, 2017, September 30, 2017, and December 31, 2016:

	For the quarters ended
	December 31, 2017		September 30, 2017		December 31, 2016
	(dollars in thousands)
Premium amortization expense (accretion)	$	203,951	$	220,636	$	(19,812	)
Less: PAA cost (benefit)	11,367		39,899		(238,941		)
Premium amortization expense exclusive of PAA	$	192,584	$	180,737	$	219,129
	For the quarters ended
	December 31, 2017		September 30, 2017		December 31, 2016
	(per average common share)
Premium amortization expense (accretion)	$	0.18	$	0.21	$	(0.02	)
Less: PAA Cost (Benefit)	0.01		0.04		(0.23		)
Premium amortization expense exclusive of PAA	$	0.17	$	0.17	$	0.21

9

Core earnings and core earnings (excluding PAA), core earnings and core earnings (excluding PAA) per average common share and annualized core return on average equity (excluding PAA)

One of the Company’s principal business objectives is to generate net income by earning a net interest spread on its investment portfolio, which is a function of the Company’s interest income from its investment portfolio less financing, hedging and operating costs. Core earnings, which is comprised of interest income plus TBA dollar roll incomeⁱ, less financing and hedging costsⁱⁱ and general and administrative expenses, and core earnings (excluding PAA), are used by management and, we believe, used by our analysts and investors, to measure its progress in achieving this objective.

The Company defines “core earnings”, a non-GAAP measure, 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 investments measured at fair value through earnings, net gains and losses on trading assets, impairment losses, net income (loss) attributable to noncontrolling interest, corporate acquisition related expenses and certain other non-recurring gains or losses, and inclusive of TBA dollar roll income (a component of Net gains (losses) on trading assets) and realized amortization of MSRs (a component of net unrealized gains (losses) on investments measured at fair value through earnings). Core earnings (excluding PAA) excludes the premium amortization adjustment representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities.

The Company believes these non-GAAP measures provide management and investors with additional details regarding the Company’s underlying operating results and investment portfolio trends by (i) making adjustments to account for the disparate reporting of changes in fair value where certain instruments are reflected in GAAP net income (loss) while others are reflected in other comprehensive income (loss), and (ii) by excluding certain unrealized, non-cash or episodic components of GAAP net income (loss) in order to provide additional transparency into the operating performance of the Company’s portfolio. Annualized core return on average equity (excluding PAA), which is calculated by dividing core earnings (excluding PAA) over average stockholders’ equity, provides investors with additional detail on the core earnings generated by the Company’s invested equity capital.

The following table presents a reconciliation of GAAP financial results to non-GAAP core earnings for the periods presented.

ⁱ TBA dollar roll transactions are accounted for as derivatives, with gains and losses reflected as a component of Net gains (losses) on trading assets in the Company’s Consolidated Statements of Comprehensive Income (Loss). TBA dollar roll income represents the economic equivalent of interest income on the underlying security less the implied cost of financing.

ⁱⁱ The interest component of hedging costs is reported as realized gains (losses) on interest rate swaps in the Company’s Consolidated Statements of Comprehensive Income (Loss).

10

	For the quarters ended
	December 31, 2017			September 30, 2017			December 31, 2016
	(dollars in thousands, except per share data)
GAAP net income (loss)	$	746,771		$	367,315		$	1,848,483
Less:
Realized (gains) losses on termination of interest rate swaps	160,075			—			55,214
Unrealized (gains) losses on interest rate swaps	(484,447		)	(56,854		)	(1,430,668		)
Net (gains) losses on disposal of investments	(7,895		)	11,552			(7,782		)
Net (gains) losses on trading assets	(121,334		)	(154,208		)	139,470
Net unrealized (gains) losses on investments measured at fair value through earnings	12,115			67,492			(110,742		)
Net (income) loss attributable to noncontrolling interest	151			232			87
Plus:
TBA dollar roll income (1)	89,479			94,326			98,896
MSR amortization (2)	(19,331		)	(16,208		)	(27,018		)
Core earnings *	375,584			313,647			565,940
Less:
Premium amortization adjustment cost (benefit)	11,367			39,899			(238,941		)
Core earnings (excluding PAA) *	$	386,951		$	353,546		$	326,999
GAAP net income (loss) per average common share (3)	$	0.62		$	0.31		$	1.79
Core earnings per average common share *(3)	$	0.30		$	0.26		$	0.53
Core earnings (excluding PAA) per average common share *(3)	$	0.31		$	0.30		$	0.30
Annualized GAAP return (loss) on average equity	20.58		%	10.98		%	57.23		%
Annualized core return on average equity (excluding PAA) *	10.67		%	10.57		%	10.13		%

	For the years ended
	December 31, 2017			December 31, 2016
	(dollars in thousands, except per share data)
GAAP net income (loss)	$	1,569,016		$	1,432,786
Less:
Realized (gains) losses on termination of interest rate swaps	160,133			113,941
Unrealized (gains) losses on interest rate swaps	(512,918		)	(282,190		)
Net (gains) losses on disposal of investments	3,938			(33,089		)
Net (gains) losses on trading assets	(261,438		)	(230,580		)
Net unrealized (gains) losses on investments measured at fair value through earnings	39,684			(86,391		)
Bargain purchase gain	—			(72,576		)
Corporate acquisition related expenses (4)	—			48,887
Net (income) loss attributable to noncontrolling interest	588			970
Plus:
TBA dollar roll income (1)	334,824			351,778
MSR amortization (2)	(66,667		)	(48,652		)
Core earnings *	1,267,160			1,194,884
Less:
Premium amortization adjustment cost (benefit)	141,836			18,941
Core earnings (excluding PAA) *	$	1,408,996		$	1,213,825
GAAP net income (loss) per average common share (3)	$	1.37		$	1.39
Core earnings per average common share *(3)	$	1.09		$	1.15
Core earnings (excluding PAA) per average common share *(3)	$	1.22		$	1.17
Annualized GAAP return (loss) on average equity	11.73		%	11.75		%
Annualized core return on average equity (excluding PAA) *	10.54		%	9.96		%

* Represents a non-GAAP financial measure.

(1) Represents a component of Net gains (losses) on trading assets.

(2) Represents the portion of changes in fair value that is attributable to the realization of estimated cash flows on the Company’s MSR portfolio and is reported as a component of Net unrealized gains (losses) on investments measured at fair value.

(3) Net of dividends on preferred stock. The quarter ended December 31, 2017 excludes, and the quarter ended September 30, 2017 includes, cumulative and undeclared dividends of $8.3 million on the Company's Series F Preferred Stock as of September 30, 2017.

(4) Represents transaction costs incurred in connection with the Company’s acquisition of Hatteras Financial Corp.

11

From time to time, the Company enters into TBA forward contracts as an alternate means of investing in and financing Agency mortgage-backed securities. A TBA contract is an agreement to purchase or sell, for future delivery, an Agency mortgage-backed security with a specified issuer, term and coupon. A TBA dollar roll represents a transaction where TBA contracts with the same terms but different settlement dates are simultaneously bought and sold. The TBA contract settling in the later month typically prices at a discount to the earlier month contract with the difference in price commonly referred to as the “drop”. The drop is a reflection of the expected net interest income from an investment in similar Agency mortgage-backed securities, net of an implied financing cost, that would be foregone as a result of settling the contract in the later month rather than in the earlier month. The drop between the current settlement month price and the forward settlement month price occurs because in the TBA dollar roll market, the party providing the financing is the party that would retain all principal and interest payments accrued during the financing period. Accordingly, TBA dollar roll income generally represents the economic equivalent of the net interest income earned on the underlying Agency mortgage-backed security less an implied financing cost.

TBA dollar roll transactions are accounted for under GAAP as a series of derivatives transactions. The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities. The Company records TBA derivatives at fair value on its Consolidated Statements of Financial Condition and recognizes periodic changes in fair value as Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss), which includes both unrealized and realized gains and losses on derivatives (excluding interest rate swaps).

TBA dollar roll income is calculated as the difference in price between two TBA contracts with the same terms but different settlement dates multiplied by the notional amount of the TBA contract. Although accounted for as derivatives, TBA dollar rolls capture the economic equivalent of net interest income, or carry, on the underlying Agency mortgage-backed security (interest income less an implied cost of financing). TBA dollar roll income is reported as a component of Net gains (losses) on trading assets in the Consolidated Statements of Comprehensive Income (Loss).

Interest income (excluding PAA), economic interest expense and economic net interest income (excluding PAA)

Interest income (excluding PAA) represents interest income excluding the effect of the PAA, and serves as the basis for deriving average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA), which are discussed below. The Company believes this measure provides management and investors with additional detail to enhance their understanding of the Company’s operating results and trends by excluding the component of premium amortization expense representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities (other than interest-only securities), which can obscure underlying trends in the performance of the portfolio.

Economic interest expense is comprised of interest expense, as computed in accordance with GAAP, plus interest expense on interest rate swaps used to hedge cost of funds, which is a component of Realized gains (losses) on interest rate swaps in the Company’s Consolidated Statements of Comprehensive Income (Loss). The Company uses interest rate swaps to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. Accordingly, adding the contractual interest payments on interest rate swaps to interest expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with additional information about the cost of the Company's financing strategy.

12

Similarly, economic net interest income (excluding PAA), as computed below, provides investors with additional information to enhance their understanding of the net economics of our primary business operations.

	For the quarters ended
	December 31, 2017		September 30, 2017		December 31, 2016
	(dollars in thousands)
Interest Income (Excluding PAA) Reconciliation
GAAP interest income	$	745,423	$	622,550	$	807,022
Premium amortization adjustment	11,367		39,899		(238,941		)
Interest income (excluding PAA) *	$	756,790	$	662,449	$	568,081
Economic Interest Expense Reconciliation
GAAP interest expense	$	318,711	$	268,937	$	183,396
Add:
Interest expense on interest rate swaps used to hedge cost of funds	73,957		78,564		92,841
Economic interest expense *	$	392,668	$	347,501	$	276,237
Economic Net Interest Income (Excluding PAA) Reconciliation
Interest income (excluding PAA) *	$	756,790	$	662,449	$	568,081
Less:
Economic interest expense *	392,668		347,501		276,237
Economic net interest income (excluding PAA) *	$	364,122	$	314,948	$	291,844

* Represents a non-GAAP financial measure.

Average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and net interest margin (excluding PAA)

Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA) and the average cost of interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of the Company’s annualized economic net interest income (inclusive of interest expense on interest rate swaps used to hedge cost of funds) plus TBA dollar roll income (less interest expense on swaps used to hedge TBA dollar roll transactions) divided by the sum of its average interest earning assets plus average outstanding TBA derivative balances, provide management with additional measures of the Company’s profitability that management relies upon in monitoring the performance of the business.

Disclosure of these measures, which are presented below, provides investors with additional detail regarding how management evaluates the Company’s performance.

	For the quarters ended
	December 31, 2017			September 30, 2017			December 31, 2016
Economic Metrics (Excluding PAA)	(dollars in thousands)
Interest income (excluding PAA) *	$	756,790		$	662,449		$	568,081
Average interest earning assets	$	100,247,589		$	89,253,094		$	84,799,222
Average yield on interest earning assets (excluding PAA) *	3.02		%	2.97		%	2.68		%
Economic interest expense *	$	392,668		$	347,501		$	276,237
Average interest bearing liabilities	$	85,992,215		$	76,382,315		$	72,032,600
Average cost of interest bearing liabilities	1.83		%	1.82		%	1.53		%
Net interest spread (excluding PAA) *	1.19		%	1.15		%	1.15		%
Net interest margin (excluding PAA) *	1.51		%	1.47		%	1.53		%

* Represents a non-GAAP financial measure.

13

EX-99.2

Fourth Quarter 2017 Financial Summary February 14, 2018

This presentation, other written or oral communications, and our public documents to which we refer contain or incorporate by reference certain forward-looking statements which are based on various assumptions (some of which are beyond our control) and may be identified by reference to a future period or periods or by the use of forward-looking terminology, such as “may,” “will,” “believe,” “expect,” “anticipate,” “continue,” or similar terms or variations on those terms or the negative of those terms. Actual results could differ materially from those set forth in forward looking statements due to a variety of factors, including, but not limited to, changes in interest rates; changes in the yield curve; changes in prepayment rates; the availability of mortgage-backed securities (“MBS”) and other securities for purchase; the availability of financing and, if available, the terms of any financing; changes in the market value of our assets; changes in business conditions and the general economy; our ability to grow our commercial real estate business; our ability to grow our residential mortgage credit business; our ability to grow our middle market lending business; credit risks related to our investments in credit risk transfer securities, residential mortgage-backed securities and related residential mortgage credit assets, commercial real estate assets and corporate debt; risks related to investments in mortgage servicing rights; our ability to consummate any contemplated investment opportunities; changes in government regulations and policy affecting our business; our ability to maintain our qualification as a REIT for U.S. federal income tax purposes; and our ability to maintain our exemption from registration under the Investment Company Act of 1940, as amended. For a discussion of the risks and uncertainties which could cause actual results to differ from those contained in the forward-looking statements, see “Risk Factors” in our most recent Annual Report on Form 10-K and any subsequent Quarterly Reports on Form 10-Q. 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, except as required by law. Past performance is no guarantee of future results. There is no guarantee that any investment strategy referenced herein will work under all market conditions. Prior to making any investment decision, you should evaluate your ability to invest for the long-term, especially during periods of downturns in the market. You alone assume the responsibility of evaluating the merits and risks associated with any potential investment or investment strategy referenced herein. To the extent that this material contains reference to any past specific investment recommendations or strategies which were or would have been profitable to any person, it should not be assumed that recommendations made in the future will be profitable or will equal the performance of such past investment recommendations or strategies. Non-GAAP Financial Measures This presentation includes certain non-GAAP financial measures, including core earnings metrics, which are presented both inclusive and exclusive of the premium amortization adjustment (“PAA”). We believe the non-GAAP financial measures are useful for management, investors, analysts, and other interested parties in evaluating our performance but should not be viewed in isolation and are not a substitute for financial measures computed in accordance with U.S. generally accepted accounting principles (“GAAP”). In addition, we may calculate non-GAAP metrics, which include core earnings, and the PAA, differently than our peers making comparative analysis difficult. Please see the section entitled “Non-GAAP Reconciliations” in the attached Appendix for a reconciliation to the most directly comparable GAAP financial measures. 1 Safe Harbor Notice

For the quarters ended 12/31/2017 9/30/2017 GAAP net income per average common share (1) $0.62 $0.31 Core earnings (excluding PAA) per average common share *(1)(2) $0.31 $0.30 Core earnings per average common share *(1)(2) $0.30 $0.26 PAA cost (benefit) per average common share 0.01 0.04 Annualized GAAP return (loss) on average equity 20.58% 10.98% Annualized core return on average equity (excluding PAA)* 10.67% 10.57% Book value per common share $11.34 $11.42 Leverage at period-end (3) 5.7x 5.4x Economic leverage at period-end (4) 6.6x 6.9x Capital ratio at period-end (5) 12.9% 12.3% Agency mortgage-backed securities $90,551,763 $85,889,131 Mortgage servicing rights 580,860 570,218 Residential credit portfolio (6) 3,187,380 2,706,092 Commercial real estate investments (7) 4,604,388 5,321,786 Corporate debt 1,011,275 856,110 Total residential and commercial investments $99,935,666 $95,343,337 Net interest margin (8) 1.47% 1.33% Net interest margin (excluding PAA) *(8) 1.51% 1.47% Average yield on interest earning assets (9) 2.97% 2.79% Average yield on interest earning assets (excluding PAA) *(9) 3.02% 2.97% Net interest spread 1.14% 0.97% Net interest spread (excluding PAA) * 1.19% 1.15% Operating expenses to core earnings (excluding PAA) * 15.31% 16.13% Annualized operating expenses as a % of average assets 0.24% 0.25% Annualized operating expenses as a % of average equity 1.63% 1.70% Unaudited, dollars in thousands except per share amounts Note: The endnotes for this page appear in the section entitled “Endnotes for Page 2” in the Appendix. 2 Q4 2017 Financial Snapshot Income Statement Balance Sheet Portfolio Efficiency Key Statistics

Unaudited, dollars in thousands 3 Portfolio Data (1) Includes consolidated VIEs. (2) Includes consolidated VIEs and loans held for sale. For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Agency mortgage-backed securities $90,551,763 $85,889,131 $73,963,998 $72,708,490 $75,589,873 Mortgage servicing rights 580,860 570,218 605,653 632,166 652,216 Residential credit portfolio (1) 3,187,380 2,706,092 2,619,564 2,778,452 2,468,318 Commercial real estate investments (2) 4,604,388 5,321,786 5,375,251 5,550,464 5,881,236 Corporate debt 1,011,275 856,110 773,957 841,265 773,274 Total residential and commercial investments $99,935,666 $95,343,337 $83,338,423 $82,510,837 $85,364,917 Total assets $101,760,050 $97,574,181 $84,976,578 $84,658,957 $87,905,046 Average TBA position $17,509,691 $19,291,834 $14,206,869 $10,655,785 $14,613,149 Residential Investment Securities: % Fixed-rate 90% 89% 86% 85% 83% % Adjustable-rate 10% 11% 14% 15% 17% Weighted average experienced CPR for the period 9.8% 10.3% 10.9% 11.5% 15.6% Weighted average projected long-term CPR at period end 10.4% 10.4% 10.6% 10.0% 10.1% Net premium and discount balance in Residential Investment Securities $6,024,347 $5,745,022 $5,164,105 $5,149,099 $5,318,376 Net premium and discount balance as % of stockholders' equity 40.53% 40.60% 40.98% 40.74% 42.32% Portfolio-Related Data Summary Portfolio Statistics

(1) Consists of common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit. (2) Measures total notional balances of interest rate swaps, interest rate swaptions and futures relative to repurchase agreements, other secured financing and to be announced (“TBA”) notional outstanding; excludes MSRs and the effects of term financing, both of which serve to reduce interest rate risk. Additionally, the hedge ratio does not take into consideration differences in duration between assets and liabilities. (3) Excludes forward starting swaps. Unaudited, dollars in thousands except per share amounts 4 Financing and Capital Data For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Repurchase agreements $77,696,343 $69,430,268 $62,497,400 $62,719,087 $65,215,810 Other secured financing 3,837,528 3,713,256 3,785,543 3,876,150 3,884,708 Securitized debt of consolidated VIEs 2,971,771 3,357,929 3,438,675 3,477,059 3,655,802 Participation sold - - - 12,760 12,869 Mortgages payable 309,686 311,886 311,810 311,707 311,636 Total debt $84,815,328 $76,813,339 $70,033,428 $70,396,763 $73,080,825 Total liabilities $86,888,477 $83,418,963 $72,367,153 $72,011,608 $75,329,074 Cumulative redeemable preferred stock $1,720,381 $1,720,381 $1,200,559 $1,200,559 $1,200,559 Common equity(1) 13,145,092 12,428,377 11,401,955 11,439,467 11,367,621 Total Annaly stockholders' equity 14,865,473 14,148,758 12,602,514 12,640,026 12,568,180 Non-controlling interests 6,100 6,460 6,911 7,323 7,792 Total equity $14,871,573 $14,155,218 $12,609,425 $12,647,349 $12,575,972 Weighted average days to maturity of repurchase agreements 58 65 88 88 96 Weighted average rate on repurchase agreements, at period-end 1.61% 1.38% 1.38% 1.15% 1.07% Weighted average rate on repurchase agreements, for the quarter 1.41% 1.34% 1.25% 1.07% 1.01% Leverage at period-end 5.7x 5.4x 5.6x 5.6x 5.8x Economic leverage at period-end 6.6x 6.9x 6.4x 6.1x 6.4x Capital ratio at period-end 12.9% 12.3% 13.2% 13.8% 13.1% Book value per common share $11.34 $11.42 $11.19 $11.23 $11.16 Total common shares outstanding 1,159,585 1,088,084 1,019,028 1,018,971 1,018,913 Hedge ratio(2) 70% 67% 67% 63% 56% Weighted average pay rate on interest rate swaps(3) 2.22% 2.27% 2.26% 2.25% 2.22% Weighted average receive rate on interest rate swaps(3) 1.58% 1.35% 1.28% 1.15% 1.02% Weighted average net rate on interest rate swaps(3) 0.64% 0.92% 0.98% 1.10% 1.20% Financing Data Key Capital and Hedging Metrics

* Represents a non-GAAP financial measure. (1) Includes interest expense on interest rate swaps used to hedge cost of funds. Excludes interest expense on interest rate swaps used to hedge TBA dollar roll transactions. (2) Net of dividends on preferred stock. The quarter ended December 31, 2017 excludes, and the quarter ended September 30, 2017 includes, cumulative and undeclared dividends of $8.3 million on the Company's Series F Preferred as of September 30, 2017. Unaudited, dollars in thousands except per share amounts 5 Income Statement Data For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Total interest income $745,423 $622,550 $537,426 $587,727 $807,022 Total interest expense 318,711 268,937 222,281 198,425 183,396 Net interest income $426,712 $353,613 $315,145 $389,302 $623,626 Total economic interest expense *(1) $392,668 $347,501 $306,533 $287,391 $276,237 Economic net interest income *(1) $352,755 $275,049 $230,893 $300,336 $530,785 Total interest income (excluding PAA) * $756,790 $662,449 $610,126 $605,597 $568,081 Economic net interest income (excluding PAA) *(1) $364,122 $314,948 $303,593 $318,206 $291,844 GAAP net income (loss) $746,771 $367,315 $14,522 $440,408 $1,848,483 GAAP net income (loss) available (related) to common shareholders (2) $714,588 $337,192 ($8,849) $417,038 $1,825,097 GAAP net income (loss) per average common share (2) $0.62 $0.31 ($0.01) $0.41 $1.79 Core earnings (excluding PAA) * $386,951 $353,546 $332,601 $335,898 $326,999 Core earnings (excluding PAA) available to common shareholders *(2) $354,617 $323,191 $309,128 $312,425 $303,526 Core earnings (excluding PAA) per average common share *(2) $0.31 $0.30 $0.30 $0.31 $0.30 Core earnings * $375,584 $313,647 $259,901 $318,028 $565,940 Core earnings available to common shareholders *(2) $343,250 $283,292 $236,428 $294,555 $542,467 Core earnings per average common share *(2) $0.30 $0.26 $0.23 $0.29 $0.53 PAA cost (benefit) $11,367 $39,899 $72,700 $17,870 ($238,941) PAA cost (benefit) per average common share $0.01 $0.04 $0.07 $0.02 ($0.23) Summary Income Statement

* Represents a non-GAAP financial measure. (1) The quarter ended December 31, 2017 includes, and the quarter ended September 30, 2017 excludes, $8.3 million of dividends on the Company’s Series F Preferred stock, which were cumulative and undeclared as of September 30, 2017. (2) Includes interest expense on interest rate swaps used to hedge cost of funds. Unaudited, dollars in thousands except per share amounts 6 Key Earnings Metrics For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Dividends declared per common share $0.30 $0.30 $0.30 $0.30 $0.30 Total common and preferred dividends declared (1) $388,511 $348,479 $329,182 $329,164 $329,147 Annualized GAAP return (loss) on average equity 20.58% 10.98% 0.46% 13.97% 57.23% Annualized GAAP return (loss) on average equity per unit of economic leverage 3.12% 1.59% 0.07% 2.29% 8.94% Annualized core return on average equity (excluding PAA) * 10.67% 10.57% 10.54% 10.66% 10.13% Annualized core return on average equity per unit of economic leverage (excluding PAA) * 1.62% 1.53% 1.65% 1.75% 1.58% Net interest margin 1.47% 1.33% 1.23% 1.47% 2.49% Net interest margin (excluding PAA) * 1.51% 1.47% 1.53% 1.55% 1.53% Average yield on interest earning assets 2.97% 2.79% 2.58% 2.74% 3.81% Average yield on interest earning assets (excluding PAA) * 3.02% 2.97% 2.93% 2.83% 2.68% Average cost of interest bearing liabilities (2) 1.83% 1.82% 1.74% 1.59% 1.53% Net interest spread 1.14% 0.97% 0.84% 1.15% 2.28% Net interest spread (excluding PAA) * 1.19% 1.15% 1.19% 1.24% 1.15% Key Earnings Metrics

* Represents a non-GAAP financial measure. (1) Included within realized losses on interest rate swaps. Excludes interest expense on interest rate swaps used to hedge TBA dollar roll transactions. Unaudited, dollars in thousands 7 Components of Economic Net Interest Income For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Interest income: Residential Investment Securities $654,387 $540,436 $459,308 $515,910 $740,664 Residential mortgage loans 10,750 8,509 7,417 3,864 2,539 Commercial investment portfolio 73,596 67,790 68,153 64,345 61,431 Reverse repurchase agreements 6,690 5,815 2,548 3,608 2,388 Total interest income $745,423 $622,550 $537,426 $587,727 $807,022 Economic interest expense: Repurchase agreements $283,909 $237,669 $197,151 $173,090 $162,676 Interest expense on swaps used to hedge cost of funds (1) 73,957 78,564 84,252 88,966 92,841 Securitized debt of consolidated VIEs 17,405 16,072 11,977 14,850 12,087 Participation sold - - 42 153 155 Other 17,397 15,196 13,111 10,332 8,478 Total economic interest expense * $392,668 $347,501 $306,533 $287,391 $276,237 Economic net interest income * $352,755 $275,049 $230,893 $300,336 $530,785 PAA cost (benefit) 11,367 39,899 72,700 17,870 (238,941) Economic net interest income (excluding PAA) * $364,122 $314,948 $303,593 $318,206 $291,844 Net Interest Income

* Represents a non-GAAP financial measure. (1) Represents a component of Net gains (losses) on trading assets. (2) Represents the portion of changes in fair value that is attributable to the realization of estimated cash flows on the Company’s mortgage servicing rights (“MSR”) portfolio and is reported as a component of Net unrealized gains (losses) on investments measured at fair value. Unaudited, dollars in thousands 8 GAAP Net Income to Core Earnings Reconciliation For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 GAAP net income (loss) $746,771 $367,315 $14,522 $440,408 $1,848,483 Less: Realized (gains) losses on termination of interest rate swaps 160,075 - 58 - 55,214 Unrealized (gains) losses on interest rate swaps (484,447) (56,854) 177,567 (149,184) (1,430,668) Net (gains) losses on disposal of investments (7,895) 11,552 5,516 (5,235) (7,782) Net (gains) losses on trading assets (121,334) (154,208) 14,423 (319) 139,470 Net unrealized (gains) losses on investments measured at fair value through earnings 12,115 67,492 (16,240) (23,683) (110,742) Net (income) loss attributable to noncontrolling interest 151 232 102 103 87 Plus: TBA dollar roll income(1) 89,479 94,326 81,051 69,968 98,896 MSR amortization(2) (19,331) (16,208) (17,098) (14,030) (27,018) Core earnings * 375,584 313,647 259,901 318,028 565,940 Less: PAA cost (benefit) 11,367 39,899 72,700 17,870 (238,941) Core earnings (excluding PAA) * $386,951 $353,546 $332,601 $335,898 $326,999 Core Earnings Reconciliation

Unaudited 9 Quarter-Over-Quarter Changes in Key Metrics * Represents a non-GAAP financial measure. (1) For book value purposes, the quarter ended December 31, 2017 includes, and the quarter ended September 30, 2017 excludes, $8.3 million of dividends on the Company’s Series F Preferred stock, which were cumulative and undeclared as of September 30, 2017. For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Book value per common share, beginning of period $11.42 $11.19 $11.23 $11.16 $11.83 Net income (loss) available (related) to common stockholders (1) 0.62 0.32 (0.01) 0.41 1.79 Other comprehensive income (loss) attributable to common stockholders (0.42) 0.19 0.27 (0.04) (2.16) Common dividends declared (0.30) (0.30) (0.30) (0.30) (0.30) Issuance of common stock / redemption of preferred stock 0.02 0.02 0.00 0.00 0.00 Book value per common share, end of period $11.34 $11.42 $11.19 $11.23 $11.16 Prior quarter net interest margin 1.33% 1.23% 1.47% 2.49% 1.40% Quarter-over-quarter changes in contribution: Coupon on average interest-earning assets (including average TBA dollar roll balances) 0.13% (0.12%) (0.05%) 0.11% 0.08% Net amortization of premiums 0.10% 0.22% (0.18%) (0.92%) 0.93% Interest expense and realized gain (loss) on interest rate swaps (0.05%) (0.01%) (0.05%) (0.10%) 0.04% TBA dollar roll income (0.04%) 0.01% 0.04% (0.11%) 0.04% Current quarter net interest margin 1.47% 1.33% 1.23% 1.47% 2.49% Prior quarter net interest margin (excluding PAA) * 1.47% 1.53% 1.55% 1.53% 1.42% Quarter-over-quarter changes in contribution: Coupon on average interest-earning assets (including average TBA dollar roll balances) 0.13% (0.12%) (0.05%) 0.11% 0.08% Net amortization of premiums, excluding PAA 0.00% 0.06% 0.04% 0.12% (0.05%) Interest expense and related realized gain (loss) on interest rate swaps (0.05%) (0.01%) (0.05%) (0.10%) 0.04% TBA dollar roll income (0.04%) 0.01% 0.04% (0.11%) 0.04% Current quarter net interest margin (excluding PAA) * 1.51% 1.47% 1.53% 1.55% 1.53% Book Value Rollforward Net Interest Margin Net Interest Margin (excluding PAA)*

* Represents a non-GAAP financial measure. (1) Includes interest expense on interest rate swaps used to hedge cost of funds. Unaudited 10 Quarter-Over-Quarter Changes in Key Metrics (cont’d) For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Prior quarter net interest spread 0.97% 0.84% 1.15% 2.28% 1.13% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.02% 0.00% 0.09% (0.03%) (0.01%) Net amortization of premiums 0.16% 0.21% (0.25%) (1.04%) 1.12% Average cost of interest bearing liabilities(1) (0.01%) (0.08%) (0.15%) (0.06%) 0.04% Current quarter net interest spread 1.14% 0.97% 0.84% 1.15% 2.28% Prior quarter net interest spread (excluding PAA) * 1.15% 1.19% 1.24% 1.15% 1.15% Quarter-over-quarter changes in contribution: Coupon on average interest earning assets 0.02% 0.00% 0.09% (0.03%) (0.01%) Net amortization of premiums, excluding PAA 0.03% 0.04% 0.01% 0.18% (0.03%) Average cost of interest bearing liabilities(1) (0.01%) (0.08%) (0.15%) (0.06%) 0.04% Current quarter net interest spread (excluding PAA) * 1.19% 1.15% 1.19% 1.24% 1.15% Net Interest Spread Net Interest Spread (excluding PAA)*

* Represents a non-GAAP financial measure. (1) Includes other income (loss), general and administrative expenses and income taxes. (2) Includes other income (loss), MSR amortization (a component of Net unrealized gains (losses) on financial instruments measured at fair value through earnings), general and administrative expenses (excluding corporate acquisition related expenses) and income taxes. Unaudited 11 Quarter-Over-Quarter Changes in Return on Average Equity For the quarters ended 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Prior quarter GAAP return (loss) on average equity 10.98% 0.46% 13.97% 57.23% 23.55% Quarter-over-quarter changes in contribution: Coupon income 1.04% 0.24% (0.14%) 0.68% (0.46%) Net amortization of premiums and accretion of discounts 0.90% 1.35% (1.48%) (7.02%) 7.44% Interest expense and realized gain (loss) on interest rate swaps (0.38%) (0.58%) (0.50%) (0.70%) 0.73% Realized (gains) losses on termination of interest rate swaps (4.41%) 0.00% 0.00% 1.71% (1.75%) Unrealized (gains) / losses on interest rate swaps 11.65% 7.32% (10.36%) (39.57%) 36.03% Realized and unrealized (gains) / losses on investments and trading assets 0.98% 2.36% (1.04%) 1.58% (7.32%) Bargain purchase gain 0.00% 0.00% 0.00% 0.00% (2.34%) Other(1) (0.18%) (0.17%) 0.01% 0.06% 1.35% Current quarter GAAP return (loss) on average equity 20.58% 10.98% 0.46% 13.97% 57.23% Prior quarter core return on average equity (excluding PAA) * 10.57% 10.54% 10.66% 10.13% 10.09% Quarter-over-quarter changes in contribution: Coupon income 1.04% 0.24% (0.14%) 0.68% (0.46%) Net amortization of premiums (excluding PAA) 0.02% 0.24% 0.26% 0.93% (0.08%) Economic interest expense and other swaps expense (0.38%) (0.58%) (0.50%) (0.70%) 0.73% TBA dollar roll income (0.35%) 0.25% 0.35% (0.84%) 0.16% Other(2) (0.23%) (0.12%) (0.09%) 0.46% (0.31%) Current quarter core return on average equity (excluding PAA) * 10.67% 10.57% 10.54% 10.66% 10.13% GAAP Return (Loss) on Average Equity Core Return on Average Equity (excluding PAA)*

(1) Includes Agency-backed multifamily securities with an estimated fair value of $493.7 million. (2) Weighted by current face value. (3) Weighted by notional value. Unaudited, dollars in thousands 12 Residential Investments and TBA Derivative Overview as of December 31, 2017 Agency Fixed-Rate Securities (Pools) Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Years to Maturity Face Value % (2) Coupon Amortized Cost Fair Value 3-Month CPR Fair Value <=15 years (1) $5,839,741 7.4% 3.16% 103.6% 102.4% 9.4% $5,978,659 20 years 4,511,349 5.7% 3.48% 104.6% 103.8% 11.5% 4,683,090 >=30 years 68,683,998 86.9% 3.81% 106.0% 104.6% 8.4% 71,855,346 Total/Weighted Avg. $79,035,088 100.0% 3.74% 105.7% 104.4% 8.6% $82,517,095 TBA Purchase Contracts Weighted Avg. Implied Cost Implied Market Type Notional Value % (3) Coupon Basis Value 15-year $3,045,000 19.5% 2.95% $3,096,724 $3,095,845 30-year 12,533,000 80.5% 3.80% 13,030,298 13,038,468 Total/Weighted Avg. $15,578,000 100.0% 3.64% $16,127,022 $16,134,313 Agency Adjustable-Rate Securities Weighted Avg. Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Months to Reset Face Value % (2) Coupon Amortized Cost Fair Value 3-Month CPR Fair Value 0 - 24 months $5,109,554 75.5% 2.92% 104.3% 103.2% 23.5% $5,275,051 25 - 40 months 666,431 9.9% 2.67% 103.6% 101.4% 15.9% 675,615 41 - 60 months 73,634 1.1% 3.14% 103.5% 101.9% 13.8% 75,021 61 - 90 months 572,608 8.5% 3.03% 103.5% 101.5% 14.7% 581,038 >90 months 338,764 5.0% 2.96% 102.4% 101.0% 16.1% 342,181 Total/Weighted Avg. $6,760,991 100.0% 2.91% 104.1% 102.8% 21.5% $6,948,906

(1) Weighted by current notional value. (2) Weighted by estimated fair value. Unaudited, dollars in thousands 13 Residential Investments & TBA Derivative Overview as of December 31, 2017 (cont’d) Agency Interest-Only Collateralized Mortgage-Backed Obligations Current Notional Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Estimated Type Value % (1) Coupon Amortized Cost Fair Value 3-Month CPR Fair Value Interest-only $2,889,987 42.5% 3.34% 14.1% 12.0% 8.8% $347,421 Inverse Interest-only 3,914,728 57.5% 4.60% 23.5% 18.9% 11.7% 738,341 Total/Weighted Avg. $6,804,715 100.0% 4.06% 19.5% 16.0% 10.5% $1,085,762 Mortgage Servicing Rights Unpaid Excess Weighted Avg. Principal Weighted Avg. Servicing Loan Age Estimated Type Balance Coupon Spread (months) Fair Value Total/Weighted Avg. $49,046,009 3.82% 0.24% 21.3 $580,860 Residential Credit Portfolio Current Face / Weighted Avg. Weighted Avg. Weighted Avg. Estimated Sector Notional Value % (2) Coupon Amortized Cost Fair Value Fair Value Credit Risk Transfer $593,027 20.5% 5.40% 103.7% 109.9% $651,764 Alt-A 204,213 5.8% 4.42% 83.6% 90.0% 183,886 Prime 197,756 6.1% 4.70% 88.0% 97.5% 192,760 Subprime 554,470 16.8% 2.52% 86.2% 96.3% 533,880 NPL/RPL 42,585 1.4% 4.22% 99.8% 100.9% 42,988 Prime Jumbo 130,025 4.0% 3.59% 97.4% 97.4% 126,622 Prime Jumbo Interest-only 989,052 0.5% 0.46% 1.5% 1.7% 17,158 Residential Mortgage Loans 1,419,807 45.1% 4.25% 101.5% 101.3% 1,438,322 Total/Weighted Avg. $4,130,935 100.0% 3.29% $3,187,380

(1) Excludes residential mortgage loans. Unaudited, dollars in thousands 14 Residential Credit Investments Detail as of December 31, 2017 (1) Payment Structure Investment Characteristics Product Total Senior Subordinate Market Value Coupon Credit Enhancement 60+ Delinquencies 3M VPR Agency Credit Risk Transfer $616,886 $- $616,886 $616,886 5.29% 1.23% 0.28% 10.36% Private Label Credit Risk Transfer 34,878 - 34,878 34,878 7.43% 5.77% 2.66% 8.01% Alt-A 183,886 114,456 69,430 183,886 4.42% 10.07% 11.15% 9.94% Prime 192,760 27,056 165,704 192,760 4.70% 1.20% 10.47% 14.73% Subprime 533,880 245,006 288,874 533,880 2.52% 14.68% 20.57% 5.92% Re-Performing Loan Securitizations 33,264 33,264 - 33,264 4.09% 42.36% 33.77% 5.72% Non-Performing Loan Securitizations 9,724 6,290 3,434 9,724 4.65% 63.13% 72.25% 3.14% Prime Jumbo (>=2010 Vintage) 126,622 101,374 25,248 126,622 3.59% 14.30% 0.08% 15.62% Prime Jumbo (>=2010 Vintage) Interest-only 17,158 17,158 - 17,158 0.46% 0.00% 0.04% 14.39% Total $1,749,058 $544,604 $1,204,454 $1,749,058 2.78% 5.60% 6.59% 11.35% Bond Coupon Product Total ARM Fixed Floater Interest Only Agency Credit Risk Transfer $616,886 $- $- $616,886 $- Private Label Credit Risk Transfer 34,878 - - 34,878 - Alt-A 183,886 51,314 106,594 25,978 - Prime 192,760 90,679 102,081 - - Subprime 533,880 - 94,898 438,982 - Re-Performing Loan Securitizations 33,264 - 33,264 - - Non-Performing Loan Securitizations 9,724 - 9,724 - - Prime Jumbo (>=2010 Vintage) 126,622 - 126,622 - - Prime Jumbo (>=2010 Vintage) Interest-only 17,158 - - - 17,158 Total $1,749,058 $141,993 $473,183 $1,116,724 $17,158

Unaudited, dollars in thousands (1) Commercial real estate debt and preferred equity, held for investment book values are net of unamortized net origination fees. (2) Total weighted based on carry value. (3) Based on an internal valuation or the most recent third party appraisal, which may be prior to loan origination/purchase date or at the time of underwriting. (4) Maturity dates assume all of the borrowers' extension options are exercised for the commercial real estate debt and preferred equity, held for investment portfolio. (5) Economic Interest is a non-GAAP measure to include gross asset values less related financings. Equity investments is adjusted to exclude depreciation and amortization. (6) Levered Return represents the current coupon plus accretion and amortization of origination fees and premium/discount and funding costs over investment economic interest. (7) Equity levered returns are calculated based on trailing twelve months cash-on-cash returns, updated on a one month lag. (8) Includes investment in unconsolidated debt fund of $17.8 million and investment in Community Investment Impact Fund of $20.1 million. (9) The Company sells/buys protection on CMBX tranches referencing baskets of Conduit CMBS bonds with various ratings. Positive net notional indicates selling protection and being long the exposure to the underlying CMBS. CMBX positions are accounted for as derivatives with changes in fair value presented in Net gains (losses) on trading assets. 15 Commercial Real Estate Overview as of December 31, 2017 GAAP Non-GAAP Mortgage Debt & Preferred Equity Investments Number of Investments Book Values (1) % of Portfolio Weighted Avg LTV (2) (3) Weighted Avg Life (years) (4) Economic Interest(5) Levered Return(6) Financeable First Mortgages 14 $625,900 13.6% 70.7% 3.60 $269,503 8.7% Mezzanine Loan Investments 22 394,442 8.6% 70.8% 3.09 365,726 9.6% Preferred Equity Investments 1 8,985 0.2% 95.6% 0.92 8,985 11.2% Commercial Real Estate Debt and Preferred Equity, Held for Investment 37 $1,029,327 22.4% 70.9% 3.38 $644,214 9.2% Securitized Whole Loans 56 $2,826,357 61.4% 68.3% 5.31 $205,405 10.1% AAA CMBS 8 204,045 4.4% 29.9% 1.67 26,971 13.5% Credit CMBS 7 58,706 1.3% 65.2% 8.29 34,206 9.7% Total Commercial Real Estate Debt Investments 71 $3,089,108 67.1% 65.7% 5.12 $266,582 10.4% Total Debt Portfolio 108 $4,118,435 89.5% 67.0% 4.68 $910,796 9.6% Equity Investments Number of Properties Book Value % of Portfolio Economic Interest(5) Levered Return(7) Real Estate Held for Investment 26 $393,051 8.5% $150,831 10.1% Investment in Unconsolidated Joint Ventures(7) 27 92,902 2.0% 117,931 9.6% Total Equity Investments 53 $485,953 10.5% $268,762 9.9% Total 161 $ 4,604,388 100.0% $1,179,558 9.6% Derivatives Net Notional Range of Ratings Implied Market Value Weighted Average Coupon CMBX (9) $125,000 BBB- to AA $120,493 1.94%

Unaudited, dollars in thousands 16 Middle Market Lending Overview as of December 31, 2017 Industry Dispersion Industry Fixed Rate Floating Rate Total Aircraft and Parts $ - $ 34,814 $ 34,814 Coating, Engraving and Allied Services - 64,034 64,034 Computer Programming, Data Processing & Other Computer Related Services - 192,946 192,946 Drugs - 38,708 38,708 Electronic Components & Accessories - 23,916 23,916 Groceries and Related Products - 14,794 14,794 Grocery Stores - 23,531 23,531 Home Health Care Services - 23,779 23,779 Insurance Agents, Brokers and Services - 28,872 28,872 Management and Public Relations Services - 94,871 94,871 Medical and Dental Laboratories - 26,956 26,956 Miscellaneous Business Services - 19,723 19,723 Miscellaneous Equipment Rental and Leasing - 49,129 49,129 Miscellaneous Health and Allied Services, not elsewhere classified - 25,963 25,963 Miscellaneous Nonmetallic Minerals, except Fuels - 25,992 25,992 Miscellaneous Plastic Products - 9,879 9,879 Motor Vehicles and Motor Vehicle Parts and Supplies - 12,212 12,212 Offices and Clinics of Doctors of Medicine - 76,678 76,678 Offices and Clinics of Other Health Practitioners - 18,979 18,979 Public Warehousing and Storage - 48,890 48,890 Research, Development and Testing Services - 33,155 33,155 Schools and Educational Services, not elsewhere classified - 20,625 20,625 Services Allied with the Exchange of Securities - 13,960 13,960 Surgical, Medical, and Dental Instruments and Supplies - 29,687 29,687 Telephone Communications - 59,182 59,182 Total $ - $ 1,011,275 $ 1,011,275 Size Dispersion Position Size Amount Percentage $0 - $20 million $ 341,795 33.8% $20 - $40 million 262,697 26.0% $40 - $60 million 174,416 17.2% Greater than $60 million 232,367 23.0% Total $ 1,011,275 100.0% Tenor Dispersion Remaining Term Amount Percentage One year or less $ - 0.0% One to three years 22,812 2.3% Three to five years 299,426 29.6% Greater than five years 689,037 68.1% Total $ 1,011,275 100.0% Lien Position Amount Percentage First lien loans $ 582,724 57.6% Second lien loans 428,551 42.4% Total $ 1,011,275 100.0%

(1) Includes forward-starting interest rate swaps. (2) Excludes forward-starting interest rate swaps. (3) Weighted average years to maturity for futures positions are based on the U.S. Treasury contracts cheapest to deliver. (4) Approximately 5% of the total repurchase agreements and other secured financing have a remaining maturity over one year. (5) Determined based on estimated weighted-average lives of the underlying debt instruments. Unaudited, dollars in thousands 17 Hedging and Liabilities as of December 31, 2017 Principal Weighted Average Rate Balance At Period End For the Quarter Days to Maturity (5) Repurchase agreements $77,696,343 1.61% 1.41% 58 Other secured financing 3,837,528 1.66% 1.78% 1,114 Securitized debt of consolidated VIEs 2,911,628 2.18% 2.10% 2,574 Mortgages payable 312,500 4.24% 4.34% 2,588 Total indebtedness $84,757,999 Interest Rate Swaps Current Weighted Avg. Weighted Avg. Weighted Avg. Maturity Notional(1) Pay Rate(2) Receive Rate(2) Years to Maturity(2) 0 to 3 years $6,532,000 1.56% 1.62% 2.08 >3 to 6 years 14,791,800 2.12% 1.57% 4.51 > 6 to 10 years 10,179,000 2.35% 1.58% 8.04 Greater than 10 years 3,826,400 3.65% 1.51% 18.47 Total / Weighted Avg. $35,329,200 2.22% 1.58% 6.72 Futures Positions Notional Notional Weighted Avg. Long Short Years to Type Positions Positions Maturity(3) 2-year Swap Equivalent Eurodollar Contracts - (17,161,000) 2.00 U.S. Treasury Futures - 5 year - (4,217,400) 4.41 U.S. Treasury Futures - 10 year & Greater - (4,914,500) 7.01 Total - ($26,292,900) 3.32 Interest Rate Swaptions Current Weighted Avg. Weighted Avg. Weighted Avg. Weighted Avg. Underlying Underlying Underlying Underlying Months to Type Notional Pay Rate Receive Rate Years to Maturity Expiration Long $6,000,000 2.62% 3M LIBOR 9.97 4.49 Repurchase Agreements & Other Secured Financing Weighted Avg. Principal Rate Maturity Balance At Period End Within 30 days $33,956,552 1.69% 30 to 59 days 10,828,777 1.44% 60 to 89 days 13,855,787 1.59% 90 to 119 days 10,128,006 1.39% Over 120 days(4) 12,764,749 1.73% Total / Weighted Avg. $81,533,871 1.61%

(1) Interest rate and MBS spread sensitivity are based on results from third party models in conjunction with inputs from our internal investment professionals. Actual results could differ materially from these estimates. (2) Scenarios include Residential Investment Securities, residential mortgage loans, MSRs and derivative instruments. (3) Net asset value (“NAV”) represents book value of common equity. Unaudited 18 Quarter-Over-Quarter Interest Rate and MBS Spread Sensitivity Assumptions:  The interest rate sensitivity and MBS spread sensitivity are based on the portfolios as of December 31, 2017 and September 30, 2017  The interest rate sensitivity reflects instantaneous parallel shifts in rates  The MBS spread sensitivity shifts MBS spreads instantaneously and reflects exposure to MBS basis risk  All tables assume no active management of the portfolio in response to rate or spread changes Interest Rate Sensitivity (1) As of December 31, 2017 As of September 30, 2017 Interest Rate Change (bps) Estimated Percentage Change in Portfolio Value(2) Estimated Change as a % of NAV(2)(3) Estimated Percentage Change in Portfolio Value(2) Estimated Change as a % of NAV(2)(3) (75) 0.3% 2.1% 0.4% 2.8% (50) 0.4% 2.6% 0.4% 2.9% (25) 0.3% 1.9% 0.3% 2.1% 25 (0.4%) (2.6%) (0.4%) (3.1%) 50 (0.8%) (5.8%) (1.0%) (6.9%) 75 (1.4%) (9.7%) (1.6%) (11.4%) MBS Spread Sensitivity (1) As of December 31, 2017 As of September 30, 2017 MBS Spread Shock (bps) Estimated Change in Portfolio Market Value (2) Estimated Change as a % of NAV(2)(3) Estimated Change in Portfolio Market Value (2) Estimated Change as a % of NAV(2)(3) (25) 1.6% 11.2% 1.6% 11.7% (15) 0.9% 6.7% 1.0% 7.0% (5) 0.3% 2.3% 0.3% 2.3% 5 (0.3%) (2.1%) (0.3%) (2.3%) 15 (0.9%) (6.5%) (1.0%) (6.9%) 25 (1.5%) (10.8%) (1.6%) (11.4%)

Appendix

20 Endnotes for Page 2 * Represents a non-GAAP financial measure. Core earnings (excluding PAA) per average share, core earnings per average common share, annualized core return on average equity (excluding PAA), net interest margin (excluding PAA), average yield on interest earning assets (excluding PAA), net interest spread (excluding PAA) and operating expenses to core earnings (excluding PAA) represent non-GAAP measures. This presentation also includes additional non- GAAP measures, including interest income (excluding PAA), economic interest expense, economic net interest income (excluding PAA), core earnings (excluding PAA), core earnings (excluding PAA) available to common shareholders, core earnings, core earnings available to common shareholders and core earnings per average common share. See the section titled “Non-GAAP Reconciliations” in the Appendix for a reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures. A reconciliation of GAAP net income (loss) to non-GAAP core earnings and non-GAAP core earnings (excluding PAA) is provided on page 8 of this financial summary. 1. Net of dividends on preferred stock, including cumulative and undeclared dividends on the Company’s Series F Preferred stock of $8.3 million for the quarter ended September 30, 2017. 2. Core earnings and core earnings per average common share are non-GAAP measures 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 investments measured at fair value through earnings, net gains (losses) on trading assets, impairment losses, net income (loss) attributable to noncontrolling interest, corporate acquisition related expenses and certain other non-recurring gains or losses, and inclusive of TBA dollar roll income (a component of Net gains (losses) on trading assets) and realized amortization of MSRs. Core earnings (excluding PAA) excludes the PAA representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to the Company’s Agency mortgage-backed securities. 3. Computed as the sum of repurchase agreements, other secured financing, securitized debt, participation sold and mortgages payable divided by total equity. Securitized debt, participation sold and mortgages payable are non-recourse to the Company. 4. Computed as the sum of recourse debt, TBA derivative notional outstanding and net forward purchases of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing. Securitized debt, participation sold and mortgages payable are non-recourse to the Company and are excluded from this measure. 5. Computed as the ratio of total equity to total assets (inclusive of total market value of TBA derivatives and exclusive of Securitized debt of consolidated VIEs). 6. Comprised of non-Agency MBS, credit risk transfer securities and residential mortgage loans (includes securitized residential mortgage loans of consolidated VIEs). 7. Includes consolidated VIEs. 8. Represents the sum of the Company’s annualized economic net interest income (inclusive of interest expense on interest rate swaps used to hedge cost of funds) plus TBA dollar roll income (less interest expense on swaps used to hedge TBA dollar roll transactions) divided by the sum of its average interest- earning assets plus average outstanding TBA derivative balances. Net interest margin (excluding PAA) is calculated using annualized economic net interest income (excluding PAA). 9. Represents annualized interest income divided by average interest earning assets. Interest earning assets reflects the average amortized cost of our investments during the period. Annualized yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).

 To supplement its consolidated financial statements, which are prepared and presented in accordance with GAAP, the Company provides non-GAAP financial measures. These measures should not be considered a substitute for, or superior to, financial measures computed in accordance with GAAP. While intended to offer a fuller understanding of the Company’s results and operations, non- GAAP financial measures also have limitations. For example, the Company may calculate its non-GAAP metrics, such as core earnings, or the PAA, differently than its peers making comparative analysis difficult. Additionally, in the case of non-GAAP measures that exclude the PAA, the amount of amortization expense excluding the PAA is not necessarily representative of the amount of future periodic amortization nor is it indicative of the term over which the Company will amortize the remaining unamortized premium. Changes to actual and estimated prepayments will impact the timing and amount of premium amortization and, as such, both GAAP and non-GAAP results. These non-GAAP measures provide additional detail to enhance investor understanding of the Company’s period-over-period operating performance and business trends, as well as for assessing the Company’s performance versus that of industry peers. Additional information pertaining to these non-GAAP financial measures and reconciliations to their most directly comparable GAAP results are provided below. A reconciliation of GAAP net income (loss) to non-GAAP core earnings for the quarters ended December 31, 2017, September 30, 2017, June 30, 2017, March 31, 2017 and December 31, 2016, is provided on page 8 of this financial summary. Unaudited, dollars in thousands 21 Non-GAAP Reconciliations For the quarters ended, 12/31/2017 9/30/2017 6/30/2017 3/31/2017 12/31/2016 Premium Amortization Reconciliation Premium amortization expense $203,951 $220,636 $251,084 $203,634 ($19,812) Less: PAA cost (benefit) 11,367 39,899 72,700 17,870 (238,941) Premium amortization expense (excluding PAA) $192,584 $180,737 $178,384 $185,764 $219,129 Interest Income (excluding PAA) Reconciliation GAAP interest income $745,423 $622,550 $537,426 $587,727 $807,022 PAA cost (benefit) 11,367 39,899 72,700 17,870 (238,941) Interest Income (excluding PAA) * $756,790 $662,449 $610,126 $605,597 $568,081 Economic Interest Expense Reconciliation GAAP interest expense $318,711 $268,937 $222,281 $198,425 $183,396 Add: Interest expense on interest rate swaps used to hedge cost of funds 73,957 78,564 84,252 88,966 92,841 Economic interest expense * $392,668 $347,501 $306,533 $287,391 $276,237 Economic Net Interest Income (excluding PAA) Reconciliation Interest income (excluding PAA) * $756,790 $662,449 $610,126 $605,597 $568,081 Less: Economic interest expense * 392,668 347,501 306,533 287,391 276,237 Economic net interest Income (excluding PAA) * $364,122 $314,948 $303,593 $318,206 $291,844 Economic Metrics (excluding PAA) Interest income (excluding PAA) * $756,790 $662,449 $610,126 $605,597 $568,081 Average interest earning assets $100,247,589 $89,253,094 $83,427,268 $85,664,151 $84,799,222 Average yield on interest earning assets (excluding PAA) * 3.02% 2.97% 2.93% 2.83% 2.68% Economic interest expense * $392,668 $347,501 $306,533 $287,391 $276,237 Average interest bearing liabilities $85,992,215 $76,382,315 $70,486,779 $72,422,968 $72,032,600 Average cost of interest bearing liabilities 1.83% 1.82% 1.74% 1.59% 1.53% Net interest spread (excluding PAA) * 1.19% 1.15% 1.19% 1.24% 1.15% Net interest margin (excluding PAA) * 1.51% 1.47% 1.53% 1.55% 1.53% * Represents a non-GAAP financial measure.