false2020Q3000104321912/31The three months ended September 30, 2019 exclude cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.The three months ended September 30, 2019 exclude cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.P5YP1YP30D0.00087500010432192020-01-012020-09-300001043219us-gaap:CommonStockMember2020-01-012020-09-300001043219nly:A7.50SeriesDCumulativeRedeemablePreferredStockMember2020-01-012020-09-300001043219nly:A6.95SeriesFFixedtoFloatingRateCumulativeRedeemablePreferredStockMember2020-01-012020-09-300001043219nly:A6.50SeriesGFixedtoFloatingRateCumulativeRedeemablePreferredStockMember2020-01-012020-09-300001043219nly:A6.75SeriesIFixedtoFloatingRateCumulativeRedeemablePreferredStockMember2020-01-012020-09-30xbrli:shares00010432192020-10-30iso4217:USD00010432192020-09-3000010432192019-12-310001043219nly:AgencyMortgageBackedSecuritiesMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesMember2019-12-310001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember2020-09-300001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMember2019-12-31iso4217:USDxbrli:shares0001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-12-310001043219us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219us-gaap:MortgageBackedSecuritiesIssuedByUSGovernmentSponsoredEnterprisesMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-12-310001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-12-310001043219srt:ConsolidationEliminationsMembernly:CommercialMortgageLoanMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219srt:ConsolidationEliminationsMembernly:CommercialMortgageLoanMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-12-310001043219us-gaap:ResidentialMortgageMember2020-09-300001043219us-gaap:ResidentialMortgageMember2019-12-3100010432192020-07-012020-09-3000010432192019-07-012019-09-3000010432192019-01-012019-09-300001043219nly:SeriesIPreferredStockMember2019-06-300001043219us-gaap:PreferredStockMember2020-06-300001043219us-gaap:PreferredStockMember2019-06-300001043219us-gaap:PreferredStockMember2019-12-310001043219us-gaap:PreferredStockMember2018-12-310001043219us-gaap:PreferredStockMember2020-07-012020-09-300001043219us-gaap:PreferredStockMember2019-07-012019-09-300001043219us-gaap:PreferredStockMember2020-01-012020-09-300001043219us-gaap:PreferredStockMember2019-01-012019-09-300001043219us-gaap:PreferredStockMember2020-09-300001043219us-gaap:PreferredStockMember2019-09-300001043219us-gaap:CommonStockMember2020-06-300001043219us-gaap:CommonStockMember2019-06-300001043219us-gaap:CommonStockMember2019-12-310001043219us-gaap:CommonStockMember2018-12-310001043219us-gaap:CommonStockMember2020-07-012020-09-300001043219us-gaap:CommonStockMember2019-07-012019-09-300001043219us-gaap:CommonStockMember2020-01-012020-09-300001043219us-gaap:CommonStockMember2019-01-012019-09-300001043219us-gaap:CommonStockMember2020-09-300001043219us-gaap:CommonStockMember2019-09-300001043219us-gaap:AdditionalPaidInCapitalMember2020-06-300001043219us-gaap:AdditionalPaidInCapitalMember2019-06-300001043219us-gaap:AdditionalPaidInCapitalMember2019-12-310001043219us-gaap:AdditionalPaidInCapitalMember2018-12-310001043219us-gaap:AdditionalPaidInCapitalMember2020-07-012020-09-300001043219us-gaap:AdditionalPaidInCapitalMember2019-07-012019-09-300001043219us-gaap:AdditionalPaidInCapitalMember2020-01-012020-09-300001043219us-gaap:AdditionalPaidInCapitalMember2019-01-012019-09-300001043219us-gaap:AdditionalPaidInCapitalMember2020-09-300001043219us-gaap:AdditionalPaidInCapitalMember2019-09-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-06-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-06-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-12-310001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2018-12-310001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-07-012020-09-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-07-012019-09-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-01-012020-09-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-01-012019-09-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2020-09-300001043219us-gaap:AccumulatedOtherComprehensiveIncomeMember2019-09-300001043219us-gaap:RetainedEarningsMember2020-06-300001043219us-gaap:RetainedEarningsMember2019-06-300001043219us-gaap:RetainedEarningsMember2019-12-310001043219us-gaap:RetainedEarningsMember2018-12-310001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2020-06-300001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-06-300001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2019-12-310001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMemberus-gaap:RetainedEarningsMember2018-12-310001043219us-gaap:RetainedEarningsMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2020-06-300001043219us-gaap:RetainedEarningsMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-06-300001043219us-gaap:RetainedEarningsMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-12-310001043219us-gaap:RetainedEarningsMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2018-12-310001043219us-gaap:RetainedEarningsMember2020-07-012020-09-300001043219us-gaap:RetainedEarningsMember2019-07-012019-09-300001043219us-gaap:RetainedEarningsMember2020-01-012020-09-300001043219us-gaap:RetainedEarningsMember2019-01-012019-09-300001043219us-gaap:RetainedEarningsMember2020-09-300001043219us-gaap:RetainedEarningsMember2019-09-300001043219us-gaap:ParentMember2020-09-300001043219us-gaap:ParentMember2019-09-300001043219us-gaap:NoncontrollingInterestMember2020-06-300001043219us-gaap:NoncontrollingInterestMember2019-06-300001043219us-gaap:NoncontrollingInterestMember2019-12-310001043219us-gaap:NoncontrollingInterestMember2018-12-310001043219us-gaap:NoncontrollingInterestMember2020-07-012020-09-300001043219us-gaap:NoncontrollingInterestMember2019-07-012019-09-300001043219us-gaap:NoncontrollingInterestMember2020-01-012020-09-300001043219us-gaap:NoncontrollingInterestMember2019-01-012019-09-300001043219us-gaap:NoncontrollingInterestMember2020-09-300001043219us-gaap:NoncontrollingInterestMember2019-09-3000010432192019-09-3000010432192018-12-31nly:numberOfInvestmentGroups0001043219us-gaap:InterestRateSwapMember2020-09-300001043219us-gaap:InterestRateSwapMember2019-12-310001043219us-gaap:AccountingStandardsUpdate201613Member2019-12-310001043219us-gaap:AccountingStandardsUpdate201613Member2019-01-012019-12-310001043219nly:AgencyMortgageBackedSecuritiesRecognizedThroughComprehensiveIncomeMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesRecognizedThroughComprehensiveIncomeMember2019-12-310001043219nly:AgencyMortgageBackedSecuritiesRecognizedThroughEarningsMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesRecognizedThroughEarningsMember2019-12-310001043219nly:CreditRiskTransferSecuritiesMember2020-09-300001043219nly:CreditRiskTransferSecuritiesMember2019-12-310001043219nly:NonAgencyMortgageBackedSecuritiesMember2020-09-300001043219nly:NonAgencyMortgageBackedSecuritiesMember2019-12-310001043219nly:CommercialRealEstateDebtInvestmentSecuritiesRecognizedThroughComprehensiveIncomeMember2020-09-300001043219nly:CommercialRealEstateDebtInvestmentSecuritiesRecognizedThroughComprehensiveIncomeMember2019-12-310001043219nly:CommercialRealEstateDebtInvestmentSecuritiesRecognizedThroughEarningsMember2020-09-300001043219nly:CommercialRealEstateDebtInvestmentSecuritiesRecognizedThroughEarningsMember2019-12-310001043219us-gaap:AvailableforsaleSecuritiesMember2020-09-300001043219us-gaap:AvailableforsaleSecuritiesMember2019-12-310001043219nly:ResidentialMortgageLoansMember2020-09-300001043219nly:ResidentialMortgageLoansMember2019-12-310001043219nly:CommercialRealEstateDebtAndPreferredEquityHeldForInvestmentMember2020-09-300001043219nly:CommercialRealEstateDebtAndPreferredEquityHeldForInvestmentMember2019-12-310001043219nly:CorporateDebtHeldForInvestmentMember2020-09-300001043219nly:CorporateDebtHeldForInvestmentMember2019-12-310001043219us-gaap:FinanceReceivablesMember2020-09-300001043219us-gaap:FinanceReceivablesMember2019-12-310001043219nly:MortgagebackedSecuritiesRecognizedThroughOtherComprehensiveIncomeMember2020-09-300001043219nly:MortgagebackedSecuritiesRecognizedThroughOtherComprehensiveIncomeMember2019-12-310001043219nly:ResidentialMortgageLoansAssetTransferredOrPledgedToSecuritizationRecognizedThroughEarningsMember2020-09-300001043219nly:ResidentialMortgageLoansAssetTransferredOrPledgedToSecuritizationRecognizedThroughEarningsMember2019-12-310001043219nly:CommercialMortgageLoansAssetTransferredOrPledgedToSecuritizationRecognizedThroughEarningsMember2020-09-300001043219nly:CommercialMortgageLoansAssetTransferredOrPledgedToSecuritizationRecognizedThroughEarningsMember2019-12-310001043219nly:CommercialMortgageLoansAmortizedCostMember2020-09-300001043219nly:CommercialMortgageLoansAmortizedCostMember2019-12-310001043219nly:AssetsTransferredOrPledgedToSecuritizationMember2020-09-300001043219nly:AssetsTransferredOrPledgedToSecuritizationMember2019-12-310001043219us-gaap:RepurchaseAgreementsMember2020-09-300001043219us-gaap:RepurchaseAgreementsMember2019-12-310001043219us-gaap:OtherDebtSecuritiesMember2020-09-300001043219us-gaap:OtherDebtSecuritiesMember2019-12-310001043219nly:SecuritizedDebtOfConsolidatedVIEsMember2020-09-300001043219nly:SecuritizedDebtOfConsolidatedVIEsMember2019-12-310001043219nly:MortgagePayableMember2020-09-300001043219nly:MortgagePayableMember2019-12-310001043219us-gaap:ResidentialMortgageBackedSecuritiesMember2019-12-310001043219us-gaap:CommercialMortgageBackedSecuritiesMember2019-12-310001043219us-gaap:ResidentialMortgageBackedSecuritiesMember2020-01-012020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMember2020-01-012020-09-300001043219us-gaap:ResidentialMortgageBackedSecuritiesMember2020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMember2020-09-300001043219nly:FixedRatePassThroughMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2020-09-300001043219nly:AdjustableRatePassThroughMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2020-09-300001043219us-gaap:CollateralizedMortgageObligationsMemberus-gaap:AgencySecuritiesMember2020-09-300001043219nly:InterestOnlyMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2020-09-300001043219nly:MultifamilyMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2020-09-300001043219nly:ReverseMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2020-09-300001043219us-gaap:AgencySecuritiesMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:CreditRiskTransferMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:AltaMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeInterestonlyMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:SubprimeMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:NplRplMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeJumboGreaterThanOrEqualToTwoThousandTenVintageMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeJumboGreaterThanOrEqualToTwoThousandTenVintageInterestOnlyMortgageBackedSecuritiesAvailableForSaleMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMember2020-09-300001043219nly:ResidentialInvestmentsMember2020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMember2020-09-300001043219nly:FixedRatePassThroughMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2019-12-310001043219nly:AdjustableRatePassThroughMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2019-12-310001043219us-gaap:CollateralizedMortgageObligationsMemberus-gaap:AgencySecuritiesMember2019-12-310001043219nly:InterestOnlyMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2019-12-310001043219nly:MultifamilyMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2019-12-310001043219nly:ReverseMortgageBackedSecuritiesAvailableForSaleMemberus-gaap:AgencySecuritiesMember2019-12-310001043219us-gaap:AgencySecuritiesMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:CreditRiskTransferMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:AltaMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeInterestonlyMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:SubprimeMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:NplRplMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeJumboGreaterThanOrEqualToTwoThousandTenVintageMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:PrimeJumboGreaterThanOrEqualToTwoThousandTenVintageInterestOnlyMortgageBackedSecuritiesAvailableForSaleMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMember2019-12-310001043219nly:ResidentialInvestmentsMember2019-12-310001043219us-gaap:CommercialMortgageBackedSecuritiesMember2019-12-310001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:CreditRiskTransferMortgageBackedSecuritiesAvailableForSaleInterestOnlySecurityMember2020-09-300001043219nly:ResidentialCreditSecuritiesMortgageBackedSecuritiesMembernly:CreditRiskTransferMortgageBackedSecuritiesAvailableForSaleInterestOnlySecurityMember2019-12-310001043219us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMembernly:AgencyMortgageBackedSecuritiesMember2020-09-300001043219us-gaap:FederalNationalMortgageAssociationCertificatesAndObligationsFNMAMembernly:AgencyMortgageBackedSecuritiesMember2019-12-310001043219nly:AgencyMortgageBackedSecuritiesMemberus-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesMemberus-gaap:FederalHomeLoanMortgageCorporationCertificatesAndObligationsFHLMCMember2019-12-310001043219nly:AgencyMortgageBackedSecuritiesMemberus-gaap:GovernmentNationalMortgageAssociationCertificatesAndObligationsGNMAMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesMemberus-gaap:GovernmentNationalMortgageAssociationCertificatesAndObligationsGNMAMember2019-12-310001043219nly:AgencyMortgageBackedSecuritiesMembernly:AvailableForSaleSecuritiesContinuousUnrealizedLossPositionsLessThanTwelveMonthsMember2020-09-30nly:security0001043219nly:AgencyMortgageBackedSecuritiesMembernly:AvailableForSaleSecuritiesContinuousUnrealizedLossPositionsLessThanTwelveMonthsMember2019-12-310001043219nly:AgencyMortgageBackedSecuritiesMembernly:AvailableForSaleSecuritiesContinuousUnrealizedLossPositionsGreaterThanTwelveMonthsMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesMembernly:AvailableForSaleSecuritiesContinuousUnrealizedLossPositionsGreaterThanTwelveMonthsMember2019-12-310001043219us-gaap:ResidentialPortfolioSegmentMember2019-12-310001043219us-gaap:CommercialPortfolioSegmentMember2019-12-310001043219nly:CorporatePortfolioSegmentMember2019-12-310001043219us-gaap:ResidentialPortfolioSegmentMember2020-01-012020-09-300001043219us-gaap:CommercialPortfolioSegmentMember2020-01-012020-09-300001043219nly:CorporatePortfolioSegmentMember2020-01-012020-09-300001043219us-gaap:ResidentialPortfolioSegmentMember2020-09-300001043219us-gaap:CommercialPortfolioSegmentMember2020-09-300001043219nly:CorporatePortfolioSegmentMember2020-09-300001043219us-gaap:ResidentialMortgageMember2020-07-012020-09-300001043219us-gaap:ResidentialMortgageMember2019-07-012019-09-300001043219us-gaap:ResidentialMortgageMember2020-01-012020-09-300001043219us-gaap:ResidentialMortgageMember2019-01-012019-09-30xbrli:pure0001043219stpr:CAus-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2020-01-012020-09-300001043219stpr:CAus-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2019-01-012019-12-310001043219stpr:NYus-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2020-01-012020-09-300001043219stpr:NYus-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2019-01-012019-12-310001043219us-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMemberstpr:FL2020-01-012020-09-300001043219us-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMemberstpr:FL2019-01-012019-12-310001043219nly:OtherLocationMemberus-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2020-01-012020-09-300001043219nly:OtherLocationMemberus-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2019-01-012019-12-310001043219us-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2020-01-012020-09-300001043219us-gaap:GeographicConcentrationRiskMembernly:ResidentialMortgageLoansMember2019-01-012019-12-310001043219srt:MinimumMemberus-gaap:ResidentialMortgageMember2020-09-300001043219us-gaap:ResidentialMortgageMembersrt:MaximumMember2020-09-300001043219us-gaap:ResidentialMortgageMembersrt:WeightedAverageMember2020-09-300001043219srt:MinimumMemberus-gaap:ResidentialMortgageMember2019-12-310001043219us-gaap:ResidentialMortgageMembersrt:MaximumMember2019-12-310001043219us-gaap:ResidentialMortgageMembersrt:WeightedAverageMember2019-12-310001043219srt:MinimumMemberus-gaap:ResidentialMortgageMember2020-01-012020-09-300001043219us-gaap:ResidentialMortgageMembersrt:MaximumMember2020-01-012020-09-300001043219us-gaap:ResidentialMortgageMembersrt:WeightedAverageMember2020-01-012020-09-300001043219srt:MinimumMemberus-gaap:ResidentialMortgageMember2019-01-012019-12-310001043219us-gaap:ResidentialMortgageMembersrt:MaximumMember2019-01-012019-12-310001043219us-gaap:ResidentialMortgageMembersrt:WeightedAverageMember2019-01-012019-12-31nly:point0001043219nly:CommercialMortgageLoanMember2019-07-012019-09-300001043219nly:CommercialMortgageLoanMember2020-01-012020-09-300001043219nly:CommercialMortgageLoanMember2019-01-012019-09-300001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMembernly:CommercialMortgageLoanMember2020-01-010001043219nly:CommercialMortgageLoanMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2020-07-012020-09-300001043219nly:CommercialMortgageLoanMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2020-01-012020-09-30nly:loan0001043219nly:CommercialMortgageLoanMemberus-gaap:ExtendedMaturityMember2020-07-012020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:ExtendedMaturityMember2020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:PaymentDeferralMember2020-07-012020-09-300001043219nly:CommercialMortgageLoanMember2020-09-300001043219nly:CommercialMortgageLoanMember2019-12-310001043219nly:OfficePropertyMembernly:CommercialMortgageMember2020-09-300001043219nly:OfficePropertyMembernly:CommercialMortgageMember2019-12-310001043219nly:CommercialMortgageMemberus-gaap:RetailMember2020-09-300001043219nly:CommercialMortgageMemberus-gaap:RetailMember2019-12-310001043219nly:CommercialMortgageMembersrt:MultifamilyMember2020-09-300001043219nly:CommercialMortgageMembersrt:MultifamilyMember2019-12-310001043219nly:CommercialMortgageMembersrt:HotelMember2020-09-300001043219nly:CommercialMortgageMembersrt:HotelMember2019-12-310001043219nly:CommercialMortgageMembersrt:IndustrialPropertyMember2020-09-300001043219nly:CommercialMortgageMembersrt:IndustrialPropertyMember2019-12-310001043219nly:CommercialMortgageMembersrt:OtherPropertyMember2020-09-300001043219nly:CommercialMortgageMembersrt:OtherPropertyMember2019-12-310001043219nly:CommercialMortgageMembernly:HealthcarePropertyMember2020-09-300001043219nly:CommercialMortgageMembernly:HealthcarePropertyMember2019-12-310001043219nly:CommercialMortgageMember2020-09-300001043219nly:CommercialMortgageMember2019-12-310001043219nly:CommercialMortgageMembernly:SeniorMortgagesMember2020-09-300001043219nly:CommercialMortgageMembernly:SeniorMortgagesMember2019-12-310001043219nly:CommercialMortgageMembernly:SeniorSecuritizedMortgagesMember2020-09-300001043219nly:CommercialMortgageMembernly:SeniorSecuritizedMortgagesMember2019-12-310001043219nly:CommercialMortgageMembernly:MezzanineLoansMember2020-09-300001043219nly:CommercialMortgageMembernly:MezzanineLoansMember2019-12-310001043219nly:CommercialMortgageMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMembernly:SeniorMortgagesMember2019-12-310001043219nly:CommercialMortgageMembernly:SeniorSecuritizedMortgagesMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-12-310001043219nly:CommercialMortgageMembernly:MezzanineLoansMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-12-310001043219nly:CommercialMortgageMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-12-310001043219nly:CommercialMortgageMembernly:SeniorMortgagesMember2020-01-012020-09-300001043219nly:CommercialMortgageMembernly:SeniorSecuritizedMortgagesMember2020-01-012020-09-300001043219nly:CommercialMortgageMembernly:MezzanineLoansMember2020-01-012020-09-300001043219nly:CommercialMortgageMember2020-01-012020-09-300001043219nly:CommercialMortgageMembernly:CumulativeEffectPeriodofAdoptionAdjustmentMembernly:SeniorMortgagesMember2019-12-310001043219nly:CommercialMortgageMembernly:CumulativeEffectPeriodofAdoptionAdjustmentMembernly:SeniorSecuritizedMortgagesMember2019-12-310001043219nly:CommercialMortgageMembernly:CumulativeEffectPeriodofAdoptionAdjustmentMembernly:MezzanineLoansMember2019-12-310001043219nly:CommercialMortgageMembernly:CumulativeEffectPeriodofAdoptionAdjustmentMember2019-12-310001043219nly:CommercialMortgageMembernly:SeniorMortgagesMember2018-12-310001043219nly:CommercialMortgageMembernly:SeniorSecuritizedMortgagesMember2018-12-310001043219nly:CommercialMortgageMembernly:MezzanineLoansMember2018-12-310001043219nly:CommercialMortgageMember2018-12-310001043219nly:CommercialMortgageMembernly:SeniorMortgagesMember2019-01-012019-12-310001043219nly:CommercialMortgageMembernly:SeniorSecuritizedMortgagesMember2019-01-012019-12-310001043219nly:CommercialMortgageMembernly:MezzanineLoansMember2019-01-012019-12-310001043219nly:CommercialMortgageMember2019-01-012019-12-310001043219nly:CommercialMortgageMembernly:PerformingMember2020-09-300001043219nly:CommercialMortgageMembernly:CloselyMonitoredMember2020-09-300001043219nly:CommercialMortgageMemberus-gaap:SpecialMentionMember2020-09-300001043219nly:CommercialMortgageMemberus-gaap:SubstandardMember2020-09-300001043219nly:CommercialMortgageMemberus-gaap:DoubtfulMember2020-09-300001043219nly:CommercialMortgageMemberus-gaap:UnlikelyToBeCollectedFinancingReceivableMember2020-09-300001043219srt:MinimumMember2020-01-012020-09-300001043219srt:MaximumMember2020-01-012020-09-300001043219us-gaap:CorporateDebtSecuritiesMember2020-07-012020-09-300001043219us-gaap:CorporateDebtSecuritiesMember2020-01-012020-09-300001043219nly:SecondLienMemberus-gaap:CorporateDebtSecuritiesMember2020-09-300001043219us-gaap:CorporateDebtSecuritiesMember2020-09-300001043219nly:FirstLienMemberus-gaap:CorporateDebtSecuritiesMember2020-01-012020-09-300001043219us-gaap:CorporateDebtSecuritiesMember2019-01-012019-09-300001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMemberus-gaap:CorporateDebtSecuritiesMember2020-01-010001043219us-gaap:CorporateDebtSecuritiesMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2020-07-012020-09-300001043219us-gaap:CorporateDebtSecuritiesMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2020-01-012020-09-300001043219us-gaap:CorporateDebtSecuritiesMember2019-12-310001043219nly:ComputerProgrammingDataProcessingAndOtherComputerRelatedServicesMember2020-09-300001043219nly:ComputerProgrammingDataProcessingAndOtherComputerRelatedServicesMember2019-12-310001043219nly:ManagementAndPublicRelationsMember2020-09-300001043219nly:ManagementAndPublicRelationsMember2019-12-310001043219nly:IndustrialInorganicChemicalsMember2020-09-300001043219nly:IndustrialInorganicChemicalsMember2019-12-310001043219nly:PublicWarehousingAndStorageMember2020-09-300001043219nly:PublicWarehousingAndStorageMember2019-12-310001043219nly:EngineeringArchitecturalSurveyingMember2020-09-300001043219nly:EngineeringArchitecturalSurveyingMember2019-12-310001043219nly:MetalCansAndShippingContainersMember2020-09-300001043219nly:MetalCansAndShippingContainersMember2019-12-310001043219nly:OfficesAndClinicsOfDoctorsOfMedicineMember2020-09-300001043219nly:OfficesAndClinicsOfDoctorsOfMedicineMember2019-12-310001043219nly:SurgicalMedicalAndDentalInstrumentsAndSuppliesMember2020-09-300001043219nly:SurgicalMedicalAndDentalInstrumentsAndSuppliesMember2019-12-310001043219nly:ElectronicComponentsAccessoriesMember2020-09-300001043219nly:ElectronicComponentsAccessoriesMember2019-12-310001043219nly:InsuranceAgentsBrokersAndServicesMember2020-09-300001043219nly:InsuranceAgentsBrokersAndServicesMember2019-12-310001043219nly:TelephoneCommunicationsMember2020-09-300001043219nly:TelephoneCommunicationsMember2019-12-310001043219nly:MiscellaneousHealthAndAlliedServicesNotElsewhereClassifiedMember2020-09-300001043219nly:MiscellaneousHealthAndAlliedServicesNotElsewhereClassifiedMember2019-12-310001043219nly:MiscellaneousEquipmentRentalAndLeasingMember2020-09-300001043219nly:MiscellaneousEquipmentRentalAndLeasingMember2019-12-310001043219nly:ElectricalWorkMember2020-09-300001043219nly:ElectricalWorkMember2019-12-310001043219nly:MedicalAndDentalLaboratoriesMember2020-09-300001043219nly:MedicalAndDentalLaboratoriesMember2019-12-310001043219nly:ResearchDevelopmentAndTestingServicesMember2020-09-300001043219nly:ResearchDevelopmentAndTestingServicesMember2019-12-310001043219nly:MetalForgingsandStampingsMember2020-09-300001043219nly:MetalForgingsandStampingsMember2019-12-310001043219nly:HomeHealthCareServicesMember2020-09-300001043219nly:HomeHealthCareServicesMember2019-12-310001043219nly:MotorVehiclesAndMotorVehiclePartsAndSuppliesMember2020-09-300001043219nly:MotorVehiclesAndMotorVehiclePartsAndSuppliesMember2019-12-310001043219nly:LegalServicesMember2020-09-300001043219nly:LegalServicesMember2019-12-310001043219nly:PetroleumAndPetroleumProductsMember2020-09-300001043219nly:PetroleumAndPetroleumProductsMember2019-12-310001043219nly:GroceryStoresMember2020-09-300001043219nly:GroceryStoresMember2019-12-310001043219nly:CoatingEngravingandAlliedServicesMember2020-09-300001043219nly:CoatingEngravingandAlliedServicesMember2019-12-310001043219nly:SchoolsAndEducationalServicesNotElsewhereClassifiedMember2020-09-300001043219nly:SchoolsAndEducationalServicesNotElsewhereClassifiedMember2019-12-310001043219nly:ChemicalsAlliedProductsMember2020-09-300001043219nly:ChemicalsAlliedProductsMember2019-12-310001043219nly:MiscellaneousBusinessServicesMember2020-09-300001043219nly:MiscellaneousBusinessServicesMember2019-12-310001043219nly:DrugsMember2020-09-300001043219nly:DrugsMember2019-12-310001043219nly:MailingReproductionCommercialArtAndPhotographyAndStenographicMember2020-09-300001043219nly:MailingReproductionCommercialArtAndPhotographyAndStenographicMember2019-12-310001043219nly:MachineryEquipmentandSuppliesMember2020-09-300001043219nly:MachineryEquipmentandSuppliesMember2019-12-310001043219nly:MiscellaneousPlasticProductsMember2020-09-300001043219nly:MiscellaneousPlasticProductsMember2019-12-310001043219nly:OfficesAndClinicsOfHealthPractitionersNotElsewhereClassifiedMember2020-09-300001043219nly:OfficesAndClinicsOfHealthPractitionersNotElsewhereClassifiedMember2019-12-310001043219nly:NonferrousFoundriesCastingsMember2020-09-300001043219nly:NonferrousFoundriesCastingsMember2019-12-310001043219nly:FirstLienMember2020-09-300001043219nly:FirstLienMember2019-12-310001043219nly:SecondLienMember2020-09-300001043219nly:SecondLienMember2019-12-310001043219nly:FirstLienMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001043219nly:SecondLienMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001043219nly:SecondLienMemberus-gaap:CorporateDebtSecuritiesMember2020-01-012020-09-300001043219nly:FirstLienMemberus-gaap:CorporateDebtSecuritiesMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-12-310001043219nly:SecondLienMemberus-gaap:CorporateDebtSecuritiesMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-12-310001043219us-gaap:CorporateDebtSecuritiesMembernly:CumulativeEffectPeriodofAdoptionAdjustedBalanceMember2019-12-310001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMembernly:FirstLienMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMembernly:SecondLienMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001043219nly:CumulativeEffectPeriodofAdoptionAdjustmentMemberus-gaap:CorporateDebtSecuritiesMember2019-12-310001043219nly:FirstLienMemberus-gaap:CorporateDebtSecuritiesMember2020-09-300001043219nly:FirstLienMemberus-gaap:CorporateDebtSecuritiesMember2018-12-310001043219nly:SecondLienMemberus-gaap:CorporateDebtSecuritiesMember2018-12-310001043219us-gaap:CorporateDebtSecuritiesMember2018-12-310001043219nly:FirstLienMemberus-gaap:CorporateDebtSecuritiesMember2019-01-012019-12-310001043219nly:SecondLienMemberus-gaap:CorporateDebtSecuritiesMember2019-01-012019-12-310001043219us-gaap:CorporateDebtSecuritiesMember2019-01-012019-12-310001043219us-gaap:CorporateDebtSecuritiesMembernly:PerformingMember2020-09-300001043219us-gaap:SpecialMentionMemberus-gaap:CorporateDebtSecuritiesMember2020-09-300001043219us-gaap:SubstandardMemberus-gaap:CorporateDebtSecuritiesMember2020-09-300001043219us-gaap:DoubtfulMemberus-gaap:CorporateDebtSecuritiesMember2020-09-300001043219us-gaap:UnlikelyToBeCollectedFinancingReceivableMemberus-gaap:CorporateDebtSecuritiesMember2020-09-3000010432192020-06-3000010432192019-06-300001043219us-gaap:BankServicingMember2020-07-012020-09-300001043219us-gaap:BankServicingMember2020-01-012020-09-300001043219us-gaap:BankServicingMember2019-07-012019-09-300001043219us-gaap:BankServicingMember2019-01-012019-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MultifamilyMembernly:FREMFTrustsMember2015-04-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMembersrt:HotelMember2018-06-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MultifamilyMembernly:FREMFTrustsMember2019-08-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:OfficeBuildingMembernly:FREMFTrustsMember2019-10-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MultifamilyMembernly:FREMFTrustsMember2019-10-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MultifamilyMembernly:FREMFTrustsMember2019-12-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMember2019-12-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembernly:FREMFTrustsMember2019-12-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:FinancingReceivablesEqualToGreaterThan90DaysPastDueMembernly:FREMFTrustsMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMember2020-01-012020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMember2019-01-012019-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:NLY2019FL2Member2019-02-280001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:NLY2019FL2Member2020-09-300001043219srt:ConsolidationEliminationsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:NLY2019FL2Member2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:NLY2019FL2Member2019-01-012019-12-310001043219srt:MultifamilyMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-11-300001043219us-gaap:RetainedInterestMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MultifamilyMember2019-11-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MultifamilyMemberus-gaap:SeniorLoansMember2019-11-300001043219srt:MultifamilyMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-03-310001043219us-gaap:RetainedInterestMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembersrt:MultifamilyMember2020-03-310001043219srt:MultifamilyMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-07-012020-09-300001043219srt:MultifamilyMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-01-012020-09-300001043219nly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219nly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-12-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2018-03-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2018-08-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2018-10-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2019-01-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2019-04-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2019-06-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2019-07-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2019-10-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2020-01-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2020-02-290001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2020-07-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2020-09-300001043219srt:ConsolidationEliminationsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2020-07-012020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2019-07-012019-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2020-01-012020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:OBXTrustMember2019-01-012019-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:BorrowerMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:BorrowerMemberus-gaap:CorporateDebtSecuritiesMember2020-09-300001043219srt:ConsolidationEliminationsMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:BorrowerMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:BorrowerMembernly:July2017CreditFacilityMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:BorrowerMembernly:July2017CreditFacilityMemberus-gaap:CorporateDebtSecuritiesMember2020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:BorrowerMembernly:January2019CreditFacilityMember2019-01-310001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:BorrowerMemberus-gaap:CorporateDebtSecuritiesMembernly:January2019CreditFacilityMember2020-09-300001043219nly:PingoraLoanServicingLLCMember2017-08-012017-08-310001043219nly:MortgageServicingRightsSilosMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219nly:MortgageServicingRightsSilosMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2019-12-310001043219stpr:CAus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219stpr:CAnly:SecuritizedLoansMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMembernly:FREMFTrustsMember2020-01-012020-09-300001043219stpr:CAnly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219stpr:CAnly:SecuritizedLoansMembernly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMember2020-01-012020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMemberstpr:TXnly:FREMFTrustsMember2020-09-300001043219nly:SecuritizedLoansMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberstpr:TXus-gaap:GeographicConcentrationRiskMembernly:FREMFTrustsMember2020-01-012020-09-300001043219nly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberstpr:TX2020-09-300001043219nly:SecuritizedLoansMembernly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberstpr:TXus-gaap:GeographicConcentrationRiskMember2020-01-012020-09-300001043219stpr:NYus-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMember2020-09-300001043219stpr:NYnly:SecuritizedLoansMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMembernly:FREMFTrustsMember2020-01-012020-09-300001043219nly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberstpr:IL2020-09-300001043219nly:SecuritizedLoansMembernly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMemberstpr:IL2020-01-012020-09-300001043219us-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMemberstpr:FL2020-09-300001043219nly:SecuritizedLoansMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMembernly:FREMFTrustsMemberstpr:FL2020-01-012020-09-300001043219nly:OtherLocationMembernly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMember2020-09-300001043219nly:OtherLocationMembernly:SecuritizedLoansMembernly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMember2020-01-012020-09-300001043219nly:OtherLocationMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMembernly:FREMFTrustsMember2020-09-300001043219nly:OtherLocationMembernly:SecuritizedLoansMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMembernly:FREMFTrustsMember2020-01-012020-09-300001043219nly:SecuritizedLoansMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMembernly:FREMFTrustsMember2020-01-012020-09-300001043219nly:SecuritizedLoansMembernly:ResidentialMortgageLoanTrustMemberus-gaap:VariableInterestEntityPrimaryBeneficiaryMemberus-gaap:GeographicConcentrationRiskMember2020-01-012020-09-300001043219us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2020-07-012020-09-300001043219us-gaap:VariableInterestEntityNotPrimaryBeneficiaryMember2020-01-012020-09-300001043219srt:MinimumMemberus-gaap:BuildingAndBuildingImprovementsMember2020-01-012020-09-300001043219us-gaap:BuildingAndBuildingImprovementsMembersrt:MaximumMember2020-01-012020-09-300001043219srt:MinimumMemberus-gaap:FurnitureAndFixturesMember2020-01-012020-09-300001043219us-gaap:FurnitureAndFixturesMembersrt:MaximumMember2020-01-012020-09-30nly:property0001043219us-gaap:LandMember2020-09-300001043219us-gaap:LandMember2019-12-310001043219us-gaap:BuildingImprovementsMember2020-09-300001043219us-gaap:BuildingImprovementsMember2019-12-310001043219us-gaap:FurnitureAndFixturesMember2020-09-300001043219us-gaap:FurnitureAndFixturesMember2019-12-310001043219us-gaap:GeneralAndAdministrativeExpenseMember2020-07-012020-09-300001043219us-gaap:GeneralAndAdministrativeExpenseMember2020-01-012020-09-300001043219us-gaap:GeneralAndAdministrativeExpenseMember2019-07-012019-09-300001043219us-gaap:GeneralAndAdministrativeExpenseMember2019-01-012019-09-300001043219us-gaap:InterestRateSwaptionMember2020-09-300001043219us-gaap:InterestRateSwaptionMember2019-12-310001043219nly:ToBeAnnouncedContractsMember2020-09-300001043219nly:ToBeAnnouncedContractsMember2019-12-310001043219us-gaap:FutureMember2020-09-300001043219us-gaap:FutureMember2019-12-310001043219us-gaap:LoanPurchaseCommitmentsMember2020-09-300001043219us-gaap:LoanPurchaseCommitmentsMember2019-12-310001043219us-gaap:CreditRiskContractMember2020-09-300001043219us-gaap:CreditRiskContractMember2019-12-310001043219srt:MaximumMemberus-gaap:CreditRiskContractMember2020-09-300001043219srt:MaximumMemberus-gaap:CreditRiskContractMember2019-12-310001043219nly:MaturityPeriodOneMemberus-gaap:InterestRateSwapMember2020-01-012020-09-300001043219nly:MaturityPeriodOneMemberus-gaap:InterestRateSwapMember2020-09-300001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodTwoMember2020-01-012020-09-300001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodTwoMember2020-09-300001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodThreeMember2020-01-012020-09-300001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodThreeMember2020-09-300001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodFourMember2020-01-012020-09-300001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodFourMember2020-09-300001043219us-gaap:InterestRateSwapMember2020-01-012020-09-300001043219nly:MaturityPeriodOneMemberus-gaap:InterestRateSwapMember2019-01-012019-12-310001043219nly:MaturityPeriodOneMemberus-gaap:InterestRateSwapMember2019-12-310001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodTwoMember2019-01-012019-12-310001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodTwoMember2019-12-310001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodThreeMember2019-01-012019-12-310001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodThreeMember2019-12-310001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodFourMember2019-01-012019-12-310001043219us-gaap:InterestRateSwapMembernly:MaturityPeriodFourMember2019-12-310001043219us-gaap:InterestRateSwapMember2019-01-012019-12-310001043219us-gaap:FederalFundsEffectiveSwapRateMember2020-09-300001043219nly:OvernightIndexSwapMember2020-09-300001043219nly:OvernightIndexSwapMember2019-12-310001043219nly:ForwardStartingPayFixedSwapsMember2020-09-300001043219nly:ForwardStartingPayFixedSwapsMember2019-12-310001043219us-gaap:LongMembernly:InterestRateSwaptionPayMember2020-09-300001043219us-gaap:LongMembernly:InterestRateSwaptionPayMember2020-01-012020-09-300001043219us-gaap:LongMembernly:InterestRateSwaptionReceiveMember2020-09-300001043219us-gaap:LongMembernly:InterestRateSwaptionReceiveMember2020-01-012020-09-300001043219us-gaap:LongMembernly:InterestRateSwaptionPayMember2019-12-310001043219us-gaap:LongMembernly:InterestRateSwaptionPayMember2019-01-012019-12-310001043219us-gaap:LongMembernly:InterestRateSwaptionReceiveMember2019-12-310001043219us-gaap:LongMembernly:InterestRateSwaptionReceiveMember2019-01-012019-12-310001043219nly:ToBeAnnouncedContractsMemberus-gaap:LongMember2020-09-300001043219nly:ToBeAnnouncedContractsMemberus-gaap:LongMember2020-01-012020-09-300001043219us-gaap:ShortMembernly:ToBeAnnouncedContractsMember2020-09-300001043219us-gaap:ShortMembernly:ToBeAnnouncedContractsMember2020-01-012020-09-300001043219nly:ToBeAnnouncedContractsMember2020-01-012020-09-300001043219nly:ToBeAnnouncedContractsMemberus-gaap:LongMember2019-12-310001043219nly:ToBeAnnouncedContractsMemberus-gaap:LongMember2019-01-012019-12-310001043219us-gaap:ShortMembernly:ToBeAnnouncedContractsMember2019-12-310001043219us-gaap:ShortMembernly:ToBeAnnouncedContractsMember2019-01-012019-12-310001043219nly:ToBeAnnouncedContractsMember2019-01-012019-12-310001043219nly:MaturityPeriodSevenMembernly:UsTreasuryFuturesMember2020-01-012020-09-300001043219us-gaap:LongMembernly:MaturityPeriodSevenMembernly:UsTreasuryFuturesMember2020-09-300001043219us-gaap:ShortMembernly:MaturityPeriodSevenMembernly:UsTreasuryFuturesMember2020-09-300001043219us-gaap:FutureMemberus-gaap:LongMember2020-09-300001043219us-gaap:ShortMemberus-gaap:FutureMember2020-09-300001043219us-gaap:FutureMember2020-01-012020-09-300001043219nly:MaturityPeriodFiveMembernly:UsTreasuryFuturesMember2019-01-012019-12-310001043219nly:MaturityPeriodFiveMemberus-gaap:LongMembernly:UsTreasuryFuturesMember2019-12-310001043219us-gaap:ShortMembernly:MaturityPeriodFiveMembernly:UsTreasuryFuturesMember2019-12-310001043219nly:MaturityPeriodSixMembernly:UsTreasuryFuturesMember2019-01-012019-12-310001043219nly:MaturityPeriodSixMemberus-gaap:LongMembernly:UsTreasuryFuturesMember2019-12-310001043219us-gaap:ShortMembernly:MaturityPeriodSixMembernly:UsTreasuryFuturesMember2019-12-310001043219nly:MaturityPeriodSevenMembernly:UsTreasuryFuturesMember2019-01-012019-12-310001043219us-gaap:LongMembernly:MaturityPeriodSevenMembernly:UsTreasuryFuturesMember2019-12-310001043219us-gaap:ShortMembernly:MaturityPeriodSevenMembernly:UsTreasuryFuturesMember2019-12-310001043219us-gaap:FutureMemberus-gaap:LongMember2019-12-310001043219us-gaap:ShortMemberus-gaap:FutureMember2019-12-310001043219us-gaap:FutureMember2019-01-012019-12-310001043219nly:ToBeAnnouncedContractsMember2020-07-012020-09-300001043219us-gaap:InterestRateSwaptionMember2020-07-012020-09-300001043219nly:UsTreasuryFuturesMember2020-07-012020-09-300001043219us-gaap:LoanPurchaseCommitmentsMember2020-07-012020-09-300001043219nly:CreditDerivativesMember2020-07-012020-09-300001043219nly:ToBeAnnouncedContractsMember2019-07-012019-09-300001043219us-gaap:InterestRateSwaptionMember2019-07-012019-09-300001043219nly:UsTreasuryFuturesMember2019-07-012019-09-300001043219us-gaap:LoanPurchaseCommitmentsMember2019-07-012019-09-300001043219nly:CreditDerivativesMember2019-07-012019-09-300001043219us-gaap:InterestRateSwaptionMember2020-01-012020-09-300001043219nly:UsTreasuryFuturesMember2020-01-012020-09-300001043219us-gaap:LoanPurchaseCommitmentsMember2020-01-012020-09-300001043219nly:CreditDerivativesMember2020-01-012020-09-300001043219nly:ToBeAnnouncedContractsMember2019-01-012019-09-300001043219us-gaap:InterestRateSwaptionMember2019-01-012019-09-300001043219nly:UsTreasuryFuturesMember2019-01-012019-09-300001043219us-gaap:LoanPurchaseCommitmentsMember2019-01-012019-09-300001043219nly:CreditDerivativesMember2019-01-012019-09-300001043219us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-09-300001043219us-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-09-300001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-09-300001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2020-09-300001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2020-09-300001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueMeasurementsRecurringMember2020-09-300001043219us-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:FairValueInputsLevel2Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001043219us-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001043219us-gaap:MortgageBackedSecuritiesIssuedByPrivateEnterprisesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueInputsLevel1Memberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel2Member2019-12-310001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Member2019-12-310001043219us-gaap:ResidentialMortgageMemberus-gaap:FairValueMeasurementsRecurringMember2019-12-310001043219srt:MinimumMemberus-gaap:MeasurementInputDiscountRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-09-300001043219us-gaap:MeasurementInputDiscountRateMembersrt:MaximumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-09-300001043219us-gaap:MeasurementInputDiscountRateMembersrt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-09-300001043219srt:MinimumMemberus-gaap:MeasurementInputDiscountRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-12-310001043219us-gaap:MeasurementInputDiscountRateMembersrt:MaximumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-12-310001043219us-gaap:MeasurementInputDiscountRateMembersrt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-12-310001043219srt:MinimumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMemberus-gaap:MeasurementInputPrepaymentRateMember2020-09-300001043219srt:MaximumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMemberus-gaap:MeasurementInputPrepaymentRateMember2020-09-300001043219srt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMemberus-gaap:MeasurementInputPrepaymentRateMember2020-09-300001043219srt:MinimumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMemberus-gaap:MeasurementInputPrepaymentRateMember2019-12-310001043219srt:MaximumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMemberus-gaap:MeasurementInputPrepaymentRateMember2019-12-310001043219srt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMemberus-gaap:MeasurementInputPrepaymentRateMember2019-12-310001043219srt:MinimumMembernly:MeasurementInputDelinquencyRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-09-300001043219srt:MaximumMembernly:MeasurementInputDelinquencyRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-09-300001043219srt:WeightedAverageMembernly:MeasurementInputDelinquencyRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-09-300001043219srt:MinimumMembernly:MeasurementInputDelinquencyRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-12-310001043219srt:MaximumMembernly:MeasurementInputDelinquencyRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-12-310001043219srt:WeightedAverageMembernly:MeasurementInputDelinquencyRateMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-12-310001043219srt:MinimumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-01-012020-09-300001043219srt:MaximumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-01-012020-09-300001043219srt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2020-01-012020-09-300001043219srt:MinimumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-01-012019-12-310001043219srt:MaximumMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-01-012019-12-310001043219srt:WeightedAverageMemberus-gaap:FairValueMeasurementsRecurringMemberus-gaap:FairValueInputsLevel3Membernly:MortgageServicingRightsMember2019-01-012019-12-310001043219us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-09-300001043219us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2020-09-300001043219us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2019-12-310001043219us-gaap:EstimateOfFairValueFairValueDisclosureMemberus-gaap:FairValueInputsLevel3Member2019-12-310001043219us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2020-09-300001043219us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2020-09-300001043219us-gaap:CarryingReportedAmountFairValueDisclosureMemberus-gaap:FairValueInputsLevel2Member2019-12-310001043219us-gaap:FairValueInputsLevel2Memberus-gaap:EstimateOfFairValueFairValueDisclosureMember2019-12-310001043219nly:AssembledWorkforceMember2020-01-012020-06-3000010432192019-01-012019-12-310001043219nly:AgencyMortgageBackedSecuritiesMemberus-gaap:MaturityOvernightMember2020-09-300001043219nly:CreditRiskTransferSecuritiesMemberus-gaap:MaturityOvernightMember2020-09-300001043219nly:NonAgencyMbsMemberus-gaap:MaturityOvernightMember2020-09-300001043219us-gaap:ResidentialMortgageMemberus-gaap:MaturityOvernightMember2020-09-300001043219us-gaap:CommercialLoanMemberus-gaap:MaturityOvernightMember2020-09-300001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:MaturityOvernightMember2020-09-300001043219us-gaap:MaturityOvernightMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesMembernly:Maturity2To29DaysMember2020-09-300001043219nly:CreditRiskTransferSecuritiesMembernly:Maturity2To29DaysMember2020-09-300001043219nly:NonAgencyMbsMembernly:Maturity2To29DaysMember2020-09-300001043219us-gaap:ResidentialMortgageMembernly:Maturity2To29DaysMember2020-09-300001043219us-gaap:CommercialLoanMembernly:Maturity2To29DaysMember2020-09-300001043219nly:Maturity2To29DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2020-09-300001043219nly:Maturity2To29DaysMember2020-09-300001043219nly:Maturity30To59DaysMembernly:AgencyMortgageBackedSecuritiesMember2020-09-300001043219nly:Maturity30To59DaysMembernly:CreditRiskTransferSecuritiesMember2020-09-300001043219nly:Maturity30To59DaysMembernly:NonAgencyMbsMember2020-09-300001043219us-gaap:ResidentialMortgageMembernly:Maturity30To59DaysMember2020-09-300001043219nly:Maturity30To59DaysMemberus-gaap:CommercialLoanMember2020-09-300001043219nly:Maturity30To59DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2020-09-300001043219nly:Maturity30To59DaysMember2020-09-300001043219nly:Maturity60To89DaysMembernly:AgencyMortgageBackedSecuritiesMember2020-09-300001043219nly:Maturity60To89DaysMembernly:CreditRiskTransferSecuritiesMember2020-09-300001043219nly:Maturity60To89DaysMembernly:NonAgencyMbsMember2020-09-300001043219us-gaap:ResidentialMortgageMembernly:Maturity60To89DaysMember2020-09-300001043219nly:Maturity60To89DaysMemberus-gaap:CommercialLoanMember2020-09-300001043219nly:Maturity60To89DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2020-09-300001043219nly:Maturity60To89DaysMember2020-09-300001043219nly:Maturity90To119DaysMembernly:AgencyMortgageBackedSecuritiesMember2020-09-300001043219nly:Maturity90To119DaysMembernly:CreditRiskTransferSecuritiesMember2020-09-300001043219nly:Maturity90To119DaysMembernly:NonAgencyMbsMember2020-09-300001043219us-gaap:ResidentialMortgageMembernly:Maturity90To119DaysMember2020-09-300001043219nly:Maturity90To119DaysMemberus-gaap:CommercialLoanMember2020-09-300001043219nly:Maturity90To119DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2020-09-300001043219nly:Maturity90To119DaysMember2020-09-300001043219nly:MaturityOver120DaysMembernly:AgencyMortgageBackedSecuritiesMember2020-09-300001043219nly:MaturityOver120DaysMembernly:CreditRiskTransferSecuritiesMember2020-09-300001043219nly:MaturityOver120DaysMembernly:NonAgencyMbsMember2020-09-300001043219us-gaap:ResidentialMortgageMembernly:MaturityOver120DaysMember2020-09-300001043219nly:MaturityOver120DaysMemberus-gaap:CommercialLoanMember2020-09-300001043219nly:MaturityOver120DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2020-09-300001043219nly:MaturityOver120DaysMember2020-09-300001043219nly:NonAgencyMbsMember2020-09-300001043219us-gaap:CommercialLoanMember2020-09-300001043219nly:AgencyMortgageBackedSecuritiesMemberus-gaap:MaturityOvernightMember2019-12-310001043219nly:CreditRiskTransferSecuritiesMemberus-gaap:MaturityOvernightMember2019-12-310001043219nly:NonAgencyMbsMemberus-gaap:MaturityOvernightMember2019-12-310001043219us-gaap:CommercialLoanMemberus-gaap:MaturityOvernightMember2019-12-310001043219us-gaap:CommercialMortgageBackedSecuritiesMemberus-gaap:MaturityOvernightMember2019-12-310001043219us-gaap:MaturityOvernightMember2019-12-310001043219nly:AgencyMortgageBackedSecuritiesMembernly:Maturity2To29DaysMember2019-12-310001043219nly:CreditRiskTransferSecuritiesMembernly:Maturity2To29DaysMember2019-12-310001043219nly:NonAgencyMbsMembernly:Maturity2To29DaysMember2019-12-310001043219us-gaap:CommercialLoanMembernly:Maturity2To29DaysMember2019-12-310001043219nly:Maturity2To29DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2019-12-310001043219nly:Maturity2To29DaysMember2019-12-310001043219nly:Maturity30To59DaysMembernly:AgencyMortgageBackedSecuritiesMember2019-12-310001043219nly:Maturity30To59DaysMembernly:CreditRiskTransferSecuritiesMember2019-12-310001043219nly:Maturity30To59DaysMembernly:NonAgencyMbsMember2019-12-310001043219nly:Maturity30To59DaysMemberus-gaap:CommercialLoanMember2019-12-310001043219nly:Maturity30To59DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2019-12-310001043219nly:Maturity30To59DaysMember2019-12-310001043219nly:Maturity60To89DaysMembernly:AgencyMortgageBackedSecuritiesMember2019-12-310001043219nly:Maturity60To89DaysMembernly:CreditRiskTransferSecuritiesMember2019-12-310001043219nly:Maturity60To89DaysMembernly:NonAgencyMbsMember2019-12-310001043219nly:Maturity60To89DaysMemberus-gaap:CommercialLoanMember2019-12-310001043219nly:Maturity60To89DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2019-12-310001043219nly:Maturity60To89DaysMember2019-12-310001043219nly:Maturity90To119DaysMembernly:AgencyMortgageBackedSecuritiesMember2019-12-310001043219nly:Maturity90To119DaysMembernly:CreditRiskTransferSecuritiesMember2019-12-310001043219nly:Maturity90To119DaysMembernly:NonAgencyMbsMember2019-12-310001043219nly:Maturity90To119DaysMemberus-gaap:CommercialLoanMember2019-12-310001043219nly:Maturity90To119DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2019-12-310001043219nly:Maturity90To119DaysMember2019-12-310001043219nly:MaturityOver120DaysMembernly:AgencyMortgageBackedSecuritiesMember2019-12-310001043219nly:MaturityOver120DaysMembernly:CreditRiskTransferSecuritiesMember2019-12-310001043219nly:MaturityOver120DaysMembernly:NonAgencyMbsMember2019-12-310001043219nly:MaturityOver120DaysMemberus-gaap:CommercialLoanMember2019-12-310001043219nly:MaturityOver120DaysMemberus-gaap:CommercialMortgageBackedSecuritiesMember2019-12-310001043219nly:MaturityOver120DaysMember2019-12-310001043219nly:NonAgencyMbsMember2019-12-310001043219us-gaap:CommercialLoanMember2019-12-310001043219nly:DebtNonCurrentMembernly:DebtInstrumentMaturityPeriodOneMembersrt:FederalHomeLoanBankOfDesMoinesMember2019-12-310001043219nly:DebtNonCurrentMembernly:DebtInstrumentMaturityPeriodOneMembersrt:MaximumMember2019-01-012019-12-310001043219nly:DebtNonCurrentMembernly:DebtInstrumentMaturityPeriodTwoMembersrt:FederalHomeLoanBankOfDesMoinesMember2019-12-310001043219nly:DebtNonCurrentMembersrt:MinimumMembernly:DebtInstrumentMaturityPeriodTwoMember2019-01-012019-12-310001043219nly:DebtNonCurrentMembersrt:MaximumMembernly:DebtInstrumentMaturityPeriodTwoMember2019-01-012019-12-310001043219srt:FederalHomeLoanBankOfDesMoinesMember2019-12-310001043219srt:FederalHomeLoanBankOfDesMoinesMember2020-09-300001043219nly:CommercialMortgageLoanMembernly:JointVentureMember2020-09-300001043219srt:MinimumMembernly:CommercialMortgageLoanMembernly:JointVentureMember2020-09-300001043219nly:CommercialMortgageLoanMembersrt:MaximumMembernly:JointVentureMember2020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMembernly:JointVentureMember2020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMembernly:JointVentureMember2020-01-012020-09-300001043219nly:CommercialMortgageLoanMemberstpr:VA2020-09-300001043219srt:MinimumMembernly:CommercialMortgageLoanMemberstpr:VA2020-09-300001043219nly:CommercialMortgageLoanMembersrt:MaximumMemberstpr:VA2020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMemberstpr:VA2020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMemberstpr:VA2020-01-012020-09-300001043219nly:CommercialMortgageLoanMemberstpr:TX2020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMemberstpr:UT2020-09-300001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMemberstpr:UT2020-01-012020-09-300001043219nly:CommercialMortgageLoanMemberstpr:UT2020-09-300001043219nly:CommercialMortgageLoanMemberstpr:MN2020-09-300001043219nly:CommercialMortgageLoanMemberstpr:WI2020-09-300001043219nly:CommercialMortgageLoanMember2020-09-300001043219nly:CommercialMortgageLoanMembernly:JointVentureMember2019-12-310001043219srt:MinimumMembernly:CommercialMortgageLoanMembernly:JointVentureMember2019-12-310001043219nly:CommercialMortgageLoanMembersrt:MaximumMembernly:JointVentureMember2019-12-310001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMembernly:JointVentureMember2019-12-310001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMembernly:JointVentureMember2019-01-012019-12-310001043219nly:CommercialMortgageLoanMemberstpr:VA2019-12-310001043219srt:MinimumMembernly:CommercialMortgageLoanMemberstpr:VA2019-12-310001043219nly:CommercialMortgageLoanMembersrt:MaximumMemberstpr:VA2019-12-310001043219nly:CommercialMortgageLoanMemberstpr:TX2019-12-310001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMemberstpr:UT2019-12-310001043219nly:CommercialMortgageLoanMemberus-gaap:LondonInterbankOfferedRateLIBORMemberstpr:UT2019-01-012019-12-310001043219nly:CommercialMortgageLoanMemberstpr:UT2019-12-310001043219nly:CommercialMortgageLoanMemberstpr:MN2019-12-310001043219nly:CommercialMortgageLoanMemberstpr:WI2019-12-310001043219nly:CommercialMortgageLoanMember2019-12-310001043219nly:PublicOfferingMember2019-01-012019-09-300001043219nly:PublicOfferingAdditionalSharePurchaseOptionMember2019-01-012019-09-300001043219nly:AtthemarketSaleProgramMember2018-01-012018-01-310001043219nly:AtthemarketSaleProgramMember2020-01-012020-09-300001043219nly:AtthemarketSaleProgramMember2019-01-012019-09-300001043219us-gaap:SeriesDPreferredStockMember2020-09-300001043219us-gaap:SeriesDPreferredStockMember2019-12-310001043219us-gaap:SeriesDPreferredStockMember2020-01-012020-09-300001043219us-gaap:SeriesFPreferredStockMember2020-09-300001043219us-gaap:SeriesFPreferredStockMember2019-12-310001043219us-gaap:SeriesFPreferredStockMember2020-01-012020-09-300001043219us-gaap:SeriesGPreferredStockMember2020-09-300001043219us-gaap:SeriesGPreferredStockMember2019-12-310001043219us-gaap:SeriesGPreferredStockMember2020-01-012020-09-300001043219nly:SeriesIPreferredStockMember2020-09-300001043219nly:SeriesIPreferredStockMember2019-12-310001043219nly:SeriesIPreferredStockMember2020-01-012020-09-300001043219us-gaap:SeriesCPreferredStockMember2019-01-012019-09-300001043219us-gaap:SeriesCPreferredStockMember2019-07-012019-09-300001043219us-gaap:SeriesCPreferredStockMember2019-09-300001043219us-gaap:SeriesHPreferredStockMember2019-01-012019-09-300001043219us-gaap:SeriesHPreferredStockMember2019-09-300001043219nly:SeriesIPreferredStockMember2019-01-012019-09-300001043219us-gaap:SeriesCPreferredStockMember2020-07-012020-09-300001043219us-gaap:SeriesCPreferredStockMember2020-01-012020-09-300001043219us-gaap:SeriesDPreferredStockMember2020-07-012020-09-300001043219us-gaap:SeriesDPreferredStockMember2019-07-012019-09-300001043219us-gaap:SeriesDPreferredStockMember2019-01-012019-09-300001043219us-gaap:SeriesFPreferredStockMember2020-07-012020-09-300001043219us-gaap:SeriesFPreferredStockMember2019-07-012019-09-300001043219us-gaap:SeriesFPreferredStockMember2019-01-012019-09-300001043219us-gaap:SeriesGPreferredStockMember2020-07-012020-09-300001043219us-gaap:SeriesGPreferredStockMember2019-07-012019-09-300001043219us-gaap:SeriesGPreferredStockMember2019-01-012019-09-300001043219us-gaap:SeriesHPreferredStockMember2020-07-012020-09-300001043219us-gaap:SeriesHPreferredStockMember2019-07-012019-09-300001043219us-gaap:SeriesHPreferredStockMember2020-01-012020-09-300001043219nly:SeriesIPreferredStockMember2020-07-012020-09-300001043219nly:SeriesIPreferredStockMember2019-07-012019-09-300001043219nly:TaxableREITSubsidiaryMember2020-07-012020-09-300001043219nly:TaxableREITSubsidiaryMember2020-01-012020-09-300001043219nly:TaxableREITSubsidiaryMember2019-07-012019-09-300001043219nly:TaxableREITSubsidiaryMember2019-01-012019-09-3000010432192020-02-1200010432192019-03-2700010432192019-03-272019-03-2700010432192020-01-012020-06-300001043219nly:ManagementAgreementMember2020-01-012020-09-300001043219nly:ManagementAgreementMember2019-01-012019-09-300001043219nly:ManagementAgreementMember2020-09-300001043219nly:ManagementAgreementMember2019-12-310001043219nly:RcapMember2020-09-300001043219us-gaap:SubsequentEventMember2020-10-012020-10-30

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


FORM 10-Q

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

FOR THE QUARTERLY PERIOD ENDED:  September 30, 2020
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM _______________ TO _________________
COMMISSION FILE NUMBER:  1-13447

nly-20200930_g1.jpg

ANNALY CAPITAL MANAGEMENT INC
(Exact Name of Registrant as Specified in its Charter)
Maryland
22-3479661
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
  
1211 Avenue of the Americas 
New York,
New York
10036
(Address of principal executive offices)(Zip Code)
(212) 696-0100
(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of Each ClassTrading Symbol(s)Name of Each Exchange on Which Registered
Common Stock, par value $0.01 per shareNLYNew York Stock Exchange
7.50% Series D Cumulative Redeemable Preferred StockNLY.DNew York Stock Exchange
6.95% Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNLY.FNew York Stock Exchange
6.50% Series G Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNLY.GNew York Stock Exchange
6.75% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred StockNLY.INew York Stock Exchange








Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes     No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes     No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated
filer
Accelerated
filer
Non-accelerated filerSmaller reporting companyEmerging growth company

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

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

The number of shares of the registrant’s Common Stock outstanding on October 30, 2020 was 1,398,228,330.



ANNALY CAPITAL MANAGEMENT, INC.
FORM 10-Q
TABLE OF CONTENTS
  
Page
Item 1.  Financial Statements
Business Environment and Coronavirus Disease 2019 (“COVID-19”) 
 
Item 5. Other Information



ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL CONDITION
(dollars in thousands, except per share data)
 September 30,December 31,
2020
2019 (1)
(Unaudited)
Assets  
Cash and cash equivalents (includes pledged assets of $1,025,431 and $1,648,545, respectively) (2)
$1,239,982 $1,850,729 
Securities (includes pledged assets of $67,664,458 and $108,809,569, respectively) (3)
76,098,985 114,833,580 
Loans, net (includes pledged assets of $2,096,223 and $3,240,583, respectively) (4)
2,788,341 4,462,350 
Mortgage servicing rights (includes pledged assets of $3,431 and $3,336, respectively)
207,985 378,078 
Assets transferred or pledged to securitization vehicles7,269,402 7,002,460 
Real estate, net790,597 725,638 
Derivative assets103,245 113,556 
Receivable for unsettled trades54,200 4,792 
Principal and interest receivable281,009 449,906 
Goodwill and intangible assets, net136,900 92,772 
Other assets221,765 381,220 
Total assets$89,192,411 $130,295,081 
Liabilities and stockholders’ equity  
Liabilities  
Repurchase agreements$64,633,447 $101,740,728 
Other secured financing861,373 4,455,700 
Debt issued by securitization vehicles6,027,576 5,622,801 
Mortgages payable507,934 485,005 
Derivative liabilities1,182,681 803,866 
Payable for unsettled trades1,176,001 463,387 
Interest payable155,338 476,335 
Dividends payable308,644 357,527 
Other liabilities144,745 93,388 
Total liabilities74,997,739 114,498,737 
Stockholders’ equity  
Preferred stock, par value $0.01 per share, 85,150,000 authorized, 81,900,000 issued and outstanding
1,982,026 1,982,026 
Common stock, par value $0.01 per share, 2,914,850,000 authorized, 1,402,928,317 and 1,430,106,199 issued and outstanding, respectively
14,029 14,301 
Additional paid-in capital19,798,032 19,966,923 
Accumulated other comprehensive income (loss)3,589,056 2,138,191 
Accumulated deficit(11,200,937)(8,309,424)
Total stockholders’ equity14,182,206 15,792,017 
Noncontrolling interests12,466 4,327 
Total equity14,194,672 15,796,344 
Total liabilities and equity$89,192,411 $130,295,081 
(1)Derived from the audited consolidated financial statements at December 31, 2019.
(2)Includes cash of consolidated Variable Interest Entities (“VIEs”) of $84.9 million and $67.5 million at September 30, 2020 and December 31, 2019, respectively.
(3)Excludes $50.3 million and $102.5 million at September 30, 2020 and December 31, 2019, respectively, of Agency mortgage-backed securities, $544.0 million and $468.0 million at September 30, 2020 and December 31, 2019, respectively, of non-Agency mortgage-backed securities and $392.6 million and $500.3 million at September 30, 2020 and December 31, 2019, respectively, of commercial mortgage-backed securities in consolidated VIEs pledged as collateral and eliminated from the Company’s Consolidated Statements of Financial Condition. 
(4)Includes $50.0 million and $66.7 million of residential mortgage loans held for sale at September 30, 2020 and December 31, 2019, respectively.

See notes to consolidated financial statements.
1


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(dollars in thousands, except per share data)
(Unaudited)
 For The Three Months Ended September 30,For The Nine Months Ended September 30,
 2020201920202019
Net interest income  
Interest income$562,443 $919,299 $1,702,281 $2,713,083 
Interest expense115,126 766,905 804,631 2,164,817 
Net interest income447,317 152,394 897,650 548,266 
Realized and unrealized gains (losses)  
Net interest component of interest rate swaps(62,529)88,466 (141,070)306,154 
Realized gains (losses) on termination or maturity of interest rate swaps(427)(682,602)(1,919,720)(1,438,349)
Unrealized gains (losses) on interest rate swaps170,327 (326,309)(1,162,768)(1,992,884)
Subtotal107,371 (920,445)(3,223,558)(3,125,079)
Net gains (losses) on disposal of investments and other198,888 66,522 652,150 (65,727)
Net gains (losses) on other derivatives169,316 (16,888)546,658 (638,458)
Net unrealized gains (losses) on instruments measured at fair value through earnings121,255 (1,091)(354,133)41,657 
Loan loss provision21,993 (3,504)(146,084)(9,207)
Subtotal511,452 45,039 698,591 (671,735)
Total realized and unrealized gains (losses)618,823 (875,406)(2,524,967)(3,796,814)
Other income (loss)7,959 35,074 38,109 93,757 
General and administrative expenses
Compensation and management fee29,196 41,161 107,057 130,225 
Other general and administrative expenses19,636 24,977 87,070 98,058 
Total general and administrative expenses48,832 66,138 194,127 228,283 
Income (loss) before income taxes1,025,267 (754,076)(1,783,335)(3,383,074)
Income taxes9,719 (6,907)(14,928)(10,241)
Net income (loss)1,015,548 (747,169)(1,768,407)(3,372,833)
Net income (loss) attributable to noncontrolling interests(126)(110)(28)(294)
Net income (loss) attributable to Annaly1,015,674 (747,059)(1,768,379)(3,372,539)
Dividends on preferred stock (1)
35,509 36,151 106,527 101,067 
Net income (loss) available (related) to common stockholders$980,165 $(783,210)$(1,874,906)$(3,473,606)
Net income (loss) per share available (related) to common stockholders  
Basic$0.70 $(0.54)$(1.32)$(2.42)
Diluted$0.70 $(0.54)$(1.32)$(2.42)
Weighted average number of common shares outstanding  
Basic1,404,202,695 1,453,359,211 1,419,645,475 1,436,204,582 
Diluted1,404,368,300 1,453,359,211 1,419,645,475 1,436,204,582 
Other comprehensive income (loss)  
Net income (loss)$1,015,548 $(747,169)$(1,768,407)$(3,372,833)
Unrealized gains (losses) on available-for-sale securities(140,671)1,034,873 2,220,271 4,289,054 
Reclassification adjustment for net (gains) losses included in net income (loss)(112,347)(86,061)(769,406)4,626 
Other comprehensive income (loss)(253,018)948,812 1,450,865 4,293,680 
Comprehensive income (loss)762,530 201,643 (317,542)920,847 
Comprehensive income (loss) attributable to noncontrolling interests(126)(110)(28)(294)
Comprehensive income (loss) attributable to Annaly762,656 201,753 (317,514)921,141 
Dividends on preferred stock (1)
35,509 36,151 106,527 101,067 
Comprehensive income (loss) attributable to common stockholders$727,147 $165,602 $(424,041)$820,074 
(1) The three months ended September 30, 2019 exclude cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.
See notes to consolidated financial statements.


2


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands)
(Unaudited)
For The Three Months Ended September 30,For The Nine Months Ended September 30,
2020201920202019
Preferred stock
Beginning of period
$1,982,026 $2,110,346 $1,982,026 $1,778,168 
Issuance
 41,146  428,324 
Redemption
 (169,466) (224,466)
End of period$1,982,026 $1,982,026 $1,982,026 $1,982,026 
Common stock
Beginning of period
$14,077 $14,562 $14,301 $13,138 
Issuance
   1,422 
Buyback of common stock
(49)(182)(277)(182)
Stock-based award activity
  3  
Direct purchase and dividend reinvestment
1  2 2 
End of period$14,029 $14,380 $14,029 $14,380 
Additional paid-in capital
Beginning of period
$19,827,216 $20,195,419 $19,966,923 $18,794,331 
Issuance
  (93)1,397,484 
Buyback of common stock
(31,363)(155,122)(174,799)(155,122)
Stock-based award activity
1,510 207 4,928 2,018 
Redemption of preferred stock
 (5,534) (5,534)
Direct purchase and dividend reinvestment
669  1,073 1,793 
End of period$19,798,032 $20,034,970 $19,798,032 $20,034,970 
Accumulated other comprehensive income (loss)
Beginning of period
$3,842,074 $1,365,003 $2,138,191 $(1,979,865)
Unrealized gains (losses) on available-for-sale securities
(140,671)1,034,873 2,220,271 4,289,054 
Reclassification adjustment for net gains (losses) included in net income (loss)
(112,347)(86,061)(769,406)4,626 
End of period$3,589,056 $2,313,815 $3,589,056 $2,313,815 
Accumulated deficit
Beginning of period - unadjusted
$(11,871,927)$(7,982,649)$(8,309,424)$(4,493,660)
Cumulative effect of change in accounting principle for credit losses
  (39,641) 
Beginning of period - adjusted
(11,871,927)(7,982,649)(8,349,065)(4,493,660)
Net income (loss) attributable to Annaly
1,015,674 (747,059)(1,768,379)(3,372,539)
Dividends declared on preferred stock (1)
(35,509)(36,451)(106,527)(101,067)
Dividends and dividend equivalents declared on common stock and stock-based awards (1)
(309,175)(359,736)(976,966)(1,158,629)
End of period$(11,200,937)$(9,125,895)$(11,200,937)$(9,125,895)
Total stockholder’s equity$14,182,206 $15,219,296 $14,182,206 $15,219,296 
Noncontrolling interests
Beginning of period
$4,137 $4,726 $4,327 $5,689 
Net income (loss) attributable to noncontrolling interests
(126)(110)(28)(294)
Equity contributions from (distributions to) noncontrolling interests
8,455 (208)8,167 (987)
End of period$12,466 $4,408 $12,466 $4,408 
Total equity$14,194,672 $15,223,704 $14,194,672 $15,223,704 
(1)    See Note titled “Capital Stock” for dividends per share for each class of shares. The three months ended September 30, 2019 include cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.

See notes to consolidated financial statements.



3


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
 For The Nine Months Ended September 30,
 20202019
Cash flows from operating activities  
Net income (loss)$(1,768,407)$(3,372,833)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities
Amortization of premiums and discounts of investments, net1,130,285 943,277 
Amortization of securitized debt premiums and discounts and deferred financing costs(7,263)(11,457)
Depreciation, amortization and other noncash expenses28,181 24,107 
Net (gains) losses on disposal of investments and other(652,150)65,727 
Net (gains) losses on investments and derivatives2,889,963 2,589,685 
Income from unconsolidated joint ventures(2,596)3,350 
Loan loss provision146,084 9,207 
Payments on purchases of loans held for sale(120,855)(196,252)
Proceeds from sales and repayments of loans held for sale139,672 220,409 
Net receipts (payments) on derivatives(2,210,881)(2,561,170)
Net change in  
Other assets291,745 (45,547)
Interest receivable 148,165 (92,959)
Interest payable(320,997)(5,131)
Other liabilities(30,769)34,194 
Net cash provided by (used in) operating activities(339,823)(2,395,393)
Cash flows from investing activities  
Payments on purchases of securities(24,970,238)(51,502,672)
Proceeds from sales of securities50,295,038 19,713,184 
Principal payments on securities14,392,160 11,206,792 
Payments on purchases and origination of loans(1,658,578)(2,718,403)
Proceeds from sales of loans583,040 365,787 
Principal payments on loans1,558,859 2,523,471 
Investments in real estate(6,123)(12,384)
Proceeds from sales of real estate 6,661 
Proceeds from reverse repurchase agreements46,100,000 78,439,755 
Payments on reverse repurchase agreements(46,100,000)(77,789,715)
Distributions in excess of cumulative earnings from unconsolidated joint ventures6,641 1,975 
Cash acquired in asset acquisition1,047  
Net cash provided by (used in) investing activities40,201,846 (19,765,549)
Cash flows from financing activities  
Proceeds from repurchase agreements and other secured financing2,353,694,509 4,275,937,246 
Payments on repurchase agreements and other secured financing(2,394,417,060)(4,254,088,297)
Proceeds from issuances of securitized debt2,385,374 2,030,356 
Principal payments on securitized debt(860,306)(1,778,314)
Payment of deferred financing cost(553)(5,222)
Net proceeds from stock offerings, direct purchases and dividend reinvestments1,075 1,829,025 
Redemptions of preferred stock (230,000)
Net principal receipts (payments) on mortgages payable22,550 (25,398)
Net contributions (distributions) from (to) noncontrolling interests8,167 (987)
Net payment on share repurchase(175,076)(155,304)
Dividends paid(1,131,450)(1,293,991)
Net cash provided by (used in) financing activities(40,472,770)22,219,114 
Net (decrease) increase in cash and cash equivalents$(610,747)$58,172 
Cash and cash equivalents including cash pledged as collateral, beginning of period1,850,729 1,735,749 
Cash and cash equivalents including cash pledged as collateral, end of period$1,239,982 $1,793,921 
Supplemental disclosure of cash flow information  
Interest received$2,926,598 $3,583,189 
Dividends received$4,485 $6,279 
Interest paid (excluding interest paid on interest rate swaps)$1,050,203 $2,041,539 
Net interest paid on interest rate swaps$290,277 $(96,169)
Taxes received (paid)$1,551 $274 
Noncash investing and financing activities
Receivable for unsettled trades$54,200 $193,229 
Payable for unsettled trades$1,176,001 $245,626 
Net change in unrealized gains (losses) on available-for-sale securities, net of reclassification adjustment$1,450,865 $4,293,680 
Dividends declared, not yet paid$308,644 $359,491 
Derecognition of assets of consolidated VIEs$1,222,221 $ 
Derecognition of securitized debt of consolidated VIEs$1,141,311 $ 
See notes to consolidated financial statements.
4


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. DESCRIPTION OF BUSINESS
Annaly Capital Management, Inc. (the “Company” or “Annaly”) is a Maryland corporation that commenced operations on February 18, 1997.  The Company is a leading diversified capital manager that invests in and finances residential and commercial assets. The Company owns a portfolio of real estate related investments, including mortgage pass-through certificates, collateralized mortgage obligations, credit risk transfer (“CRT”) securities, other securities representing interests in or obligations backed by pools of mortgage loans, residential mortgage loans, mortgage servicing rights (“MSRs”), commercial real estate assets and corporate debt. The Company’s principal business objective is to generate net income for distribution to its stockholders and optimize its returns through prudent management of its diversified investment strategies.
The Company’s four investment groups are primarily comprised of the following:
Investment GroupsDescription
Annaly Agency Group
Invests in Agency mortgage-backed securities (“MBS”) collateralized by residential mortgages which are guaranteed by Fannie Mae, Freddie Mac or Ginnie Mae.
Annaly Residential Credit Group
Invests primarily in non-Agency residential mortgage assets within securitized products and residential mortgage loan markets.
Annaly Commercial Real Estate Group
Originates and invests in commercial mortgage loans, securities, and other commercial real estate debt and equity investments.
Annaly Middle Market Lending Group
Provides financing to private equity-backed middle market businesses, focusing primarily on senior debt within select industries.
The Company is an internally-managed company that has elected to be taxed as a Real Estate Investment Trust (“REIT”) as defined under the Internal Revenue Code of 1986, as amended, and regulations promulgated thereunder (the “Code”). Prior to the closing of the Internalization (as defined in Note 19) on June 30, 2020, the Company was externally managed by Annaly Management Company LLC (the “Former Manager”).

2. BASIS OF PRESENTATION
The accompanying consolidated financial statements and related notes of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”).
The accompanying consolidated financial statements and related notes are unaudited and should be read in conjunction with the audited consolidated financial statements included in the Company’s most recent Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (the “2019 Form 10-K”). The consolidated financial information as of December 31, 2019 has been derived from audited consolidated financial statements included in the Company’s 2019 Form 10-K.
The preparation of the consolidated financial statements requires management to make estimates and assumptions that affect the reported balance sheet amounts and/or disclosures at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ materially from those estimates.
In the opinion of management, all normal, recurring adjustments have been included for a fair presentation of this interim financial information. Interim period operating results may not be indicative of the operating results for a full year.

3. SIGNIFICANT ACCOUNTING POLICIES
The Company’s significant accounting policies are described below or are included elsewhere in these notes to the Consolidated Financial Statements.
Principles of Consolidation – The consolidated financial statements include the accounts of the entities where the Company has a controlling financial interest. In order to determine whether the Company has a controlling financial interest, it first evaluates whether an entity is a voting interest entity (“VOE”) or a variable interest entity (“VIE”). All intercompany balances and transactions have been eliminated in consolidation.
Voting Interest Entities – A VOE is an entity that has sufficient equity and in which equity investors have a controlling financial interest. The Company consolidates VOEs where it has a majority of the voting equity of such VOE.
Variable Interest Entities – A VIE is defined as an entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without
5


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
additional subordinated financial support from other parties. A VIE is required to be consolidated by its primary beneficiary, which is defined as the party that has both (i) the power to control the activities that most significantly impact the VIE’s economic performance and (ii) the obligation to absorb losses or the right to receive benefits from the VIE that could potentially be significant to the VIE.
The Company performs ongoing reassessments of whether changes in the facts and circumstances regarding the Company’s involvement with a VIE causes the Company’s consolidation conclusion to change. Refer to the “Variable Interest Entities” Note for further information.
Equity Method Investments - For entities that are not consolidated, but where the Company has significant influence over the operating or financial decisions of the entity, the Company accounts for the investment under the equity method of accounting. In accordance with the equity method of accounting, the Company will recognize its share of earnings or losses of the investee in the period in which they are reported by the investee. The Company also considers whether there are any indicators of other-than-temporary impairment of joint ventures accounted for under the equity method. These investments are included in real estate, net and Other assets with income or loss included in Other income (loss).
Cash and Cash Equivalents – Cash and cash equivalents include cash on hand, cash held in money market funds on an overnight basis and cash pledged as collateral with counterparties. Cash deposited with clearing organizations is carried at cost, which approximates fair value. Cash and securities deposited with clearing organizations and collateral held in the form of cash on margin with counterparties to the Company’s interest rate swaps and other derivatives totaled $1.0 billion and $1.6 billion at September 30, 2020 and December 31, 2019, respectively.
Equity Securities – The Company may invest in equity securities that are not accounted for under the equity method or do not result in consolidation. These equity securities are required to be reported at fair value with unrealized gains and losses reported in the Consolidated Statements of Comprehensive Income (Loss) as Net unrealized gains (losses) on instruments measured at fair value through earnings, unless the securities do not have readily determinable fair values. For such equity securities without readily determinable fair values, the Company has elected to carry the securities at cost less impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment of the same issuer. For equity securities carried at fair value through earnings, dividends are recorded in earnings on the declaration date. Dividends from equity securities without readily determinable fair values are recognized as income when received to the extent they are distributed from net accumulated earnings.
Fair Value Measurements and the Fair Value Option – The Company reports various investments at fair value, including certain eligible financial instruments elected to be accounted for under the fair value option (“FVO”). The Company chooses to elect the fair value option in order to simplify the accounting treatment for certain financial instruments. Items for which the fair value option has been elected are presented at fair value in the Consolidated Statements of Financial Condition and any change in fair value is recorded in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss). For additional information regarding financial instruments for which the Company has elected the fair value option see the table in the “Financial Instruments” Note.
Refer to the “Fair Value Measurements” Note for a complete discussion on the methodology utilized by the Company to estimate the fair value of certain financial instruments.
Offsetting Assets and Liabilities - The Company elected to present all derivative instruments on a gross basis as discussed in the “Derivative Instruments” Note. Reverse repurchase and repurchase agreements are presented net in the Consolidated Statements of Financial Condition if they are subject to netting agreements and they meet the offsetting criteria. Please see below and refer to the “Secured Financing” Note for further discussion on reverse repurchase and repurchase agreements.
Derivative Instruments – Derivatives are accounted for in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 815, Derivatives and Hedging, which requires recognition of all derivatives as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on other derivatives with the exception of interest rate swaps which are separately presented. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. Refer to the “Derivative Instruments” Note for further discussion.
Stock-Based Compensation – The Company measures compensation expense for stock-based awards at fair value, which is generally based on the grant-date fair value of the Company’s common stock. Compensation expense is recognized ratably over the vesting or requisite service period of the award. Compensation expense for awards with performance conditions is recognized based on the probable outcome of the performance condition at each reporting date. Stock-based awards that do not require future service (i.e., vested awards) are expensed immediately. Forfeitures are recorded when they occur. The Company generally issues new shares of common stock upon delivery of stock-based awards.
6


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Interest Income - The Company recognizes interest income primarily on Residential Securities, residential mortgage loans, commercial investments and reverse repurchase agreements. Interest accrued but not paid is recognized as Interest receivable on the Consolidated Statements of Financial Condition. Interest income is presented as a separate line item on the Consolidated Statements of Comprehensive Income. Refer to the “Interest Income and Interest Expense” note for further discussion.
For its securities, the Company recognizes coupon income, which is a component of interest income, based upon the outstanding principal amounts of the financial instruments and their contractual terms. In addition, the Company amortizes or accretes premiums or discounts into interest income for its Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), taking into account estimates of future principal prepayments in the calculation of the effective yield.  The Company recalculates the effective yield as differences between anticipated and actual prepayments occur. Using third-party model and market information to project future cash flows and expected remaining lives of securities, the effective interest rate determined for each security is applied as if it had been in place from the date of the security’s acquisition. The amortized cost of the security is then adjusted to the amount that would have existed had the new effective yield been applied since the acquisition date, which results in a cumulative premium amortization adjustment in each period. The adjustment to amortized cost is offset with a charge or credit to interest income. Changes in interest rates and other market factors will impact prepayment speed projections and the amount of premium amortization recognized in any given period.
Premiums or discounts associated with the purchase of Agency interest-only securities, reverse mortgages and residential credit securities are amortized or accreted into interest income based upon current expected future cash flows with any adjustment to yield made on a prospective basis.
Premiums and discounts associated with the purchase of residential mortgage loans and with those transferred or pledged to securitization trusts are primarily amortized or accreted into interest income over their estimated remaining lives using the effective interest rates inherent in the estimated cash flows from the mortgage loans. Amortization of premiums and accretion of discounts are presented in Interest income in the Consolidated Statements of Comprehensive Income (Loss).
If collection of a loan’s principal or interest is in doubt or the loan is 90 days or more past due, interest income is not accrued. For nonaccrual status loans carried at fair value or held for sale, interest is not accrued but is recognized on a cash basis. For nonaccrual status loans carried at amortized cost, if collection of principal is not in doubt but collection of interest is in doubt, interest income is recognized on a cash basis. If collection of principal is in doubt, any interest received is applied against principal until collectability of the remaining balance is no longer in doubt; at that point, any interest income is recognized on a cash basis. Generally, a loan is returned to accrual status when the borrower has resumed paying the full amount of the scheduled contractual obligation, if all principal and interest amounts contractually due are reasonably assured of repayment within a reasonable period of time and there is a sustained period of repayment performance by the borrower. See the Note “Interest Income and Interest Expense” for further discussion on interest.
The Company has made an accounting policy election not to measure an allowance for loans losses for accrued interest receivable. If interest receivable is deemed to be uncollectible or not collected within 90 days of its contractual due date for commercial loans or 120 days for corporate debt carried at amortized cost, it is written off through a reversal of interest income. Any interest written off that is recovered is recognized as interest income.
Refer to the “Interest Income and Interest Expense” Note for further discussion of interest income.
Income Taxes – The Company has elected to be taxed as a REIT and intends to comply with the provisions of the Code, with respect thereto. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. The Company and certain of its direct and indirect subsidiaries have made separate joint elections to treat these subsidiaries as taxable REIT subsidiaries (“TRSs”).  As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon its taxable income. Refer to the “Income Taxes” Note for further discussion on income taxes.
7


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Recent Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates (“ASUs”).  ASUs not listed below were not applicable, not expected to have a significant impact on the Company’s consolidated financial statements when adopted or did not have a significant impact on the Company’s consolidated financial statements upon adoption.
StandardDescriptionEffective DateEffect on the Financial Statements or Other Significant Matters
Standards that were adopted
ASU 2016-13 Financial instruments - Credit losses (Topic 326): Measurement of credit losses on financial instruments (“ASU 2016-13”)
This ASU updates the existing incurred loss model to a current expected credit loss (“CECL”) model for financial assets and net investments in leases that are not accounted for at fair value through earnings. The amendments affect cash and cash equivalents, reverse repurchase agreements, certain loans, held-to-maturity debt securities, trade receivables, net investments in leases, off-balance sheet credit exposures and any other financial assets not excluded from the scope.  There are also limited amendments to the impairment model for available-for-sale debt securities.


January 1, 2020
The Company adopted ASU 2016-13 using the modified retrospective method for all financial assets and off-balance-sheet credit exposures in scope. The modified retrospective approach requires an adjustment to beginning retained earnings for the cumulative effect of adopting the standard. Results for reporting periods beginning after January 1, 2020 are presented in accordance with ASU 2016-13, while prior periods continue to be reported in accordance with previously applicable GAAP. As a result of the adoption, the Company recorded an increase to the loan loss allowance of $37.4 million and a liability of $2.2 million for unfunded loan commitments, which reduced beginning retained earnings by $39.6 million as of January 1, 2020.

8


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
4. FINANCIAL INSTRUMENTS
The following table presents characteristics for certain of the Company’s financial instruments at September 30, 2020 and December 31, 2019.
Financial Instruments (1)
Balance Sheet Line ItemType / FormMeasurement BasisSeptember 30, 2020December 31, 2019
Assets(dollars in thousands)
Securities
Agency mortgage-backed securities (2)
Fair value, with unrealized gains (losses) through other comprehensive income$74,393,763 $112,124,958 
Securities
Agency mortgage-backed securities (3)
Fair value, with unrealized gains (losses) through earnings521,404 768,409 
SecuritiesCredit risk transfer securitiesFair value, with unrealized gains (losses) through earnings411,538 531,322 
SecuritiesNon-agency mortgage-backed securitiesFair value, with unrealized gains (losses) through earnings717,602 1,135,868 
SecuritiesCommercial real estate debt investments - CMBSFair value, with unrealized gains (losses) through other comprehensive income31,140 64,655 
Securities
Commercial real estate debt investments - CMBS (4)
Fair value, with unrealized gains (losses) through earnings23,538 208,368 
Total securities76,098,985 114,833,580 
Loans, netResidential mortgage loansFair value, with unrealized gains (losses) through earnings152,959 1,647,787 
Loans, netCommercial real estate debt and preferred equity, held for investmentAmortized cost573,504 669,713 
Loans, netCorporate debt held for investment, netAmortized cost2,061,878 2,144,850 
Total loans, net2,788,341 4,462,350 
Assets transferred or pledged to securitization vehiclesAgency mortgage-backed securitiesFair value, with unrealized gains (losses) through other comprehensive income623,650 1,122,588 
Assets transferred or pledged to securitization vehiclesResidential mortgage loansFair value, with unrealized gains (losses) through earnings3,588,679 2,598,374 
Assets transferred or pledged to securitization vehiclesCommercial mortgage loansFair value, with unrealized gains (losses) through earnings2,174,118 2,345,120 
Assets transferred or pledged to securitization vehiclesCommercial mortgage loansAmortized cost882,955 936,378 
Total assets transferred or pledged to securitization vehicles7,269,402 7,002,460 
Liabilities
Repurchase agreementsRepurchase agreementsAmortized cost64,633,447 101,740,728 
Other secured financingLoansAmortized cost861,373 4,455,700 
Debt issued by securitization vehiclesSecuritiesFair value, with unrealized gains (losses) through earnings6,027,576 5,622,801 
Mortgages payableLoansAmortized cost507,934 485,005 
(1)     Receivable for unsettled trades, Principal and interest receivable, Payable for unsettled trades, Interest payable and Dividends payable are accounted for at cost.
(2)     Includes Agency pass-through, collateralized mortgage obligation (“CMO”) and multifamily securities.
(3)     Includes interest-only securities and reverse mortgages.
(4)     Includes single-asset / single-borrower CMBS.

5. SECURITIES
The Company’s investments in securities include agency, credit risk transfer, non-agency and commercial mortgage-backed securities. All of the debt securities are classified as available-for-sale. Available-for-sale debt securities are carried at fair value, with changes in fair value recognized in other comprehensive income, unless the fair value option is elected in which case changes in fair value are recognized in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss). Transactions for securities are recorded on trade date, including TBA securities that meet the regular-way securities scope exception from derivative accounting. Gains and losses on disposals of securities are recorded on trade date based on the specific identification method.
Impairment – Management evaluates available-for-sale securities and held-to-maturity debt securities for impairment at least quarterly, and more frequently when economic or market conditions warrant such evaluation. When the fair value of an available-for-sale security is less than its amortized cost, the security is considered impaired. For securities that are impaired,
9


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
the Company determines if it (1) has the intent to sell the security, (2) is more likely than not that it will be required to sell the security before recovery of its amortized cost basis, or (3) does not expect to recover the entire amortized cost basis of the security.  Further, the security is analyzed for credit loss (the difference between the present value of cash flows expected to be collected and the amortized cost basis). The credit loss, if any, will then be recognized in the Consolidated Statements of Comprehensive Income (Loss) as a Securities Loss Provision and reflected as an Allowance for Credit Losses on Securities on the Consolidated Statements of Financial Condition, while the balance of losses related to other factors will be recognized as a component of Other comprehensive income (loss). There was no impairment recognized for the three or nine months ended September 30, 2020 and 2019.
Agency Mortgage-Backed Securities - The Company invests in mortgage pass-through certificates, collateralized mortgage obligations and other MBS representing interests in or obligations backed by pools of residential or multifamily mortgage loans and certificates. Many of the underlying loans and certificates are guaranteed by the Government National Mortgage Association (“Ginnie Mae”), the Federal Home Loan Mortgage Corporation (“Freddie Mac”) or the Federal National Mortgage Association (“Fannie Mae”) (collectively, “Agency mortgage-backed securities”). 
Agency mortgage-backed securities may include forward contracts for Agency mortgage-backed securities purchases or sales of a generic pool, on a to-be-announced basis (“TBA securities”). TBA securities without intent to accept delivery (“TBA derivatives”), are accounted for as derivatives as discussed in the “Derivative Instruments” Note.
CRT Securities - CRT securities are risk sharing instruments issued by Fannie Mae and Freddie Mac, and similarly structured transactions arranged by third party market participants. CRT securities are designed to synthetically transfer mortgage credit risk from Fannie Mae and Freddie Mac to private investors.
Non-Agency Mortgage-Backed Securities - The Company invests in non-Agency mortgage-backed securities such as those issued in prime loan, Alt-A loan, subprime loan, non-performing loan (“NPL”) and re-performing loan (“RPL”) securitizations.
Agency mortgage-backed securities, non-Agency mortgage-backed securities and CRT securities are referred to herein as “Residential Securities.” Although the Company generally intends to hold most of its Residential Securities until maturity, it may, from time to time, sell any of its Residential Securities as part of the overall management of its portfolio.
Commercial Mortgage-Backed Securities (“Commercial Securities”) - Certain commercial mortgage-backed securities are classified as available-for-sale and reported at fair value with any credit loss recognized through an allowance for credit losses and any other unrealized gains and losses reported as a component of Other comprehensive income (loss). Management evaluates its Commercial Securities for impairment at least quarterly. The Company elected the fair value option for all other Commercial Securities, including conduit and credit commercial mortgage-backed securities, to simplify the accounting where the unrealized gains and losses on these financial instruments are recorded through earnings.
The following represents a rollforward of the activity for the Company’s securities, excluding securities transferred or pledged to securitization vehicles, for the nine months ended September 30, 2020:
Residential SecuritiesCommercial SecuritiesTotal
(dollars in thousands)
Beginning balance January 1, 2020$114,560,557 $273,023 $114,833,580 
Purchases25,679,591  25,679,591 
Sales and transfers (1)
(50,079,936)(204,062)(50,283,998)
Principal paydowns(14,354,169)(4,933)(14,359,102)
(Amortization) / accretion(1,135,486)377 (1,135,109)
Fair value adjustment1,373,750 (9,727)1,364,023 
Ending balance September 30, 2020$76,044,307 $54,678 $76,098,985 
(1)     Includes transfers to securitization vehicles.
10


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following tables present the Company’s securities portfolio, excluding securities transferred or pledged to securitization vehicles, that was carried at their fair value at September 30, 2020 and December 31, 2019:
 September 30, 2020
 Principal /
Notional
Remaining PremiumRemaining DiscountAmortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair Value
Agency(dollars in thousands)
Fixed-rate pass-through$65,676,115 $3,142,668 $(23,694)$68,795,089 $3,416,366 $(885)$72,210,570 
Adjustable-rate pass-through502,382 3,436 (3,423)502,395 24,872  527,267 
CMO144,899 2,253  147,152 5,361  152,513 
Interest-only3,081,524 600,917  600,917 7,705 (143,246)465,376 
Multifamily1,433,340 17,207 (1,083)1,449,464 62,240 (8,291)1,503,413 
Reverse mortgages51,189 4,379  55,568 563 (103)56,028 
Total agency securities$70,889,449 $3,770,860 $(28,200)$71,550,585 $3,517,107 $(152,525)$74,915,167 
Residential credit       
CRT (1)
$463,482 $8,280 $(1,556)$459,233 $1,007 $(48,702)$411,538 
Alt-A104,381 51 (20,322)84,110 6,845 (1)90,954 
Prime184,166 4,877 (14,520)174,523 12,121 (466)186,178 
Prime interest-only237,377 2,355  2,355  (1,164)1,191 
Subprime131,194  (19,750)111,444 8,107 (4)119,547 
NPL/RPL284,699 697 (2,684)282,712 1,950 (2,793)281,869 
Prime jumbo (>=2010 vintage)39,666  (5,107)34,559 1,766 (121)36,204 
Prime jumbo (>=2010 vintage) Interest-only366,870 7,485  7,485  (5,826)1,659 
Total residential credit securities$1,811,835 $23,745 $(63,939)$1,156,421 $31,796 $(59,077)$1,129,140 
Total Residential Securities$72,701,284 $3,794,605 $(92,139)$72,707,006 $3,548,903 $(211,602)$76,044,307 
Commercial
Commercial Securities$64,458 $ $(7,631)$56,827 $ $(2,149)$54,678 
Total securities$72,765,742 $3,794,605 $(99,770)$72,763,833 $3,548,903 $(213,751)$76,098,985 
 December 31, 2019
 Principal /
Notional
Remaining PremiumRemaining DiscountAmortized
Cost
Unrealized
Gains
Unrealized
Losses
Estimated Fair Value
Agency(dollars in thousands)
Fixed-rate pass-through$102,448,565 $4,345,053 $(46,614)$106,747,004 $2,071,583 $(95,173)$108,723,414 
Adjustable-rate pass-through1,474,818 72,245 (1,400)1,545,663 10,184 (31,516)1,524,331 
CMO156,937 2,534  159,471 545  160,016 
Interest-only4,486,845 862,905  862,905 2,787 (157,130)708,562 
Multifamily1,619,900 19,981 (2,280)1,637,601 82,292 (2,696)1,717,197 
Reverse mortgages54,553 5,053  59,606 550 (309)59,847 
Total agency investments$110,241,618 $5,307,771 $(50,294)$111,012,250 $2,167,941 $(286,824)$112,893,367 
Residential credit       
CRT (1)
$517,110 $15,850 $(2,085)$515,950 $16,605 $(1,233)$531,322 
Alt-A160,957 250 (22,306)138,901 12,482  151,383 
Prime277,076 3,362 (17,794)262,644 14,142 (529)276,257 
Prime interest-only391,234 3,757  3,757  (590)3,167 
Subprime370,263 1,356 (59,727)311,892 37,205 (118)348,979 
NPL/RPL164,180 351 (440)164,091 191 (14)164,268 
Prime jumbo (>=2010 vintage)182,709 1,026 (4,281)179,454 5,360 (150)184,664 
Prime jumbo (>=2010 vintage) Interest-only554,189 9,001  9,001  (1,851)7,150 
Total residential credit securities$2,617,718 $34,953 $(106,633)$1,585,690 $85,985 $(4,485)$1,667,190 
Total Residential Securities$112,859,336 $5,342,724 $(156,927)$112,597,940 $2,253,926 $(291,309)$114,560,557 
Commercial
Commercial Securities$263,965 $10,873 $(9,393)$265,445 $7,710 $(132)$273,023 
Total securities$113,123,301 $5,353,597 $(166,320)$112,863,385 $2,261,636 $(291,441)$114,833,580 
(1)     Principal/Notional amount includes $11.0 million and $14.9 million of a CRT interest-only security as of September 30, 2020 and December 31, 2019, respectively.

11


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

The following table presents the Company’s Agency mortgage-backed securities portfolio, excluding securities transferred or pledged to securitization vehicles, by issuing Agency at September 30, 2020 and December 31, 2019:
 
September 30, 2020December 31, 2019
Investment Type(dollars in thousands)
Fannie Mae$55,191,253 $76,656,831 
Freddie Mac19,599,587 36,087,100 
Ginnie Mae124,327 149,436 
Total$74,915,167 $112,893,367 
Actual maturities of the Company’s Residential Securities are generally shorter than stated contractual maturities because actual maturities of the portfolio are affected by periodic payments and prepayments of principal on the underlying mortgages.
The following table summarizes the Company’s Residential Securities, excluding securities transferred or pledged to securitization vehicles, at September 30, 2020 and December 31, 2019, according to their estimated weighted average life classifications:
 September 30, 2020December 31, 2019
Estimated Fair ValueAmortized
Cost
Estimated Fair ValueAmortized
Cost
Estimated weighted average life(dollars in thousands)
Less than one year$816,998 $799,272 $3,997 $4,543 
Greater than one year through five years50,911,159 48,461,791 36,290,254 35,581,833 
Greater than five years through ten years23,073,677 22,217,393 77,732,756 76,504,845 
Greater than ten years1,242,473 1,228,550 533,550 506,719 
Total$76,044,307 $72,707,006 $114,560,557 $112,597,940 
The estimated weighted average lives of the Residential Securities at September 30, 2020 and December 31, 2019 in the table above are based upon projected principal prepayment rates. The actual weighted average lives of the Residential Securities could be longer or shorter than projected.
The following table presents the gross unrealized losses and estimated fair value of the Company’s Agency mortgage-backed securities, accounted for as available-for-sale where the fair value option has not been elected, by length of time that such securities have been in a continuous unrealized loss position at September 30, 2020 and December 31, 2019.
 September 30, 2020December 31, 2019
 
Estimated Fair Value (1)
Gross Unrealized Losses (1)
Number of Securities (1)
Estimated Fair Value (1)
Gross Unrealized Losses (1)
Number of Securities (1)
 (dollars in thousands)
Less than 12 months$1,154,762 $(9,176)23 $7,388,239 $(24,056)139 
12 Months or more   11,619,280 (105,329)352 
Total$1,154,762 $(9,176)23 $19,007,519 $(129,385)491 
(1)     Excludes interest-only mortgage-backed securities and reverse mortgages.

The decline in value of these securities is solely due to market conditions and not the quality of the assets.  Substantially all of the Agency mortgage-backed securities are “AAA” rated or carry an implied “AAA” rating.  The investments are not considered to be impaired because the Company currently has the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that the Company will be required to sell the investments before recovery of the amortized cost bases, which may be maturity. 



12


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
During the three and nine months ended September 30, 2020, the Company disposed of $2.8 billion and $50.2 billion of Residential Securities, respectively. During the three and nine months ended September 30, 2019, the Company disposed of $11.1 billion and $30.7 billion of Residential Securities, respectively. The following table presents the Company’s net gains (losses) from the disposal of Residential Securities for the three and nine months ended September 30, 2020 and 2019.
 Gross Realized GainsGross Realized LossesNet Realized Gains (Losses)
For the three months ended(dollars in thousands)
September 30, 2020$117,373 $(13,440)$103,933 
September 30, 2019$104,427 $(28,175)$76,252 
For the nine months ended
September 30, 2020$929,010 $(297,934)$631,076 
September 30, 2019$127,970 $(178,531)$(50,561)

6. LOANS
The Company invests in residential, commercial and corporate loans. Loans are classified as either held for investment or held for sale. Loans are also eligible to be accounted for under the fair value option. Excluding loans transferred or pledged to securitization vehicles, as of September 30, 2020 and December 31, 2019, the Company reported $0.2 million and $1.6 billion, respectively, of loans for which the fair value option was elected. If loans are held for investment and the fair value option has not been elected, they are accounted for at amortized cost less impairment. If the Company intends to sell or securitize the loans and the securitization vehicle is not expected to be consolidated, the loans are classified as held for sale. If loans are held for sale and the fair value option was not elected, they are accounted for at the lower of cost or fair value. Any origination fees and costs or purchase premiums or discounts are deferred and recognized upon sale. The Company determines the fair value of loans held for sale on an individual loan basis.
Allowance for Losses – The Company evaluates the need for a loss reserve on each of its loans classified as held-for-investment where the fair value option is not elected. Allowance for loan losses are written off in the period the loans are deemed uncollectible.
Given the unique nature of each underlying borrower and any collateral, the Company assesses an allowance for each individual loan held-for-investment. A provision is established at origination or acquisition that reflects management’s estimate of the total expected credit loss over the expected life of the loan. In estimating the lifetime expected credit losses, management utilizes a probability of default and loss given default methodology (“Loss Given Default methodology”), which considers projected economic conditions over the reasonable and supportable forecast period. The forecast incorporates primarily market-based assumptions including, but not limited to, forward interest rate curves, unemployment rate estimates and certain indexes sourced from third party vendors. For any remaining period of the expected life of the loan after the reasonable and supportable period, the Company reverts to historical losses on a straight-line basis. Management uses third-party vendors’ loan pool data for loans with similar risk characteristics to estimate historical losses given the limited loss history of the Company’s loan portfolio. Changes in the lifetime expected credit loss are reflected in Loan loss provision in the Consolidated Statements of Comprehensive Income (Loss).
For loans experiencing credit deterioration, the Company may use a different methodology to determine the expected credit losses such as a discounted cash flow analysis. For collateral-dependent loans, if foreclosure is probable, expected credit losses are based on the fair value of the collateral at the reporting date, adjusted for any selling costs, if applicable. Additionally, the Company may elect the practical expedient for a financial asset for which the repayment is expected to be provided substantially through the operation or sale of the collateral when the borrower is experiencing financial difficulty by measuring the allowance as the difference between the fair value of the collateral, less costs to sell, if applicable, and the amortized cost basis of the financial asset at the reporting date. The Company’s commercial loans are collateralized by commercial real estate including, but not limited to, multifamily real estate, office and retail space, hotels and industrial space. At origination, the fair value of the collateral generally exceeds the principal loan balance.
Management assesses the credit quality of the portfolio and adequacy of loan loss reserves on a quarterly basis, or more frequently as necessary. Significant judgment is required in this analysis. Depending on the expected recovery of its investment, the Company considers the estimated net recoverable value of the loans as well as other factors, including but not limited to the fair value of any collateral, the amount and the status of any senior debt, the prospects for the borrower and the competitive landscape where the borrower conducts business. To determine if loan loss allowances are required on investments in corporate debt, the Company reviews the monthly and/or quarterly financial statements of the borrowers, verifies loan compliance packages, if applicable, and analyzes current results relative to budgets and sensitivities performed at inception of the
13


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
investment.  Because these determinations are based upon projections of future economic events, which are inherently subjective, the amounts ultimately realized may differ materially from the carrying value as of the reporting date.
The Company may be exposed to various levels of credit risk depending on the nature of its investments and credit enhancements, if any, supporting its assets. The Company’s core investment process includes procedures related to the initial approval and periodic monitoring of credit risk and other risks associated with each investment.  The Company’s investment underwriting procedures include evaluation of the underlying borrowers’ ability to manage and operate their respective properties or companies.  Management reviews loan-to-value metrics at origination or acquisition of a new investment and if events occur that trigger re-evaluation by management.
The Company recorded a net loan loss (reversal) provision of ($22.0) million and $146.1 million for the three and nine months ended September 30, 2020, respectively. The Company recorded loan loss provisions of $3.5 million and $9.2 million for the three and nine months ended September 30, 2019, respectively. As of September 30, 2020 and December 31, 2019, the Company’s loan loss provision was $168.0 million and $20.1 million, respectively.
The following table presents the activity of the Company’s loan investments, including loans held for sale and excluding loans transferred or pledged to securitization vehicles, for the nine months ended September 30, 2020:
ResidentialCommercialCorporate DebtTotal
(dollars in thousands)
Beginning balance January 1, 2020$1,647,787 $669,713 $2,144,850 $4,462,350 
Impact of adopting CECL (3,600)(29,653)(33,253)
Purchases / originations935,232 194,926 678,608 1,808,766 
Sales and transfers (1)
(2,258,330)(148,036)(321,847)(2,728,213)
Principal payments(151,708)(59,675)(410,421)(621,804)
Gains / (losses) (2)
(14,980)(81,659)(9,842)(106,481)
(Amortization) / accretion(5,042)1,835 10,183 6,976 
Ending balance September 30, 2020
$152,959 $573,504 $2,061,878 $2,788,341 
(1)     Includes securitizations, syndications and transfers to securitization vehicles or REO.
(2)     Includes loan loss allowances.

The carrying value of the Company’s residential loans held for sale was $50.0 million and $66.7 million at September 30, 2020 and December 31, 2019, respectively. There were no commercial loans held for sale at September 30, 2020 and December 31, 2019.

The Company also has off-balance-sheet credit exposures related to unfunded loan commitments, including revolvers, delayed draw term loans and future funding commitments that are not unconditionally cancelable by the Company. The Company utilizes the same methodology in calculating the liability related to the expected credit losses on these exposures as it does for the calculation of the allowance for loan losses. In determining the estimate of credit losses for off-balance-sheet credit exposures, the Company will consider the contractual period in which the entity is exposed to credit risk and the likelihood that funding will occur, if material. Estimated credit losses for off-balance-sheet credit exposures are included in Other liabilities on the Company’s Consolidated Statements of Financial Condition.

Residential
The Company’s residential mortgage loans are primarily comprised of performing adjustable-rate and fixed-rate whole loans. The Company’s residential loans are accounted for under the fair value option with changes in fair value reflected in Net unrealized gains (losses) on instruments measured at fair value through earnings in the Statements of Comprehensive Income. Additionally, the Company consolidates a collateralized financing entity that securitized prime adjustable-rate jumbo residential mortgage loans. The Company also consolidates securitization trusts in which it had purchased subordinated securities because it also has certain powers and rights to direct the activities of such trusts. Refer to the “Variable Interest Entities” Note for further information related to the Company’s consolidated residential mortgage loan trusts.
The following table presents the fair value and the unpaid principal balances of the residential mortgage loan portfolio, including loans transferred or pledged to securitization vehicles, at September 30, 2020 and December 31, 2019:
14


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
September 30, 2020December 31, 2019
 (dollars in thousands)
Fair value$3,741,638 $4,246,161 
Unpaid principal balance$3,666,420 $4,133,149 

The following table provides information regarding the line items and amounts recognized in the Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2020 and 2019 for these investments:
For the Three Months EndedFor the Nine Months Ended
September 30, 2020September 30, 2019September 30, 2020September 30, 2019
 (dollars in thousands)
Interest income$42,508 $37,673 $132,937 $102,689 
Net gains (losses) on disposal of investments and other(4,638)(9,671)(22,014)(19,499)
Net unrealized gains (losses) on instruments measured at fair value through earnings77,837 18,093 (4,381)61,805 
Total included in net income (loss)$115,707 $46,095 $106,542 $144,995 

The following table provides the geographic concentrations based on the unpaid principal balances at September 30, 2020 and December 31, 2019 for the residential mortgage loans, including loans transferred or pledged to securitization vehicles:
 
Geographic Concentrations of Residential Mortgage Loans
September 30, 2020December 31, 2019
Property location% of BalanceProperty location% of Balance
California50.1%California52.1%
New York12.8%New York10.5%
Florida5.8%Florida5.3%
All other (none individually greater than 5%)31.3%All other (none individually greater than 5%)32.1%
Total100.0%100.0%
The following table provides additional data on the Company’s residential mortgage loans, including loans transferred or pledged to securitization vehicles, at September 30, 2020 and December 31, 2019:
 September 30, 2020December 31, 2019
 
Portfolio
Range
Portfolio Weighted
Average
Portfolio
Range
Portfolio Weighted Average
 (dollars in thousands)
Unpaid principal balance
$1 - $3,448
$458
$1 - $3,448
$459
Interest rate
0.50% - 9.24%
4.88%
2.00% - 8.38%
4.94%
Maturity7/1/2029 - 10/1/20604/29/20481/1/2028 - 12/1/205912/29/2047
FICO score at loan origination
505 - 829
756
505 - 829
758
Loan-to-value ratio at loan origination
8% - 105%
67%
8% - 105%
67%
At September 30, 2020 and December 31, 2019, approximately 35% and 36%, respectively, of the carrying value of the Company’s residential mortgage loans, including transferred or pledged to securitization vehicles, were adjustable-rate.
Commercial
The Company’s commercial real estate loans are comprised of adjustable-rate and fixed-rate loans. The difference between the principal amount of a loan and proceeds at acquisition is recorded as either a discount or premium. Commercial real estate loans and preferred equity interests that are designated as held for investment and are originated or purchased by the Company are carried at their outstanding principal balance, net of unamortized origination fees and costs, premiums or discounts, less an
15


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
allowance for losses, if necessary. Origination fees and costs, premiums or discounts are amortized into interest income over the life of the loan. 
Management generally reviews the most recent financial information produced by the borrower, which may include, but is not limited to, net operating income (“NOI”), debt service coverage ratios, property debt yields (net cash flow or NOI divided by the amount of outstanding indebtedness), loan per unit and rent rolls relating to each of the Company’s commercial real estate loans and preferred equity interests (“CRE Debt and Preferred Equity Investments”), and may consider other factors management deems important. Management also reviews market pricing to determine each borrower’s ability to refinance their respective assets at the maturity of each loan, economic trends (both macro and those affecting the property specifically), and the supply and demand of competing projects in the sub-market in which each subject property is located.  Management monitors the financial condition and operating results of its borrowers and continually assesses the future outlook of the borrower’s financial performance in light of industry developments, management changes and company-specific considerations.
The Company’s internal loan risk ratings are based on the guidance provided by the Office of the Comptroller of the Currency for commercial real estate lending. The Company’s internal risk rating rubric for commercial loans has nine categories as depicted below:
Risk Rating - Commercial LoansDescription
1-4 / PerformingMeets all present contractual obligations.
5 / Performing - Closely MonitoredMeets all present contractual obligations, but are transitional or could be exhibiting some weaknesses in both leverage and liquidity.
6 / Performing - Special MentionMeets all present contractual obligations, but exhibit potential weakness that deserves management’s close attention and, if uncorrected, may result in deterioration of repayment prospects.
7 / SubstandardInadequately protected by sound worth and paying capacity of the obligor or of the collateral pledged with a distinct possibility that loss will be sustained if some of the deficiencies are not corrected.
8 / DoubtfulSubstandard loans whereby collection of all contractual principal and interest is highly questionable or improbable.
9 / LossConsidered uncollectible.
Management assesses each loan at least quarterly and assigns an internal risk rating based on its evaluation of the most recent financial information produced by the borrower and consideration of economic conditions. See below for a tabular disclosure of the amortized cost basis of the Company’s commercial loans by year of origination and internal risk rating.
The Company’s commercial loans are collateral-dependent and, as such, for loans experiencing credit deterioration, the Company is required to record an allowance based upon the fair value of the underlying collateral if foreclosure is probable or if the practical expedient is elected. For the three months ended September 30, 2020, the Company did not record a loan loss provision on commercial loans based upon the fair value of the underlying collateral. For the three months ended September 30, 2019, the Company recorded a loan loss provision on impaired commercial loans of $3.5 million with a principal balance and carrying value, net of allowances of $7.0 million and $0.0 million, respectively, based upon the fair value of the underlying collateral. For the nine months ended September 30, 2020, the Company recorded a loan loss provision on impaired commercial loans of $74.1 million with a principal balance and carrying value, net of allowances of $160.2 million and $97.0 million, respectively, based upon the fair value of the underlying collateral. The Company uses a discounted cash flow or market based valuation technique based upon the underlying property to project property cash flows. In projecting these cash flows, the Company reviewed the borrower financial statements, rent rolls, economic trends and other factors management deems important. These nonrecurring fair value measurements are considered to be in level three of the fair value measurement hierarchy as there are unobservable inputs, which are significant to the overall fair value. For the nine months ended September 30, 2019, the Company recorded a loan loss provision of $9.2 million on commercial loans with a principal balance and carrying value, net of allowances of $43.6 million and $30.9 million, respectively.

As a result of the implementation of the Loss Given Default methodology under the modified retrospective method, a cumulative effect loan loss allowance of $7.8 million was recorded on January 1, 2020. For the three and nine months ended September 30, 2020, the Company recorded a net loan loss (reversal) provision of ($4.9) million and $57.4 million, respectively, based upon its Loss Given Default methodology.
During the three months ended September 30, 2020, the Company restructured two commercial loans with a carrying value of $109.5 million at September 30, 2020. The maturity dates on the two commercial loans were extended and one commercial loan was granted a 120 day forbearance. The loan loss allowance recorded for these commercial loans was $9.9 million at September 30, 2020.
16


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
At September 30, 2020 and December 31, 2019, the amortized cost basis of commercial loans on nonaccrual status was $50.6 million and $175.2 million, respectively.
At September 30, 2020 and December 31, 2019, the Company had unfunded commercial real estate loan commitments of $123.2 million and $181.4 million, respectively. At September 30, 2020, the liability related to the expected credit losses on the unfunded commercial loan commitments was $6.2 million.
At September 30, 2020 and December 31, 2019, approximately 94% and 92%, respectively, of the carrying value, net of allowances of the Company’s CRE Debt and Preferred Equity Investments, including loans transferred or pledged to securitization vehicles and excluding commercial loans held for sale, were adjustable-rate.
The sector attributes of the Company’s commercial real estate investments held for investment at September 30, 2020 and December 31, 2019 were as follows:
 Sector Dispersion
 
September 30, 2020
December 31, 2019
 Carrying Value% of Loan PortfolioCarrying Value% of Loan Portfolio
 (dollars in thousands)
Office$666,115 45.7 %$681,129 42.4 %
Retail278,714 19.1 %389,076 24.2 %
Multifamily279,430 19.2 %262,302 16.3 %
Hotel121,829 8.4 %135,681 8.4 %
Industrial58,890 4.0 %82,441 5.1 %
Other31,805 2.2 %36,589 2.3 %
Healthcare19,676 1.4 %18,873 1.3 %
Total$1,456,459 100.0 %$1,606,091 100.0 %


At September 30, 2020 and December 31, 2019, commercial real estate investments held for investment were comprised of the following:
 September 30, 2020December 31, 2019
 Outstanding Principal
Carrying
Value
(1)
Percentage
of Loan
Portfolio
(2)
Outstanding Principal
Carrying
Value
(1)
Percentage
of Loan
Portfolio
(2)
 (dollars in thousands)
Senior mortgages$469,813 $450,177 29.5 %$503,499 $499,690 30.9 %
Senior securitized mortgages (3)
939,654 882,955 59.1 %940,546 936,378 57.8 %
Mezzanine loans181,170 123,327 11.4 %183,064 170,023 11.3 %
Total$1,590,637 $1,456,459 100.0 %$1,627,109 $1,606,091 100.0 %
(1)    Carrying value includes unamortized origination fees of $5.9 million and $8.3 million at September 30, 2020 and December 31, 2019, respectively.
(2)    Based on outstanding principal.
(3)    Represents assets of consolidated VIEs.

The following tables represent a rollforward of the activity for the Company’s commercial real estate investments held for investment at September 30, 2020 and December 31, 2019:
17


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
September 30, 2020
 Senior
Mortgages
Senior
Securitized Mortgages
(1)
Mezzanine
Loans
Total
 (dollars in thousands)
Beginning balance (January 1, 2020) (2)
$499,690 $936,378 $182,726 $1,618,794 
Originations & advances (principal)183,612  12,206 195,818 
Principal payments(59,675)(56,017) (115,692)
Principal write off  (7,000)(7,000)
Transfers (3)
(157,623)54,471 (7,100)(110,252)
Net (increase) decrease in origination fees(812) (80)(892)
Realized gain204   204 
Amortization of net origination fees1,695 1,908 140 3,743 
Allowance for loan losses
          Beginning allowance, prior to CECL adoption  (12,703)(12,703)
          Impact of adopting CECL(2,264)(4,166)(1,336)(7,766)
          Current period allowance(14,650)(49,619)(67,213)(131,482)
          Write offs  23,687 23,687 
          Ending allowance(16,914)(53,785)(57,565)(128,264)
Net carrying value (September 30, 2020)
$450,177 $882,955 $123,327 $1,456,459 
December 31, 2019
Senior
Mortgages
Senior
Securitized Mortgages
(1)
Mezzanine
Loans
Total
 (dollars in thousands)
Net carrying value (January 1, 2019)$981,202 $ $315,601 $1,296,803 
Originations & advances (principal)572,204  21,709 593,913 
Principal payments(16,785)(150,245)(149,633)(316,663)
Transfers(1,034,754)1,083,487 (8,675)40,058 
Net (increase) decrease in origination fees(4,200) (184)(4,384)
Amortization of net origination fees2,023 3,136 412 5,571 
Net (increase) decrease in allowance  (9,207)(9,207)
Net carrying value (December 31, 2019)$499,690 $936,378 $170,023 $1,606,091 
(1)     Represents assets of consolidated VIEs.
(2)     Excludes loan loss allowances.
(3)     Includes transfers to securitization vehicles or REO.

The following table provides the internal loan risk ratings of commercial real estate investments held for investment as of September 30, 2020.
Amortized Cost Basis by Risk Rating and Vintage (1)
Risk RatingVintage
Total20202019201820172016Prior
(dollars in thousands)
1-4 / Performing$354,960 $92,076 $168,409 $ $12,447 $ $82,028 
5 / Performing - Closely Monitored158,701  158,701     
6 / Performing - Special Mention676,700 56,845 216,591 270,767 64,139 68,358  
7 / Substandard169,058 9,155  67,391 42,716  49,796 
8 / Doubtful97,040   39,668 57,372   
9 / Loss (2)
       
Total$1,456,459 $158,076 $543,701 $377,826 $176,674 $68,358 $131,824 
(1) The amortized cost basis excludes accrued interest. As of September 30, 2020, the Company had $4.1 million of accrued interest receivable on
commercial loans which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition.
(2) Includes two commercial mezzanine loans for which the Company recorded a full loan loss allowance of $46.6 million.


18


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Corporate Debt  
The Company’s investments in corporate loans typically take the form of senior secured loans primarily in first or second lien positions. The Company’s senior secured loans generally have stated maturities of five to seven years. In connection with these senior secured loans, the Company receives a security interest in certain assets of the borrower and such assets support repayment of such loans. Senior secured loans are generally exposed to less credit risk than more junior loans given their seniority to scheduled principal and interest and priority of security in the assets of the borrower. Interest income from coupon payments is accrued based upon the outstanding principal amounts of the debt and its contractual terms. Premiums and discounts are amortized or accreted into interest income using the effective interest method.
The Company’s internal risk rating rubric for corporate debt has nine categories as depicted below:
Risk Rating - Corporate DebtDescription
1-5 / PerformingMeets all present contractual obligations.
6 / Performing - Closely Monitored
Meets all present contractual obligations but exhibits a defined weakness in either leverage or liquidity, but not both. Loans at this rating will require closer monitoring, but where we expect no loss of interest or principal.
7 / SubstandardA loan that has a defined weakness in either leverage and/or liquidity, and which may require substantial changes to strengthen the asset. Loans at this rating level have a higher probability of loss, although no determination of the amount or timing of a loss is yet possible.
8 / Doubtful
A loan that has missed a scheduled principal or interest payment or is otherwise deemed a non-earning account. The probability of loss is increasingly certain due to significant performance issues.
9 / LossConsidered uncollectible.
Management assesses each loan at least quarterly and assigns an internal risk rating based on its evaluation of the most recent financial information produced by the borrower and consideration of economic conditions. See below for a tabular disclosure of the amortized cost basis of the Company’s corporate debt held for investment by year of origination and internal risk rating.
For the three months ended September 30, 2020, the Company recorded a reduction in the loan loss provision of ($5.4) million on impaired corporate loans using a discounted cash flow methodology with a principal balance and carrying value, net of allowances of $9.7 million and $9.6 million, respectively. For the nine months ended September 30, 2020, the Company recorded a loan loss provision of $4.5 million on impaired corporate loans using a discounted cash flow methodology with a principal balance and carrying value, net of allowances of $29.3 million and $21.9 million, respectively. During the nine months ended September 30, 2020, a loan was restructured and the Company received $2.8 million of second lien debt and $4.8 million of equity. As a result of the restructuring, $19.6 million of first lien debt was written off and the related allowance of $11.9 million was charged off. There was no provision for loan loss recorded on corporate loans for the three and nine months ended September 30, 2019.
As a result of the implementation of the Loss Given Default methodology under the modified retrospective method, a cumulative effect loan loss allowance on corporate loans of $29.7 million was recorded on January 1, 2020. For the three and nine months ended September 30, 2020, the Company recorded a net loan loss (reversal) provision on corporate loans of ($11.6) million and $10.1 million, respectively, based upon its Loss Given Default methodology.
As of September 30, 2020 and December 31, 2019, the amortized cost basis of corporate loans on nonaccrual status was $12.9 and $12.2 million, respectively.
At September 30, 2020 and December 31, 2019, the Company had unfunded corporate loan commitments of $61.3 million and $81.2 million, respectively. At September 30, 2020, the liability related to the expected credit losses on the unfunded corporate loan commitments was $0.7 million.
The Company invests in corporate loans through its Annaly Middle Market Lending Group. The industry and rate attributes of the portfolio at September 30, 2020 and December 31, 2019 are as follows:
19


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
 Industry Dispersion
 September 30, 2020December 31, 2019
 
Total (1)
Total (1)
 (dollars in thousands)
Computer Programming, Data Processing & Other Computer Related Services$409,644 $394,193 
Management & Public Relations Services257,404 339,179 
Industrial Inorganic Chemicals141,941  
Public Warehousing & Storage124,836 107,029 
Engineering, Architectural, and Surveying110,984 124,201 
Metal Cans & Shipping Containers110,478 118,456 
Offices & Clinics of Doctors of Medicine104,064 106,993 
Surgical, Medical & Dental Instruments & Supplies99,444 102,182 
Electronic Components & Accessories78,114 24,000 
Insurance Agents, Brokers and Service68,577 75,410 
Telephone Communications58,233 61,210 
Miscellaneous Health & Allied Services, not elsewhere classified52,307 78,908 
Miscellaneous Equipment Rental & Leasing49,589 49,776 
Electric Work41,170 43,175 
Medical & Dental Laboratories40,477 41,344 
Research, Development & Testing Services29,648 45,610 
Metal Forgings & Stampings29,390  
Home Health Care Services28,914 29,361 
Motor Vehicles and Motor Vehicle Parts & Supplies28,545 28,815 
Legal Services26,420  
Petroleum and Petroleum Products24,709 24,923 
Grocery Stores22,937 23,248 
Coating, Engraving and Allied Services19,456 47,249 
Schools & Educational Services, not elsewhere classified19,325 19,586 
Chemicals & Allied Products14,595 15,002 
Miscellaneous Business Services12,953 164,033 
Drugs12,952 15,923 
Mailing, Reproduction, Commercial Art and Photography and Stenographic12,879 14,755 
Machinery, Equipment & Supplies12,080  
Miscellaneous Plastic Products9,940 10,000 
Offices and Clinics of Other Health Practitioners9,873 10,098 
Nonferrous Foundries (Castings) 30,191 
Total$2,061,878 $2,144,850 
(1)     All middle market lending positions are floating rate.
20


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The table below reflects the Company’s aggregate positions by their respective place in the capital structure of the borrowers at September 30, 2020 and December 31, 2019.
 
 September 30, 2020December 31, 2019
 (dollars in thousands)
First lien loans$1,320,115 $1,396,140 
Second lien loans741,763 748,710 
Total$2,061,878 $2,144,850 

The following tables represent a rollforward of the activity for the Company’s corporate debt investments held for investment at September 30, 2020 and December 31, 2019:
September 30, 2020
First LienSecond LienTotal
 (dollars in thousands)
Beginning balance (January 1, 2020) (1)
$1,403,503 $748,710 $2,152,213 
Originations & advances499,623 178,985 678,608 
Principal payments(311,856)(98,565)(410,421)
Amortization & accretion of (premium) discounts6,826 3,357 10,183 
Loan restructuring(19,550)2,818 (16,732)
Sales (2)
(242,658)(69,592)(312,250)
Allowance for loan losses
         Beginning allowance, prior to CECL adoption(7,363) (7,363)
         Impact of adopting CECL(10,787)(18,866)(29,653)
         Current period allowance(9,517)(5,084)(14,601)
         Write offs11,894  11,894 
         Ending allowance(15,773)(23,950)(39,723)
Net carrying value (September 30, 2020)
$1,320,115 $741,763 $2,061,878 
    (1) Excludes loan loss allowances.
(2) Includes syndications.

December 31, 2019
 First LienSecond LienTotal
 (dollars in thousands)
Net carrying value (January 1, 2019)$1,346,356 $540,826 $1,887,182 
Originations & advances542,463 345,573 888,036 
Principal payments(228,302)(140,625)(368,927)
Amortization & accretion of (premium) discounts5,960 2,936 8,896 
Sales(262,974) (262,974)
Net (increase) decrease in allowance(7,363) (7,363)
Net carrying value (December 31, 2019)$1,396,140 $748,710 $2,144,850 







21


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table provides the amortized cost basis of corporate debt held for investment as of September 30, 2020 by vintage year and internal risk rating.
Amortized Cost Basis by Risk Rating and Vintage (1)
Risk RatingVintage
Total202020192018201720162015Revolvers
(dollars in thousands)
1-5 / Performing$1,520,243 $259,377 $373,388 $457,891 $295,371 $95,256 $34,268 $4,692 
6 / Performing - Closely Monitored294,795 23,574 38,874 168,115 38,178 21,855  4,199 
7 / Substandard234,535  31,416 142,595 60,524    
8 / Doubtful12,879   12,879     
9 / Loss        
Total$2,062,452 $282,951 $443,678 $781,480 $394,073 $117,111 $34,268 $8,891 

(1) The amortized cost basis excludes accrued interest and deferred fees on unfunded loans. As of September 30, 2020, the Company had $11.9 million of accrued interest receivable on corporate loans which is reported in Principal and interest receivable in the Consolidated Statements of Financial Condition.

7. MORTGAGE SERVICING RIGHTS
The Company owns variable interests in an entity that invests in MSRs. Refer to the “Variable Interest Entities” Note for a detailed discussion on this topic.
MSRs represent the rights associated with servicing pools of residential mortgage loans. The Company and its subsidiaries do not originate or directly service residential mortgage loans. Rather, these activities are carried out by duly licensed subservicers who perform substantially all servicing functions for the loans underlying the MSRs. The Company intends to hold the MSRs as investments and elected to account for all of its investments in MSRs at fair value. As such, they are recognized at fair value on the accompanying Consolidated Statements of Financial Condition with changes in the estimated fair value presented as a component of Net unrealized gains (losses) on instruments measured at fair value through earnings in the Consolidated Statements of Comprehensive Income (Loss). Servicing income, net of servicing expenses, is reported in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).
The following table presents activity related to MSRs for the three and nine months ended September 30, 2020 and 2019:
 
Three Months EndedNine Months Ended
 September 30, 2020September 30, 2019September 30, 2020September 30, 2019
 (dollars in thousands)
Fair value, beginning of period$227,400 $425,328 $378,078 $557,813 
Change in fair value due to:
Changes in valuation inputs or assumptions (1)
7,633 (17,312)(99,220)(116,150)
Other changes, including realization of expected cash flows(27,048)(21,965)(70,873)(55,612)
Fair value, end of period$207,985 $386,051 $207,985 $386,051 
(1)     Principally represents changes in discount rates and prepayment speed inputs used in valuation model, primarily due to changes in interest rates.

For the three and nine months ended September 30, 2020, the Company recognized $15.1 million and $54.4 million, respectively, and for the three and nine months ended September 30, 2019, the Company recognized $27.7 million and $82.9 million, respectively, of net servicing income from MSRs in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).




22


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

8. VARIABLE INTEREST ENTITIES
Commercial Trusts
The Company has invested in subordinate mortgage-backed securities issued by commercial securitization trusts (“Commercial Trusts”) and determined that it is the primary beneficiary as a result of its ability to replace the special servicer without cause through its ownership of the subordinate securities and its current designation as the directing certificate holder. Information regarding these securitization trusts are summarized in the table below.
Type of Underlying CollateralSettlement DateCut-off Date Principal BalanceFace Value of Company’s Variable Interest at Settlement Date
(dollars in thousands)
MultifamilyApril 2015$1,192,607 $89,446 
HotelsJune 2018$982,000 $93,500 
MultifamilyAugust 2019$271,700 $20,270 
Office BuildingOctober 2019$60,000 $60,000 
MultifamilyOctober 2019$415,000 $75,359 
MultifamilyDecember 2019$394,000 $110,350 

Upon consolidation, the Company elected the fair value option for the financial assets and liabilities of the Commercial Trusts in order to avoid an accounting mismatch, and to represent more faithfully the economics of its interest in the entities. The fair value option requires that changes in fair value be reflected in the Company’s Consolidated Statements of Comprehensive Income (Loss). The Company applied the practical expedient under ASU 2014-07, whereby the Company determines whether the fair value of the financial assets or financial liabilities is more observable as a basis for measuring the less observable financial instruments. The Company has determined that the fair value of the financial liabilities of the Commercial Trusts are more observable, since the prices for these liabilities are primarily available from third-party pricing services utilized for multifamily and commercial mortgage-backed securities, while the individual assets of the trusts are inherently less capable of precise measurement given their illiquid nature and the limitations on available information related to these assets. Given that the Company’s methodology for valuing the financial assets of the Commercial Trusts are an aggregate fair value derived from the fair value of the financial liabilities, the Company has determined that the fair value of each of the financial assets in their entirety should be classified in Level 2 of the fair value measurement hierarchy.
The Commercial Trusts mortgage loans had an aggregate unpaid principal balance of $2.3 billion and $2.3 billion at September 30, 2020 and December 31, 2019, respectively. At September 30, 2020 and December 31, 2019, there were no loans 90 days or more past due or on nonaccrual status. There is no gain or loss attributable to instrument-specific credit risk of the underlying loans or securitized debt securities at September 30, 2020 and 2019 based upon the Company’s process of monitoring events of default on the underlying mortgage loans.
Commercial Securitizations
The Company also invests in commercial mortgage-backed securities issued by entities that are VIEs because they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties, but the Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other commitments to these VIEs. See the “Securities” Note for further information on Commercial Securities.








23


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

Collateralized Loan Obligation
In February 2019, the Company closed NLY 2019-FL2, a managed commercial real estate collateralized loan obligation (“CLO”) securitization with a face value of $857.3 million, which provides non-recourse financing to the Company collateralized by certain commercial real estate mortgage loans originated by the Company. As of September 30, 2020 a total of $629.2 million of notes were held by third parties and the Company retained or purchased $205.2 million of subordinated notes and preferred shares, which eliminate upon consolidation. The Company has determined that it is the primary beneficiary because it has the right to direct the servicer as well as remove the special servicer without cause and it holds variable interests that could be potentially significant to the CLO. The transfers of loans to the CLO did not qualify for sale accounting because the Company maintains effective control over the loans. The Company elected the fair value option for the financial liabilities issued by the CLO in order to simplify the accounting; however, the commercial loans continue to be carried at amortized cost as they were not eligible for the fair value option as it was not elected at origination of the loans. The Company incurred $8.3 million of costs in connection with the CLO that were expensed as incurred during the year ended December 31, 2019. The aggregate unpaid principal balance of loans in the CLO was $857.3 million at September 30, 2020 and there were no loans 90 days or more past due or on nonaccrual status. There is no gain or loss attributable to instrument-specific credit risk of the debt securities at September 30, 2020 based upon the Company’s process of monitoring events of default on the underlying mortgage loans. The contractual principal amount of the CLO debt held by third parties was $633.9 million at September 30, 2020.
Multifamily Securitization
In November 2019, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-off balance of $1.0 billion and retained interest only securities with a notional balance of $1.0 billion and senior securities with a principal balance of $28.5 million. In March 2020, the Company repackaged Fannie Mae guaranteed multifamily mortgage-backed securities with a principal cut-off balance of $0.5 billion and retained interest only securities with a notional balance of $0.5 billion. At the inception of the arrangements, the Company determined that it was the primary beneficiary based upon its involvement in the design of these VIEs and through the retention of a significant variable interest in the VIEs. The Company elected the fair value option for the financial liabilities of these VIEs in order to simplify the accounting; however, the financial assets were not eligible for the fair value option as it was not elected at purchase. During the three months ended September 30, 2020, the Company deconsolidated the 2019 multifamily VIE since it sold all of its interest only securities and no longer retains a significant variable interest in the entity. As a result of the deconsolidation of this VIE, the Company derecognized approximately $1.2 billion of securities and approximately $1.1 billion of debt issued by securitization vehicles and recognized a realized gain of $104.8 million, which is included in Net gains (losses) on disposal of investments and other in the Consolidated Statements of Comprehensive Income (Loss). The Company incurred $1.1 million of costs in connection with the 2020 multifamily securitization that were expensed as incurred during the nine months ended September 30, 2020.
Residential Trusts
The Company consolidates a securitization trust, which is included in “Residential Trusts” in the tables below, that issued residential mortgage-backed securities that are collateralized by residential mortgage loans that had been transferred to the trust by one of the Company’s subsidiaries. The Company owns the subordinate securities, and a subsidiary of the Company continues to be the master servicer. As such, the Company is deemed to be the primary beneficiary of the residential mortgage trust and consolidates the entity. The Company has elected the fair value option for the financial assets and liabilities of this VIE, but has not elected to apply the practical expedient under ASU 2014-13 as prices of both the financial assets and financial liabilities of the residential mortgage trust are available from third-party pricing services. The contractual principal amount of the residential mortgage trust’s debt held by third parties was $32.6 million and $57.3 million at September 30, 2020 and December 31, 2019, respectively.
Residential Securitizations
The Company also invests in residential mortgage-backed securities issued by entities that are VIEs because they do not have sufficient equity at risk for the entities to finance their activities without additional subordinated financial support from other parties, but the Company is not the primary beneficiary because it does not have the power to direct the activities that most significantly impact the VIEs’ economic performance. For these entities, the Company’s maximum exposure to loss is the amortized cost basis of the securities it owns and it does not provide any liquidity arrangements, guarantees or other commitments to these VIEs. See the “Securities” Note for further information on Residential Securities.



24


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
OBX Trusts
The entities in the table below are referred to collectively as the “OBX Trusts.” These securitizations represent financing transactions which provide non-recourse financing to the Company that are collateralized by residential mortgage loans purchased by the Company.
SecuritizationDate of ClosingFace Value at Closing
(dollars in thousands)
OBX 2018-1March 2018$327,162 
OBX 2018-EXP1August 2018$383,451 
OBX 2018-EXP2October 2018$384,027 
OBX 2019-INV1January 2019$393,961 
OBX 2019-EXP1April 2019$388,156 
OBX 2019-INV2June 2019$383,760 
OBX 2019-EXP2July 2019$463,405 
OBX 2019-EXP3October 2019$465,492 
OBX 2020-INV1January 2020$374,609 
OBX 2020-EXP1February 2020$467,511 
OBX 2020-EXP2July 2020$489,352 
OBX 2020-EXP3September 2020$514,609 

As of September 30, 2020, a total of $2.9 billion of bonds were held by third parties and the Company retained $641.3 million of mortgage-backed securities, which were eliminated in consolidation. The Company is deemed to be the primary beneficiary and consolidates the OBX Trusts because it has power to direct the activities that most significantly impact the OBX Trusts’ performance and holds a variable interest that could be potentially significant to these VIEs. The Company has elected the fair value option for the financial assets and liabilities of these VIEs, but has not elected the practical expedient under ASU 2014-13 as prices of both the financial assets and financial liabilities of the residential mortgage trusts are available from third-party pricing services. The Company incurred $2.8 million and $2.6 million of costs during the three months ended September 30, 2020 and 2019, respectively, and $7.1 million and $7.3 million of costs during the nine months ended September 30, 2020 and 2019, respectively, in connection with these securitizations that were expensed as incurred. The contractual principal amount of the OBX Trusts’ debt held by third parties was $2.9 billion at September 30, 2020.
Although the residential mortgage loans have been sold for bankruptcy and state law purposes, the transfers of the residential mortgage loans to the OBX Trusts did not qualify for sale accounting and are reflected as intercompany secured borrowings that are eliminated upon consolidation.
Credit Facility VIEs
In June 2016, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution. As of September 30, 2020, the borrowing limit on this facility was $625.0 million. The subsidiary was deemed to be a VIE and the Company was determined to be the primary beneficiary due to its role as collateral manager and because it holds a variable interest in the entity that could potentially be significant to the entity. The Company has pledged as collateral for this facility corporate loans with a carrying amount of $717.5 million at September 30, 2020. The transfers did not qualify for sale accounting and are reflected as an intercompany secured borrowing that is eliminated upon consolidation. At September 30, 2020, the subsidiary had an intercompany receivable of $412.7 million, which eliminates upon consolidation and a secured financing of $412.7 million to the third party financial institution.
In July 2017, a consolidated subsidiary of the Company entered into a credit facility with a third party financial institution. As of September 30, 2020, the borrowing limit on this facility was $320.0 million. The subsidiary was deemed to be a VIE and the Company was determined to be the primary beneficiary due to its role as servicer and because it holds a variable interest in the entity that could potentially be significant to the entity. The Company has transferred corporate loans to the subsidiary with a carrying amount of $411.7 million at September 30, 2020, which continue to be reflected in the Company’s Consolidated Statements of Financial Condition under Loans, net. At September 30, 2020, the subsidiary had a secured financing of $219.6 million to the third party financial institution.
In January 2019, a consolidated subsidiary of the Company (the “Borrower”) entered into a $300.0 million credit facility with a third party financial institution. The Company has pledged as collateral for this facility corporate loans with a carrying amount of $317.3 million at September 30, 2020. As of September 30, 2020, the Borrower had a secured financing of $196.3 million to the third party financial institution.
25


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
MSR Silo
The Company also owns variable interests in an entity that invests in MSRs and has structured its operations, funding and capitalization into pools of assets and liabilities, each referred to as a “silo.” Owners of variable interests in a given silo are entitled to all of the returns and subjected to the risk of loss on the investments and operations of that silo and have no substantive recourse to the assets of any other silo. While the Company previously held 100% of the voting interests in this entity, in August 2017, the Company sold 100% of such interests, and entered into an agreement with the entity’s affiliated portfolio manager giving the Company the power over the silo in which it owns all of the beneficial interests. As a result, the Company is considered to be the primary beneficiary and consolidates this silo.
The Company’s exposure to the obligations of its VIEs is generally limited to the Company’s investment in the VIEs of $3.2 billion at September 30, 2020. Assets of the VIEs may only be used to settle obligations of the VIEs. Creditors of the VIEs have no recourse to the general credit of the Company. The Company is not contractually required to provide and has not provided any form of financial support to the VIEs. No gains or losses were recognized upon consolidation of existing VIEs. Interest income and expense are recognized using the effective interest method.
The statements of financial condition of the Company’s VIEs, excluding the CLO, multifamily securitizations, credit facility VIEs and OBX Trusts as the transfers of loans or securities did not meet the criteria to be accounted for as sales, that are reflected in the Company’s Consolidated Statements of Financial Condition at September 30, 2020 and December 31, 2019 are as follows:
September 30, 2020
 Commercial TrustsResidential TrustsMSR Silo
Assets(dollars in thousands)
Cash and cash equivalents$ $ $84,904 
Loans  50,042 
Assets transferred or pledged to securitization vehicles2,174,118 50,810  
Mortgage servicing rights  207,985 
Principal and interest receivable5,370 324  
Other assets  23,087 
Total assets$2,179,488 $51,134 $366,018 
Liabilities   
Debt issued by securitization vehicles (non-recourse) $1,843,036 $33,084 $ 
Other secured financing  32,842 
Payable for unsettled trades  6,203 
Interest payable1,594 78  
Other liabilities 201 2,830 
Total liabilities$1,844,630 $33,363 $41,875 
 
December 31, 2019
 Commercial TrustsResidential TrustsMSR Silo
Assets(dollars in thousands)
Cash and cash equivalents$ $ $67,455 
Loans  66,722 
Assets transferred or pledged to securitization vehicles2,345,120 75,924  
Mortgage servicing rights  378,078 
Principal and interest receivable7,085 408  
Other assets  27,021 
Total assets$2,352,205 $76,332 $539,276 
Liabilities  
Debt issued by securitization vehicles (non-recourse)$1,967,523 $57,905 $ 
Other secured financing  38,981 
Payable for unsettled trades  18,364 
Interest payable3,008 137  
Other liabilities 78 2,393 
Total liabilities$1,970,531 $58,120 $59,738 
 
26


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

The geographic concentrations of credit risk exceeding 5% of the total loan unpaid principal balances related to the Company’s VIEs, excluding the CLO, OBX Trusts and credit facility VIEs, at September 30, 2020 are as follows:

Securitized Loans at Fair Value Geographic Concentration of Credit Risk
Commercial TrustsResidential Trusts
Property LocationPrincipal Balance% of BalanceProperty LocationPrincipal Balance% of Balance
(dollars in thousands)
California$1,236,527 37.9 %California$22,925 45.6 %
Texas477,642 14.6 %Texas7,481 14.9 %
New York381,425 11.7 %Illinois6,504 12.9 %
Florida180,892 5.5 %
Other (1)
13,343 26.6 %
Other (1)
986,851 30.3 %
Total$3,263,337 100.0 %Total$50,253 100.0 %
    (1) No individual state greater than 5%.

Corporate Debt Transfers
The Company manages parallel funds investing in senior secured first and second lien corporate loans (the “Fund Entities”). The Fund Entities are considered VIEs because the investors do not have substantive liquidation, kick-out or participating rights. The fees that the Company earns are not considered variable interests of the VIE. The Company is not the primary beneficiary of the Fund Entities and therefore does not consolidate the Fund Entities. During the three and nine months ended September 30, 2020, the Company transferred $22.2 million and $145.5 million, respectively, of loans for cash. The loan transfers were accounted for as sales.

9. REAL ESTATE
Real estate investments are carried at historical cost less accumulated depreciation. Historical cost includes all costs necessary to bring the asset to the condition and location necessary for its intended use, including financing during the construction period.  Costs directly related to acquisitions deemed to be business combinations are expensed. Ordinary repairs and maintenance are expensed as incurred. Major replacements and improvements that extend the useful life of the asset are capitalized and depreciated over their useful life.
Real estate investments are depreciated using the straight-line method over the estimated useful lives of the assets, summarized as follows:
CategoryTerm
Building and building improvements
1 - 44 years
Furniture and fixtures
1 - 4 years
There was no real estate acquired in settlement of residential mortgage loans at September 30, 2020 or December 31, 2019 other than real estate held by securitization trusts that the Company was required to consolidate. The Company would be considered to have received physical possession of residential real estate property collateralizing a residential mortgage loan, so that the loan is derecognized and the real estate property would be recognized, if either (i) the Company obtains legal title to the residential real estate property upon completion of a foreclosure or (ii) the borrower conveys all interest in the residential real estate property to the Company to satisfy the loan through completion of a deed in lieu of foreclosure or through a similar legal agreement.
Real estate investments, including REO, that do not meet the criteria to be classified as held for sale are classified in the Consolidated Statements of Financial Condition as held for investment. Real estate held for sale is reported at the lower of its carrying value or its estimated fair value less estimated costs to sell. Once a property is determined to be held for sale, depreciation is no longer recorded.
The Company’s real estate portfolio (REO and real estate held for investment) is reviewed on a quarterly basis, or more frequently as necessary, to assess whether there are any indicators that the value of its operating real estate may be impaired or that its carrying value may not be recoverable. A property’s value is considered impaired if the Company’s estimate of the aggregate future undiscounted cash flows to be generated by the property is less than the carrying value of the property. In
27


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
conducting this review, the Company considers U.S. macroeconomic factors, including real estate sector conditions, together with asset specific and other factors. To the extent impairment has occurred and is considered to be other than temporary, the loss will be measured as the excess of the carrying amount of the property over the calculated fair value of the property.
During the nine months ended September 30, 2020, the Company took title of two commercial real estate properties for $79.8 million through foreclosure or deed-in-lieu of foreclosure. There were no new acquisitions of real estate holdings during the nine months ended September 30, 2019. No properties were sold during the nine months ended September 30, 2020. The Company sold one of its wholly owned triple net leased properties during the nine months ended September 30, 2019 for $6.7 million and recognized a gain on sale of $2.7 million.
The weighted average amortization period for intangible assets and liabilities at September 30, 2020 is 6.0 years. Above market leases and leasehold intangible assets are included in Intangible assets, net and below market leases are included in Other liabilities in the Consolidated Statements of Financial Condition.
 September 30, 2020December 31, 2019
Real estate, net(dollars in thousands)
Land$173,220 $121,720 
Buildings and improvements601,783 571,396 
Furniture, fixtures and equipment11,487 11,238 
Subtotal786,490 704,354 
Less: accumulated depreciation(104,978)(87,532)
Total real estate held for investment, at amortized cost, net681,512 616,822 
Equity in unconsolidated joint ventures109,085 108,816 
Total real estate, net$790,597 $725,638 

Depreciation expense was $6.2 million and $17.4 million for the three and nine months ended September 30, 2020, respectively. Depreciation expense was $6.0 million and $17.8 million for the three and nine months ended September 30, 2019, respectively. Depreciation expense is included in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).

Rental Income

The minimum rental amounts due under leases are generally either subject to scheduled fixed increases or adjustments. The leases generally also require that the tenants reimburse the Company for certain operating costs. Rental income is included in Other income (loss) in the Company’s Consolidated Statements of Comprehensive Income (Loss).
Approximate future minimum rents to be received over the next five years and thereafter for non-cancelable operating leases in effect at September 30, 2020 for consolidated investments in real estate are as follows:
September 30, 2020
(dollars in thousands)
2020 (remaining)$14,768 
202155,088 
202250,685 
202347,119 
202442,429 
Later years191,310 
Total$401,399 

10. DERIVATIVE INSTRUMENTS
Derivative instruments include, but are not limited to, interest rate swaps, options to enter into interest rate swaps (“swaptions”), TBA derivatives, options on TBA securities (“MBS options”), U.S. Treasury and Eurodollar futures contracts and certain forward purchase commitments.  The Company may also enter into other types of mortgage derivatives such as interest-only securities, credit derivatives referencing the commercial mortgage-backed securities index and synthetic total return swaps. 
In connection with the Company’s investment/market rate risk management strategy, the Company economically hedges a portion of its interest rate risk by entering into derivative financial instrument contracts, which include interest rate swaps, swaptions and futures contracts. The Company may also enter into TBA derivatives, MBS options and U.S. Treasury or
28


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Eurodollar futures contracts, certain forward purchase commitments and credit derivatives to economically hedge its exposure to market risks. The purpose of using derivatives is to manage overall portfolio risk with the potential to generate additional income for distribution to stockholders. These derivatives are subject to changes in market values resulting from changes in interest rates, volatility, Agency mortgage-backed security spreads to U.S. Treasuries and market liquidity. The use of derivatives also creates exposure to credit risk relating to potential losses that could be recognized if the counterparties to these instruments fail to perform their obligations under the stated contract. Additionally, the Company may have to pledge cash or assets as collateral for the derivative transactions, the amount of which may vary based on the market value and terms of the derivative contract. In the case of market agreed coupon (“MAC”) interest rate swaps, the Company may make or receive a payment at the time of entering into such interest rate swaps, which represents fair value of these swaps, to compensate for the out of market nature of such interest rate swaps. Subsequent changes in fair value from inception of these interest rate swaps are reflected within Unrealized gains (losses) on interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss). Similar to other interest rate swaps, the Company may have to pledge cash or assets as collateral for the MAC interest rate swap transactions. In the event of a default by the counterparty, the Company could have difficulty obtaining its pledged collateral as well as receiving payments in accordance with the terms of the derivative contracts.
Derivatives are accounted for in accordance with FASB ASC 815, Derivatives and Hedging, which requires recognition of all derivatives as either assets or liabilities at fair value in the Consolidated Statements of Financial Condition with changes in fair value recognized in the Consolidated Statements of Comprehensive Income (Loss). The changes in the estimated fair value are presented within Net gains (losses) on other derivatives with the exception of interest rate swaps which are separately presented. None of the Company’s derivative transactions have been designated as hedging instruments for accounting purposes. 
The Company also maintains collateral in the form of cash on margin with counterparties to its interest rate swaps and other derivatives. In accordance with a clearing organization’s rulebook, the Company presents the fair value of centrally cleared interest rate swaps net of variation margin pledged under such transactions. At September 30, 2020 and December 31, 2019, $1.7 billion and $517.8 million of variation margin was reported as an adjustment to interest rate swaps, at fair value.
Interest Rate Swap Agreements – Interest rate swap agreements are the primary instruments used to mitigate interest rate risk.  In particular, the Company uses interest rate swap agreements to manage its exposure to changing interest rates on its repurchase agreements by economically hedging cash flows associated with these borrowings. The Company may enter into interest rate swap agreements where the floating leg is linked to the London Interbank Offered Rate (“LIBOR”), the overnight index swap rate or another index. Interest rate swap agreements may or may not be cleared through a derivatives clearing organization (“DCO”). Uncleared interest rate swaps are fair valued using internal pricing models and compared to the counterparty market values. Centrally cleared interest rate swaps, including MAC interest rate swaps, are generally fair valued using the DCO’s market values. If an interest rate swap is terminated, the realized gain (loss) on the interest rate swap would be equal to the difference between the cash received or paid and fair value.
Swaptions – Swaptions are purchased or sold to mitigate the potential impact of increases or decreases in interest rates.  Interest rate swaptions provide the option to enter into an interest rate swap agreement for a predetermined notional amount, stated term and pay and receive interest rates in the future.  The Company’s swaptions are not centrally cleared.  The premium paid or received for swaptions is reported as an asset or liability in the Consolidated Statements of Financial Condition. If a swaption expires unexercised, the realized gain (loss) on the swaption would be equal to the premium received or paid. If the Company sells or exercises a swaption, the realized gain or loss on the swaption would be equal to the difference between the cash received or the fair value of the underlying interest rate swap received and the premium paid. The fair value of swaptions are estimated using internal pricing models and compared to the counterparty market values.
TBA Dollar Rolls – TBA dollar roll transactions are accounted for as a series of derivative transactions. The fair value of TBA derivatives is based on methods similar to those used to value Agency mortgage-backed securities.
MBS Options – MBS options are generally options on TBA contracts, which help manage mortgage market risks and volatility while providing the potential to enhance returns.  MBS options are over-the-counter traded instruments and those written on current-coupon mortgage-backed securities are typically the most liquid.  MBS options are measured at fair value using internal pricing models and compared to the counterparty market value at the valuation date.
Futures Contracts – Futures contracts are derivatives that track the prices of specific assets or benchmark rates. Short sales of futures contracts help to mitigate the potential impact of changes in interest rates on the portfolio performance. The Company maintains margin accounts which are settled daily with Futures Commission Merchants (“FCMs”). The margin requirement varies based on the market value of the open positions and the equity retained in the account. Futures contracts are fair valued based on exchange pricing.
Forward Purchase Commitments – The Company may enter into forward purchase commitments with counterparties whereby the Company commits to purchasing residential mortgage loans at a particular price, provided the residential mortgage loans close with the counterparties. The counterparties are required to deliver the committed loans on a “best efforts” basis.
29


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Credit Derivatives – The Company may enter into credit derivatives referencing a commercial mortgage-backed securities index, such as the CMBX index, and synthetic total return swaps.
The table below summarizes fair value information about our derivative assets and liabilities at September 30, 2020 and December 31, 2019:
Derivatives InstrumentsSeptember 30, 2020December 31, 2019
Assets(dollars in thousands)
Interest rate swaps$ $1,199 
Interest rate swaptions63,601 11,580 
TBA derivatives38,656 15,181 
Futures contracts550 77,889 
Purchase commitments438 2,050 
Credit derivatives (1)
 5,657 
Total derivative assets$103,245 $113,556 
Liabilities 
Interest rate swaps$1,126,179 $706,862 
TBA derivatives21,140 11,316 
Futures contracts7,792 84,781 
Purchase commitments488 907 
Credit derivatives (1)
27,082  
Total derivative liabilities$1,182,681 $803,866 
    
(1) The notional amount of the credit derivatives in which the Company purchased protection was $0.0 and $10.0 million at September 30, 2020 and December 31, 2019, respectively. The maximum potential amount of future payments is the notional amount of credit derivatives in which the Company sold protection of $499.0 million and $345.0 million at September 30, 2020 and December 31, 2019, respectively, plus any coupon shortfalls on the underlying tranche. The credit derivative tranches referencing the basket of bonds had a range of ratings between AAA and BBB-.
30


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table summarizes certain characteristics of the Company’s interest rate swaps at September 30, 2020 and December 31, 2019:
 
September 30, 2020
Maturity
Current Notional (1)(2)
Weighted Average Pay RateWeighted Average Receive Rate
Weighted Average Years to Maturity (3)
(dollars in thousands)
0 - 3 years
$17,816,700 0.14 %0.41 %2.27
3 - 6 years
7,255,000 0.69 %0.09 %3.87
6 - 10 years
5,806,500 1.43 %0.65 %8.09
Greater than 10 years
1,349,000 2.90 %0.39 %21.85
Total / Weighted average$32,227,200 0.91 %0.48 %4.51
December 31, 2019
Maturity
Current Notional (1)(2)
Weighted Average
Pay Rate
Weighted Average Receive RateWeighted Average Years to Maturity
(dollars in thousands)
0 - 3 years
$38,942,400 1.60 %1.84 %1.29
3 - 6 years
16,097,450 1.77 %1.87 %4.30
6 - 10 years
16,176,500 2.20 %2.02 %9.00
Greater than 10 years
2,930,000 3.76 %1.86 %17.88
Total / Weighted average$74,146,350 1.84 %1.89 %4.23
(1)     As of September 30, 2020, 12%, 77% and 11% of the Company’s interest rate swaps were linked to LIBOR, the Federal funds rate and the Secured Overnight Financing Rate, respectively. As of December 31, 2019, 75% and 25% of the Company’s interest rate swaps were linked to LIBOR and the overnight index swap rate, respectively.
(2)     As of September 30, 2020, notional amount includes $655.0 million of a forward starting pay fixed swap on October 1, 2020. There were no forward starting swaps at December 31, 2019.
(3)     As of September 30, 2020, the weighted average years to maturity of payer interest rate swaps is offset by the weighted average years to maturity of receiver interest rate swaps. As such, the net weighted average years to maturity for each maturity bucket may fall outside of the range listed.


The following table presents swaptions outstanding at September 30, 2020 and December 31, 2019.
September 30, 2020
Current Underlying NotionalWeighted Average Underlying Fixed RateWeighted Average Underlying Floating RateWeighted Average Underlying Years to MaturityWeighted Average Months to Expiration
(dollars in thousands)
Long pay$6,550,0001.29%3M LIBOR10.607.97
Long receive$250,0001.66%3M LIBOR10.273.20
December 31, 2019
Current Underlying NotionalWeighted Average Underlying Fixed RateWeighted Average Underlying Floating RateWeighted Average Underlying Years to MaturityWeighted Average Months to Expiration
(dollars in thousands)
Long pay$4,675,0002.53%3M LIBOR9.224.66
Long receive$2,000,0001.49%3M LIBOR10.293.40

31


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table summarizes certain characteristics of the Company’s TBA derivatives at September 30, 2020 and December 31, 2019:
September 30, 2020
Purchase and sale contracts for derivative TBAsNotionalImplied Cost BasisImplied Market ValueNet Carrying Value
(dollars in thousands)
Purchase contracts$20,394,000 $21,176,883 $21,194,446 $17,563 
Sale contracts(100,000)(104,844)(104,891)(47)
Net TBA derivatives$20,294,000 $21,072,039 $21,089,555 $17,516 
December 31, 2019
Purchase and sale contracts for derivative TBAsNotionalImplied Cost BasisImplied Market ValueNet Carrying Value
(dollars in thousands)
Purchase contracts$10,043,000 $10,182,891 $10,192,038 $9,147 
Sale contracts(3,144,000)(3,294,486)(3,299,768)(5,282)
Net TBA derivatives$6,899,000 $6,888,405 $6,892,270 $3,865 
The following table summarizes certain characteristics of the Company’s futures derivatives at September 30, 2020 and December 31, 2019:
 
September 30, 2020
 Notional - Long
Positions
Notional - Short
Positions
Weighted Average
Years to Maturity
 (dollars in thousands)
U.S. Treasury futures - 10 year and greater
$ $(2,822,800)6.90
Total$ $(2,822,800)6.90
December 31, 2019
 Notional - Long
Positions
Notional - Short
Positions
Weighted Average
Years to Maturity
 (dollars in thousands)
U.S. Treasury futures - 2 year
$ $(180,000)1.96
U.S. Treasury futures - 5 year
 (2,953,300)4.42
U.S. Treasury futures - 10 year and greater
2,600,000 (5,806,400)9.74
Total$2,600,000 $(8,939,700)8.26
 
The Company presents derivative contracts on a gross basis on the Consolidated Statements of Financial Condition. Derivative contracts may contain legally enforceable provisions that allow for netting or setting off receivables and payables with each counterparty.

32


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following tables present information about derivative assets and liabilities that are subject to such provisions and can be offset on our Consolidated Statements of Financial Condition at September 30, 2020 and December 31, 2019, respectively.
September 30, 2020
 Amounts Eligible for Offset 
 Gross AmountsFinancial InstrumentsCash CollateralNet Amounts
Assets(dollars in thousands)
Interest rate swaptions, at fair value$63,601 $ $ $63,601 
TBA derivatives, at fair value38,656 (18,950) 19,706 
Futures contracts, at fair value550 (550)  
Purchase commitments438   438 
Liabilities 
Interest rate swaps, at fair value$1,126,179 $ $(117,947)$1,008,232 
TBA derivatives, at fair value21,140 (18,950) 2,190 
Futures contracts, at fair value7,792 (550)(7,242) 
Purchase commitments488   488 
Credit derivatives27,082  (27,082) 
December 31, 2019
 Amounts Eligible for Offset 
 Gross AmountsFinancial InstrumentsCash CollateralNet Amounts
Assets(dollars in thousands)
Interest rate swaps, at fair value$1,199 $(951)$ $248 
Interest rate swaptions, at fair value11,580   11,580 
TBA derivatives, at fair value15,181 (5,018) 10,163 
Futures contracts, at fair value77,889 (10,902) 66,987 
Purchase commitments2,050   2,050 
Credit derivatives5,657   5,657 
Liabilities 
Interest rate swaps, at fair value$706,862 $(951)$(104,205)$601,706 
TBA derivatives, at fair value11,316 (5,018) 6,298 
Futures contracts, at fair value84,781 (10,902)(73,879) 
Purchase commitments907   907 
 
The effect of interest rate swaps on the Consolidated Statements of Comprehensive Income (Loss) is as follows:
 
Location on Consolidated Statements of Comprehensive Income (Loss)
 Net Interest Component of Interest Rate SwapsRealized Gains (Losses) on Termination of Interest Rate SwapsUnrealized Gains (Losses) on Interest Rate Swaps
For the three months ended(dollars in thousands)
September 30, 2020$(62,529)$(427)$170,327 
September 30, 2019$88,466 $(682,602)$(326,309)
For the nine months ended
September 30, 2020$(141,070)$(1,919,720)$(1,162,768)
September 30, 2019$306,154 $(1,438,349)$(1,992,884)
33


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The effect of other derivative contracts on the Company’s Consolidated Statements of Comprehensive Income (Loss) is as follows:
Three Months Ended September 30, 2020
Derivative InstrumentsRealized Gain (Loss)Unrealized Gain (Loss)Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives$276,849 $(100,680)$176,169 
Net interest rate swaptions(9,836)3,263 (6,573)
Futures(19,989)10,337 (9,652)
Purchase commitments (51)(51)
Credit derivatives1,531 7,892 9,423 
Total
$169,316 
 
Three Months Ended September 30, 2019
Derivative InstrumentsRealized Gain (Loss)Unrealized Gain (Loss)Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives$93,919 $(46,124)$47,795 
Net interest rate swaptions(2,778)(4,571)(7,349)
Futures(424,268)364,613 (59,655)
Purchase commitments (348)(348)
Credit derivatives1,784 885 2,669 
Total$(16,888)
Nine Months Ended September 30, 2020
Derivative InstrumentsRealized Gain (Loss)Unrealized Gain (Loss)Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives$798,459 $13,651 $812,110 
Net interest rate swaptions11,730 50,762 62,492 
Futures(299,220)(350)(299,570)
Purchase commitments (1,194)(1,194)
Credit derivatives4,659 (31,839)(27,180)
Total$546,658 
Nine Months Ended September 30, 2019
Derivative InstrumentsRealized Gain (Loss)Unrealized Gain (Loss)Amount of Gain/(Loss) Recognized in Net Gains (Losses) on Other Derivatives
(dollars in thousands)
Net TBA derivatives$481,865 $(154,355)$327,510 
Net interest rate swaptions(44,088)7,935 (36,153)
Futures(1,430,450)484,146 (946,304)
Purchase commitments 1,903 1,903 
Credit derivatives5,285 9,301 14,586 
Total$(638,458)
Certain of the Company’s derivative contracts are subject to International Swaps and Derivatives Association Master Agreements or other similar agreements which may contain provisions that grant counterparties certain rights with respect to the applicable agreement upon the occurrence of certain events such as (i) a decline in stockholders’ equity in excess of specified thresholds or dollar amounts over set periods of time, (ii) the Company’s failure to maintain its REIT status, (iii) the Company’s failure to comply with limits on the amount of leverage, and (iv) the Company’s stock being delisted from the New York Stock Exchange.
34


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
Upon the occurrence of any one of items (i) through (iv), or another default under the agreement, the counterparty to the applicable agreement has a right to terminate the agreement in accordance with its provisions. The aggregate fair value of all derivative instruments with the aforementioned features that are in a net liability position at September 30, 2020 was approximately $1.1 billion, which represents the maximum amount the Company would be required to pay upon termination. This amount is fully collateralized.


11. FAIR VALUE MEASUREMENTS
The Company follows fair value guidance in accordance with GAAP to account for its financial instruments and MSRs that are accounted for at fair value. The fair value of a financial instrument and MSR is the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction bet ween market participants at the measurement date.
GAAP requires classification of financial instruments and MSRs into a three-level hierarchy based on the priority of the inputs to the valuation technique. The fair value hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).
If the inputs used to measure the financial instruments and MSRs fall within different levels of the hierarchy, the categorization is based on the lowest priority input that is significant to the fair value measurement of the instrument. Financial assets and liabilities recorded at fair value on the Consolidated Statements of Financial Condition or disclosed in the related notes are categorized based on the inputs to the valuation techniques as follows:
Level 1 – inputs to the valuation methodology are quoted prices (unadjusted) for identical assets and liabilities in active markets.
Level 2 – inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.
Level 3 – inputs to the valuation methodology are unobservable and significant to overall fair value.
The Company designates its securities as trading, available-for-sale or held-to-maturity depending upon the type of security and the Company’s intent and ability to hold such security to maturity. Securities classified as available-for-sale and trading are reported at fair value on a recurring basis.
The following is a description of the valuation methodologies used for instruments carried at fair value. These methodologies are applied to assets and liabilities across the three-level fair value hierarchy, with the observability of inputs determining the appropriate level.
Futures contracts are valued using quoted prices for identical instruments in active markets and are classified as Level 1.
Residential Securities, interest rate swaps, swaptions and other derivatives are valued using quoted prices or internally estimated prices for similar assets using internal models. The Company incorporates common market pricing methods, including a spread measurement to the Treasury curve as well as underlying characteristics of the particular security including coupon, prepayment speeds, periodic and life caps, rate reset period and expected life of the security in its estimates of fair value. Fair value estimates for residential mortgage loans are generated by a discounted cash flow model and are primarily based on observable market-based inputs including discount rates, prepayment speeds, delinquency levels, and credit losses. Management reviews and indirectly corroborates its estimates of the fair value derived using internal models by comparing its results to independent prices provided by dealers in the securities and/or third party pricing services. Certain liquid asset classes, such as Agency fixed-rate pass-throughs, may be priced using independent sources such as quoted prices for TBA securities.
Residential Securities, residential mortgage loans, interest rate swap and swaption markets, TBA derivatives and MBS options are considered to be active markets such that participants transact with sufficient frequency and volume to provide transparent pricing information on an ongoing basis. The liquidity of the Residential Securities, residential mortgage loans, interest rate swaps, swaptions, TBA derivatives and MBS options markets and the similarity of the Company’s securities to those actively traded enable the Company to observe quoted prices in the market and utilize those prices as a basis for formulating fair value measurements. Consequently, the Company has classified Residential Securities, residential mortgage loans, interest rate swaps, swaptions, TBA derivatives and MBS options as Level 2 inputs in the fair value hierarchy.
The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying collateral. Consequently, commercial real estate debt investments carried at fair value are classified as Level 2.
35


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
For the fair value of debt issued by securitization vehicles, refer to the Note titled “Variable Interest Entities” for additional information.
The Company classifies its investments in MSRs as Level 3 in the fair value measurements hierarchy. Fair value estimates for these investments are obtained from models, which use significant unobservable inputs in their valuations. These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including prepayment rates, delinquency levels, costs to service and discount rates. Model valuations are then compared to valuations obtained from third-party pricing providers. Management reviews the valuations received from third-party pricing providers and uses them as a point of comparison to modeled values. The valuation of MSRs requires significant judgment by management and the third-party pricing providers. Assumptions used for which there is a lack of observable inputs may significantly impact the resulting fair value and therefore the Company’s financial statements. 
The following tables present the estimated fair values of financial instruments and MSRs measured at fair value on a recurring basis. There were no transfers between levels of the fair value hierarchy during the periods presented.
September 30, 2020
 Level 1Level 2Level 3Total
Assets(dollars in thousands)
Securities
Agency mortgage-backed securities$ $74,915,167 $ $74,915,167 
Credit risk transfer securities 411,538  411,538 
Non-Agency mortgage-backed securities 717,602  717,602 
   Commercial mortgage-backed securities 54,678  54,678 
Loans
Residential mortgage loans 152,959  152,959 
Mortgage servicing rights  207,985 207,985 
Assets transferred or pledged to securitization vehicles 6,386,447  6,386,447 
Derivative assets
Other derivatives550 102,695  103,245 
Total assets$550 $82,741,086 $207,985 $82,949,621 
Liabilities
Debt issued by securitization vehicles 6,027,576  6,027,576 
Derivative liabilities
Interest rate swaps 1,126,179  1,126,179 
Other derivatives7,792 48,710  56,502 
Total liabilities$7,792 $7,202,465 $ $7,210,257 
36


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
December 31, 2019
 Level 1Level 2Level 3Total
Assets(dollars in thousands)
Securities
Agency mortgage-backed securities$ $112,893,367 $ $112,893,367 
Credit risk transfer securities 531,322  531,322 
Non-Agency mortgage-backed securities 1,135,868  1,135,868 
   Commercial mortgage-backed securities 273,023  273,023 
Loans
Residential mortgage loans 1,647,787  1,647,787 
Mortgage servicing rights  378,078 378,078 
Assets transferred or pledged to securitization vehicles 6,066,082  6,066,082 
Derivative assets
Interest rate swaps 1,199  1,199 
Other derivatives77,889 34,468  112,357 
Total assets$77,889 $122,583,116 $378,078 $123,039,083 
Liabilities
Debt issued by securitization vehicles$ $5,622,801 $ $5,622,801 
Derivative liabilities
Interest rate swaps 706,862  706,862 
Other derivatives84,781 12,223  97,004 
Total liabilities$84,781 $6,341,886 $ $6,426,667 


Quantitative Information about Level 3 Fair Value Measurements
The Company considers unobservable inputs to be those for which market data is not available and that are developed using the best information available to us about the assumptions that market participants would use when pricing the asset. Relevant inputs vary depending on the nature of the instrument being measured at fair value. The sensitivities of significant unobservable inputs along with interrelationships between and among the significant unobservable inputs and their impact on the fair value measurements are described below. The effect of a change in a particular assumption in the sensitivity analysis below is considered independently from changes in any other assumptions. In practice, simultaneous changes in assumptions may not always have a linear effect on the inputs discussed below. Interrelationships may also exist between observable and unobservable inputs. Such relationships have not been included in the discussion below. For each of the individual relationships described below, the inverse relationship would also generally apply. For MSRs, in general, increases in the discount, prepayment or delinquency rates or in annual servicing costs in isolation would result in a lower fair value measurement. A decline in interest rates could lead to higher-than-expected prepayments of mortgages underlying the Company’s investments in MSRs, which in turn could result in a decline in the estimated fair value of MSRs. Refer to the Note titled “Mortgage Servicing Rights” for additional information.
The table below presents information about the significant unobservable inputs used for recurring fair value measurements for Level 3 MSRs. The table does not give effect to the Company’s risk management practices that might offset risks inherent in these Level 3 investments.
 
 September 30, 2020December 31, 2019
Valuation Technique
Unobservable Input (1)
 
Range (Weighted Average ) (2)
Unobservable Input (1)
 
Range (Weighted Average ) (2)
Discounted cash flowDiscount rate 
9.0% -12.0% (9.4%)
Discount rate
9.0% -12.0% (9.3%)
 Prepayment rate  
14.6% - 48.0% (34.0%)
Prepayment rate 
6.3% - 26.6% (13.7%)
 Delinquency rate 
0.0% - 17.0% (4.9%)
Delinquency rate
0.0% - 4.0% (2.2%)
 Cost to service  
$83 - $223 ($128)
Cost to service 
$81 - $135 ($107)
(1) Represents rates, estimates and assumptions that the Company believes would be used by market participants when valuing these assets.
(2) Weighted average discount rate computed based on the fair value of MSRs, weighted average prepayment rate, delinquency rate and cost to service based on unpaid principal balances of loans underlying the MSRs.

37


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following table summarizes the estimated fair values for financial assets and liabilities that are not carried at fair value at September 30, 2020 and December 31, 2019.
 September 30, 2020December 31, 2019
 Carrying
Value
Fair
Value
Carrying
Value
Fair
Value
Financial assets(dollars in thousands)
Loans
Commercial real estate debt and preferred equity, held for investment (1)
$1,456,459$1,529,485$1,606,091$1,619,018
Corporate debt, held for investment2,061,8782,011,1532,144,8502,081,327
Financial liabilities
Repurchase agreements$64,633,447$64,633,447$101,740,728$101,740,728
Other secured financing861,373861,3734,455,7004,455,700
Mortgages payable507,934594,242485,005515,994
(1)    Includes assets of consolidated VIEs.
 
Commercial real estate debt and preferred equity, held for investment, corporate debt, held for investment and mortgages payable are valued using Level 3 inputs. The carrying values of repurchase agreements and short term other secured financing approximates fair value and are considered Level 2 fair value measurements. Long term other secured financing are valued using Level 2 inputs.

12.  GOODWILL AND INTANGIBLE ASSETS
Goodwill
The Company’s acquisitions are accounted for using the acquisition method if the acquisition is deemed to be a business. Under the acquisition method, net assets and results of operations of acquired companies are included in the consolidated financial statements from the date of acquisition. The purchase prices are allocated to the assets acquired, including identifiable intangible assets, and the liabilities assumed based on their estimated fair values at the date of acquisition. The excess of the purchase price over the fair value of the net assets acquired is recognized as goodwill. Conversely, any excess of the fair value of the net assets acquired over the purchase price is recognized as a bargain purchase gain.
The Company tests goodwill for impairment on an annual basis or more frequently when events or circumstances may make it more likely than not that an impairment has occurred. If a qualitative analysis indicates that there may be an impairment, a quantitative analysis is performed.  The quantitative impairment test for goodwill utilizes a two-step approach, whereby the Company compares the carrying value of each identified reporting unit to its fair value.  If the carrying value of the reporting unit is greater than its fair value, the second step is performed, where the implied fair value of goodwill is compared to its carrying value. The Company recognizes an impairment charge for the amount by which the carrying amount of goodwill exceeds its fair value. At September 30, 2020 and December 31, 2019, goodwill totaled $71.8 million.
Intangible assets, net
Finite life intangible assets are amortized over their expected useful lives. As part of the Internalization, which closed on June 30, 2020, the Company recognized an intangible asset for the acquired assembled workforce of approximately $41.2 million, and accrued liabilities and cash that were recognized on the legal entity acquired. The following table presents the activity of finite lived intangible assets for the nine months ended September 30, 2020.
Intangible Assets, net
(dollars in thousands)
Balance at December 31, 2019
$20,957 
Intangible assets acquired
50,360 
Intangible assets divested
(110)
Less: amortization expense
(6,122)
Balance at September 30, 2020
$65,085 


38


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
13. SECURED FINANCING
Reverse Repurchase and Repurchase Agreements – The Company finances a significant portion of its assets with repurchase agreements. At the inception of each transaction, the Company assessed each of the specified criteria in ASC 860, Transfers and Servicing, and has determined that each of the financing agreements meet the specified criteria in this guidance.
The Company enters into reverse repurchase agreements to earn a yield on excess cash balances. The Company obtains collateral in connection with the reverse repurchase agreements in order to mitigate credit risk exposure to its counterparties.
Reverse repurchase agreements and repurchase agreements with the same counterparty and the same maturity are presented net in the Consolidated Statements of Financial Condition when the terms of the agreements meet the criteria to permit netting. The Company reports cash flows on repurchase agreements as financing activities and cash flows on reverse repurchase agreements as investing activities in the Consolidated Statements of Cash Flows.
The Company had outstanding $64.6 billion and $101.7 billion of repurchase agreements with weighted average borrowing rates of 0.81% and 1.99%, after giving effect to the Company’s interest rate swaps used to hedge cost of funds, and weighted average remaining maturities of 72 days and 65 days at September 30, 2020 and December 31, 2019, respectively. The Company has select arrangements with counterparties to enter into repurchase agreements for $2.4 billion with remaining capacity of $2.0 billion at September 30, 2020.
At September 30, 2020 and December 31, 2019, the repurchase agreements had the following remaining maturities, collateral types and weighted average rates: 
September 30, 2020
 Agency Mortgage-Backed SecuritiesCRTsNon-Agency Mortgage-Backed SecuritiesResidential Mortgage LoansCommercial LoansCommercial Mortgage-Backed SecuritiesTotal Repurchase AgreementsWeighted Average Rate  
 (dollars in thousands)
1 day$2,700,000 $ $ $ $ $ $2,700,000 0.13 %
2 to 29 days23,585,476 68,994 196,748   43,213 23,894,431 0.36 %
30 to 59 days8,463,636 60,651 73,438   46,466 8,644,191 0.51 %
60 to 89 days9,078,487 50,871 274,454  269,085 29,962 9,702,859 0.33 %
90 to 119 days5,320,952 50,758 102,189 23,407  31,730 5,529,036 0.73 %
Over 119 days (1)
13,656,052  237,980 47,235 66,026 155,637 14,162,930 0.45 %
Total$62,804,603 $231,274 $884,809 $70,642 $335,111 $307,008 $64,633,447 0.42 %
December 31, 2019
 Agency Mortgage-Backed SecuritiesCRTsNon-Agency Mortgage-Backed SecuritiesCommercial
Loans
Commercial Mortgage-Backed SecuritiesTotal Repurchase AgreementsWeighted
Average
Rate
 (dollars in thousands)
1 day$ $ $ $ $ $  %
2 to 29 days36,030,104 237,897 698,091  416,439 37,382,531 2.15 %
30 to 59 days15,079,989  115,805  104,363 15,300,157 2.00 %
60 to 89 days21,931,335 30,841 151,920  3,639 22,117,735 1.97 %
90 to 119 days9,992,914     9,992,914 1.97 %
Over 119 days (1)
16,557,123  58,712 303,078 28,478 16,947,391 1.90 %
Total$99,591,465 $268,738 $1,024,528 $303,078 $552,919 $101,740,728 2.03 %
 (1)    No repurchase agreements had a remaining maturity over one year at September 30, 2020 and December 31, 2019.
 
The following table summarizes the gross amounts of reverse repurchase agreements and repurchase agreements, amounts offset in accordance with netting arrangements and net amounts of repurchase agreements and reverse repurchase agreements as presented in the Consolidated Statements of Financial Condition at September 30, 2020 and December 31, 2019. Refer to the “Derivative Instruments” Note for information related to the effect of netting arrangements on the Company’s derivative instruments.
39


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
 September 30, 2020December 31, 2019
 Reverse Repurchase AgreementsRepurchase AgreementsReverse Repurchase AgreementsRepurchase Agreements
 (dollars in thousands)
Gross amounts$200,000 $64,833,447 $100,000 $101,840,728 
Amounts offset(200,000)(200,000)(100,000)(100,000)
Netted amounts$ $64,633,447 $ $101,740,728 

Other Secured Financing - The Company previously financed a portion of its financial assets with advances from the Federal Home Loan Bank of Des Moines (“FHLB Des Moines”). Borrowings from FHLB Des Moines are reported in Other secured financing in the Company’s Consolidated Statements of Financial Condition. At September 30, 2020, the Company did not hold advances from the FHLB Des Moines. At December 31, 2019, $1.4 billion of advances from the FHLB Des Moines matured in less than one year and $2.1 billion matured between one to three years. The weighted average rate of the advances from the FHLB Des Moines was 2.16% at December 31, 2019. The Company held $4.4 million and $147.9 million of stock in the FHLB Des Moines at September 30, 2020 and December 31, 2019, respectively, which is reported at cost and included in Other assets on the Company’s Consolidated Statements of Financial Condition. Refer to the Note titled “Variable Interest Entities” for additional information on the Company’s other secured financing arrangements.
Investments pledged as collateral under secured financing arrangements and interest rate swaps, excluding residential and senior securitized commercial mortgage loans of consolidated VIEs, had an estimated fair value and accrued interest of $70.6 billion and $202.7 million, respectively, at September 30, 2020 and $112.8 billion and $357.9 million, respectively, at December 31, 2019.

Mortgage loans payable at September 30, 2020 and December 31, 2019, were as follows:
September 30, 2020
PropertyMortgage
Carrying Value
Mortgage
Principal
Interest RateFixed/Floating
Rate
Maturity DatePriority
(dollars in thousands)
Joint Ventures$316,661 $318,371 
4.03% - 4.96%
Fixed2024 - 2029First liens
Joint Ventures16,575 16,325 
L+2.15%
Floating2/27/2022First liens
Virginia81,498 83,204 
2.34% - 4.55%
Fixed2036 - 2053First liens
Virginia24,457 25,000 
L+2.85%
Floating5/1/2023First liens
   Texas31,263 32,730 3.28%Fixed1/1/2048 and 1/1/2053First liens
Utah9,706 9,706 
L+2.75%
Floating1/31/2021First liens
Utah6,996 7,014 3.69%Fixed6/1/2053First liens
Minnesota13,090 13,124 3.69%Fixed6/1/2053First liens
Wisconsin7,688 7,708 3.69%Fixed6/1/2053First liens
Total$507,934 $513,182 
December 31, 2019
PropertyMortgage
Carrying Value
Mortgage
Principal
Interest RateFixed/Floating
Rate
Maturity DatePriority
(dollars in thousands)
Joint Ventures$316,566 $318,562 
4.03% - 4.96%
Fixed2024 - 2029First liens
Joint Ventures16,029 16,325 
L+2.15%
Floating2/27/2022First liens
Virginia82,940 84,702 
2.34% - 4.55%
Fixed2036 - 2053First liens
   Texas31,667 33,167 3.28%Fixed1/1/2048 and 1/1/2053First liens
Utah9,706 9,706 
L+3.50%
Floating1/31/2020First liens
Utah7,077 7,096 3.69%Fixed6/1/2053First liens
Minnesota13,243 13,276 3.69%Fixed6/1/2053First liens
Wisconsin7,777 7,797 3.69%Fixed6/1/2053First liens
Total$485,005 $490,631 
40


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

The following table details future mortgage loan principal payments at September 30, 2020:
Mortgage Loan Principal Payments
(dollars in thousands)
2020 (remaining)$833 
202113,197 
202220,034 
202328,844 
2024107,929 
Later years342,345 
Total$513,182 


14. CAPITAL STOCK
(A)    Common Stock

The following table provides a summary of the Company’s common shares authorized, and issued and outstanding at September 30, 2020 and December 31, 2019.
Shares authorizedShares issued and outstanding
September 30, 2020December 31, 2019September 30, 2020December 31, 2019Par Value
Common stock
2,914,850,000 2,914,850,000 1,402,928,317 1,430,106,199 $0.01
During the nine months ended September 30, 2019, the Company closed the public offering of an original issuance of 75.0 million shares of common stock for proceeds of $730.5 million before deducting offering expenses. In connection with the offering, the Company granted the underwriters a thirty-day option to purchase up to an additional 11.3 million shares of common stock, which the underwriters exercised in full resulting in an additional $109.6 million in proceeds before deducting offering expenses.
In June 2019, the Company announced that its board of directors (“Board”) had authorized the repurchase of up to $1.5 billion of its outstanding shares of common stock through December 31, 2020. During the three and nine months ended September 30, 2020, the Company repurchased 4.8 million and 27.7 million shares of its common stock, respectively, for an aggregate amount of $31.3 million and $174.7 million, respectively, excluding commission costs, pursuant to this authorization. All common shares were purchased in open-market transactions. During the three and nine months ended September 30, 2019, the Company repurchased 18.3 million shares of its common stock for an aggregate amount of $155.0 million, excluding commission costs. All common shares purchased pursuant to this authorization were in open-market transactions.
The following table provides a summary of activity related to the Company’s Direct Purchase and Dividend Reinvestment Program.
Nine Months Ended
September 30, 2020September 30, 2019
(dollars in thousands)
Shares issued through direct purchase and dividend reinvestment program
154,000 180,000 
Amount raised from direct purchase and dividend reinvestment program
$1,075 $1,795 
In January 2018, the Company entered into separate Distribution Agency Agreements (as amended and restated on August 6, 2020, collectively, the “Sales Agreements”) with each of Wells Fargo Securities, LLC, BofA Securities, Inc. (formerly known as Merrill Lynch, Pierce, Fenner & Smith, Incorporated), Barclays Capital Inc., Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC, Goldman Sachs & Co. LLC, J.P. Morgan Securities LLC, Keefe, Bruyette & Woods, Inc., RBC Capital Markets, LLC and UBS Securities LLC (the “Sales Agents”). The Company may offer and sell shares of its common stock, having an aggregate offering price of up to $1.5 billion from time to time through any of the Sales Agents. No shares were issued under the at-the-market sales program during the nine months ended September 30, 2020. During the nine months ended
41


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
September 30, 2019, the Company issued 56.0 million shares for proceeds of $569.1 million, net of commissions and fees, under the at-the-market sales program.

(B)    Preferred Stock

The following is a summary of the Company’s cumulative redeemable preferred stock outstanding at September 30, 2020 and December 31, 2019. In the event of a liquidation or dissolution of the Company, the Company’s then outstanding preferred stock takes precedence over the Company’s common stock with respect to payment of dividends and the distribution of assets.
Shares AuthorizedShares Issued And OutstandingCarrying ValueContractual Rate
Earliest Redemption Date (1)
Date At Which Dividend Rate Becomes FloatingFloating Annual Rate
September 30, 2020December 31, 2019September 30, 2020December 31, 2019September 30, 2020December 31, 2019
Fixed-rate(dollars in thousands)
Series D18,400,000 18,400,000 18,400,000 18,400,000 445,457 445,457 7.50%9/13/2017NANA
Fixed-to-floating rate
Series F28,800,000 28,800,000 28,800,000 28,800,000 696,910 696,910 6.95%9/30/20229/30/2022
3M LIBOR + 4.993%
Series G19,550,000 19,550,000 17,000,000 17,000,000 411,335 411,335 6.50%3/31/20233/31/2023
3M LIBOR + 4.172%
Series I18,400,000 18,400,000 17,700,000 17,700,000 428,324 428,324 6.75%6/30/20246/30/2024
3M LIBOR + 4.989%
Total85,150,000 85,150,000 81,900,000 81,900,000 $1,982,026 $1,982,026 
(1) Subject to the Company’s right under limited circumstances to redeem preferred stock earlier in order to preserve its qualification as a REIT or under limited circumstances related to a change in control of the Company.

Each series of preferred stock has a par value of $0.01 per share and a liquidation and redemption price of $25.00, plus accrued and unpaid dividends through their redemption date. Through September 30, 2020, the Company had declared and paid all required quarterly dividends on the Company’s preferred stock.
During the three and nine months ended September 30, 2019, the Company redeemed all 7.0 million of its issued and outstanding shares of 7.625% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”) for $175.0 million. The cash redemption amount for each share of Series C Preferred Stock was $25.00 plus accrued and unpaid dividends to, but not including, the redemption date of July 21, 2019.
During the nine months ended September 30, 2019, the Company redeemed all 2.2 million of its issued and outstanding shares of 8.125% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”) for $55.0 million. The cash redemption amount for each share of Series H Preferred Stock was $25.00 plus accrued and unpaid dividends to, but not including, the redemption date of May 31, 2019.
During the nine months ended September 30, 2019, the Company issued 17.7 million shares of its 6.750% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock (“Series I Preferred Stock”) for gross proceeds of $442.5 million before deducting the underwriting discount and other estimated offering expenses.
The Series D Cumulative Redeemable Preferred Stock, Series F Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock, Series G Preferred Stock and Series I Preferred Stock rank senior to the common stock of the Company.

(C)    Distributions to Stockholders

The following table provides a summary of the Company’s dividend distribution activity for the periods presented:
42


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
 For the Three Months EndedFor the Nine Months Ended
 September 30, 2020September 30, 2019September 30, 2020September 30, 2019
 (dollars in thousands, except per share data)
Dividends and dividend equivalents declared on common stock and share-based awards$309,175 $359,736 $976,966 $1,158,629 
Distributions declared per common share$0.22 $0.25 $0.69 $0.80 
Distributions paid to common stockholders after period end$308,644 $359,491 $308,644 $359,491 
Distributions paid per common share after period end$0.22 $0.25 $0.22 $0.25 
Date of distributions paid to common stockholders after period endOctober 30, 2020October 31, 2019October 30, 2020October 31, 2019
Dividends declared to series C preferred stockholders$ $742 $ $7,414 
Dividends declared per share of series C preferred stock$ $0.106 $ $1.060 
Dividends declared to series D preferred stockholders$8,625 $8,625 $25,875 $25,875 
Dividends declared per share of series D preferred stock$0.469 $0.469 $1.406 $1.407 
Dividends declared to series F preferred stockholders$12,510 $12,510 $37,530 $37,530 
Dividends declared per share of series F preferred stock$0.434 $0.434 $1.303 $1.303 
Dividends declared to series G preferred stockholders$6,906 $6,906 $20,718 $20,718 
Dividends declared per share of series G preferred stock$0.406 $0.406 $1.219 $1.219 
Dividends declared to series H preferred stockholders$ $ $ $1,862 
Dividends declared per share of series H preferred stock$ $ $ $0.846 
Dividends declared to series I preferred stockholders$7,468 $7,668 $22,404 $7,668 
Dividends declared per share of series I preferred stock$0.422 $0.436 $1.266 $0.436 



15.  INTEREST INCOME AND INTEREST EXPENSE
Refer to the Note titled “Significant Accounting Policies” for details surrounding the Company’s accounting policy related to net interest income on securities and loans.
The following table summarizes the interest income recognition methodology for Residential Securities:
 Interest Income Methodology
Agency 
Fixed-rate pass-through (1)
Effective yield (3)
Adjustable-rate pass-through (1)
Effective yield (3)
Multifamily (1)
Contractual Cash Flows
CMO (1)
Effective yield (3)
Reverse mortgages (2)
Prospective
Interest-only (2)
Prospective
Residential credit 
CRT (2)
Prospective
Alt-A (2)
Prospective
Prime (2)
Prospective
Subprime (2)
Prospective
NPL/RPL (2)
Prospective
Prime jumbo (2)
Prospective
Prime jumbo interest-only (2)
Prospective
(1) Changes in fair value are recognized in Other comprehensive income (loss) on the accompanying Consolidated Statements of Comprehensive Income (Loss).
(2) Changes in fair value are recognized in Net unrealized gains (losses) on instruments measured at fair value through earnings on the accompanying Consolidated Statements of Comprehensive Income (Loss).
(3) Effective yield is recalculated for differences between estimated and actual prepayments and the amortized cost is adjusted as if the new effective yield had been applied since inception.


43


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The following presents the components of the Company’s interest income and interest expense for the three and nine months ended September 30, 2020 and September 30, 2019.
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2020201920202019
Interest income(dollars in thousands)
Residential Securities (1)
$439,502 $784,228 $1,307,566 $2,271,893 
Residential mortgage loans (1)
42,508 37,673 132,936 102,689 
Commercial investment portfolio (1) (2)
80,324 87,946 260,208 281,029 
Reverse repurchase agreements109 9,452 1,571 57,472 
Total interest income$562,443 $919,299 $1,702,281 $2,713,083 
Interest expense  
Repurchase agreements75,386 699,838 646,369 1,962,999 
Debt issued by securitization vehicles32,491 34,524 113,367 102,882 
Other7,249 32,543 44,895 98,936 
Total interest expense115,126 766,905 804,631 2,164,817 
Net interest income$447,317 $152,394 $897,650 $548,266 
(1) Includes assets transferred or pledged to securitization vehicles.
(2 ) Includes commercial real estate debt and preferred equity and corporate debt.

16.  NET INCOME (LOSS) PER COMMON SHARE
The following table presents a reconciliation of net income (loss) and shares used in calculating basic and diluted net income (loss) per share for the three and nine months ended September 30, 2020 and September 30, 2019.
 For the Three Months EndedFor the Nine Months Ended
 September 30, 2020September 30, 2019September 30, 2020September 30, 2019
 (dollars in thousands, except per share data)
Net income (loss)$1,015,548 $(747,169)$(1,768,407)$(3,372,833)
Net income (loss) attributable to noncontrolling interests(126)(110)(28)(294)
Net income (loss) attributable to Annaly 1,015,674 (747,059)(1,768,379)(3,372,539)
Dividends on preferred stock (1)
35,509 36,151 106,527 101,067 
Net income (loss) available (related) to common stockholders$980,165 $(783,210)$(1,874,906)$(3,473,606)
Weighted average shares of common stock outstanding-basic1,404,202,695 1,453,359,211 1,419,645,475 1,436,204,582 
Add: Effect of stock awards, if dilutive165,605    
Weighted average shares of common  stock outstanding-diluted1,404,368,300 1,453,359,211 1,419,645,475 1,436,204,582 
Net income (loss) per share available (related) to common share
Basic$0.70 $(0.54)$(1.32)$(2.42)
Diluted$0.70 $(0.54)$(1.32)$(2.42)
(1) The three months ended September 30, 2019 exclude cumulative and undeclared dividends of $0.3 million on the Company's Series I Preferred Stock as of June 30, 2019.

The computations of diluted net income (loss) per share available (related) to common share for the three and nine months ended September 30, 2020 excludes 0.5 million of potentially dilutive restricted stock units and 0.8 million of potentially dilutive restricted stock units and performance stock units because their effect would have been anti-dilutive.


17.  INCOME TAXES
For the three months ended September 30, 2020 the Company was qualified to be taxed as a REIT under Code Sections 856 through 860. As a REIT, the Company will not incur federal income tax to the extent that it distributes its taxable income to its stockholders. To maintain qualification as a REIT, the Company must distribute at least 90% of its annual REIT taxable income to its stockholders and meet certain other requirements that relate to, among other things, assets it may hold, income it may generate and its stockholder composition. It is generally the Company’s policy to distribute 100% of its REIT taxable income.
44


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
To the extent there is any undistributed REIT taxable income at the end of a year, the Company distributes such shortfall within the next year as permitted by the Code.
The Company and certain of its direct and indirect subsidiaries, including Annaly TRS, Inc. and certain subsidiaries of Mountain Merger Sub Corp., have made separate joint elections to treat these subsidiaries as TRSs.  As such, each of these TRSs is taxable as a domestic C corporation and subject to federal, state and local income taxes based upon their taxable income.
The provisions of ASC 740, Income Taxes (“ASC 740”), clarify the accounting for uncertainty in income taxes recognized in financial statements and prescribe a recognition threshold and measurement attribute for uncertain tax positions taken or expected to be taken on a tax return. ASC 740 also requires that interest and penalties related to unrecognized tax benefits be recognized in the financial statements. The Company does not have any unrecognized tax benefits that would affect its financial position. Thus, no accruals for penalties and interest were deemed necessary at September 30, 2020 and December 31, 2019.
The state and local tax jurisdictions for which the Company is subject to tax-filing obligations recognize the Company’s status as a REIT, and therefore, the Company generally does not pay income tax in such jurisdictions. The Company may, however, be subject to certain minimum state and local tax filing fees as well as certain excise, franchise or business taxes. The Company’s TRSs are subject to federal, state and local taxes.
During the three and nine months ended September 30, 2020, the Company recorded $9.7 million and ($14.9) million, respectively, of income tax expense (benefit) attributable to its TRSs. During the three and nine months ended September 30, 2019, the Company recorded ($6.9) million and ($10.2) million, respectively of income tax benefit attributable to its TRSs. The Company’s federal, state and local tax returns from 2016 and forward remain open for examination.

18.  RISK MANAGEMENT
The primary risks to the Company are capital, liquidity and funding risk, investment/market risk and credit risk. Interest rates are highly sensitive to many factors, including governmental monetary and tax policies, domestic and international economic and political considerations and other factors beyond the Company’s control. Changes in the general level of interest rates can affect net interest income, which is the difference between the interest income earned on interest earning assets and the interest expense incurred in connection with the interest bearing liabilities, by affecting the spread between the interest earning assets and interest bearing liabilities. Changes in the level of interest rates can also affect the value of the interest earning assets and the Company’s ability to realize gains from the sale of these assets. A decline in the value of the interest earning assets pledged as collateral for borrowings under repurchase agreements and derivative contracts could result in the counterparties demanding additional collateral or liquidating some of the existing collateral to reduce borrowing levels.
The Company may seek to mitigate the potential financial impact by entering into interest rate agreements such as interest rate swaps, interest rate swaptions and other hedges.
Weakness in the mortgage market, the shape of the yield curve and changes in the expectations for the volatility of future interest rates may adversely affect the performance and market value of the Company’s investments. This could negatively impact the Company’s book value. Furthermore, if many of the Company’s lenders are unwilling or unable to provide additional financing, the Company could be forced to sell its investments at an inopportune time when prices are depressed. The Company has established policies and procedures for mitigating risks, including conducting scenario and sensitivity analyses and utilizing a range of hedging strategies.
The payment of principal and interest on the Freddie Mac and Fannie Mae Agency mortgage-backed securities, which exclude CRT securities issued by Freddie Mac and Fannie Mae, is guaranteed by those respective agencies and the payment of principal and interest on Ginnie Mae Agency mortgage-backed securities is backed by the full faith and credit of the U.S. government. Substantially all of the Company’s Agency mortgage-backed securities have an actual or implied “AAA” rating.
The Company faces credit risk on the portions of its portfolio which are not guaranteed by the respective Agency or by the full faith and credit of the U.S. government. The Company is exposed to credit risk on CRE Debt and Preferred Equity Investments, real estate investments, commercial mortgage-backed securities, residential mortgage loans, CRT securities, other non-Agency mortgage-backed securities and corporate debt. MSR values may also be adversely impacted if overall costs to service the underlying mortgage loans increase due to borrower performance. The Company is exposed to risk of loss if an issuer, borrower, tenant or counterparty fails to perform its obligations under contractual terms. The Company has established policies and procedures for mitigating credit risk, including reviewing and establishing limits for credit exposure, limiting transactions with specific counterparties, maintaining qualifying collateral and continually assessing the creditworthiness of issuers, borrowers, tenants and counterparties.
45


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
The conditions related to Coronavirus Disease 2019 (“COVID-19”) could further impact the aforementioned primary risks to the Company. The significant decrease in economic activity and/or the resulting impact to the housing market could have an adverse effect on the value of the Company’s investments in mortgage real estate-related assets, particularly residential real estate assets. Further, borrowers may experience difficulties meeting their obligations or seek to forbear payment on or refinance their mortgage loans to avail themselves of lower rates which may have an adverse impact on the value of the Company’s mortgage real estate related-assets. In addition to residential mortgage-related assets, the adverse economic conditions could negatively impact tenants in the Company’s commercial property assets and/or businesses in which it lends to in connection with its middle market lending activities, resulting in potential delinquencies, defaults or declines in asset values.
If conditions related to COVID-19 continue to persist, the Company could also experience an unwillingness or inability of its potential lenders to provide the Company with or renew financing, increased margin calls, and/or additional capital requirements particularly in connection with the Company’s less liquid credit assets. These conditions could force the Company to sell its assets at inopportune times or otherwise cause the Company to potentially revise its strategic business initiatives, which could adversely affect its business. The full extent of the COVID 19-related disruptions, the duration of the pandemic and the effectiveness of government policies, laws and plans continue to be highly uncertain.

19.  RELATED PARTY TRANSACTIONS
Closing of the Internalization and Termination of Management Agreement
On February 12, 2020, the Company entered into an internalization agreement (the “Internalization Agreement”) with the Former Manager and certain affiliates of the Former Manager. Pursuant to the Internalization Agreement, the Company agreed to acquire all of the outstanding equity interests of the Former Manager and the Former Manager’s direct and indirect parent companies from their respective owners (the “Internalization”) for nominal cash consideration ($1.00). In connection with the closing of the Internalization, on June 30, 2020, the Company acquired all of the assets and liabilities of the Former Manager (the net effect of which was immaterial in amount), and the Company transitioned from an externally-managed real estate investment trust (“REIT”) to an internally-managed REIT. At the closing, all employees of the Former Manager became employees of the Company. The parties also terminated the Amended and Restated Management Agreement by and between the Company and the Former Manager (the “Management Agreement”) and therefore the Company no longer pays a management fee to, or reimburses expenses of, the Former Manager. Pursuant to the Internalization Agreement, the Former Manager waived any Acceleration Fee (as defined in the Management Agreement).
Prior to the closing of the Internalization, the Former Manager, under the Management Agreement and subject to the supervision and direction of the Board, was responsible for (i) the selection, purchase and sale of assets for the Company’s investment portfolio; (ii) recommending alternative forms of capital raising; (iii) supervising the Company’s financing and hedging activities; and (iv) day to day management functions. The Former Manager also performed such other supervisory and management services and activities relating to the Company’s assets and operations as appropriate. In exchange for the management services, the Company paid the Former Manager a monthly management fee, and the Former Manager was responsible for providing personnel to manage the Company. Prior to the closing of the Internalization, the Company had paid the Former Manager a monthly management fee for its management services in an amount equal to 1/12th of the sum of (i) 1.05% of Stockholders' Equity (as defined in the Management Agreement) up to $17.28 billion, and (ii) 0.75% of Stockholders' Equity (as defined in the Management Agreement) in excess of $17.28 billion. The Company did not pay the Former Manager any incentive fees.
For the six months ended June 30, 2020, the compensation and management fee computed in accordance with the Management Agreement was $77.9 million. For the three and nine months ended September 30, 2019, the compensation and management fee was $41.2 million and $130.2 million, respectively.
Prior to the closing of the Internalization, the Company reimbursed the Former Manager for certain services in connection with the management and operations of the Company and its subsidiaries as permitted under the terms of the Management Agreement. Such reimbursable expenses included the cost for certain legal, tax, accounting and other support and advisory services provided by employees of the Former Manager to the Company. Pursuant to the Management Agreement, until the closing of the Internalization, the Company reimbursed the Former Manager for the cost of such services, provided such costs were no greater than those that would be payable to comparable third party providers. Expense reimbursements and related waivers were routinely reviewed with the Audit Committee of the Board in conformance with established policies. For the nine months ended September 30, 2020 and September 30, 2019, reimbursement payments to the Former Manager were $14.2 million and $14.3 million, respectively. None of the reimbursement payments were attributable to compensation of the Company’s executive officers.
46


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
At September 30, 2020 and December 31, 2019 the Company had amounts payable to the Former Manager of $0 and $15.8 million, respectively.

20.  LEASE COMMITMENTS AND CONTINGENCIES
The Company adopted ASU 2016-02, Leases (Topic 842) on January 1, 2019 with no impact to retained earnings or other components of equity. The Company’s operating leases are primarily comprised of a corporate office lease with a remaining lease term of five years. The corporate office lease includes an option to extend for up to five years, however the extension term was not included in the operating lease liability calculation. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company recognizes lease expense for these leases on a straight-line basis over the lease term. The lease cost for the three and nine months ended September 30, 2020 was $0.9 million and $2.4 million, respectively.
Supplemental information related to leases as of and for the nine months ended September 30, 2020 was as follows:
Operating LeasesClassificationSeptember 30, 2020
Assets(dollars in thousands)
Operating lease right-of-use assetsOther assets$13,831 
Liabilities
Operating lease liabilities (1)
Other liabilities$18,059 
Lease term and discount rate
Weighted average remaining lease term4.9 years
Weighted average discount rate (1)
2.9%
Cash paid for amounts included in the measurement of lease liabilities
   Operating cash flows from operating leases$2,797 
(1)     As the Company’s leases do not provide an implicit rate, the Company uses an incremental borrowing rate based on the information available at adoption date in determining the present value of lease payments.

The following table provides details related to maturities of lease liabilities:
Maturity of Lease Liabilities
Years ending December 31,(dollars in thousands)
2020 (remaining)$1,002 
20213,918 
20223,862 
20233,862 
20243,862 
Later years2,895 
Total lease payments$19,401 
Less imputed interest1,342 
Present value of lease liabilities$18,059 
Contingencies
From time to time, the Company is involved in various claims and legal actions arising in the ordinary course of business. In the opinion of management, the ultimate disposition of these matters will not have a material effect on the Company’s consolidated financial statements. There were no material contingencies at September 30, 2020 and December 31, 2019.

47


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 1. Financial Statements
21.  ARCOLA REGULATORY REQUIREMENTS
Arcola is the Company’s wholly owned and consolidated broker-dealer. Arcola is subject to regulations of the securities business that include but are not limited to trade practices, use and safekeeping of funds and securities, capital structure, recordkeeping and conduct of directors, officers and employees. 
Arcola is a member of various clearing organizations with which it maintains cash required to conduct its day-to-day clearance activities. Arcola enters into reverse repurchase agreements and repurchase agreements as part of its matched book trading activity. Reverse repurchase agreements are recorded on settlement date at the contractual amount and are collateralized by mortgage-backed or other securities. Arcola generates income from the spread between what is earned on the reverse repurchase agreements and what is paid on the matched repurchase agreements. Arcola’s policy is to obtain possession of collateral with a market value in excess of the principal amount loaned under reverse repurchase agreements. To ensure that the market value of the underlying collateral remains sufficient, collateral is valued daily, and Arcola will require counterparties to deposit additional collateral, when necessary.  All reverse repurchase activities are transacted under master repurchase agreements or other documentation that give Arcola the right, in the event of default, to liquidate collateral held and in some instances, to offset receivables and payables with the same counterparty.
As a member of the Financial Industry Regulatory Authority (“FINRA”), Arcola is required to maintain a minimum net capital balance. At September 30, 2020 Arcola had a minimum net capital requirement of $0.3 million. Arcola consistently operates with capital in excess of its regulatory capital requirements. Arcola’s regulatory net capital as defined by SEC Rule 15c3-1 at September 30, 2020 was $422.5 million with excess net capital of $422.2 million.

22.  SUBSEQUENT EVENTS
In October 2020, the Company repurchased 4.7 million shares of its common stock for an aggregate amount of $34.3 million, excluding commission costs, under the Company’s stock repurchase program.

48


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Special Note Regarding Forward-Looking Statements
Certain statements contained in this quarterly report, and certain statements contained in our future filings with the Securities and Exchange Commission (the “SEC” or the “Commission”), in our press releases or in our other public or stockholder communications 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, risks and uncertainties related to the COVID-19 pandemic, including as related to adverse economic conditions on real estate-related assets and financing conditions (and our outlook for our business in light of these conditions, which is uncertain); 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 business; our ability to grow our residential 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 MSRs; our ability to consummate any contemplated investment opportunities; changes in government regulations or 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. 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 Item 1A “Risk Factors” in this quarterly report 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.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with our most recent annual report on Form 10-K. All references to “Annaly,” “we,” “us,” or “our” mean Annaly Capital Management, Inc. and all entities owned by us, except where it is made clear that the term means only the parent company.  Refer to the section titled “Glossary of Terms” located at the end of this Item 2 for definitions of commonly used terms in this quarterly report on Form 10-Q.

49


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
INDEX TO ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
  Page
Unrealized Gains and Losses - Available-for-Sale Investments
 
50


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Overview
We are a leading diversified capital manager that invests in and finances residential and commercial assets. Our principal business objective is to generate net income for distribution to our stockholders and optimize our returns through prudent management of our diversified investment strategies. We are an internally-managed Maryland corporation founded in 1997 that has elected to be taxed as a REIT. Prior to the closing of the Internalization (as defined in the “Related Party Transactions” Note located within Item 1) on June 30, 2020, we were externally managed by Annaly Management Company LLC (the “Former Manager”). Our common stock is listed on the New York Stock Exchange under the symbol “NLY.”
We use our capital coupled with borrowed funds to invest primarily in real estate related investments, earning the spread between the yield on our assets and the cost of our borrowings and hedging activities.
For a full discussion of our business, refer to the section titled “Business Overview” in our most recent Annual Report on Form 10-K.

Business Environment and Coronavirus Disease 2019 (“COVID-19”) 
The U.S. economy rebounded at a faster pace than many had anticipated in the third quarter, best seen by the 3.2 percentage point decline in unemployment rate during the quarter to 7.9 percent in September. Household spending rose sharply as certain sectors of the economy, most notably housing and goods consumption have shown signs of a v-shaped recovery with current activity well above levels seen ahead of the pandemic-induced economic downturn. However, momentum in the economic recovery, which remains incomplete in aggregate despite the strength in the aforementioned sectors, is slowing as the service sector is unable to fully recover while the virus continues to surge in many states and government regulations limit social and business activities to help curb the spread of the virus. The extended unemployment benefits afforded under the CARES Act, which meaningfully boosted incomes in the second and third quarter, expired in July although nearly half of all jobs lost during the pandemic have yet to be recovered. The timing and speed of a U.S. economic recovery remains highly uncertain and depends on continued monetary and fiscal policy accommodation.
In an environment similar to the second quarter, the Federal Reserve (“Fed”) continued to use all available tools to support market functioning and assist the economic recovery, while signaling it stands ready to provide more accommodation if needed. The stable interest rate environment created by the large-scale Fed intervention and low levels of volatility across financial markets, even in light of uncertainties stemming from the 2020 U.S. Presidential election, remained a positive backdrop for our businesses in the third quarter, allowing us to generate a 6.3% economic return during the quarter, while core earnings (excluding PAA) exceeded our dividend by ten cents. Additionally, we achieved these results while reducing our leverage to 6.2x, reflecting that we maintain a cautious approach following the elevated market volatility back in March 2020.
Although our Agency MBS portfolio was largely unchanged in notional terms over the third quarter, we maintain a positive outlook. The sector performed well during the third quarter as continued sizeable Fed purchases, now totaling more than $700 billion net of paydowns since March, combined with strong demand from banks, offset the high levels of supply and continued elevated prepayment speeds. Given the Fed involvement in the market, we further shifted the Agency portfolio out of higher coupon specified pools into lower coupon specified pools and production coupon to-be-announced (“TBA”) contracts, such as 30-year UMBS 1.5% and 2.0%s. While specified pool collateral offers meaningful call protection, more consistently accurate model durations, and exhibit better supply and demand dynamics than generic pools, TBAs currently offer improved float from Fed purchases removing the most negatively convex pools and attractive implied financing rates, allowing us to finance TBAs well below comparable specified pool collateral. The attractive implied financing rates from TBA dollar roll specialness will not last in perpetuity, but they contribute to excess returns and serve to mitigate potential episodes of spread widening, such that, all other things being equal, we anticipate maintaining TBA positions in excess of their traditional portfolio share while the Fed remains heavily involved in the market. Meanwhile, we continue to find value in specified pools as the investments we have made in specified pools over the last number of years are further paying off in this environment, exemplified by our portfolio prepaying roughly at a level of two third the level of prepayments of the 30-year fixed rate mortgage universe. At September 30, 2020, 96% of our portfolio was comprised of high or medium quality specified pools or mortgages that are seasoned by at least 40 month and remains well positioned to withstand the current environment of elevated prepayment speeds.
In light of the low volatility interest rate environment, we were able to focus on our hedging activity on protecting the portfolio from tail risk as we opportunistically added out of the money swaptions at attractive pricing given low implied volatility in option pricing, while we also added modestly to our swaps and futures positions. Funding remains widely available and balance sheet availability is strong given the abundance in reserves in the system. Financing spreads have tightened for certain credit products. and we have been able to amend and renegotiate a portion of our warehouse lines, which has decreased costs and improved our flexibility in light.

51


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
The aggregate portfolio of our credit businesses declined slightly in the third quarter, resulting in capital allocated to the credit businesses to decline to 20% as of September 30, 2020. The decline was mainly driven by two residential credit securitizations we completed during the third quarter totaling $1 billion, which was the main reason for our reduced capital allocated in the quarter. Fundamentals in the residential credit sectors continue to improve on the back of the strong housing market, as evidenced by less than 5% of the market is now in forbearance which is down from 9% in late May. We continue to expand the sourcing of mortgage loans, activity which has increased slowly following the cessation in the activity following the market volatility in March. Meanwhile, we have seen a reopening of loan channels in the Commercial Real Estate sector and are selectively evaluating new opportunities. We do remain focused on portfolio management we continue to be in active dialogue with our borrowers to closely monitor underlying performance trends. It is likely that parts of the commercial real estate landscape will be persistently changed by the pandemic, but it is still early to judge the full extent. With respect to portfolio fundamentals in the Middle Market Lending business, underlying cash flow trends have been encouraging year over year, as sound EBITDA and revenue growth have helped to consistently delever our portfolio’s underlying portfolio companies.
Despite the decline in capital allocated to our credit businesses, tighter Agency spreads and the potential for improving macroeconomic indicators leave us focused on finding opportunities in credit sectors. We anticipate potentially higher capital allocation on the margin to Residential Credit and Middle Market Lending, all else equal over the next few quarters. Additionally, we analyze the buyback of common stock as part of our capital allocation framework. We repurchased over $200 million in stock throughout the past six months at times when our evaluation deemed it the most attractive use of capital, and we will continue to consider using the buyback authorization as a tool to generate shareholder return when prudent to do so.
Business Continuity

Our well-established Business Continuity Planning (“BCP”) has been designed to ensure continued, effective operations through a variety of scenarios including natural disasters and disease pandemics.  It identifies critical systems, processes, roles and third parties, and can be adjusted on a real-time basis to address situations as they arise.

The BCP is regularly updated and tested.  Annual testing includes extensive, remote Disaster Recovery testing and tabletop exercise scenarios with management.  Key tenets of the planning include active communication between our Crisis Response Team, which is comprised of senior leaders across a number of functions, and our internal and external stakeholders to afford efficient, thoughtful, effective responses to evolving emergency situations.

Historical tabletop exercises have included use of CDC Influenza Pandemic exercise materials. That exercise documented our response and possible impacts to a variety of scenarios, including those in which “shelter in place orders” were required and response/ impact assessments to those scenarios. Regular meetings were commenced to implement and review active internal and external communications planning. These exercises, along with regulatory and industry guidance, informed our staged response to the conditions created by COVID-19. We took proactive actions, which included canceling non-essential travel and instituting 100% remote working, ahead of New York State-mandated requirements. To protect the health and well-being of our employees, their families and communities remote work requirements began in phases in early March, culminating with a company-wide exercise on March 13, 2020 to test connectivity and functionality. All employees were able to successfully perform their duties in this testing and we have operated largely remotely since that time.
A majority of our business activities continue to be performed remotely, though we have seen a limited number of employees return to the office on a voluntary and periodic basis. We continue to monitor guidance from federal, state and local authorities to gauge how to further proceed in any efforts to return to the office.

Economic Environment
Following the meaningful contraction in the second quarter, the pace of economic growth rebounded in the third quarter, with U.S. gross domestic product (“GDP”) rising 33.1% on a seasonally adjusted annualized rate. The rebound in U.S. economic output was driven by the gradual reopening of manufacturing and services businesses, as well as a strong rebound in consumption. The degree of the economic recovery nonetheless varies greatly between strong demand for goods and more muted demand for services, which continue to face the majority of impediments from social distancing measures and capacity limits to fight the pandemic. Despite the improvements from the COVID-19 recession lows, much further progress must be made to reach output levels seen prior to the pandemic. The degree, timing and velocity of the remaining recovery is highly uncertain and it is unlikely that the economy will be able to fully replace the lost output in aggregate before sometime in 2021 at the earliest.
The Fed conducts monetary policy with a dual mandate: full employment and price stability. The unemployment rate fell 3.2 percentage points in the third quarter to 7.9% in September according to the Bureau of Labor Statistics. This marks a faster speed to the labor market recovery than previously anticipated as many workers were able to regain employment as pandemic restrictions were lifted or modified. However, the job gains, while strong late in the second and early in third quarter, have
52


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
slowed in recent months, suggesting that the remaining 48 percent of workers that have not been able to regain employment will have more difficulty obtaining employment. Wage growth, as measured by the year-over-year change in private sector Average Hourly Earnings, contracted modestly during the quarter, reading 4.7% in the month of September compared to 4.9% in June 2020. The continued elevated wage growth is largely seen as a statistical anomaly. A majority of the layoffs appear to have occurred in traditionally lower-paying sectors, such as the leisure industry, which in turn inflated the wages of the remaining employed individuals.
Similar to the labor market, inflation readings, as measured by the year-over-year changes in the Personal Consumption Expenditure Chain Price Index (“PCE”), have rebounded from their lows in the second quarter, though remain below the Fed’s 2% target in the third quarter of 2020. The headline PCE measure increased by 1.37% year-over-year in September 2020. The more stable core PCE measure, which excludes volatile food and energy prices, registered a similar 1.55% year-over-year increase, above the 1.14% year-over-year growth measured in June.
In support of the U.S. economic recovery, Federal Open Market Committee (“FOMC”) maintained the Federal Funds Rate in the 0.00% - 0.25% range during the third quarter of 2020 and continued to signal that it will maintain the rate at current levels for an extended period of time. In addition, the FOMC continued its quantitative easing and a number of lending programs. The combined Fed actions have continued to support financial conditions and market functioning, which in turn has helped the economic recovery.
During the third quarter of 2020, the 10-year U.S. Treasury rate remained nearly unchanged at 0.68% as Fed monetary policy actions maintained a range-bound interest rate environment in U.S. Treasuries and LIBOR-based interest rates. The mortgage basis, or the spread between the 30-year Agency mortgage-backed security coupon and 10-year U.S. Treasury rate, continued to compress following much volatility during the first half of 2020 as mortgage-backed securities saw strong demand from numerous investors.
The following table presents interest rates and spreads at each date presented:
 September 30, 2020December 31, 2019September 30, 2019
30-Year mortgage current coupon1.40%2.71%2.61%
Mortgage basis72 bps79 bps95 bps
10-Year U.S. Treasury rate0.68%1.92%1.66%
LIBOR
1-Month0.15%1.76%2.02%
6-Month0.26%1.91%2.06%
 
London Interbank Offered Rate (“LIBOR”) Transition
We have established a cross-functional LIBOR transition committee to determine our transition plan and facilitate an orderly transition to alternative reference rates. Our plan includes steps to evaluate exposure, review contracts, assess impact to our business, process and technology and define a communication strategy with shareholders, regulators and other stakeholders. The committee also continues to engage with industry working groups and other market participants regarding the transition. As part of the transition from LIBOR, in October 2020, we participated in the Chicago Mercantile Exchange (“CME”) Group’s transitioning for price alignment and discounting for USD OTC cleared swaps from the daily effective federal funds rate to the secured overnight financing rate (“SOFR”). As a result of this activity, our existing swap and swaption positions have been updated with the new SOFR discounting curve and basis swaps entered into during this transition were sold in the CME Group’s auction on October 19, 2020.

Results of Operations
The results of our operations are affected by various factors, many of which are beyond our control. Certain of such risks and uncertainties are described herein (see “Special Note Regarding Forward-Looking Statements” above) and in Part I, Item 1A. “Risk Factors” of our most recent Annual Report on Form 10-K and in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in our Quarterly Report on Form 10-Q for the quarter ended March 31, 2020.
This Management Discussion and Analysis section contains analysis and discussion of financial results computed in accordance with U.S. generally accepted accounting principles (“GAAP”) and non-GAAP measurements. To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide non-GAAP financial measures to enhance investor understanding of our period-over-period operating performance and business trends, as well as for assessing our performance versus that of industry peers.
53


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Refer to the “Non-GAAP Financial Measures” section for additional information.

Net Income (Loss) Summary
The following table presents financial information related to our results of operations as of and for the three and nine months ended September 30, 2020 and 2019.
 As of and for the Three Months Ended September 30,As of and for the Nine Months Ended September 30,
 2020201920202019
 (dollars in thousands, except per share data)
Interest income$562,443 $919,299 $1,702,281 $2,713,083 
Interest expense115,126 766,905 804,631 2,164,817 
Net interest income447,317 152,394 897,650 548,266 
Realized and unrealized gains (losses)618,823 (875,406)(2,524,967)(3,796,814)
Other income (loss)7,959 35,074 38,109 93,757 
Less: Total general and administrative expenses48,832 66,138 194,127 228,283 
Income (loss) before income taxes1,025,267 (754,076)(1,783,335)(3,383,074)
Income taxes9,719 (6,907)(14,928)(10,241)
Net income (loss)1,015,548 (747,169)(1,768,407)(3,372,833)
Less: Net income (loss) attributable to noncontrolling interests(126)(110)(28)(294)
Net income (loss) attributable to Annaly1,015,674 (747,059)(1,768,379)(3,372,539)
Less: Dividends on preferred stock (1)
35,509 36,151 106,527 101,067 
Net income (loss) available (related) to common stockholders$980,165 $(783,210)$(1,874,906)$(3,473,606)
Net income (loss) per share available (related) to common stockholders
Basic$0.70 $(0.54)$(1.32)$(2.42)
Diluted$0.70 $(0.54)$(1.32)$(2.42)
Weighted average number of common shares outstanding
Basic1,404,202,695 1,453,359,211 1,419,645,475 1,436,204,582 
Diluted1,404,368,300 1,453,359,211 1,419,645,475 1,436,204,582 
Other information
Asset portfolio at period-end$87,155,310 $125,840,378 $87,155,310 $125,840,378 
Average total assets$91,325,532 $130,378,448 $102,465,855 $121,429,243 
Average equity$13,996,138 $15,465,556 $14,124,037 $15,207,589 
Leverage at period-end (2)
5.1:17.3:15.1:17.3:1
Economic leverage at period-end (3)
6.2:17.7:16.2:17.7:1
Capital ratio (4)
13.6 %11.2 %13.6 %11.2 %
Annualized return on average total assets4.45 %(2.29 %)(2.30 %)(3.70 %)
Annualized return on average equity29.02 %(19.32 %)(16.69 %)(29.57 %)
Net interest margin (5)
2.15 %0.48 %1.27 %0.61 %
Average yield on interest earning assets (6)
2.70 %2.89 %2.40 %3.02 %
Average GAAP cost of interest bearing liabilities (7)

0.60 %2.58 %1.23 %2.66 %
Net interest spread2.10 %0.31 %1.17 %0.36 %
Weighted average experienced CPR for the period22.9 %14.6 %18.7 %11.0 %
Weighted average projected long-term CPR at period-end17.1 %16.3 %17.1 %16.3 %
Common stock book value per share$8.70 $9.21 $8.70 $9.21 
Non-GAAP metrics (8)
Interest income (excluding PAA)$596,322 $1,036,451 $2,078,624 $3,051,869 
Economic interest expense (7)
$177,655 $678,439 $945,701 $1,858,663 
Economic net interest income (excluding PAA)$418,667 $358,012 $1,132,923 $1,193,206 
Premium amortization adjustment cost (benefit)$33,879 $117,152 $376,343 $338,786 
Core earnings (excluding PAA) (9)
$482,323 $341,931 $1,237,121 $1,166,239 
Core earnings (excluding PAA) per common share$0.32 $0.21 $0.80 $0.74 
Annualized core return on average equity (excluding PAA)13.79 %8.85 %11.68 %10.23 %
Net interest margin (excluding PAA) (5)
2.05 %1.10 %1.67 %1.29 %
Average yield on interest earning assets (excluding PAA) (6)
2.86 %3.26 %2.93 %3.39 %
Average economic cost of interest bearing liabilities (7)
0.93 %2.28 %1.44 %2.29 %
Net interest spread (excluding PAA)1.93 %0.98 %1.49 %1.10 %
 
54


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
(1) The three months ended September 30, 2019 exclude cumulative and undeclared dividends of $0.3 million on our Series I Preferred Stock as of June 30, 2019.
(2) Debt consists of repurchase agreements, other secured financing, debt issued by securitization vehicles and mortgages payable. Debt issued by securitization vehicles, certain credit facilities (included within other secured financing), and mortgages payable are non-recourse to us.
(3) Computed as the sum of Recourse Debt, cost basis of TBA and CMBX derivatives outstanding and net forward purchases (sales) of investments divided by total equity.
(4) Calculated as total stockholders’ equity divided by total assets inclusive of outstanding market value of TBA positions and exclusive of consolidated VIEs.
(5) Net interest margin represents our interest income less interest expense divided by the average interest earning assets. Net interest margin (excluding PAA) represents the sum of our interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average outstanding TBA contract and CMBX balances.
(6) Average yield on interest earning assets represents annualized interest income divided by average interest earning assets. Average interest earning assets reflects the average amortized cost of our investments during the period. Average yield on interest earning assets (excluding PAA) is calculated using annualized interest income (excluding PAA).
(7) Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
(8) Represents a non-GAAP financial measure. Refer to the “Non-GAAP Financial Measures” section for additional information.
(9) Excludes dividends on preferred stock.
GAAP
Net income (loss) was $1.0 billion, which includes ($0.1) million attributable to noncontrolling interests, or $0.70 per average basic common share, for the three months ended September 30, 2020 compared to ($747.2) million, which includes ($0.1) million attributable to noncontrolling interests, or ($0.54) per average basic common share, for the same period in 2019. We attribute the majority of the change in net income (loss) to favorable changes in realized gains (losses) on termination or maturity of interest rate swaps, unrealized gains (losses) on interest rate swaps, net interest income and net gains (losses) on other derivatives. Realized gains (losses) on termination or maturity of interest rate swaps was ($0.4) million for the three months ended September 30, 2020 compared to ($682.6) million for the same period in 2019. Net unrealized gains (losses) on interest rate swaps was $170.3 million for the three months ended September 30, 2020 compared to ($326.3) million for the same period in 2019. Net interest income for the three months ended September 30, 2020 was $447.3 million compared to $152.4 million for the same period in 2019. Net gains (losses) on other derivatives was $169.3 million for the three months ended September 30, 2020 compared to ($16.9) million for the same period in 2019. Refer to the sections titled “Non-GAAP” and “Realized and Unrealized Gains (Losses)” located within this Item 2 for additional information related to these changes.
Net income (loss) was ($1.8) billion, which includes ($28.0) thousand attributable to noncontrolling interests, or ($1.32) per average basic common share, for the nine months ended September 30, 2020 compared to ($3.4) billion, which includes ($0.3) million attributable to noncontrolling interests, or ($2.42) per average basic common share, for the same period in 2019. We attribute the majority of the change in net income (loss) to favorable changes in net gains (losses) on other derivatives, unrealized gains (losses) on interest rate swaps, net gains (losses) on disposal of investments and other and net interest income, partially offset by unfavorable changes in realized gains (losses) on termination or maturity of interest rate swaps, the net interest component of interest rate swaps and net unrealized gains (losses) on instruments measured at fair value through earnings. Net gains (losses) on other derivatives was $546.7 million for the nine months ended September 30, 2020 compared to ($638.5) million for the same period in 2019. Unrealized gains (losses) on interest rate swaps was ($1.2) billion for the nine months ended September 30, 2020 compared to ($2.0) billion for the same period in 2019. Net gains (losses) on disposal of investments and other was $652.2 million for the nine months ended September 30, 2020 compared to ($65.7) million for the same period in 2019. Net interest income for the nine months ended September 30, 2020 was $897.7 million compared to $548.3 million for the same period in 2019. Realized gains (losses) on termination or maturity of interest rate swaps was ($1.9) billion for the nine months ended September 30, 2020 compared to ($1.4) billion for the same period in 2019. The net interest component of interest rate swaps was ($141.1) million for the nine months ended September 30, 2020 compared to $306.2 million for the same period in 2019. Unrealized gains (losses) on instruments measured at fair value through earnings for the nine months ended September 30, 2020 was ($354.1) million compared to $41.7 million for the same period in 2019. Refer to the sections titled “Non-GAAP” and “Realized and Unrealized Gains (Losses)” located within this Item 2 for additional information related to these changes.


Non-GAAP
55


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Core earnings (excluding premium amortization adjustment (“PAA”)) were $482.3 million, or $0.32 per average common share, for the three months ended September 30, 2020, compared to $341.9 million, or $0.21 per average common share, for the same period in 2019.
Core earnings (excluding premium amortization adjustment (“PAA”)) were $1.2 billion, or $0.80 per average common share, for the nine months ended September 30, 2020, compared to $1.2 billion, or $0.74 per average common share, for the same period in 2019.
The changes in core earnings (excluding PAA) during the three and nine months ended September 30, 2020 compared to the same periods in 2019 were primarily due to lower interest expense from lower borrowing rates and average interest bearing liabilities, and higher TBA dollar roll income, partially offset by lower coupon income resulting from a decrease in the average yield on interest earnings assets and lower average interest earning assets, and unfavorable changes in the net interest component of interest rate swaps.
Non-GAAP Financial Measures
To supplement our consolidated financial statements, which are prepared and presented in accordance with GAAP, we provide the following non-GAAP financial measures:
core earnings (excluding PAA);
core earnings (excluding PAA) attributable to common stockholders;
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);
average economic cost of interest bearing liabilities;
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 our results and operations, non-GAAP financial measures also have limitations. For example, we may calculate our non-GAAP metrics, such as core earnings (excluding PAA), or the PAA, differently than our 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 we 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 our period-over-period operating performance and business trends, as well as for assessing our performance versus that of industry peers. Additional information pertaining to our use of these non-GAAP financial measures, including discussion of how each such measure may be useful to investors, and reconciliations to their most directly comparable GAAP results are provided below.
Core earnings (excluding PAA), core earnings (excluding PAA) attributable to common stockholders, core earnings (excluding PAA) per average common share and annualized core return on average equity (excluding PAA)
Our principal business objective is to generate net income for distribution to our stockholders and optimize our returns through prudent management of our diversified investment strategies. We generate net income by earning a net interest spread on our investment portfolio, which is a function of interest income from our investment portfolio less financing, hedging and operating costs. Core earnings (excluding PAA), which is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSRs, (d) other income (loss) (excluding depreciation and amortization expense on real estate and related intangibles, non-core income allocated to equity method investments and other non-core components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-core income (loss) items), and excludes (g) the premium amortization adjustment (“PAA”) representing the cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities, is used by management and, we believe, used by analysts and investors to measure our progress in achieving our principal business objective. 
We seek to fulfill our principal business objective through a variety of factors including portfolio construction, the degree of market risk exposure and related hedge profile, and the use and forms of leverage, all while operating within the parameters of our capital allocation policy and risk governance framework.
56


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
We believe these non-GAAP measures provide management and investors with additional details regarding our 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 our 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 our invested equity capital. The following table presents a reconciliation of GAAP financial results to non-GAAP core earnings for the periods presented:
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2020201920202019
 (dollars in thousands, except per share data)
GAAP net income (loss)$1,015,548 $(747,169)$(1,768,407)$(3,372,833)
Net income (loss) attributable to noncontrolling interests(126)(110)(28)(294)
Net income (loss) attributable to Annaly1,015,674 (747,059)(1,768,379)(3,372,539)
Adjustments to exclude reported realized and unrealized (gains) losses
Realized (gains) losses on termination or maturity of interest rate swaps427 682,602 1,919,720 1,438,349 
Unrealized (gains) losses on interest rate swaps(170,327)326,309 1,162,768 1,992,884 
Net (gains) losses on disposal of investments and other(198,888)(66,522)(652,150)65,727 
Net (gains) losses on other derivatives(169,316)16,888 (546,658)638,458 
Net unrealized (gains) losses on instruments measured at fair value through earnings(121,255)1,091 354,133 (41,657)
Loan loss provision (1)
(21,818)3,504 150,719 9,207 
Other adjustments
Depreciation expense related to commercial real estate and amortization of intangibles (2)
11,363 9,974 28,011 30,235 
Non-core (income) loss allocated to equity method investments (3)
(1,151)4,541 22,465 25,364 
Transaction expenses and non-recurring items (4)
2,801 2,622 11,121 15,650 
Income tax effect of non-core income (loss) items13,890 (2,762)(6,619)(5,543)
TBA dollar roll income and CMBX coupon income (5)
114,092 15,554 256,520 86,917 
MSR amortization (6)
(27,048)(21,963)(70,873)(55,599)
Plus:
Premium amortization adjustment cost (benefit)33,879 117,152 376,343 338,786 
Core earnings (excluding PAA) (7)
482,323 341,931 1,237,121 1,166,239 
Dividends on preferred stock (8)
35,509 36,151 106,527 101,067 
Core earnings (excluding PAA) attributable to common stockholders (7)
$446,814 $305,780 $1,130,594 $1,065,172 
GAAP net income (loss) per average common share$0.70 $(0.54)$(1.32)$(2.42)
Core earnings (excluding PAA) per average common share (7)
$0.32 $0.21 $0.80 $0.74 
GAAP return (loss) on average equity29.02 %(19.32 %)(16.69 %)(29.57 %)
Core return on average equity (excluding PAA) (7)
13.79 %8.85 %11.68 %10.23 %

(1)    Includes $0.2 million and $4.6 million of loss provision on the Company’s unfunded loan commitments for the three and nine months ended September 30, 2020, respectively, which is reported in Other income (loss) in the Consolidated Statements of Comprehensive Income (Loss).
(2)    Includes depreciation and amortization expense related to equity method investments.
(3)    Represents unrealized (gains) losses allocated to equity interests in a portfolio of MSR which is a component of Other income (loss).
(4)    The three and nine months ended September 30, 2020 includes costs incurred in connection with the a securitization of residential whole loans . The nine months ended September 30, 2020 also includes costs incurred in connection with the Internalization, the CEO search process and a securitization of Agency mortgage-backed securities. The three and nine months ended September 30, 2019 includes costs incurred in connection with a securitization of residential whole loans. The nine months ended September 30, 2019 also includes costs incurred in connection with a securitization of commercial loans.
(5)    TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives. CMBX coupon income totaled $1.5 million and $4.3 million for the three and nine months ended September 30, 2020. CMBX coupon income totaled $1.5 million and $3.4 million for the three and nine months ended September 30, 2019, respectively.
(6)    MSR amortization 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 instruments measured at fair value.
(7)    Represents a non-GAAP financial measure.
(8)    The three months ended September 30, 2019 exclude cumulative and undeclared dividends of $0.3 million on our Series I Preferred Stock as of June 30, 2019.




57


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
From time to time, we enter 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. We record TBA derivatives at fair value on our Consolidated Statements of Financial Condition and recognize periodic changes in fair value in Net gains (losses) on other derivatives in our 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 other derivatives in the Consolidated Statements of Comprehensive Income (Loss).
The CMBX index is a synthetic tradable index referencing a basket of 25 commercial mortgage-backed securities of a particular rating and vintage. The CMBX index allows investors to take a long position (referred to as selling protection) or short position (referred to as purchasing protection) on the respective basket of commercial mortgage-backed securities and is structured as a “pay-as-you-go” contract whereby the protection seller receives and the protection buyer pays a standardized running coupon on the contracted notional amount. Additionally, the protection seller is obligated to pay to the protection buyer the amount of principal losses and/or coupon shortfalls on the underlying commercial mortgage-backed securities as they occur. We report income (expense) on CMBX positions in Net gains (losses) on other derivatives in the Consolidated Statements of Comprehensive Income (Loss). The coupon payments received or paid on CMBX positions is equivalent to interest income (expense) and therefore included in core earnings (excluding PAA).

Premium Amortization Expense
In accordance with GAAP, we amortize or accrete premiums or discounts into interest income for our Agency mortgage-backed securities, excluding interest-only securities, multifamily and reverse mortgages, taking into account estimates of future principal prepayments in the calculation of the effective yield. We recalculate 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.
Our GAAP metrics include the unadjusted impact of amortization and accretion associated with this method. Certain of our 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 Constant Prepayment Rate (“CPR”).
The following table illustrates the impact of the PAA on premium amortization expense for our Residential Securities portfolio and residential securities transferred or pledged to securitization vehicles, for the periods presented:
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2020201920202019
 (dollars in thousands)
Premium amortization expense$248,718 $376,306 $1,136,343 $942,339 
Less: PAA cost (benefit)33,879 117,152 376,343 338,786 
Premium amortization expense (excluding PAA)$214,839 $259,154 $760,000 $603,553 
58


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
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 premium amortization adjustment, 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. We believe this measure provides management and investors with additional detail to enhance their understanding of our operating results and trends by excluding the component of premium amortization expense representing the cumulative effect of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities (other than interest-only securities, multifamily and reverse mortgages), which can obscure underlying trends in the performance of the portfolio.
Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps. We use interest rate swaps to manage our exposure to changing interest rates on repurchase agreements by economically hedging cash flows associated with these borrowings. Accordingly, adding the net interest component of interest rate swaps to interest expense, as computed in accordance with GAAP, reflects the total contractual interest expense and thus, provides investors with additional information about the cost of our financing strategy. We may use market agreed coupon (“MAC”) interest rate swaps in which we may receive or make a payment at the time of entering into such interest rate swap to compensate for the off-market nature of such interest rate swap. In accordance with GAAP, upfront payments associated with MAC interest rate swaps are not reflected in the net interest component of interest rate swaps in the Consolidated Statements of Comprehensive Income (Loss). We did not enter into any MAC interest rate swaps during the three and nine months ended September 30, 2020.
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.
The following tables provide GAAP measures of interest expense and net interest income and details with respect to reconciling the aforementioned line items on a non-GAAP basis for each respective period:
Interest Income (excluding PAA)
 GAAP Interest IncomePAA Cost
(Benefit)
Interest Income (excluding PAA) (1)
For the three months ended(dollars in thousands)
September 30, 2020$562,443 $33,879 $596,322 
September 30, 2019$919,299 $117,152 $1,036,451 
For the nine months ended
September 30, 2020$1,702,281 $376,343 $2,078,624 
September 30, 2019$2,713,083 $338,786 $3,051,869 
(1)    Represents a non-GAAP financial measure.
        

Economic Interest Expense and Economic Net Interest Income (excluding PAA)
 GAAP
Interest
Expense
Add: Net Interest Component of Interest Rate Swaps
Economic Interest
Expense (1)
GAAP Net
Interest
Income
Less: Net Interest Component
of Interest Rate Swaps
Economic
Net Interest
Income (1)
Add: PAA
Cost
(Benefit)
Economic Net Interest Income (excluding PAA) (1)
For the three months ended(dollars in thousands)
September 30, 2020$115,126 $62,529 $177,655 $447,317 $62,529 $384,788 $33,879 $418,667 
September 30, 2019$766,905 $(88,466)$678,439 $152,394 $(88,466)$240,860 $117,152 $358,012 
For the nine months ended
September 30, 2020$804,631 $141,070 $945,701 $897,650 $141,070 $756,580 $376,343 $1,132,923 
September 30, 2019$2,164,817 $(306,154)$1,858,663 $548,266 $(306,154)$854,420 $338,786 $1,193,206 
(1)    Represents a non-GAAP financial measure.

Experienced and Projected Long-Term CPR
Prepayment speeds, as reflected by the CPR and interest rates vary according to the type of investment, conditions in financial markets, competition and other factors, none of which can be predicted with any certainty. In general, as prepayment speeds and expectations of prepayment speeds on our Agency mortgage-backed securities portfolio increase, related purchase premium amortization increases, thereby reducing the yield on such assets. The following table presents the weighted average
59


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
experienced CPR and weighted average projected long-term CPR on our Agency mortgage-backed securities portfolio as of and for the periods presented.
 
Experienced CPR (1)
Projected Long-term CPR (2)
For the three months ended
September 30, 202022.9 %17.1 %
September 30, 201914.6 %16.3 %
For the nine months ended
September 30, 202018.7 %17.1 %
September 30, 201911.0 %16.3 %
         (1)    For the three and nine months ended September 30, 2020 and 2019, respectively.
         (2)    At September 30, 2020 and 2019, respectively.


Average Yield on Interest Earning Assets (excluding PAA), Net Interest Spread (excluding PAA), Net Interest Margin (excluding PAA) and Average Economic Cost of Interest Bearing Liabilities
Net interest spread (excluding PAA), which is the difference between the average yield on interest earning assets (excluding PAA) and the average economic cost of interest bearing liabilities, which represents annualized economic interest expense divided by average interest bearing liabilities, and net interest margin (excluding PAA), which is calculated as the sum of interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average TBA contract and CMBX balances, provide management with additional measures of our 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 our performance.
Net Interest Spread (excluding PAA)
 
Average Interest Earning
    Assets (1)
Interest Income (excluding PAA) (2)
Average Yield on Interest Earning Assets (excluding PAA) (2)
Average Interest Bearing Liabilities
Economic Interest Expense (2)(3)
Average Economic Cost of Interest Bearing Liabilities (2)(3)
Economic Net Interest Income (excluding PAA) (2)
Net Interest Spread (excluding PAA) (2)
For the three months ended(dollars in thousands)
September 30, 2020$83,286,119 $596,322 2.86 %$74,901,128 $177,655 0.93 %418,667 1.93 %
September 30, 2019$127,207,668 $1,036,451 3.26 %$116,391,094 $678,439 2.28 %358,012 0.98 %
For the nine months ended
September 30, 2020$94,607,284 $2,078,624 2.93 %$86,214,496 $945,701 1.44 %1,132,923 1.49 %
September 30, 2019$119,918,692 $3,051,869 3.39 %$107,182,973 $1,858,663 2.29 %1,193,206 1.10 %

(1)Based on amortized cost.
(2)Represents a non-GAAP financial measure.
(3)Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Economic interest expense is comprised of  GAAP interest expense and the net interest component of interest rate swaps.








60


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Net Interest Margin (excluding PAA)
 
Interest Income (excluding PAA) (1)
TBA Dollar Roll and CMBX Coupon Income (2)
Interest ExpenseNet Interest Component of Interest Rate SwapsSubtotalAverage Interest Earnings AssetsAverage TBA Contract and CMBX BalancesSubtotal
Net Interest Margin (excluding PAA) (1)
For the three months ended(dollars in thousands)
September 30, 2020$596,322 114,092 (115,126)(62,529)$532,759 $83,286,119 20,429,935 $103,716,054 2.05 %
September 30, 2019$1,036,451 15,554 (766,905)88,466 $373,566 $127,207,668 9,248,502 $136,456,170 1.10 %
For the nine months ended
September 30, 2020$2,078,624 256,520 (804,631)(141,070)$1,389,443 $94,607,284 16,341,140 $110,948,424 1.67 %
September 30, 2019$3,051,869 86,917 (2,164,817)306,154 $1,280,123 $119,918,692 12,311,322 $132,230,014 1.29 %
(1)Represents a non-GAAP financial measure.
(2)TBA dollar roll income and CMBX coupon income each represent a component of Net gains (losses) on other derivatives. CMBX coupon income totaled $1.5 million and $4.3 million for the three and nine months ended September 30, 2020, respectively. CMBX coupon income totaled $1.5 million and $3.4 million for the three and nine months ended September 30, 2019, respectively.

Economic Interest Expense and Average Economic Cost of Interest Bearing Liabilities
Typically, our largest expense is the cost of interest bearing liabilities and the net interest component of interest rate swaps. The table below shows our average interest bearing liabilities and average economic cost of interest bearing liabilities as compared to average one-month and average six-month LIBOR for the periods presented.

Economic Cost of Funds on Average Interest Bearing Liabilities
 Average
Interest Bearing
Liabilities
Interest Bearing Liabilities at
Period End
Economic
Interest
Expense (1)
Average Economic
Cost of
Interest
Bearing
Liabilities (2)
Average
One-
Month
LIBOR
Average
Six-
Month
LIBOR
Average
One-Month LIBOR
Relative to
Average Six-
Month LIBOR
Average Economic Cost
of Interest
Bearing
Liabilities
Relative to
Average One-
Month LIBOR
Average Economic Cost
of Interest
Bearing
Liabilities
Relative to
Average Six-Month LIBOR
For the three months ended
September 30, 2020$74,901,128 $71,522,396 $177,655 0.93 %0.16 %0.31 %(0.15 %)0.77 %0.62 %
September 30, 2019$116,391,094 $111,004,216 $678,439 2.28 %2.18 %2.11 %0.07 %0.10 %0.17 %
For the nine months ended
September 30, 2020$86,214,496 $71,522,396 $945,701 1.44 %0.64 %0.83 %(0.19 %)0.80 %0.61 %
September 30, 2019$107,182,974 $111,004,216 $1,858,663 2.29 %2.37 %2.45 %(0.08 %)(0.08 %)(0.16 %)
(1)     Economic interest expense is comprised of GAAP interest expense and the net interest component of interest rate swaps.
(2)    Represents a non-GAAP financial measure.


Economic interest expense decreased by $500.8 million for the three months ended September 30, 2020 compared to the same period in 2019. Economic interest expense decreased by $913.0 million for the nine months ended September 30, 2020 compared to the same period in 2019. The change in each period was due to lower borrowing rates and decreases in average interest bearing liabilities, partially offset by the change in the net interest component of interest rate swaps, which was ($62.5) million for the three months ended September 30, 2020 compared to $88.5 million for the same period in 2019 and ($141.1) million for the nine months ended September 30, 2020 compared to $306.2 million for the same period in 2019.
We do not manage our portfolio to have a pre-designated amount of borrowings at quarter or year end. Our borrowings at period end are a snapshot of our borrowings as of a date, and this number may differ from average borrowings over the period for a number of reasons. The mortgage-backed securities we own pay principal and interest towards the end of each month and the mortgage-backed securities we purchase are typically settled during the beginning of the month. As a result, depending on the amount of mortgage-backed securities we have committed to purchase, we may retain the principal and interest we receive in the prior month, or we may use it to pay down our borrowings. Moreover, we generally use interest rate swaps, swaptions and other derivative instruments to hedge our portfolio, and as we pledge or receive collateral under these agreements, our borrowings on any given day may be increased or decreased. Our average borrowings during a quarter may differ from period
61


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
end borrowings as we implement our portfolio management strategies and risk management strategies over changing market conditions by increasing or decreasing leverage. Additionally, these numbers may differ during periods when we conduct equity capital raises, as in certain instances we may purchase additional assets and increase leverage in anticipation of an equity capital raise. Since our average borrowings and period end borrowings can be expected to differ, we believe our average borrowings during a period provide a more accurate representation of our exposure to the risks associated with leverage than our period end borrowings.
At September 30, 2020 and December 31, 2019, the majority of our debt represented repurchase agreements and other secured financing arrangements collateralized by a pledge of our Residential Securities, residential mortgage loans, commercial real estate investments and corporate loans. All of our Residential Securities are currently accepted as collateral for these borrowings. However, we limit our borrowings, and thus our potential asset growth, in order to maintain unused borrowing capacity and maintain the liquidity and strength of our balance sheet.


Realized and Unrealized Gains (Losses)
Realized and unrealized gains (losses) is comprised of net gains (losses) on interest rate swaps, net gains (losses) on disposal of investments and other, net gains (losses) on other derivatives and net unrealized gains (losses) on instruments measured at fair value through earnings. These components of realized and unrealized gains (losses) for the three and nine months ended September 30, 2020 and 2019 were as follows:
 For the Three Months Ended September 30,For the Nine Months Ended September 30,
 2020201920202019
 (dollars in thousands)
Net gains (losses) on interest rate swaps (1)
$107,371 $(920,445)$(3,223,558)$(3,125,079)
Net gains (losses) on disposal of investments and other198,888 66,522 652,150 (65,727)
Net gains (losses) on other derivatives169,316 (16,888)546,658 (638,458)
Net unrealized gains (losses) on instruments measured at fair value through earnings121,255 (1,091)(354,133)41,657 
Loan loss provision21,993 (3,504)(146,084)(9,207)
Total$618,823 $(875,406)$(2,524,967)$(3,796,814)
(1)Includes the net interest component of interest rate swaps, realized gains (losses) on termination or maturity of interest rate swaps and unrealized gains (losses) on interest rate swaps.

For the Three Months Ended September 30, 2020 and 2019

Net gains (losses) on interest rate swaps for the three months ended September 30, 2020 was $107.4 million compared to ($920.4) million for the same period in 2019. The change was primarily attributable to lower realized losses on termination or maturity of interest rate swaps and favorable changes in unrealized gains (losses) on interest rate swaps. Realized gains (losses) on termination or maturity of interest rate swaps was ($0.4) million resulting from interest rate swaps with a notional amount of $375.0 million for the three months ended September 30, 2020 compared to ($682.6) million resulting from the termination or maturity of interest rate swaps with a notional amount of $30.6 billion for the same period in 2019. Unrealized gains (losses) on interest rate swaps was $0.2 billion for the three months ended September 30, 2020, reflecting a rise in forward interest rates during the period compared to ($326.3) million for the same period in 2019, which reflected a decline in forward interest rates during the earlier period.
Net gains (losses) on disposal of investments and other was $198.9 million for the three months ended September 30, 2020 compared to $66.5 million for the same period in 2019. For the three months ended September 30, 2020, we recognized a realized gain of $104.8 million as a result of deconsolidating a multifamily VIE and we disposed of Residential Securities with a carrying value of $2.8 billion for an aggregate net gain of $103.9 million. For the same period in 2019, we disposed of Residential Securities with a carrying value of $11.1 billion for an aggregate net loss of $76.3 million.

Net gains (losses) on other derivatives was $169.3 million for the three months ended September 30, 2020 compared to ($16.9) million for the same period in 2019. The change in net gains (losses) on other derivatives was primarily comprised of higher net gains on TBA derivatives, which was $176.2 million for the three months ended September 30, 2020 compared to $47.8 million for the same period in 2019 and lower net losses on futures derivatives, which was ($9.7) million for the three months ended September 30, 2020 compared to ($59.7) million for the same period in 2019.

62


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Net unrealized gains (losses) on instruments measured at fair value through earnings was $121.3 million for the three months ended September 30, 2020 compared to ($1.1) million for the same period in 2019, primarily due to favorable changes in unrealized gains (losses) on securitized debt of consolidated VIEs backed by Agency mortgage-backed securities, commercial securitized loans of consolidated VIEs and securitized residential whole loans of consolidated VIEs, partially offset by unfavorable changes in unrealized gains (losses) on commercial securitized debt of consolidated VIEs and Agency interest-only securities for the three months ended September 30, 2020 compared to the same period in 2019.
For the three months ended September 30, 2020, a net loan loss provision reversal of $22.0 million was recorded on commercial mortgage and corporate loans. For the three months ended September 30, 2019, a loan loss provision of ($3.5) million was recorded on a commercial mortgage loan. Refer to the “Loans” Note located within Item 1 for additional information related to these loan loss provisions.

For the Nine Months Ended September 30, 2020 and 2019

Net gains (losses) on interest rate swaps for the nine months ended September 30, 2020 was ($3.2) billion compared to ($3.1) billion for the same period in 2019, primarily attributable to higher realized losses on termination or maturity of interest rate swaps and an unfavorable change in the net interest component of interest rate swaps, partially offset by lower unrealized losses on interest rate swaps. Realized gains (losses) on termination or maturity of interest rate swaps was ($1.9) billion resulting from fixed-rate payer and receiver interest rate swaps with notional amounts of $65.4 billion and $38.1 billion, respectively, for the nine months ended September 30, 2020 compared to ($1.4) billion resulting from fixed-rate payer and receiver interest rate swaps with notional amounts of $75.7 billion and $11.6 billion, respectively, for the same period in 2019. The net interest component of interest rate swaps was ($141.1) million for the nine months ended September 30, 2020, compared to $306.2 million for the same period in 2019, reflecting a decrease in rates combined with the timing of rate resets during the period and changes in notional balance. Unrealized gains (losses) on interest rate swaps was ($1.2) billion for the nine months ended September 30, 2020, reflecting a decline in forward interest rates during the period compared to ($2.0) billion for the same period in 2019, which reflected a steeper decline in forward interest rates during the earlier period.
Net gains (losses) on disposal of investments and other was $652.2 million for the nine months ended September 30, 2020 compared to ($65.7) million for the same period in 2019. For the nine months ended September 30, 2020, we disposed of Residential Securities with a carrying value of $50.2 billion for an aggregate net gain of $631.1 million and we recognized a realized gain of $104.8 million as a result of deconsolidating a multifamily VIE. For the same period in 2019, we disposed of Residential Securities with a carrying value of $30.7 billion for an aggregate net loss of ($50.6) million.
Net gains (losses) on other derivatives was $546.7 million for the nine months ended September 30, 2020 compared to ($638.5) million for the same period in 2019. The change in net gains (losses) on other derivatives was primarily comprised of higher net gains on TBA derivatives, which was $812.1 million for the nine months ended September 30, 2020 compared to $327.5 million for the same period in 2019 and lower net losses on futures derivatives, which was ($299.6) million for the nine months ended September 30, 2020 compared to ($946.3) million for the same period in 2019.
Net unrealized gains (losses) on instruments measured at fair value through earnings was ($354.1) million for the nine months ended September 30, 2020 compared to $41.7 million for the same period in 2019, primarily due to unfavorable changes in unrealized gains (losses) on commercial securitized loans of consolidated VIEs, Agency interest-only securities, credit risk transfer securities and residential loans, partially offset by favorable changes in unrealized gains (losses) on commercial securitized debt of consolidated VIEs for the nine months ended September 30, 2020 compared to the same period in 2019.
For the nine months ended September 30, 2020, a loan loss provision of ($146.1) million was recorded on commercial mortgage and corporate loans. For the nine months ended September 30, 2019, a loan loss provision of ($9.2) million was recorded on a commercial mortgage loan. Refer to the “Loans” Note located within Item 1 for additional information related to these loan loss provisions.


Other Income (Loss)
Other income (loss) includes certain revenues and costs associated with our investments in commercial real estate, including rental income and recoveries, net servicing income on MSRs, operating costs as well as depreciation and amortization expense. We report in Other income (loss) items whose amounts, either individually or in the aggregate, would not, in the opinion of management, be meaningful to readers of the financial statements. Given the nature of certain components of this line item, balances may fluctuate from period to period.

63


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
General and Administrative Expenses
General and administrative (“G&A”) expenses consist of compensation and management fee (until closing of the Internalization) and other expenses. The following table shows our total G&A expenses as compared to average total assets and average equity for the periods presented.

G&A Expenses and Operating Expense Ratios
 
Total G&A
Expenses (1)
Total G&A Expenses/Average Assets (1)
Total G&A Expenses/Average Equity (1)
For the three months ended(dollars in thousands)
September 30, 2020$48,832 0.21 %1.40 %
September 30, 2019$66,138 0.20 %1.71 %
For the nine months ended
September 30, 2020$194,127 0.25 %1.83 %
September 30, 2019$228,283 0.25 %2.00 %
(1) Includes $2.8 million of transaction costs incurred in connection with securitizations of residential whole loans for the three months ended September 30, 2020. Includes $11.1 million of transaction costs incurred in connection with securitizations of residential whole loans and Agency mortgage-backed securities as well as costs incurred in connection with the Internalization and costs incurred in connection with the CEO search process for the nine months ended September 30, 2020. Includes $2.6 million of transaction costs incurred in connection with a securitization of residential whole loans for the three months ended September 30, 2019. Includes $15.7 million of transaction costs incurred in connection with securitizations of residential whole loans and commercial loans for the nine months ended September 30, 2019. Excluding these transaction costs, G&A expenses as a percentage of average total assets were 0.20% and 0.24% and as a percentage of average equity were 1.32% and 1.73% for the three and nine months ended September 30, 2020, respectively. Excluding these transaction costs, G&A expenses as a percentage of average total assets were 0.19% and 0.23% and as a percentage of average equity were 1.64% and 1.86% for the three and nine months ended September 30, 2019, respectively.

G&A expenses were $48.8 million for the three months ended September 30, 2020, a decrease of $17.3 million compared to the same period in 2019, primarily due to lower compensation costs during the third quarter of 2020 compared with the same period in 2019 as a result of cost savings generated from the Internalization which closed on June 30, 2020. G&A expenses were $194.1 million for the nine months ended September 30, 2020, a decrease of $34.2 million compared to the same period in 2019, primarily due to lower compensation costs, reflecting cost savings generated from the Internalization and lower management fees in the first half of 2020 reflecting lower adjusted stockholders’ equity balances compared to the same period in 2019, and lower transaction costs during the nine months ended September 30, 2020 compared to the same period in 2019.
Return on Average Equity
The following table shows the components of our annualized return on average equity for the periods presented.
Components of Annualized Return on Average Equity
 
Economic Net Interest Income/ Average Equity (1)
Realized and Unrealized Gains and Losses/Average Equity (2)
Other Income (Loss)/Average EquityG&A Expenses/ Average EquityIncome
Taxes/ Average Equity
Return on
Average Equity
For the three months ended      
September 30, 202011.01 %19.47 %0.23 %(1.40 %)(0.29 %)29.02 %
September 30, 20196.23 %(24.93 %)0.91 %(1.71 %)0.18 %(19.32 %)
For the nine months ended      
September 30, 20207.14 %(22.49 %)0.36 %(1.83 %)0.13 %(16.69 %)
September 30, 20197.49 %(35.97 %)0.82 %(2.00 %)0.09 %(29.57 %)
(1)     Economic net interest income includes the net interest component of interest rate swaps.
(2)     Realized and unrealized gains and losses excludes the net interest component of interest rate swaps.

Unrealized Gains and Losses - Available-for-Sale Investments
With our available-for-sale accounting treatment on our Agency mortgage-backed securities, which represent the largest portion of assets on balance sheet, as well as certain commercial mortgage-backed securities, unrealized fluctuations in market values of assets do not impact our GAAP net income (loss) but rather are reflected on our balance sheet by changing the carrying value of the asset and stockholders’ equity under accumulated other comprehensive income (loss). As a result of this fair value accounting treatment, our book value and book value per share are likely to fluctuate far more than if we used amortized cost
64


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
accounting. As a result, comparisons with companies that use amortized cost accounting for some or all of their balance sheet may not be meaningful.
The table below shows cumulative unrealized gains and losses on our available-for-sale investments reflected in the Consolidated Statements of Financial Condition.
 September 30, 2020December 31, 2019
 (dollars in thousands)
Unrealized gain$3,600,389 $2,267,577 
Unrealized loss(11,333)(129,386)
Accumulated other comprehensive income (loss)$3,589,056 $2,138,191 

Unrealized changes in the estimated fair value of available-for-sale investments may have a direct effect on our potential earnings and dividends: positive changes will increase our equity base and allow us to increase our borrowing capacity while negative changes tend to reduce borrowing capacity. A very large negative change in the net fair value of our available-for-sale Residential Securities might impair our liquidity position, requiring us to sell assets with the potential result of realized losses upon sale.

The fair value of these securities being less than amortized cost at September 30, 2020 is solely due to market conditions and not the quality of the assets. Substantially all of the Agency mortgage-backed securities are “AAA” rated or carry an implied “AAA” rating. The investments are not considered to be other-than-temporarily impaired because we currently have the ability and intent to hold the investments to maturity or for a period of time sufficient for a forecasted market price recovery up to or beyond the cost of the investments, and it is not more likely than not that we will be required to sell the investments before recovery of the amortized cost bases, which may be maturity. Also, we are guaranteed payment of the principal and interest amounts of the securities by the respective issuing Agency.

Financial Condition
Total assets were $89.2 billion and $130.3 billion at September 30, 2020 and December 31, 2019, respectively. The change, consistent with our portfolio repositioning to strengthen our balance sheet in the first quarter of 2020, was primarily due to a decrease in Agency mortgage-backed securities of $38.5 billion, including assets transferred or pledged to securitization vehicles, residential mortgage loans of $0.5 billion and non-Agency mortgage-backed securities of $0.4 billion. Our portfolio composition, net equity allocation and debt-to-net equity ratio by asset class were as follows at September 30, 2020:
65


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
 ResidentialCommercial 
 Agency MBS and MSRs
TBAs (1)
CRTs
Non-Agency MBS and Residential Mortgage Loans (2)
CRE Debt &
Preferred
Equity
Investments
Investments in CRECorporate Debt
Total (3)
Assets(dollars in thousands)
Fair value/carrying value$75,746,802 $21,089,555 $411,538 $4,459,240 $3,685,255 $790,597 $2,061,878 $87,155,310 
Debt
Repurchase agreements62,804,603 21,072,039 231,274 955,451 642,119   64,633,447 
Other secured financing2,745   30,098   828,530 861,373 
Debt issued by securitization vehicles573,108   2,982,247 2,472,221   6,027,576 
Net forward purchases1,115,598   6,203    1,121,801 
Mortgages payable     507,934  507,934 
Net equity allocated$11,250,748 $17,516 $180,264 $485,241 $570,915 $282,663 $1,233,348 $14,003,179 
(4)
Net equity allocated (%)80 % %1 %4 %4 %2 %9 %100 %
Debt/net equity ratio5.7:1NM1.3:18.2:15.5:11.8:10.7:15.1:1
(5)
(1)     Fair value/carrying value represents implied market value and repurchase agreements represent the notional value.
(2)     Includes loans held for sale, net.
(3)     Excludes the TBA asset, debt and equity balances.
(4)     Net Equity Allocated, as disclosed in the above table, excludes non-portfolio related activity and may differ from stockholders’ equity per the Consolidated Statements of Financial Condition.
(5)     Represents the debt/net equity ratio as determined using amounts on the Consolidated Statements of Financial Condition.
NM    Not meaningful.

Residential Securities
Substantially all of our Agency mortgage-backed securities at September 30, 2020 and December 31, 2019 were backed by single-family residential mortgage loans and were secured with a first lien position on the underlying single-family properties. Our mortgage-backed securities were largely Freddie Mac, Fannie Mae or Ginnie Mae pass through certificates or CMOs, which carry an actual or implied “AAA” rating. We carry all of our Agency mortgage-backed securities at fair value on the Consolidated Statements of Financial Condition.
We accrete discount balances as an increase to interest income over the expected life of the related interest earning assets and we amortize premium balances as a decrease to interest income over the expected life of the related interest earning assets. At September 30, 2020 and December 31, 2019 we had on our Consolidated Statements of Financial Condition a total of $92.1 million and $156.9 million, respectively, of unamortized discount (which is the difference between the remaining principal value and current amortized cost of our Residential Securities, excluding securities transferred or pledged to securitization vehicles, acquired at a price below principal value) and a total of $3.8 billion and $5.3 billion, respectively, of unamortized premium (which is the difference between the remaining principal value and the current amortized cost of our Residential Securities, excluding securities transferred or pledged to securitization vehicles, acquired at a price above principal value).
The weighted average experienced prepayment speed on our Agency mortgage-backed securities portfolio for the three months ended September 30, 2020 and 2019 was 22.9% and 14.6%, respectively. The weighted average projected long-term prepayment speed on our Agency mortgage-backed securities portfolio as of September 30, 2020 and 2019 was 17.1% and 16.3%, respectively.
Given our current portfolio composition, if mortgage principal prepayment rates were to increase over the life of our mortgage-backed securities, all other factors being equal, our net interest income would decrease during the life of these mortgage-backed securities as we would be required to amortize our net premium balance into income over a shorter time period. Similarly, if mortgage principal prepayment rates were to decrease over the life of our mortgage-backed securities, all other factors being equal, our net interest income would increase during the life of these mortgage-backed securities as we would amortize our net premium balance over a longer time period.
The following tables present our Residential Securities, excluding securities transferred or pledged to securitization vehicles, that were carried at fair value at September 30, 2020 and December 31, 2019.
66


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
 September 30, 2020December 31, 2019
 Estimated Fair Value
Agency(dollars in thousands)
Fixed-rate pass-through$72,210,570 $108,723,414 
Adjustable-rate pass-through527,267 1,524,331 
CMO152,513 160,016 
Interest-only465,376 708,562 
Multifamily1,503,413 1,717,197 
Reverse mortgages56,028 59,847 
Total agency securities$74,915,167 $112,893,367 
Residential credit 
CRT$411,538 $531,322 
Alt-A90,954 151,383 
Prime186,178 276,257 
Prime interest-only1,191 3,167 
Subprime119,547 348,979 
NPL/RPL281,869 164,268 
Prime jumbo (>= 2010 vintage)36,204 184,664 
Prime jumbo (>= 2010 vintage) interest-only1,659 7,150 
Total residential credit securities$1,129,140 $1,667,190 
Total Residential Securities$76,044,307 $114,560,557 
The following table summarizes certain characteristics of our Residential Securities (excluding interest-only mortgage-backed securities) and interest-only mortgage-backed securities, excluding securities transferred or pledged to securitization vehicles, at September 30, 2020 and December 31, 2019.
 September 30, 2020December 31, 2019
Residential Securities (1)
(dollars in thousands)  
Principal amount$69,004,541 $107,412,143 
Net premium3,091,544 4,309,668 
Amortized cost72,096,084 111,721,811 
Amortized cost / principal amount104.48 %104.01 %
Carrying value75,576,026 113,841,402 
Carrying value / principal amount109.52 %105.99 %
Weighted average coupon rate3.59 %3.91 %
Weighted average yield2.96 %3.07 %
Adjustable-rate Residential Securities (1)
Principal amount$1,239,156 $2,513,310 
Weighted average coupon rate3.33 %4.13 %
Weighted average yield4.82 %3.52 %
Weighted average term to next adjustment16 Months13 Months
Weighted average lifetime cap (2)
0.38 %8.24 %
Principal amount at period end as % of total residential securities1.80 %2.34 %
Fixed-rate Residential Securities (1)
Principal amount$67,765,385 $104,898,833 
Weighted average coupon rate3.59 %3.90 %
Weighted average yield2.93 %3.06 %
Principal amount at period end as % of total residential securities98.20 %97.66 %
Interest-only Residential Securities
Notional amount$3,696,743 $5,447,193 
Net premium610,922 876,129 
Amortized cost610,922 876,129 
Amortized cost / notional amount16.53 %16.08 %
Carrying value468,281 719,155 
Carrying value / notional amount12.67 %13.20 %
Weighted average coupon rate4.22 %3.29 %
Weighted average yieldNM1.73 %
(1)     Excludes interest-only mortgage-backed securities.
(2)     Excludes non-Agency mortgage-backed securities and CRT securities as this attribute is not applicable to these asset classes.
NM     Not meaningful.
67


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis

The following tables summarize certain characteristics of our Residential Credit portfolio at September 30, 2020.
 
Payment StructureInvestment Characteristics
ProductTotalSeniorSubordinateCouponCredit Enhancement60+
Delinquencies
3M VPR (1)
(dollars in thousands)
Agency credit risk transfer$397,665 $ $397,665 4.37 %0.99 %4.78 %41.13 %
Private label credit risk transfer13,873  13,873 5.60 % %4.69 %33.94 %
Alt-A90,954 26,379 64,575 3.70 %8.32 %19.13 %16.44 %
Prime186,178 28,640 157,538 4.17 %8.75 %12.83 %22.26 %
Prime interest-only1,191 1,191  0.46 % 6.20 %40.34 %
Subprime119,547 66,303 53,244 1.05 %8.97 %20.96 %5.93 %
Re-performing loan securitizations273,393 142,960 130,433 4.19 %33.47 %22.24 %5.40 %
Non-performing loan securitizations8,476 8,476  3.67 %31.00 %83.41 % %
Prime jumbo (>=2010 vintage)36,204  36,204 3.82 %2.23 %4.99 %50.31 %
Prime jumbo (>=2010 vintage) interest-only1,659 1,659  0.36 % 3.91 %48.78 %
Total/weighted average (2)
$1,129,140 $275,608 $853,532 3.87 %11.34 %13.55 %23.43 %
(1)    Represents the 3 month voluntary prepayment rate (“VPR”).
(2)    Total investment characteristics exclude the impact of IOs.

Bond Coupon
ProductARMFixedFloaterInterest-OnlyEstimated Fair Value
(dollars in thousands)
Agency credit risk transfer$ $ $397,665 $ $397,665 
Private label credit risk transfer  13,873  13,873 
Alt-A28,251 47,803 14,900  90,954 
Prime29,866 130,153 26,159  186,178 
Prime interest-only   1,191 1,191 
Subprime 3,975 115,415 157 119,547 
Re-performing loan securitizations 273,393   273,393 
Non-performing loan securitizations 8,476   8,476 
Prime jumbo (>=2010 vintage) 36,204   36,204 
Prime jumbo (>=2010 vintage) interest-only   1,659 1,659 
Total$58,117 $500,004 $568,012 $3,007 $1,129,140 

Contractual Obligations
The following table summarizes the effect on our liquidity and cash flows from contractual obligations at September 30, 2020. The table does not include the effect of net interest rate payments on our interest rate swap agreements. The net swap payments will fluctuate based on monthly changes in the floating rate. At September 30, 2020, the interest rate swaps had a net fair value of ($1.1) billion.
68


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
 Within One
Year
One to Three
Years
Three to Five
Years
More than
Five Years
Total
 (dollars in thousands)
Repurchase agreements$64,633,447 $ $ $ $64,633,447 
Interest expense on repurchase agreements (1)
59,043    59,043 
Other secured financing13,923 18,920 828,530  861,373 
Interest expense on other secured financing (1)
19,090 36,668 19,116  74,874 
Debt issued by securitization vehicles (principal)  185,909 5,841,938 6,027,847 
Interest expense on debt issued by securitization vehicles144,424 217,931 215,675 3,331,920 3,909,950 
Mortgages payable (principal)22,828 65,136 155,686 269,532 513,182 
Interest expense on mortgages payable20,314 39,431 34,312 126,522 220,579 
Long-term operating lease obligations3,955 7,723 7,723  19,401 
Total$64,917,024 $385,809 $1,446,951 $9,569,912 $76,319,696 
(1)     Interest expense on repurchase agreements and other secured financing calculated based on rates at September 30, 2020.

In the coming periods, we expect to continue to finance our Residential Securities in a manner that is largely consistent with our current operations via repurchase agreements. We may use securitization structures, credit facilities, mortgages payable or other term financing structures to finance certain of our assets. During the nine months ended September 30, 2020, we received $14.4 billion from principal repayments and $50.3 billion in cash from disposal of Residential Securities. During the nine months ended September 30, 2019, we received $11.2 billion from principal repayments and $19.7 billion in cash from disposal of Residential Securities.

Off-Balance Sheet Arrangements
We do not have any relationships with unconsolidated entities or financial partnerships which would have been established for the sole purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
We have limited future funding commitments related to certain of our unconsolidated joint ventures. In addition, we have provided customary non-recourse carve-out and environmental guarantees (or underlying indemnities with respect thereto) with respect to mortgage loans held by subsidiaries of these unconsolidated joint ventures. We believe that the likelihood of making any payments under these guarantees is remote, and have not accrued a related liability at September 30, 2020.

Capital Management

Maintaining a strong balance sheet that can support the business even in times of economic stress and market volatility is of critical importance to our business strategy. A strong and robust capital position is essential to executing our investment strategy. Our capital strategy is predicated on a strong capital position, which enables us to execute our investment strategy regardless of the market environment. Our capital policy defines the parameters and principles supporting a comprehensive capital management practice.
The major risks impacting capital are capital, liquidity and funding risk, investment/market risk, credit risk, counterparty risk, operational risk and compliance, regulatory and legal risk. For further discussion of the risks we are subject to, please see Part I, Item 1A. “Risk Factors” in our most recent Annual Report on Form 10-K and in Part II, Item 1A. “Risk Factors” in this Quarterly Report on Form 10-Q and in our Quarterly Report on Form 10-Q for the quarters ended March 31, 2020 and June 30, 2020.
Capital requirements are based on maintaining levels above approved thresholds, ensuring the quality of our capital appropriately reflects our asset mix, market and funding structure. In the event we fall short of our internal thresholds, we will consider appropriate actions which may include asset sales, changes in asset mix, reductions in asset purchases or originations, issuance of capital or other capital enhancing or risk reduction strategies.
  





69


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Stockholders’ Equity
The following table provides a summary of total stockholders’ equity at September 30, 2020 and December 31, 2019:
 September 30, 2020December 31, 2019
Stockholders’ equity(dollars in thousands)
7.50% Series D cumulative redeemable preferred stock$445,457 $445,457 
6.95% Series F fixed-to-floating rate cumulative redeemable preferred stock696,910 696,910 
6.50% Series G fixed-to-floating rate cumulative redeemable preferred stock411,335 411,335 
6.75% Series I fixed-to-floating rate cumulative redeemable preferred stock428,324 428,324 
Common stock14,029 14,301 
Additional paid-in capital19,798,032 19,966,923 
Accumulated other comprehensive income (loss)3,589,056 2,138,191 
Accumulated deficit(11,200,937)(8,309,424)
Total stockholders’ equity$14,182,206 $15,792,017 

Capital Stock
The following table provides activity related to our Direct Purchase and Dividend Reinvestment Program for the periods presented:
For the Nine Months Ended
 September 30, 2020September 30, 2019
(dollars in thousands)
Shares issued through direct purchase and dividend reinvestment program154,000 180,000 
Amount raised from direct purchase and dividend reinvestment program$1,075 $1,795 

During the nine months ended September 30, 2019, we closed the public offering of an original issuance of 75.0 million shares of common stock for proceeds of $730.5 million before deducting offering expenses. In connection with the offering, we granted the underwriters a thirty-day option to purchase up to an additional 11.3 million shares of common stock, which the underwriters exercised in full resulting in an additional $109.6 million in proceeds before deducting offering expenses.
No shares were issued under the at-the-market sales program during the nine months ended September 30, 2020. During the nine months ended September 30, 2019, we issued 56.0 million shares for proceeds of $569.1 million, net of commissions and fees, under the at-the-market sales program.
In June 2019, we announced that our Board had authorized the repurchase of up to $1.5 billion of our outstanding shares of common stock through December 31, 2020. During the three and nine months ended September 30, 2020, we repurchased 4.8 million and 27.7 million shares of our common stock, respectively, for an aggregate amount of $31.3 million and $174.7 million, respectively, excluding commission costs. All common shares purchased were part of a publicly announced plan in open-market transactions. During the three and nine months ended September 30, 2019, we repurchased 18.3 million shares of our common stock for an aggregate amount of $155.0 million, excluding commission costs.
During the three and nine months ended September 30, 2019, we redeemed all 7.0 million of our issued and outstanding shares of 7.625% Series C Cumulative Redeemable Preferred Stock (“Series C Preferred Stock”) for $175.0 million. The cash redemption amount for each share of Series C Preferred Stock was $25.00 plus accrued and unpaid dividends to, but not including, the redemption date of July 21, 2019.
During the nine months ended September 30, 2019, we redeemed all 2.2 million of our issued and outstanding shares of 8.125% Series H Cumulative Redeemable Preferred Stock (“Series H Preferred Stock”) for $55.0 million. The cash redemption amount for each share of Series H Preferred Stock was $25.00 plus accrued and unpaid dividends to, but not including, the redemption date of May 31, 2019.
During the nine months ended September 30, 2019, we issued 17.7 million shares of our 6.750% Series I Fixed-to-Floating Rate Cumulative Redeemable Preferred Stock for gross proceeds of $442.5 million before deducting the underwriting discount and other estimated offering costs.
Leverage and Capital
We believe that it is prudent to maintain conservative debt-to-equity and economic leverage ratios as there may be continued
70


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
volatility in the mortgage and credit markets. Our capital policy governs our capital and leverage position including setting limits. Based on the guidelines, we generally expect to maintain an economic leverage ratio of less than 10:1. Our actual economic leverage ratio varies from time to time based upon various factors, including our opinion of the level of risk of our assets and liabilities, our liquidity position, our level of unused borrowing capacity, the availability of credit, over-collateralization levels required by lenders when we pledge assets to secure borrowings and our assessment of domestic and international market conditions.
Our debt-to-equity ratio at September 30, 2020 and December 31, 2019 was 5.1:1 and 7.1:1, respectively. Our economic leverage ratio, which is computed as the sum of Recourse Debt, cost basis of TBA derivative and CMBX notional outstanding and net forward purchases (sales) of investments divided by total equity was 6.2:1 and 7.2:1 at September 30, 2020 and December 31, 2019, respectively. Our capital ratio, which represents our ratio of stockholders’ equity to total assets (inclusive of total market value of TBA derivatives and shown net of debt issued by securitization vehicles), was 13.6% and 12.0% at September 30, 2020 and December 31, 2019, respectively.
 
Risk Management
For more information on COVID-19, including actions we have taken in response, please refer to the section titled “Business Environment and Coronavirus Disease 2019 (“COVID-19”)” within this Item 2.
We are subject to a variety of risks in the ordinary conduct of our business. The effective management of these risks is of critical importance to the overall success of Annaly. The objective of our risk management framework is to identify, measure and monitor these risks.
Our risk management framework is intended to facilitate a holistic, enterprise wide view of risk. We have built a strong and collaborative risk management culture throughout Annaly focused on awareness which supports appropriate understanding and management of our key risks. Each employee is accountable for identifying, monitoring and managing risk within their area of responsibility.

Risk Appetite
We maintain a firm-wide risk appetite statement which defines the types and levels of risk we are willing to take in order to achieve our business objectives, and reflects our risk management philosophy. We engage in risk activities based on our core expertise that aim to enhance value for our stockholders. Our activities focus on income generation and capital preservation through proactive portfolio management, supported by a conservative liquidity and leverage posture.
The risk appetite statement asserts the following key risk parameters to guide our investment management activities:
Risk ParameterDescription
Portfolio Composition We will maintain a portfolio comprised of target assets approved by our Board and in accordance with our capital allocation policy.
Leverage We generally expect to maintain an economic leverage ratio no greater than 10:1.
Liquidity Risk We will seek to maintain an unencumbered asset portfolio sufficient to meet our liquidity needs under adverse market conditions.
Interest Rate Risk We will seek to manage interest rate risk to protect the portfolio from adverse rate movements utilizing derivative instruments targeting both income and capital preservation.
Credit Risk We will seek to manage credit risk by making investments which conform within our specific investment policy parameters and optimize risk-adjusted returns.
Capital Preservation We will seek to protect our capital base through disciplined risk management practices.
Compliance We will seek to comply with regulatory requirements needed to maintain our REIT status and our exemption from registration under the Investment Company Act.

Governance
Risk management begins with our Board, through the review and oversight of the risk management framework, and executive management, through the ongoing formulation of risk management practices and related execution in managing risk. The Board exercises its oversight of risk management primarily through the Board Risk Committee (“BRC”) and Board Audit Committee (“BAC”). The BRC is responsible for oversight of our risk governance structure, risk management and risk assessment guidelines and policies and our risk appetite. The BAC is responsible for oversight of the quality and integrity of our accounting, internal controls and financial reporting practices, including independent auditor selection, evaluation and review, and oversight of the internal audit function.
71


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Risk assessment and risk management are the responsibility of our management. A series of management committees has oversight or decision-making responsibilities for risk management activities. Membership of these committees is reviewed regularly to ensure the appropriate personnel are engaged in the risk management process. Four primary management committees have been established to provide a comprehensive framework for risk management. The management committees responsible for our risk management include the Enterprise Risk Committee (“ERC”), Asset and Liability Committee (“ALCO”), Investment Committee and the Financial Reporting and Disclosure Committee (“FRDC”). Each of these committees reports to our management Operating Committee which is responsible for oversight and management of our operations, including oversight and approval authority over all aspects of our enterprise risk management. 
Audit Services is an independent function with reporting lines to the BAC. Audit Services is responsible for performing our internal audit activities, which includes independently assessing and validating key controls within the risk management framework.
Our compliance group is responsible for oversight of our regulatory compliance. Our Chief Compliance Officer has reporting lines to the BAC.

Description of Risks
We are subject to a variety of risks due to the business we operate. Risk categories are an important component of a robust enterprise wide risk management framework.
We have identified the following primary categories that we utilize to identify, assess, measure and monitor risk.
Risk Description
Capital, Liquidity and Funding Risk Risk to earnings, capital or business resulting from our inability to meet our obligations when they come due without incurring unacceptable losses because of inability to liquidate assets or obtain adequate funding.
Investment/Market Risk Risk to earnings, capital or business resulting in the decline in value of our assets or an increase in the costs of financing caused by changes in market variables, such as interest rates, which affect the values of investment securities and other investment instruments.
Credit Risk Risk to earnings, capital or business resulting from an obligor’s failure to meet the terms of any contract or otherwise failure to perform as agreed. This risk is present in lending and investing activities.
Counterparty Risk Risk to earnings, capital or business resulting from a counterparty’s failure to meet the terms of any contract or otherwise failure to perform as agreed. This risk is present in funding, hedging and investing activities.
Operational Risk Risk to earnings, capital, reputation or business arising from inadequate or failed internal processes or systems (including proprietary and third party models), human factors or external events.
Compliance, Regulatory and Legal Risk Risk to earnings, capital, reputation or conduct of business arising from violations of, or nonconformance with internal and external applicable rules and regulations, losses resulting from lawsuits or adverse judgments, or from changes in the regulatory environment that may impact our business model.

72


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Capital, Liquidity and Funding Risk Management
Our capital, liquidity and funding risk management strategy is designed to ensure the availability of sufficient resources to support our business and meet our financial obligations under both normal and adverse market and business environments. Our capital, liquidity and funding risk management practices consist of the following primary elements:
ElementDescription
Funding Availability of diverse and stable sources of funds.
Excess Liquidity Excess liquidity primarily in the form of unencumbered assets and cash.
Maturity Profile Diversity and tenor of liabilities and modest use of leverage.
Stress Testing Scenario modeling to measure the resiliency of our liquidity position.
Liquidity Management Policies Comprehensive policies including monitoring, risk limits and an escalation protocol.

Funding
Our primary financing sources are repurchase agreements provided through counterparty arrangements and through Arcola, other secured financing, debt issued by securitization vehicles, mortgages, credit facilities, note sales and various forms of equity. We maintain excess liquidity by holding unencumbered liquid assets that could be either used to collateralize additional borrowings or sold.
We seek to conservatively manage our repurchase agreement funding position through a variety of methods including diversity, breadth and depth of counterparties and maintaining a staggered maturity profile.
Our wholly-owned subsidiary, Arcola, provides direct access to third party funding as a FINRA member broker-dealer. Arcola borrows funds through the General Collateral Finance Repo service offered by the FICC, with FICC acting as the central counterparty. In addition, Arcola has borrowed funds through direct repurchase agreements.
To reduce our liquidity risk we maintain a laddered approach to our repurchase agreements. At September 30, 2020 and December 31, 2019, the weighted average days to maturity was 72 days and 65 days, respectively.
Our repurchase agreements generally provide that in the event of a margin call we must provide additional securities or cash on the same business day that a margin call is made. Should prepayment speeds on the mortgages underlying our Agency and Residential mortgage-backed securities and/or market interest rates or other factors move suddenly and cause declines in the market value of assets posted as collateral, resulting margin calls may cause an adverse change in our liquidity position.
We maintain membership in the Federal Home Loan Bank (“FHLB”) through our captive insurance subsidiary Truman Insurance Company LLC (“Truman”). A 2016 rule from the Federal Housing Finance Agency (“FHFA”) requires captive insurance companies to terminate their FHLB membership, however, given the length of its membership at the time the rule was enacted, Truman was granted a five year sunset provision whereby its membership will expire in February 2021. We believe our business objectives align well with the mission of the FHLB System. While there can be no assurances that such steps will be taken, we believe it would be appropriate for there to be legislative or other action to permit Truman and similar captive insurance subsidiaries to retain their membership status beyond the current sunset period. However, in anticipation of the expiration of our membership, we have refinanced our prior FHLB advances with alternative funding sources, including credit facilities and securitization funding.
At September 30, 2020, we had total financial assets and cash pledged against existing liabilities of $71.7 billion. The weighted average haircut was approximately 4% on repurchase agreements. The quality and character of the Residential Securities and commercial real estate investments that we pledge as collateral under the repurchase agreements and interest rate swaps did not materially change at September 30, 2020 compared to the same period in 2019, and our counterparties did not materially alter any requirements, including required haircuts, related to the collateral we pledge under repurchase agreements and interest rate swaps during the three months ended September 30, 2020.






73


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
The following table presents our quarterly average and quarter-end repurchase agreement and reverse repurchase agreement balances outstanding for the periods presented:
 Repurchase AgreementsReverse Repurchase Agreements
 Average Daily
Amount Outstanding
Ending Amount OutstandingAverage Daily
Amount Outstanding
Ending Amount Outstanding
For the three months ended(dollars in thousands)
September 30, 2020$67,542,187 $64,633,447 $286,792 $ 
June 30, 202068,468,813 67,163,598 183,423 — 
March 31, 202096,756,341 72,580,183 461,123 — 
December 31, 2019102,760,107 101,740,728 1,006,487 — 
September 30, 2019108,389,796 102,682,104 1,459,070 — 
June 30, 2019101,983,828 105,181,241 3,478,510 — 
March 31, 201987,781,404 88,554,170 3,937,769 523,449 
December 31, 201883,984,254 81,115,874 2,741,022 650,040 
September 30, 201879,214,382 79,073,026 2,330,519 1,234,704 
The following table provides information on our repurchase agreements and other secured financing by maturity date at September 30, 2020. The weighted average remaining maturity on our repurchase agreements and other secured financing was 90 days at September 30, 2020:
 
 September 30, 2020
 Principal
Balance
Weighted
Average Rate
% of Total
 (dollars in thousands)
1 day$2,700,000 0.13 %4.1 %
2 to 29 days23,894,431 0.36 %36.5 %
30 to 59 days8,644,191 0.51 %13.2 %
60 to 89 days9,702,860 0.33 %14.8 %
90 to 119 days5,529,035 0.73 %8.4 %
Over 120 days (1)
15,024,303 0.55 %23.0 %
Total$65,494,820 0.44 %100.0 %
     (1)    Approximately 1% of the total repurchase agreements and other secured financing had a remaining maturity over 1 year.

The table below presents our outstanding debt balances and associated weighted average rates and days to maturity at September 30, 2020:
 
  Weighted Average Rate  
 Principal BalanceAs of Period EndFor the Quarter
Weighted Average
Days to Maturity (1)
 (dollars in thousands)
Repurchase agreements$64,633,447 0.42 %0.44 %72
Other secured financing (2)
861,373 2.23 %2.56 %1,432
Securitized debt of consolidated VIEs (3)
6,027,847 2.15 %2.03 %9,336
Mortgages payable (3)
513,182 3.99 %3.95 %4,174
Total indebtedness$72,035,849    
(1)    Determined based on estimated weighted-average lives of the underlying debt instruments.
(2)    Includes financing under credit facilities.
(3)    Non-recourse to Annaly.

Excess Liquidity
74


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Our primary source of liquidity is the availability of unencumbered assets which may be provided as collateral to support additional funding needs. We target minimum thresholds of available, unencumbered assets to maintain excess liquidity. The following table illustrates our asset portfolio available to support potential collateral obligations and funding needs.
Assets are considered encumbered if pledged as collateral against an existing liability, and therefore are no longer available to support additional funding. An asset is considered unencumbered if it has not been pledged or securitized. The following table also provides the carrying amount of our encumbered and unencumbered financial assets at September 30, 2020:
 Encumbered AssetsUnencumbered AssetsTotal
Financial assets(dollars in thousands)
Cash and cash equivalents$1,025,431 $214,551 $1,239,982 
Investments, at carrying value (1)
Agency mortgage-backed securities (2)
67,321,920 7,109,080 74,431,000 
Credit risk transfer securities313,863 97,675 411,538 
Non-agency mortgage-backed securities597,647 119,955 717,602 
Residential mortgage loans (2)
3,661,516 80,122 3,741,638 
MSRs3,431 204,554 207,985 
Commercial real estate debt investments (2)
2,035,747 193,049 2,228,796 
Commercial real estate debt and preferred equity, held for investment (2)
1,330,069 126,390 1,456,459 
Corporate debt, held for investment1,446,512 615,366 2,061,878 
Other assets (3)
 74,548 74,548 
Total financial assets$77,736,136 $8,835,290 $86,571,426 
(1)    The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the Consolidated Statements of Financial Condition.
(2)    Includes assets transferred or pledged to securitization vehicles.
(3)    Includes interests in certain joint ventures and equity instruments.

We maintain liquid assets in order to satisfy our current and future obligations in normal and stressed operating environments. These are held as the primary means of liquidity risk mitigation. The composition of our liquid assets is also considered and is subject to certain parameters. The composition is monitored for concentration risk and asset type. We believe the assets we consider liquid can be readily converted into cash, through liquidation or by being used as collateral in financing arrangements (including as additional collateral to support existing financial arrangements). Our balance sheet also generates liquidity on an on-going basis through mortgage principal and interest repayments and net earnings held prior to payment of dividends. The following table presents our liquid assets as a percentage of total assets at September 30, 2020:
Carrying Value (1)
 Liquid assets(dollars in thousands)
Cash and cash equivalents$1,239,982 
Residential Securities (2) (3)
74,936,333 
Residential mortgage loans (4)
152,959 
Commercial real estate debt investments (5)
54,678 
Commercial real estate debt and preferred equity, held for investment (6)
450,177 
Corporate debt, held for investment (7)
1,565,166 
Total liquid assets$78,399,295 
Percentage of liquid assets to carrying amount of encumbered and unencumbered financial assets (8)
98.86 %
(1)Carrying value approximates the market value of assets. The assets listed in this table include $71.7 billion of assets that have been pledged as collateral against existing liabilities at September 30, 2020. Please refer to the Encumbered and Unencumbered Assets table for related information.
(2)The amounts reflected in the table above are on a settlement date basis and may differ from the total positions reported on the Consolidated Statements of Financial Condition.
(3)Excludes securitized Agency mortgage-backed securities of consolidated VIEs carried at fair value of $0.6 billion.
(4)Excludes securitized residential mortgage loans transferred or pledged to consolidated VIEs carried at fair value of $3.6 billion.
(5)Excludes securitized commercial mortgage loans of consolidated VIEs carried at fair value of $2.2 billion.
(6)Excludes senior securitized commercial mortgage loans of consolidated VIEs carried at fair value of $0.9 billion.
(7)Excludes certain second lien loans.
(8)Denominator is computed based on the carrying amount of encumbered and encumbered financial assets, excluding assets transferred or pledged to securitization vehicles of $7.3 billion.

 
75


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Maturity Profile
We consider the profile of our assets, liabilities and derivatives when managing both liquidity risk as well as investment/market risk employing a measurement of both the maturity gap and interest rate sensitivity gap. We determine the amount of liquid assets that are required to be held by monitoring several liquidity metrics. We utilize several modeling techniques to analyze our current and potential obligations including the expected cash flows from our assets, liabilities and derivatives. The following table illustrates the expected final maturities and cash flows of our assets, liabilities and derivatives. The table is based on a static portfolio and assumes no reinvestment of asset cash flows and no future liabilities are entered into. In assessing the maturity of our assets, liabilities and off balance sheet obligations, we use the stated maturities, or our prepayment expectations for assets and liabilities that exhibit prepayment characteristics. Cash and cash equivalents are included in the ‘Less than 3 Months’ maturity bucket, as they are typically held for a short period of time.
With respect to each maturity bucket, our maturity gap is considered negative when the amount of maturing liabilities exceeds the amount of maturing assets. A negative gap increases our liquidity risk as we must enter into future liabilities.
Our interest rate sensitivity gap is the difference between interest earning assets and interest bearing liabilities maturing or re-pricing within a given time period. Unlike the calculation of maturity gap, interest rate sensitivity gap includes the effect of our interest rate swaps. A gap is considered positive when the amount of interest-rate sensitive assets exceeds the amount of interest-rate sensitive liabilities. A gap is considered negative when the amount of interest-rate sensitive liabilities exceeds interest-rate sensitive assets. During a period of rising interest rates, a negative gap would tend to adversely affect net interest income, while a positive gap would tend to result in an increase in net interest income. During a period of falling interest rates, a negative gap would tend to result in an increase in net interest income, while a positive gap would tend to affect net interest income adversely. Because different types of assets and liabilities with the same or similar maturities may react differently to changes in overall market rates or conditions, changes in interest rates may affect net interest income positively or negatively even if assets and liabilities were perfectly matched in each maturity category. The amount of assets and liabilities utilized to compute our interest rate sensitivity gap was determined in accordance with the contractual terms of the assets and liabilities, except that adjustable-rate loans and securities are included in the period in which their interest rates are first scheduled to adjust and not in the period in which they mature. The effects of interest rate swaps, whereby we generally pay a fixed rate and receive a floating rate and effectively lock in our financing costs for a longer term, are also reflected in our interest rate sensitivity gap.




















76


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis

The interest rate sensitivity of our assets and liabilities in the following table at September 30, 2020 could vary substantially based on actual prepayment experience.
 Less than 3
Months
3-12
Months
More than 1 Year to 3 Years3 Years and OverTotal
Financial assets(dollars in thousands)
Cash and cash equivalents$1,239,982 $ $ $ $1,239,982 
    Agency mortgage-backed securities (principal)51,189 8,806 1,816,658 65,931,272 67,807,925 
    Credit risk transfer securities (principal)16,426 19,832 80,375 335,876 452,509 
    Non-agency mortgage-backed securities (principal)744,106    744,106 
    Commercial mortgage-backed securities (principal)   64,458 64,458 
Total securities811,721 28,638 1,897,033 66,331,606 69,068,998 
    Residential mortgage loans (principal)   153,066 153,066 
    Commercial real estate debt and preferred equity (principal)76,970 51,658 477,053 45,302 650,983 
    Corporate debt (principal)2,506 40,649 328,143 1,895,613 2,266,911 
Total loans79,476 92,307 805,196 2,093,981 3,070,960 
Assets transferred or pledged to securitization vehicles (principal)   7,305,027 7,305,027 
Total financial assets - maturity2,131,179 120,945 2,702,229 75,730,614 80,684,967 
    Effect of utilizing reset dates (1)
8,063,965 1,313,480 (616,442)(8,761,003) 
Total financial assets - interest rate sensitive$10,195,144 $1,434,425 $2,085,787 $66,969,611 $80,684,967 
Financial liabilities
    Repurchase agreements$44,992,493 $19,640,954 $ $ $64,633,447 
    Other secured financing
 13,923 18,920 828,530 861,373 
    Debt issued by securitization vehicles (principal)
   6,027,847 6,027,847 
Total financial liabilities - maturity44,992,493 19,654,877 18,920 6,856,377 71,522,667 
    Effect of utilizing reset dates (1)(2)
(27,046,228)(524,645)20,016,750 7,554,123 
Total financial liabilities - interest rate sensitive$17,946,265 $19,130,232 $20,035,670 $14,410,500 $71,522,667 
Maturity gap$(42,861,314)$(19,533,932)$2,683,309 $68,874,237 $9,162,300 
Cumulative maturity gap$(42,861,314)$(62,395,246)$(59,711,937)$9,162,300 
Interest rate sensitivity gap$(7,751,121)$(17,695,807)$(17,949,883)$52,559,111 $9,162,300 
Cumulative rate sensitivity gap$(7,751,121)$(25,446,928)$(43,396,811)$9,162,300 

(1)Maturity gap utilizes stated maturities, or prepayment expectations for assets that exhibit prepayment characteristics, while interest rate sensitivity gap utilizes reset dates, if applicable.
(2)Includes effect of interest rate swaps.

The methodologies we employ for evaluating interest rate risk include an analysis of our interest rate “gap,” measurement of the duration and convexity of our portfolio and sensitivities to interest rates and spreads.

Stress Testing
We utilize liquidity stress testing to ensure we have sufficient liquidity under a variety of scenarios and stresses. These stress tests assist with the management of our pool of liquid assets and influence our current and future funding plans. Our stress tests are modeled over both short term and longer time horizons. The stresses applied include market-wide and firm-specific stresses.

Liquidity Management Policies
We utilize a comprehensive liquidity policy structure to inform our liquidity risk management practices including monitoring and measurement, along with well-defined key risk indicators. Both quantitative and qualitative targets are utilized to measure the ongoing stability and condition of the liquidity position, and include the level and composition of unencumbered assets, as well as both short-term and long-term sustainability of the funding composition under stress conditions.
We also monitor early warning metrics designed to measure the quality and depth of liquidity sources based upon both company-specific and market conditions. The metrics assist in assessing our liquidity conditions and are integrated into our escalation protocol.
77


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Investment/Market Risk Management
One of the primary risks we are subject to is investment/market risk. Changes in the level of interest rates can affect our net interest income, which is the difference between the income we earn on our interest earning assets and the interest expense incurred from interest bearing liabilities and derivatives. Changes in the level of interest rates and spreads can also affect the value of our securities and potential realization of gains or losses from the sale of these assets. We may utilize a variety of financial instruments, including interest rate swaps, swaptions, options, futures and other hedges, in order to limit the adverse effects of interest rates on our results. In the case of interest rate swaps, we utilize contracts linked to LIBOR but may also enter into interest rate swaps where the floating leg is linked to the overnight index swap rate or another index, particularly in light of a potential transition away from LIBOR. In addition, we may use MAC interest rate swaps in which we may receive or make a payment at the time of entering such interest rate swap to compensate for the off-market nature of such interest rate swap. MAC interest rate swaps offer price transparency, flexibility and more efficient portfolio administration through compression which is the process of reducing the number of unique interest rate swap contracts and replacing them with fewer contracts containing market defined terms. Our portfolio and the value of our portfolio, including derivatives, may be adversely affected as a result of changing interest rates and spreads.

We simulate a wide variety of interest rate scenarios in evaluating our risk. Scenarios are run to capture our sensitivity to changes in interest rates, spreads and the shape of the yield curve. We also consider the assumptions affecting our analysis such as those related to prepayments. In addition to predefined interest rate scenarios, we utilize Value-at-Risk measures to estimate potential losses in the portfolio over various time horizons utilizing various confidence levels. The following tables estimate the potential changes in economic net interest income over a twelve month period and the immediate effect on our portfolio market value (inclusive of derivative instruments), should interest rates instantaneously increase or decrease by 25, 50 or 75 basis points, and the effect of portfolio market value if mortgage option-adjusted spreads instantaneously increase or decrease by 5, 15 or 25 basis points (assuming shocks are parallel and instantaneous). All changes to income and portfolio market value are measured as percentage changes from the projected net interest income and portfolio value at the base interest rate scenario. The net interest income simulations incorporate the interest expense effect of rate resets on liabilities and derivatives as well as the amortization expense and reinvestment of principal based on the prepayments on our securities, which varies based on the level of rates. The results assume no management actions in response to the rate or spread changes. The following table presents estimates at September 30, 2020. Actual results could differ materially from these estimates.
Change in Interest Rate (1)
Projected Percentage Change in Economic Net Interest Income (2)
Estimated Percentage Change in Portfolio Value (3)
Estimated Change as a
% on NAV (3)(4)
-75 Basis points(28.0%)—%(0.3%)
-50 Basis points(19.6%)0.1%0.7%
-25 Basis points(9.7%)0.2%1.5%
+25 Basis points7.0%(0.1%)(0.9%)
+50 Basis points14.1%(0.3%)(2.1%)
+75 Basis points20.2%(0.6%)(3.9%)
MBS Spread Shock (1)
Estimated Change in
Portfolio Market Value
Estimated Change as a
 % on NAV (3)(4)
 
-25 Basis points1.4%8.9% 
-15 Basis points0.9%5.3% 
-5 Basis points0.3%1.8% 
+5 Basis points(0.3%)(1.7%) 
+15 Basis points(0.8%)(5.2%) 
+25 Basis points(1.4%)(8.7%) 
(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 Securities, commercial real estate investments, corporate debt, repurchase agreements, other secured financing and interest rate swaps. Economic net interest income includes the net interest component of interest rate swaps.
(3)    Scenarios include Residential Securities, residential mortgage loans, MSRs and derivative instruments.
(4)    NAV represents book value of equity.

78


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Credit Risk Management
Key risk parameters have been established to specify our credit risk appetite. We seek to manage credit risk by making investments which conform within the firm’s specific investment policy parameters and optimize risk-return attributes.
While we do not expect to encounter credit risk in our Agency mortgage-backed securities, we face credit risk on the non-Agency mortgage-backed securities and CRT securities in our portfolio. In addition, we are also exposed to credit risk on residential mortgage loans, commercial real estate investments and corporate debt. MSR values may also be impacted if overall costs to service the underlying mortgage loans increase due to borrower performance. We are subject to risk of loss if an issuer or borrower fails to perform its contractual obligations. We have established policies and procedures for mitigating credit risk, including establishing and reviewing limits for credit exposure. We will originate or purchase commercial investments that meet our comprehensive underwriting process and credit standards and are approved by the appropriate committee. Once a commercial investment is made, our ongoing surveillance process includes regular reviews, analysis and oversight of investments by our investment personnel and appropriate committee. We review credit and other risks of loss associated with each investment. Our management monitors the overall portfolio risk and determines estimates of provision for loss. Additionally, ALCO has oversight of our credit risk exposure.
Our portfolio composition, based on balance sheet values, at September 30, 2020 and December 31, 2019 was as follows:
September 30, 2020December 31, 2019
Category
Agency mortgage-backed securities (1)
86.7 %89.5 %
Credit risk transfer securities0.5 %0.4 %
Non-agency mortgage-backed securities0.8 %0.9 %
Residential mortgage loans (1)
4.3 %3.3 %
Mortgage servicing rights0.2 %0.3 %
Commercial real estate (1) (2)
5.1 %3.9 %
Corporate debt2.4 %1.7 %
(1) Includes assets transferred or pledged to securitization vehicles.
(2) Net of unamortized origination fees.

Counterparty Risk Management
Our use of repurchase and derivative agreements and trading activities create exposure to counterparty risk relating to potential losses that could be recognized if the counterparties to these agreements fail to perform their obligations under the contracts. In the event of default by a counterparty, we could have difficulty obtaining our assets pledged as collateral. A significant portion of our investments are financed with repurchase agreements by pledging our Residential Securities and certain commercial real estate investments as collateral to the applicable lender. The collateral we pledge generally exceeds the amount of the borrowings under each agreement. If the counterparty to the repurchase agreement defaults on its obligations and we are not able to recover our pledged asset, we are at risk of losing the over-collateralization or haircut. The amount of this exposure is the difference between the amount loaned to us plus interest due to the counterparty and the fair value of the collateral pledged by us to the lender including accrued interest receivable on such collateral.
We also use interest rate swaps and other derivatives to manage interest rate risk. Under these agreements, we pledge securities and cash as collateral or settle variation margin payments as part of a margin arrangement.
If a counterparty were to default on its obligations, we would be exposed to a loss to a derivative counterparty to the extent that the amount of our securities or cash pledged exceeded the unrealized loss on the associated derivative and we were not able to recover the excess collateral. Additionally, we would be exposed to a loss to a derivative counterparty to the extent that our unrealized gains on derivative instruments exceeded the amount of the counterparty’s securities or cash pledged to us.
We monitor our exposure to counterparties across several dimensions including by type of arrangement, collateral type, counterparty type, ratings and geography. Additionally, ALCO has oversight of our counterparty exposure.

79


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
The following table summarizes our exposure to counterparties by geography at September 30, 2020:
Number of CounterpartiesRepurchase Agreement FinancingInterest Rate Swaps at Fair Value
Exposure (1)
Geography(dollars in thousands)
North America25 $50,950,065 $(402,402)$3,217,881 
Europe10 9,794,270 (723,777)950,431 
Japan2 3,889,112  206,590 
Total37 $64,633,447 $(1,126,179)$4,374,902 
(1) Represents the amount of cash and/or securities pledged as collateral to each counterparty less the aggregate of repurchase agreement financing and unrealized loss on swaps for each counterparty.
 
Operational Risk Management
We are subject to operational risk in each of our business and support functions. Operational risk may arise from internal or external sources including human error, fraud, systems issues, process change, vendors, business interruptions and other external events. Model risk considers potential errors with a model’s results due to uncertainty in model parameters and inappropriate methodologies used. The result of these risks may include financial loss and reputational damage. We manage operational risk through a variety of tools including policies and procedures that cover topics such as business continuity, personal conduct, cybersecurity and vendor management. Other tools include testing, including disaster recovery testing; systems controls, including access controls; training, including cybersecurity awareness training; and monitoring, which includes the use of key risk indicators. Employee-level lines of defense against operational risk include proper segregation of incompatible duties, activity-level internal controls over financial reporting, the empowerment of business units to identify and mitigate operational risk sources, testing by our internal audit staff, and our overall governance framework.  
We have established a Cybersecurity Committee to help mitigate cybersecurity risks. The role of the committee is to oversee cyber risk assessments, monitor applicable key risk indicators, review cybersecurity training procedures, oversee our Cybersecurity Incident Response Plan and engage third parties to conduct periodic penetration testing. Our cybersecurity risk assessment includes an evaluation of cyber risk related to sensitive data held by third parties on their systems. The Cybersecurity Committee periodically reports to the ERC, and the Board via the BRC and the BAC. There is no assurance that these efforts will effectively mitigate cybersecurity risk and mitigation efforts are not an assurance that no cybersecurity incidents will occur. We currently maintain cybersecurity insurance, however, there is no assurance that the insurance policy will cover all cybersecurity breaches or that the policy will cover all losses.

Compliance, Regulatory and Legal Risk Management
Our business is organized as a REIT, and we seek to continue to meet the requirements for taxation as a REIT. The determination that we are a REIT requires an analysis of various factual matters and circumstances. Accordingly, we closely monitor our REIT status within our risk management program. We also regularly assess our risk management in respect of our regulated and licensed subsidiaries, which include our registered broker-dealer subsidiary Arcola and our subsidiary that is registered with the SEC as an investment adviser under the Investment Advisers Act.
The financial services industry is highly regulated and receives significant attention from regulators, which may impact both our company as well as our business strategy. We proactively monitor the potential impact regulation may have both directly and indirectly on us. We maintain a process to actively monitor both actual and potential legal action that may affect us. Our risk management framework is designed to identify, measure and monitor these risks under the oversight of the ERC.
We currently rely on the exemption from registration provided by Section 3(c)(5)(C) of the Investment Company Act, and we seek to continue to meet the requirements for this exemption from registration. The determination that we qualify for this exemption from registration depends on various factual matters and circumstances. Accordingly, in conjunction with our legal department, we closely monitor our compliance with Section 3(c)(5)(C) within our risk management program. The monitoring of this risk is also under the oversight of the ERC.
80


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
As a result of the Dodd-Frank Act, the U.S. Commodity Futures Trading Commission (“CFTC”) gained jurisdiction over the regulation of interest rate swaps. The CFTC has asserted that this causes the operators of mortgage real estate investment trusts that use swaps as part of their business model to fall within the statutory definition of Commodity Pool Operator (“CPO”), and, absent relief from the Division of Swap Dealer and Intermediary Oversight or the CFTC, to register as CPOs. On December 7, 2012, as a result of numerous requests for no-action relief from the CPO registration requirement for operators of mortgage real estate investment trusts, the Division of Swap Dealer and Intermediary Oversight of the CFTC issued no-action relief entitled “No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts” that permits a CPO to receive relief by filing a claim to perfect the use of the relief. A claim submitted by a CPO will be effective upon filing, so long as the claim is materially complete. The conditions that must be met relate to initial margin and premiums requirements, net income derived annually from commodity interest positions that are not qualifying hedging transactions, marketing of interests in the mortgage real estate investment trust to the public, and identification of the entity as a mortgage real estate investment trust in its federal tax filings with the Internal Revenue Service. While we disagree with the CFTC’s position that mortgage REITs that use swaps as part of their business model fall within the statutory definition of a CPO, we have submitted a claim for the relief set forth in the no-action relief entitled “No-Action Relief from the Commodity Pool Operator Registration Requirement for Commodity Pool Operators of Certain Pooled Investment Vehicles Organized as Mortgage Real Estate Investment Trusts” and believe we meet the criteria for such relief set forth therein.

Critical Accounting Policies and Estimates
Our critical accounting policies that require us to make significant judgments or estimates are described below. For more information on these critical accounting policies and other significant accounting policies, see “Significant Accounting Policies” in the Notes to the Consolidated Financial Statements.

Valuation of Financial Instruments
Residential Securities
There is an active market for our Agency mortgage-backed securities, CRT securities and non-Agency mortgage-backed securities. Since we primarily invest in securities that can be valued using actively quoted prices for actively traded assets, there is a high degree of observable inputs and less subjectivity in measuring fair value. Internal fair values are determined using quoted prices from the TBA securities market, the Treasury curve and the underlying characteristics of the individual securities, which may include coupon, periodic and life caps, reset dates and the expected life of the security. While prepayment rates may be difficult to predict and require estimation and judgment in the valuation of Agency mortgage-backed securities, we use several third party models to validate prepayment speeds used in fair value measurements of residential securities. All internal fair values are compared to external pricing sources and/or dealer quotes to determine reasonableness. Additionally, securities used as collateral for repurchase agreements are priced daily by counterparties to ensure sufficient collateralization, providing additional verification of our internal pricing.

Residential Mortgage Loans
There is an active market for the residential whole loans in which we invest. Since we primarily invest in residential loans that can be valued using actively quoted prices for similar assets, there are observable inputs in measuring fair value. Internal fair values are determined using quoted prices for similar market transactions, the swap curve and the underlying characteristics of the individual loans, which may include loan term, coupon, and reset dates. While prepayment rates may be difficult to predict and are a significant estimate requiring judgment in the valuation of residential whole loans, we validate prepayment speeds against those provided by independent pricing analytic providers specializing in residential mortgage loans. Internal fair values are generally compared to external pricing sources to determine reasonableness.
MSRs
Fair value estimates for our investment in MSRs are obtained from models, which use significant unobservable inputs in their valuations. These valuations primarily utilize discounted cash flow models that incorporate unobservable market data inputs including prepayment rates, delinquency levels, costs to service and discount rates. Model valuations are then compared to valuations obtained from third-party pricing providers. Management reviews the valuations received from third-party pricing providers and uses them as a point of comparison to modeled values. The valuation of MSRs requires significant judgment by management and the third-party pricing providers.
81


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Commercial Real Estate Investments
The fair value of commercial mortgage-backed securities classified as available-for-sale is determined based upon quoted prices of similar assets in recent market transactions and requires the application of judgment due to differences in the underlying collateral.  These securities must also be evaluated for impairment if the fair value of the security is lower than its amortized cost. Determining whether there is an other-than-temporary impairment may require us to exercise significant judgment and make estimates to determine expected cash flows incorporating assumptions such as changes in interest rates and loss expectations.  For commercial real estate loans and preferred equity investments classified as held for investment, we apply significant judgment in evaluating the need for a loss reserve.  Estimated net recoverable value of the commercial real estate loans and preferred equity investments and other factors such as the fair value of any collateral, the amount and status of senior debt, the prospects of the borrower and the competitive landscape where the borrower conducts business must be considered in determining the allowance for loan losses. For commercial real estate loans held for sale, significant judgment may need to be applied in determining the fair value of the loans and whether a valuation allowance is necessary.  Factors that may need to be considered to determine the fair value of a loan held for sale include the borrower’s credit quality, liquidity and other market factors and the fair value of the underlying collateral.

Interest Rate Swaps
We use the overnight indexed swap (“OIS”) curve as an input to value substantially all of our uncleared interest rate swaps. We believe using the OIS curve, which reflects the interest rate typically paid on cash collateral, enables us to most accurately determine the fair value of uncleared interest rate swaps. Consistent with market practice, we exchange collateral (also called margin) based on the fair values of our interest rate swaps. Through this margining process, we may be able to compare our recorded fair value with the fair value calculated by the counterparty or derivatives clearing organization, providing additional verification of our recorded fair value of the uncleared interest rate swaps. We value our cleared interest rate swaps using the prices provided by the derivatives clearing organization.

Revenue Recognition
Interest income from coupon payments is accrued based on the outstanding principal amounts of the Residential Securities and their contractual terms. Premiums and discounts associated with the purchase of the Residential Securities are amortized or accreted into interest income over the projected lives of the securities using the interest method. To aid in determining projected lives of the securities, we use third-party model and market information to project prepayment speeds. Our prepayment speed projections incorporate underlying loan characteristics (i.e., coupon, term, original loan size, original loan-to-value ratio, etc.) and market data, including interest rate and home price index forecasts and expert judgment. Prepayment speeds vary according to the type of investment, conditions in the financial markets and other factors and cannot be predicted with any certainty. Changes to model assumptions, including interest rates and other market data, as well as periodic revisions to the model will cause changes in the results. Adjustments are made for actual prepayment activity as it relates to calculating the effective yield. Gains or losses on sales of Residential Securities are recorded on trade date based on the specific identification method.

Consolidation of Variable Interest Entities
Determining whether an entity has a controlling financial interest in a VIE requires significant judgment related to assessing the purpose and design of the VIE and determination of the activities that most significantly impact its economic performance. We must also identify explicit and implicit variable interests in the entity and consider our involvement in both the design of the VIE and its ongoing activities. To determine whether consolidation of the VIE is required, we must apply judgment to assess whether we have the power to direct the most significant activities of the VIE and whether we have either the rights to receive benefits or the obligation to absorb losses that could be potentially significant to the VIE.

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

82


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Glossary of Terms
A
Adjustable-Rate Loan / Security
A loan / security on which interest rates are adjusted at regular intervals according to predetermined criteria. The adjustable interest rate is tied to an objective, published interest rate index.

Agency
Refers to a federally chartered corporation, such as the Federal National Mortgage Association, or the Federal Home Loan Mortgage Corporation, or an agency of the U.S. Government, such as the Government National Mortgage Association.

Agency Mortgage-Backed Securities
Refers to residential mortgage-backed securities that are issued or guaranteed by an Agency.

Amortization
Liquidation of a debt through installment payments.  Amortization also refers to the process of systematically reducing a recognized asset or liability (e.g., a purchase premium or discount for a debt security) with an offset to earnings.

Average GAAP Cost of Interest Bearing Liabilities and Average Economic Cost of Interest Bearing Liabilities
Average GAAP cost of interest bearing liabilities represents annualized interest expense divided by average interest bearing liabilities. Average interest bearing liabilities reflects the average balances during the period. Average economic cost of interest bearing liabilities represents annualized economic interest expense divided by average interest bearing liabilities.

Average Life
On a mortgage-backed security, the average time to receipt of each dollar of principal, weighted by the amount of each principal prepayment, based on prepayment assumptions.

Average Yield on Interest Earnings Assets and Average Yield on Interest Earnings Assets (excluding PAA)
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).





B
Basis Point (“bp”)
One hundredth of one percent, used in expressing differences in interest rates.  One basis point is 0.01% of yield. For example, a bond’s yield that changed from 3.00% to 3.50% would be said to have moved 50 basis points.

Benchmark
A bond or an index referencing a basket of bonds whose terms are used for comparison with other bonds of similar maturity. The global financial market typically looks to U.S. Treasury securities as benchmarks.

Beneficial Owner
One who benefits from owning a security, even if the security’s title of ownership is in the name of a broker or bank.

B-Note
Subordinate mortgage notes and/or subordinate mortgage loan participations.

B-Piece
The most subordinate commercial mortgage-backed security bond class.

Board
Refers to the board of directors of Annaly.

Bond
The written evidence of debt, bearing a stated rate or stated rates of interest, or stating a formula for determining that rate, and maturing on a date certain, on which date and upon presentation a fixed sum of money plus interest (usually represented by interest coupons attached to the bond) is payable to the holder or owner. Bonds are long-term securities with an original maturity of greater than one year.

Book Value Per Share
Calculated by summing common stock, additional paid-in capital, accumulated other comprehensive income (loss) and accumulated deficit and dividing that number by the total common shares outstanding.

Broker
Generic name for a securities firm engaged in both buying and selling securities on behalf of customers or its own account.




83


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
C
Capital Buffer
Includes unencumbered financial assets which can be either sold or utilized as collateral to meet liquidity needs.
Capital Ratio
Calculated as total stockholders’ equity divided by total assets inclusive of outstanding market value of TBA positions and exclusive of consolidated VIEs. 
 
Carry
The amount an asset earns over its hedging and financing costs. A positive carry happens when the rate on the securities being financed is greater than the rate on the funds borrowed. A negative carry is when the rate on the funds borrowed is greater than the rate on the securities that are being financed.

CMBX
The CMBX index is a synthetic tradable index referencing a basket of 25 CMBS of a particular rating and vintage. The CMBX index allows investors to take a long position (referred to as selling protection) or short position (referred to as purchasing protection) on the respective basket of CMBS securities and is structured as a “pay-as-you-go” contract whereby the protection seller receives and the protection buyer pays a standardized running coupon on the contracted notional amount. Additionally, the protection seller is obligated to pay to the protection buyer the amount of principal losses and/or coupon shortfalls on the underlying CMBS securities as they occur.

Collateral
Securities, cash or property pledged by a borrower or party to a derivative contract to secure payment of a loan or derivative. If the borrower fails to repay the loan or defaults under the derivative contract, the secured party may take ownership of the collateral.

Collateralized Loan Obligation (“CLO”)
A securitization collateralized by loans and other debt instruments.

Collateralized Mortgage Obligation (“CMO”)
A multiclass bond backed by a pool of mortgage pass-through securities or mortgage loans.

Commodity Futures Trading Commission (“CFTC”)
An independent U.S. federal agency established by the Commodity Futures Trading Commission Act of 1974. The CFTC regulates the swaps, commodity futures and options markets. Its goals include the promotion of competitive and efficient futures markets and the protection of investors against manipulation, abusive trade practices and fraud.

Commercial Mortgage-Backed Security
Securities collateralized by a pool of mortgages on commercial real estate in which all principal and interest
from the mortgages flow to certificate holders in a defined sequence or manner.

Constant Prepayment Rate (“CPR”)
The percentage of outstanding mortgage loan principal that prepays in one year, based on the annualization of the Single Monthly Mortality, which reflects the outstanding mortgage loan principal that prepays in one month.

Convexity
A measure of the change in a security’s duration with respect to changes in interest rates. The more convex a security is, the more its duration will change with interest rate changes.

Core Earnings (excluding PAA) and Core Earnings (excluding PAA) Per Average Common Share
Core earnings (excluding PAA) is defined as the sum of (a) economic net interest income, (b) TBA dollar roll income and CMBX coupon income, (c) realized amortization of MSRs, (d) other income (loss) (excluding depreciation expense related to commercial real estate and amortization of intangibles, non-core income allocated to equity method investments and other non-core components of other income (loss)), (e) general and administrative expenses (excluding transaction expenses and non-recurring items), and (f) income taxes (excluding the income tax effect of non-core income (loss) items) and excludes (g) 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 our Agency mortgage-backed securities. Core earnings (excluding PAA) per average common share is calculated by dividing core earnings (excluding PAA) by average basic common shares for the period.

Corporate Debt
Non-government debt instruments issued by corporations. Long-term corporate debt can be issued as bonds or loans.

Counterparty
One of two entities in a transaction. For example, in the bond market a counterparty can be a state or local government, a broker-dealer or a corporation.

Coupon
The interest rate on a bond that is used to compute the amount of interest due on a periodic basis.

Credit and Counterparty Risk
Risk to earnings, capital or business, resulting from an obligor’s or counterparty’s failure to meet the terms of any contract or otherwise failure to perform as agreed. Credit and counterparty risk is present in lending, investing, funding and hedging activities.



84


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Credit Derivatives
Derivative instruments that have one or more underlyings related to the credit risk of a specified entity (or group of entities) or an index that exposes the seller to potential loss from specified credit-risk related events. An example is credit derivatives referencing the commercial mortgage-backed securities index.
 
Credit Risk Transfer (“CRT”) Securities
Credit Risk Transfer securities are risk sharing transactions issued by Fannie Mae and Freddie Mac and similarly structured transactions arranged by third party market participants. The securities issued in the CRT sector are designed to synthetically transfer mortgage credit risk from Fannie Mae, Freddie Mac and/or third parties to private investors.

Current Face
The current remaining monthly principal on a mortgage security. Current face is computed by multiplying the original face value of the security by the current principal balance factor.


D
Dealer
Person or organization that underwrites, trades and sells securities, e.g., a principal market-maker in securities.

Default Risk
Possibility that a bond issuer will fail to pay principal or interest when due.

Derivative
A financial product that derives its value from the price, price fluctuations and price expectations of an underlying instrument, index or reference pool (e.g. futures contracts, options, interest rate swaps, interest rate swaptions and certain to-be-announced securities).

Discount Price
When the dollar price is below face value, it is said to be selling at a discount.

Duration
The weighted maturity of a fixed-income investment’s cash flows, used in the estimation of the price sensitivity of fixed-income securities for a given change in interest rates.


E
Economic Capital
A measure of the risk a firm is subject to.  It is the amount of capital a firm needs as a buffer to protect against risk.  It is a probabilistic measure of potential future losses at a given confidence level over a given time horizon.
Economic Interest Expense
Non-GAAP financial measure that is comprised of GAAP interest expense and the net interest component of interest rate swaps.

Economic Leverage Ratio (Economic Debt-to-Equity Ratio)
Calculated as the sum of recourse debt, cost basis of TBA and CMBX derivatives outstanding and net forward purchases (sales) of investments divided by total equity. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Debt issued by securitization vehicles, certain credit facilities (included within other secured financing) and mortgages payable are non-recourse to us and are excluded from this measure.

Economic Net Interest Income
Non-GAAP financial measure that is composed of GAAP net interest income less Economic Interest Expense.

Encumbered Assets
Assets on the company’s balance sheet which have been pledged as collateral against a liability.

Eurodollar
A U.S. dollar deposit held in Europe or elsewhere outside the United States.


F
Face Amount
The par value (i.e., principal or maturity value) of a security appearing on the face of the instrument.

Factor
A decimal value reflecting the proportion of the outstanding principal balance of a mortgage security, which changes over time, in relation to its original principal value.

Fannie Mae
Federal National Mortgage Association.

Federal Deposit Insurance Corporation (“FDIC”)
An independent agency created by the U.S. Congress to maintain stability and public confidence in the nation’s financial system by insuring deposits, examining and supervising financial institutions for safety and soundness and consumer protection, and managing receiverships.

Federal Funds Rate
The interest rate charged by banks on overnight loans of their excess reserve funds to other banks.

85


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Federal Home Loan Banks (“FHLB”)
U.S. Government-sponsored banks that generally provide reliable liquidity to member financial institutions to support housing finance and community investment.

Federal Housing Financing Agency (“FHFA”)
The FHFA is an independent regulatory agency that oversees vital components of the secondary mortgage market including Fannie Mae, Freddie Mac and the Federal Home Loan Banks.

Financial Industry Regulatory Authority, Inc. (“FINRA”)
FINRA is a non-governmental organization tasked with regulating all business dealings conducted between dealers, brokers and all public investors.

Fixed-Rate Mortgage
A mortgage featuring level monthly payments, determined at the outset, which remain constant over the life of the mortgage.

Fixed Income Clearing Corporation (“FICC”)
The FICC is an agency that deals with the confirmation, settlement and delivery of fixed-income assets in the U.S. The agency ensures the systematic and efficient settlement of U.S. Government securities and mortgage-backed security transactions in the market.

Floating Rate Bond
A bond for which the interest rate is adjusted periodically according to a predetermined formula, usually linked to an index.

Floating Rate CMO
A CMO tranche which pays an adjustable rate of interest tied to a representative interest rate index such as the LIBOR, the Constant Maturity Treasury or the Cost of Funds Index.

Freddie Mac
Federal Home Loan Mortgage Corporation.

Futures Contract
A legally binding agreement to buy or sell a commodity or financial instrument in a designated future month at a price agreed upon at the initiation of the contract by the buyer and seller. Futures contracts are standardized according to the quality, quantity, and delivery time and location for each commodity. A futures contract differs from an option in that an option gives one of the counterparties a right and the other an obligation to buy or sell, while a futures contract represents an obligation of both counterparties, one to deliver and the other to accept delivery. A futures contract is part of a class of financial instruments called derivatives.


G
GAAP
U.S. generally accepted accounting principles.

Ginnie Mae
Government National Mortgage Association.


H
Hedge
An investment made with the intention of minimizing the impact of adverse movements in interest rates or securities prices.


I
In-the-Money
Description for an option that has intrinsic value and can be sold or exercised for a profit; a call option is in-the-money when the strike price (execution price) is below the market price of the underlying security.

Interest Bearing Liabilities
Refers to repurchase agreements, debt issued by securitization vehicles, FHLB Des Moines advances and credit facilities. Average interest bearing liabilities is based on daily balances.

Interest Earning Assets
Refers to Residential Securities, U.S. Treasury securities, reverse repurchase agreements, commercial real estate debt and preferred equity interests, residential mortgage loans and corporate debt. Average interest earning assets is based on daily balances.

Interest-Only (IO) Bond
The interest portion of mortgage, Treasury or bond payments, which is separated and sold individually from the principal portion of those same payments.

Interest Rate Risk
The risk that an investment’s value will change due to a change in the absolute level of interest rates, in the spread between two rates, in the shape of the yield curve or in any other interest rate relationship. As market interest rates rise, the value of current fixed income investment holdings declines. Diversifying, deleveraging and hedging techniques are utilized to mitigate this risk. Interest rate risk is a form of market risk.

Interest Rate Swap
A binding agreement between counterparties to exchange periodic interest payments on some predetermined dollar principal, which is called the notional principal amount.
86


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
For example, one party will pay fixed and receive a variable rate .

Interest Rate Swaption
Options on interest rate swaps. The buyer of a swaption has the right to enter into an interest rate swap agreement at some specified date in the future. The swaption agreement will specify whether the buyer of the swaption will be a fixed-rate receiver or a fixed-rate payer.
 
International Swaps and Derivatives Association (“ISDA”) Master Agreement
Standardized contract developed by ISDA used as an umbrella under which bilateral derivatives contracts are entered into.

Inverse IO Bond
An interest-only bond whose coupon is determined by a formula expressing an inverse relationship to a benchmark rate, such as LIBOR. As the benchmark rate changes, the IO coupon adjusts in the opposite direction. When the benchmark rate is relatively low, the IO pays a relatively high coupon payment, and vice versa.

Investment/Market Risk
Risk to earnings, capital or business resulting in the decline in value of our assets caused from changes in market variables, such as interest rates, which affect the values of Residential Securities and other investment instruments.

Investment Advisers Act
Refers to the Investment Advisers Act of 1940, as amended.

Investment Company Act
Refers to the Investment Company Act of 1940, as amended.


L
Leverage
The use of borrowed money to increase investing power and economic returns.

Leverage Ratio (Debt-to-Equity Ratio)
Calculated as total debt to total stockholders’ equity. For purposes of calculating this ratio total debt includes repurchase agreements, other secured financing, debt issued by securitization vehicles and mortgages payable. Certain credit facilities (included within other secured financing), debt issued by securitization vehicles and mortgages payable are non-recourse to us.

LIBOR (London Interbank Offered Rate)
The rate banks charge each other for short-term Eurodollar loans. LIBOR is frequently used as the base for resetting
rates on floating-rate securities and the floating-rate legs of interest rate swaps.

Liquidity Risk
Risk to earnings, capital or business arising from our inability to meet our obligations when they come due without incurring unacceptable losses because of inability to liquidate assets or obtain adequate funding.

Long-Term CPR
Our projected prepayment speeds for certain Agency mortgage-backed securities using third-party model and market information. Our prepayment speed projections incorporate underlying loan characteristics (e.g., coupon, term, original loan size, original loan-to-value ratio, etc.) and market data, including interest rate and home price index forecasts.  Changes to model assumptions, including interest rates and other market data, as well as periodic revisions to the model will cause changes in the results.

Long-Term Debt
Debt which matures in more than one year.


M
Market Agreed Coupon (“MAC”) Interest Rate Swap
An interest rate swap contract structure with pre-defined, market agreed terms, developed by SIFMA and ISDA with the purpose of promoting liquidity and simplified administration.

Monetary Policy
Action taken by the Federal Open Market Committee of the Federal Reserve System to influence the money supply or interest rates.

Mortgage-Backed Security (“MBS”)
A security representing a direct interest in a pool of mortgage loans. The pass-through issuer or servicer collects the payments on the loans in the pool and “passes through” the principal and interest to the security holders on a pro rata basis.

Mortgage Loan
A mortgage loan granted by a bank, thrift or other financial institution that is based solely on real estate as security and is not insured or guaranteed by a government agency.

Mortgage Servicing Rights (“MSRs”)
Contractual agreements constituting the right to service an existing mortgage where the holder receives the benefits and bears the costs and risks of servicing the mortgage.




87


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
N
NAV
Net asset value.

Net Interest Income
Represents interest income earned on our portfolio investments, less interest expense paid for borrowings.

Net Interest Margin and Net Interest Margin (excluding PAA)
Net interest margin represents our interest income less interest expense divided by average interest earning assets. Net interest margin (excluding PAA) represents the sum of our interest income (excluding PAA) plus TBA dollar roll income and CMBX coupon income less interest expense and the net interest component of interest rate swaps divided by the sum of average interest earning assets plus average outstanding TBA contract and CMBX balances.

Net Interest Spread and Net Interest Spread (excluding PAA)
Net interest spread represents the average yield on interest earning assets less the average GAAP cost of interest bearing liabilities. Net interest spread (excluding PAA) represents the average yield on interest earning assets (excluding PAA) less the average economic cost of interest bearing liabilities.

Non-Performing Loan (“NPL”)
A loan that is close to defaulting or is in default.

Notional Amount
A stated principal amount in a derivative contract on which the contract is based.


O
Operational Risk
Risk to earnings, capital, reputation or business arising from inadequate or failed internal processes or systems, human factors or external events.

Option Contract
A contract in which the buyer has the right, but not the obligation, to buy or sell an asset at a set price on or before a given date. Buyers of call options bet that a security will be worth more than the price set by the option (the strike price), plus the price they pay for the option itself. Buyers of put options bet that the security’s price will drop below the price set by the option. An option is part of a class of financial instruments called derivatives, which means these financial instruments derive their value from the worth of an underlying investment.

Original Face
The face value or original principal amount of a security on its issue date.
Out-of-the-Money
Description for an option that has no intrinsic value and would be worthless if it expired today; for a call option, this situation occurs when the strike price is higher than the market price of the underlying security; for a put option, this situation occurs when the strike price is less than the market price of the underlying security.

Overnight Index Swaps (“OIS”)
An interest rate swap in which a fixed rate is exchanged for an overnight floating rate.

Over-The-Counter (“OTC”) Market
A securities market that is conducted by dealers throughout the country through negotiation of price rather than through the use of an auction system as represented by a stock exchange.


P
Par
Price equal to the face amount of a security; 100%.

Par Amount
The principal amount of a bond or note due at maturity. Also known as par value.
 
Pass-Through Security
A securitization structure where a GSE or other entity “passes” the amount collected from the borrowers every month to the investor, after deducting fees and expenses.

Pool
A collection of mortgage loans assembled by an originator or master servicer as the basis for a security. In the case of Ginnie Mae, Fannie Mae, or Freddie Mac mortgage pass-through securities, pools are identified by a number assigned by the issuing agency.

Premium
The amount by which the price of a security exceeds its principal amount. When the dollar price of a bond is above its face value, it is said to be selling at a premium.

Premium Amortization Adjustment (“PAA”)
The cumulative impact on prior periods, but not the current period, of quarter-over-quarter changes in estimated long-term prepayment speeds related to our Agency mortgage-backed securities.

Prepayment
The unscheduled partial or complete payment of the principal amount outstanding on a mortgage loan or other debt before it is due.



88


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Prepayment Risk
The risk that falling interest rates will lead to increased prepayments of mortgage or other loans, forcing the investor to reinvest at lower prevailing rates.

Prepayment Speed
The estimated rate at which mortgage borrowers will pay off the mortgages that underlie an MBS.

Prime Rate
The indicative interest rate on loans that banks quote to their best commercial customers.
 
Principal and Interest
The term used to refer to regularly scheduled payments or prepayments of principal and payments of interest on a mortgage or other security.


R
Rate Reset
The adjustment of the interest rate on a floating-rate security according to a prescribed formula.

Real Estate Investment Trust (“REIT”)
A special purpose investment vehicle that provides investors with the ability to participate directly in the ownership or financing of real-estate related assets by pooling their capital to purchase and manage mortgage loans and/or income property.

Recourse Debt
Debt on which the economic borrower is obligated to repay the entire balance regardless of the value of the pledged collateral. By contrast, the economic borrower’s obligation to repay non-recourse debt is limited to the value of the pledged collateral. Recourse debt consists of repurchase agreements and other secured financing (excluding certain non-recourse credit facilities). Debt issued by securitization vehicles, certain credit facilities (included within other secured financing) and mortgages payable are non-recourse to us and are excluded from this measure.

Reinvestment Risk
The risk that interest income or principal repayments will have to be reinvested at lower rates in a declining rate environment.

Re-Performing Loan (“RPL”)
A type of loan in which payments were previously delinquent by at least 90 days but have resumed.

Repurchase Agreement
The sale of securities to investors with the agreement to buy them back at a higher price after a specified time period; a form of short-term borrowing. For the party on the other end of the  transaction (buying the security and agreeing to sell in the future) it is a reverse repurchase agreement.
Residential Securities
Refers to Agency mortgage-backed securities, CRT securities and non-Agency mortgage-backed securities.

Residual
In securitizations, the residual is the tranche that collects any cash flow from the collateral that remains after obligations to the other tranches have been met.

Return on Average Equity
Calculated by taking earnings divided by average stockholders’ equity.

Reverse Repurchase Agreement
Refer to Repurchase Agreement. The buyer of securities effectively provides a collateralized loan to the seller.

Risk Appetite Statement
Defines the types and levels of risk we are willing to take in order to achieve our business objectives, and reflects our risk management philosophy.


S
Secondary Market
Ongoing market for bonds previously offered or sold in the primary market.

Secured Overnight Financing Rate (“SOFR”)
Broad measure of the cost of borrowing cash overnight collateralized by Treasury securities and was chosen by the Alternative Reference Rate Committee as the preferred benchmark rate to replace dollar LIBOR in coming years.

Settlement Date
The date securities must be delivered and paid for to complete a transaction.

Short-Term Debt
Generally, debt which matures in one year or less. However, certain securities that mature in up to three years may be considered short-term debt.

Spread
When buying or selling a bond through a brokerage firm, investors will be charged a commission or spread, which is the difference between the market price and cost of purchase, and sometimes a service fee. Spreads differ based on several factors including liquidity.

89


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
T
Target Assets
Includes Agency mortgage-backed securities, to-be-announced forward contracts, CRT securities, MSRs, non-Agency mortgage-backed securities, residential mortgage loans, commercial real estate investments, and corporate debt.

Taxable REIT Subsidiary (“TRS”)
An entity that is owned directly or indirectly by a REIT and has jointly elected with the REIT to be treated as a TRS for tax purposes. Annaly and certain of its direct and indirect subsidiaries have made separate joint elections to treat these subsidiaries as TRSs.

To-Be-Announced Securities (“TBAs”)
A contract for the purchase or sale of a mortgage-backed security to be delivered at a predetermined price, face amount, issuer, coupon and stated maturity on an agreed-upon future date but does not include a specified pool number and number of pools.

TBA Dollar Roll Income
TBA dollar roll income is defined as the difference in price between two TBA contracts with the same terms but different settlement dates. 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”. TBA dollar roll income represents the equivalent of interest income on the underlying security less an implied cost of financing.

Total Return
Investment performance measure over a stated time period which includes coupon interest, interest on interest, and any realized and unrealized gains or losses.

Total Return Swap
A derivative instrument where one party makes payments at a predetermined rate (either fixed or variable) while receiving a return on a specific asset (generally an equity index, loan or bond) held by the counterparty.


U
Unencumbered Assets
Assets on our balance sheet which have not been pledged as collateral against an existing liability.

U.S. Government-Sponsored Enterprise (“GSE”) Obligations
Obligations of Agencies originally established or chartered by the U.S. government to serve public purposes as specified by the U.S. Congress, such as Fannie Mae and Freddie Mac; these obligations are not explicitly guaranteed as to the timely payment of principal and interest by the full faith and credit of the U.S. government.
V
Value-at-Risk (“VaR”)
A statistical technique which measures the potential loss in value of an asset or portfolio over a defined period for a given confidence interval.

Variable Interest Entity (“VIE”)
An entity in which equity investors (i) do not have the characteristics of a controlling financial interest, and/or (ii) do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.

Variation Margin
Cash or securities provided by a party to collateralize its obligations under a transaction as a result of a change in value of such transaction since the trade was executed or the last time collateral was provided.
Volatility
A statistical measure of the variance of price or yield over time. Volatility is low if the price does not change very much over a short period of time, and high if there is a greater change.

Voting Interest Entity (“VOE”)
An entity that has sufficient equity to finance its activities without additional subordinated financial support from other parties and in which equity investors have a controlling financial interest.


W
Warehouse Lending
A line of credit extended to a loan originator to fund mortgages extended by the loan originators to property purchasers. The loan typically lasts from the time the mortgage is originated to when the mortgage is sold into the secondary market, whether directly or through a securitization.  Warehouse lending can provide liquidity to the loan origination market.

Weighted Average Coupon
The weighted average interest rate of the underlying mortgage loans or pools that serve as collateral for a security, weighted by the size of the principal loan balances.

Weighted Average Life (“WAL”)
The assumed weighted average amount of time that will elapse from the date of a security’s issuance until each dollar of principal is repaid to the investor. The WAL will change as the security ages and depending on the actual realized rate at which principal, scheduled and unscheduled, is paid on the loans underlying the MBS.


90


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
Item 2. Management’s Discussion and Analysis
Y
Yield-to-Maturity
The expected rate of return of a bond if it is held to its maturity date; calculated by taking into account the current market price, stated redemption value, coupon payments and time to maturity and assuming all coupons are reinvested at the same rate; equivalent to the internal rate of return.

91


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are contained within the section titled “Risk Management” of Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

ITEM 4. CONTROLS AND PROCEDURES
Our management, including our Chief Executive Officer (the CEO) and Chief Financial Officer (the CFO), reviewed and evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) of the Securities Exchange Act) as of the end of the period covered by this report.  Based on that review and evaluation, the CEO and CFO have concluded that our current disclosure controls and procedures, as designed, (1) were effective in ensuring that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure and (2) were effective in ensuring that information required to be disclosed by the Company in reports it files or submits under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. 
There have been no changes in our internal controls over financial reporting that occurred during the three months ended September 30, 2020 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting.
92


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS
From time to time, we are involved in various claims and legal actions arising in the ordinary course of business. At September 30, 2020, we were not party to any pending material legal proceedings.

ITEM 1A. RISK FACTORS
Other than the risk factors relating to the coronavirus disease 2019 disclosed in Item 1A. “Risk Factors” of our quarterly report on Form 10-Q for the quarter ended March 31, 2020, there have been no material changes to the risk factors disclosed in Item 1A. “Risk Factors” of our most recent annual report on Form 10-K. The materialization of any risks and uncertainties identified in our Special Note Regarding Forward-Looking Statements contained in this report together with those previously disclosed in our most recent annual report on Form 10-K or those that are presently unforeseen could result in significant adverse effects on our financial condition, results of operations and cash flows. See Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations – Special Note Regarding Forward-Looking Statements” in this quarterly report or our most recent annual report on Form 10-K.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 3, 2019 we announced that our Board of Directors authorized the repurchase of up to $1.5 billion of our outstanding common shares through December 31, 2020. The following table sets forth information with respect to this share repurchase program for the quarter ended September 30, 2020. All common shares were purchased in open-market transactions.
Total Number of Shares Purchased
Average Price Paid Per Share (1)
The total number of shares purchased as part of publicly announced repurchase plans or programs
Maximum Dollar Value of Shares That May Yet Be Purchased Under The Plan (1)
(dollars in thousands)
July 1, 2020 - July 31, 20204,825,000 $6.50 4,825,000 $1,102,158 
Total4,825,000 4,825,000 
(1)    Excludes commission costs.

ITEM 5. OTHER INFORMATION

None.


ITEM 6. EXHIBITS
Exhibits:

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

93


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

Exhibit NumberExhibit Description
   
101.INS XBRLThe instance document does not appear in the interactive data file because its Extensible Business Reporting Language (XBRL) tags are embedded within the Inline XBRL document. The following documents are formatted in Inline XBRL: (i) Consolidated Statements of Financial Condition at September 30, 2020 (Unaudited) and December 31, 2019 (Derived from the audited Consolidated Statement of Financial Condition at December 31, 2019); (ii) Consolidated Statements of Comprehensive Income (Loss) (Unaudited) for the three and nine months ended September 30, 2020 and 2019; (iii) Consolidated Statements of Stockholders’ Equity (Unaudited) for the three and nine months ended September 30, 2020 and 2019; (iv) Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September 30, 2020 and 2019; and (v) Notes to Consolidated Financial Statements (Unaudited).
101.SCH XBRLTaxonomy Extension Schema Document †
101.CAL XBRLTaxonomy Extension Calculation Linkbase Document †
101.DEF XBRLAdditional Taxonomy Extension Definition Linkbase Document Created †
101.LAB XBRLTaxonomy Extension Label Linkbase Document †
101.PRE XBRLTaxonomy Extension Presentation Linkbase Document †
104The cover page for the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 (formatted in Inline XBRL and contained in Exhibit 101).

† Submitted electronically herewith.
94


ANNALY CAPITAL MANAGEMENT, INC. AND SUBSIDIARIES

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the city of New York, State of New York.
 
  ANNALY CAPITAL MANAGEMENT, INC.
   
Dated:November 5, 2020
By: /s/ David L. Finkelstein
  David L. Finkelstein
  Chief Executive Officer and Chief Investment Officer (Principal Executive Officer)
   
Dated:  November 5, 2020
By: /s/ Serena Wolfe
  Serena Wolfe
  Chief Financial Officer (Principal Financial Officer)



II-1